Stapf v. United States

• Decision Date: 08 August 1960
• Docket Number: Civ. A. No. 2734.
• Citation: 189 F. Supp. 830
• Parties: Dorothy Ann STAPF et al. v. UNITED STATES of America.
• Court: U.S. District Court — Northern District of Texas

189 F. Supp. 830

Dorothy Ann STAPF et al. v. UNITED STATES of America.

Civ. A. No. 2734.

United States District Court N. D. Texas, Amarillo Division.

August 8, 1960.

Underwood, Wilson, Sutton, Heare & Berry, Amarillo, Tex., for plaintiffs.

Charles K. Rice, Asst. Atty. Gen., W. B. West, III, U. S. Atty., Fort Worth, Tex., for defendant.

DOOLEY, District Judge.

Statement.

Lowell H. Stapf, being a resident for many years in Texas, died testate on July 29, 1953, and his will was thereafter duly probated in Potter County, Texas. The executrix and executor (simply executors herein), named in said will, duly qualified and timely filed an Estate Tax Return and paid the federal tax on the estate as computed in such return. Some months later the executors were notified by the District Director of Internal Revenue that a deficiency had been assessed and was claimed, materially increasing the tax against said estate. The alleged deficiency resulted principally from increasing the reported value of real estate and business property, reducing by half the full deductions taken for community debts, apportioning administrative expenses and attorneys' fees, which had been taken as a full amount deduction, and the denial of a marital deduction claimed in the return. These points of contention will be taken up separately and more in detail later herein.

The executors paid the amount of the deficiency assessed, plus interest, and have brought this suit to recover the amount of alleged overpayment in the amount demanded and collected by the District Director of Internal Revenue over the lawful tax liability of the estate.

This case will be determined under the Internal Revenue Code of 1939, as amended.

The Decedent's Will.

The most pertinent parts of the decedent's last will and testament will be dealt with in numbered sequence and are quoted or stated, as follows:

I.

"My estate consists of both separate and community property. It is my purpose, in making testamentary disposition of my estate, to dispose of my separate estate and to dispose of the entire community estate as though it were my separate property, and my wife is requested to take under this will and waive her right to one-half of the community property. In the event she does not elect to take under this will, then my interest in the community estate and my separate property shall be held by the trustees hereinafter appointed for the benefit of my children, other than Lowell H. Stapf, Jr., share and share alike, and my wife shall not receive any part of my interest in the community property or any interest in my separate property."

III.

This section provides a pecuniary legacy and a bequest of certain machinist tools to the decedent's son, Lowell H. Stapf, Jr.

IV.

"I give, devise and bequeath to my beloved wife, Dorothy Ann Stapf, our personal automobile and one-third ( 1/3 ) of all the residue of my estate remaining after the bequest to Lowell H. Stapf, Jr., above set forth, and the bequest to her of our personal automobile."

V, VI and VII.

These sections devise and bequeath the residue of the decedent's estate to the executors in the capacity of trustees for the use and benefit of Lee Dale Stapf, Donald Eric Stapf and Sylvia Rose Stapf, children of the decedent and his widow, to be managed as three separate but equal trust estates, and give directions, confer powers and detail the duties of the trustees.

IX.

This section appoints Dorothy Ann Stapf and B. T. Ware II independent executrix and executor of the will and estate of the decedent, they having been appointed trustees also as just stated.

XII.

In this section the decedent directed his executors "to pay all and not merely one-half of the following debts and charges out of my one-half part and share of our community property and estate, to-wit: All funeral expenses; all costs of administration incurred in connection with the administration of my estate, or as the result of my death, including, but not limited to, costs of court, attorneys' and accountants' fees; all debts owing by me, whether community or separate, all federal estate taxes attributable to my estate, and all state inheritance taxes attributable to the bequests and devises herein contained in Sections III and IV."

