Estate of Smallwood v. Comm'r of Internal Revenue

• Decision Date: 01 November 1948
• Docket Number: Docket No. 13564.
• Citation: 11 T.C. 740
• Parties: ESTATE OF ALBERT DECAEN SMALLWOOD, THOMAS H. SMALLWOOD, WILLIAM P. SMALLWOOD, and EDWARD A. SMALLWOOD, EXECUTORS, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

11 T.C. 740

ESTATE OF ALBERT DECAEN SMALLWOOD, THOMAS H. SMALLWOOD, WILLIAM P. SMALLWOOD, and EDWARD A. SMALLWOOD, EXECUTORS, PETITIONERS,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 13564.

Tax Court of the United States.

Promulgated November 1, 1948.

ESTATE TAX— CITIZEN OF THE UNITED STATES AND PUERTO RICO— SECTION 802, I.R.C.— The petitioner, who was born a citizen of the United States and never lost his United States citizenship, but who subsequently also acquired Puerto Rican citizenship, held, not a citizen of the United States within the meaning of section 801, I.R.C., for Federal estate tax purposes. Nelson Gammans, Esq., for the petitioners.

Ellyne E. Strickland, Esq., for the respondent.

The Commissioner determined a deficiency of $133,038.26 in estate tax. The only question for decision is whether the petitioner was a citizen of the United States within the meaning of section 802 of the Internal Revenue Code for Federal estate tax purposes.

The Government of Puerto Rico has filed a brief amicus curiae.

FINDINGS OF FACT.

The decedent died on July 21, 1944. The estate tax return was filed with the collector of internal revenue for the second district of New York.

The decedent was born a citizen of the United States in St. Louis, Missouri, in 1889. He never lost his United States citizenship. He was domiciled in and a citizen of Puerto Rico at the time of his death and for many years prior thereto. He had been engaged in business in Puerto Rico for a number of years prior to his death.

The following explanation of the action of the Commissioner is taken from the statement attached to the notice of deficiency:

It has been determined that the decedent was a citizen of the United States within the meaning of section 802 of the Internal Revenue Code and, therefore, there has been included in his gross estate the value of all the property, real or personal, tangible or intangible, wherever situated, except real property situated outside of the United States.

OPINION.

MURDOCK, Judge:

The only argument advanced by the respondent is: Section 802 provides that Part II of the estate tax provisions applies to the estates of all citizens of the United States, the decedent was a citizen of the United States, therefore his estate is subject to the tax.¹ That argument standing alone, seems irresistible. However, this approach oversimplifies the problem before the Court because the respondent thereby ignores and fails to answer the argument of the petitioner. The latter concedes that the decedent was at all times a citizen of the United States and Congress had the power to tax, and his estate would be fully taxable under section 802, if Congress had intended that provision to apply to citizens of the United States who are also citizens of Puerto Rico. The petitioner argues, however, that no such intent is shown or exists, in view of the fact that general internal revenue laws are expressly excepted from those applicable to Puerto Rico and that Congress has consistently maintained a benevolent policy in regard to Puerto Rico which it would not change by a general provision of an internal revenue law containing no specific reference to Puerto Rico.

Government counsel at the hearing asked and was granted permission to file a brief as a reply after the petitioner had filed its brief and after a brief amicus curiae had been filed on behalf of the Government of Puerto Rico. But instead of answering the arguments contained in the two briefs just mentioned, the respondent states in his brief: ‘It would serve no good purpose to discuss herein the numerous points which have been raised in the elaborate brief filed on behalf of the petitioners. The issue presented is not a complicated one and does not demand an interpretation of the various statutes enacted by the Congress of the United States in connection with the government of the island of Puerto Rico.‘ This is almost an admission that he has no answer to the petitioner's argument.

The petitioner's brief contains the rather elaborate historical background necessary to arrive at an adequate understanding of the argument contained therein. Only parts of it will be mentioned. Sovereignty over Puerto Rico was transferred from Spain to the United States in 1899 by the Treaty of Paris. Thereafter Congress adopted and has consistently maintained a benevolent policy of solicitude for the welfare and development of Puerto Rico and its inhabitants, including a high degree of local autonomy. The self-government which it delegated was subject to ultimate controls by Congress which have been relaxed from time to time but have never been extended. Congress has obviously endeavored to advance the political, social, and economic status of Puerto Rico for some ultimate status not yet determined. It has never used Puerto Rico as a source of revenue for Federal uses elsewhere. The causes of the American Revolution would explain that attitude. The form of self-government and the general policy of Congress towards Puerto Rico is shown by the Foraker Act, 31 Stat. 77, also known as the Organic Act of 1900, and the Jones Act of March 2, 1917, known as the Second Organic Act, 39 Stat. 951. It was provided in those acts, and also in a subsequent act, that statutory laws of the United States not locally inapplicable shall apply to Puerto Rico except ‘the internal revenue laws.‘

The petitioner concedes that Congress not only can change, but actually has made some changes in, its policy towards Puerto Rico by making some internal revenue laws expressly applicable thereto. However, it points out that when Congress has intended any internal revenue law to apply to Puerto Rico it has always done two things: First, it has expressly stated in the law that it applies to Puerto Rico or that it applies to ‘possessions,‘ and, second, it has expressly provided in the law that revenues collected thereunder from Puerto Rico shall be covered into the Treasury of Puerto Rico rather than into the Treasury of the United States, citing numerous examples. The provisions of the Internal Revenue Code imposing the estate tax in question are internal revenue laws (Buscaglia v. Ballester, 162 Fed.(2d) 805; certiorari denied, 332 U.S. 816), but its provisions are general and it contains no specific statement that it applies to Puerto Rico or that revenues collected thereunder from Puerto Rican citizens based upon property situated in Puerto Rico are to be used exclusively for the benefit of Puerto Rico and its inhabitants.

The citizens of Puerto Rico were made citizens of the United States by the Jones Act of March 2, 1917, supra. The decedent happened to be first a citizen of the United States and later...