The quoted provision next above is immediately followed by terms which forbid recourse to the testator's separate property for payment of the items enumerated above "unless and until my one-half share and part of all community property has been exhausted," and which also forbid recourse to his widow's part of the community property and estate for the payment of any such items "until and unless my one-half share and part of our community property has been first exhausted and then my separate property has been next exhausted, except as hereinafter provided in the event my wife, Dorothy Ann Stapf, elects not to take under this will." The next and last provision in said section of the will is that all of the property devised and bequeathed in Sections III and IV of the will shall be taken free of liability on the items presently named, "provided, however, that in the event my wife, Dorothy Ann Stapf, does not elect to take under this will then one-half of all debts of my estate, funeral expenses and costs of administration shall be charged to the one-half share and portion of the community estate of my marriage with Dorothy Ann Stapf vested in the said Dorothy Ann Stapf in accordance with the laws of the State of Texas."

The widow elected to take under the said will.

The Issues.

Life Insurance

The decedent, as insured, held three life insurance policies at the time of his death, all issued before the marriage of decedent and his surviving widow on December 22, 1945, each of the three for a face amount of $5,000, and at the time of his death the first was payable to his said widow, and each of the other two were payable to the widow and two of his children.

The premiums on the first policy were paid in the proportion of 16/20ths from his separate property before his said marriage and 4/20ths from the community property after his said marriage. The premiums on the second of such policies were paid in the proportion of 11/18ths from his separate property before his said marriage and 7/18ths from community property after his said marriage. The premiums on the third policy were paid in the proportion of 4/11ths from his separate property before his said marriage and 7/11ths from the community property after his said marriage. In the Estate Tax Return the three policies were inventoried, but only on the basis of $2,500 for each policy and the stated reason was that the premiums thereon were paid from community funds of the decedent, but the examining officer of the Internal Revenue Service changed the amount to $5,000 for each policy, and the stated reason was that the policies were acquired prior to the marriage of decedent and his surviving spouse, therefore, the total amount was deemed includible in decedent's gross estate. Neither action was correct and, instead, the proper course is to allocate to the estate that part of the total insurance monies measured by the same proportion as the sum of the premiums paid from the decedent's separate estate, plus one-half of the premiums paid from the community estate bear to the total amount of all premiums paid.¹

Community Debts and Administration Expenses

The Estate Tax Return reported community debts in the aggregate of $32,367.52. This was scaled down a half by the examiner and the reason stated was that one-half of such community indebtedness should be chargeable to the community estate share owned by the surviving spouse. The plaintiffs' rejoinder is that the decedent's will, by a lawful provision, directed that all such indebtedness should be paid from the decedent's community property share, or, if necessary, from his separate estate. This poses a rather novel question. Article 4620, Vernon's Annotated Texas Civil Statutes states that the community property of husband and wife "shall be liable for their debts contracted during marriage." This point is also echoed at more length in the authoritative decisions of the Supreme Court of Texas.² Section 812(b), Internal Revenue Code of 1939, 26 U.S.C.A. § 812(b), permits the deduction of such claims against the estate "as are allowed by the laws of the jurisdiction * * * under which the estate is being administered." This statutory provision is subject to the further explanation in Treasury Regulations 105, § 81.36, as quoted in the margin.³

The argument of plaintiffs that the direction in the decedent's will, purporting to shift the ordinary burden for half of the community debts from the widow's equal part of the community interest and concentrating all the indebtedness against the decedent's half of the community estate, sanctions the augmented debt liability in this case as a full legitimate deduction under the estate tax law is not a plausible stride. It will not do to say that a testator, at his own pleasure, may double the deductions by such a voluntary assumption as a testamentary device. For one thing, such a proposition would be in derogation of the federal statute and regulations which require that deductible debts must be personal obligations of the decedent at the time of his death. "If there be sufficient community property in the estate to discharge the obligations here in issue, then no more than one-half can be termed personal obligations of the decedent."⁴

The reference in the federal statute, previously quoted, to "the laws of the jurisdiction", by fair intendment, means the statutory system for the administration of estates or for the levy of estate or inheritance taxes in the particular state. Of course, decisional law dealing with such statutes from a tax relevant standpoint would be a ruling factor too. There is no claim made here that there is any provision in the Probate Code or the...