243 F.2d 675 (3rd Cir. 1957), 12026, United States v. Bess

Docket Nº:12026.
Citation:243 F.2d 675
Party Name:UNITED STATES of America v. Molly G. BESS, Appellant.
Case Date:March 28, 1957
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit

Page 675

243 F.2d 675 (3rd Cir. 1957)



Molly G. BESS, Appellant.

No. 12026.

United States Court of Appeals, Third Circuit.

March 28, 1957

Argued Dec. 4, 1956.

Rehearing Denied May 20, 1957.

Morris J. Oppenhelm, Asbury, Park, N.J. (Daniel Oppenhelm, Newark, N.J., on the brief), for appellant.

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Kenneth E. Levin, Atty., Dept. of Justice, Washington, D.C. (Charles K. Rice, Asst. Atty. Gen., Lee A. Jackson, A. F. Prescott, Attys., Dept. of Justice, Washington, D.C., Herman Scott, U.S. Atty., Newark, N.J., on the brief), for appellee.

Before BIGGS, Chief Judge KALODNER, Circuit Judge, and KRAFT, District judge.

BIGGS, Chief Judge.

The court below gave judgment in favor of the United States against the defendant, Molly G. Bess, widow of Herman Bess, on the theory that under Section 311 of the 1939 Code, 26 U.S.C.A. (I.R.C.1939) § 311, the defendant was a transferee of property of a taxpayer, her husband, who owed the government delinquent income taxes.

The facts are not in dispute. The defendant's husband died on June 29, 1950. At the time of his death there were in force eight insurance policies on his life. Seven of the policies were issued during 1934, 1935, 1936, and 1937. The eighth, a group insurance policy with no cash value, was issued June 19, 1950. Herman Bess had the right to change the beneficiary of the policies and also had the right to borrow upon the security of the cash surrender value of the seven policies described first herein. The defendant was named as beneficiary when the policies were issued to Herman Bess, and, except for temporary changes with respect to two policies, 1 the defendant remained the beneficiary. The government and the defendant have assumed, without dispute, that Herman Bess was solvent when the policies were issued, and have stipulated that he was solvent when the premiums were paid. The total cash surrender or loan value of all the policies was $3, 362.53 at the time of Bess's death. The defendant received $63, 576.95 as the total proceeds of the eight policies.

On July 17, 1952, more than two years after his death, the estate of Herman Bess was adjudged insolvent. Part payment has been made on the claims of the United States for income taxes owed by Herman Bess, but a balance of $8, 874.57 remains unpaid. The United States instituted suit against the defendant for that amount plus interest from the date of assessment and was awarded judgment in the sum of $11, 657.30. D.C.D.N.J.1955, 134 F.Supp. 467. Mrs. Bess has appealed.

The statute on which the alleged liability of the defendant is bottomed is Section 311 of the 3939 Internal Revenue Code, 26 U.S.C.A. (I.R.C.1939) § 311, set out in the margin. 2 It is the universal view that the statute created no new substantive rights and liabilities and that the only liabilities to be enforced thereunder are those existing in law or in equity when the enforcement proceeding is begun. Pearlman v. Commissioner, 3 Cir., 1946, 153 F.2d 560, 561-562,

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and Rowen v. Commissioner, 2 Cir., 1954, 215 F.2d 641, 643. Herman Bess was domiciled in New Jersey up to his death. His widow's domicil remains there. In Pearlman v. Commissioner, supra, 153 F.2d at page 562, we stated that 'On principle the question (as to the existence or non-existence of liability on the part of the widow) seems to us clearly to be one to be answered without reference to state law limitations.' We also said, since we had before us a husband domiciled in Pennsylvania until his death with his wife's domicil remaining there, that 'Whether the reliance is placed on general law as declared by federal courts, or on Pennsylvania law, we think the conclusion of the Tax Court must stand.' We may perhaps remark here, without cynicism, that a declaration or principle is not necessarily a declaration of law, but we went on to say that we preferred to rest the decision on the wider ground that since there was a federal tax question to be decided it should be decided on general law as laid down by the Federal courts and not be subject to the limitation in the law of any State. We adhere to our former ruling but since this case may reach the reviewing Court, other Courts of Appeals having reached the contrary conclusion, Rowen v. Commissioner, supra, and the authorities cited therein, 215 F.2d at pages 648-649, we have set out what we believe to be the status of Mrs. Bess under the law of New Jersey, were that law applicable, in footnote 3 below. 3 Cf. Poe v. Seaborn, 1930, 282 U.S. 101, 51 S.Ct. 58, 75 L.Ed. 239, and United States v. Scott, 8 Cir., 1948, 167 F.2d 301.

As to the general law as declared by the Federal courts the decision of the Supreme Court in Central Nat. Bank of Washington v. Hume, 1888, 128 U.S. 195, 9 S.Ct. 41, 32 L.Ed. 370, is illustrative of features of it. The decision holds, inter alia, that it is the general rule that a policy and the money to become due under it, belong, the moment the policy is issued to the person named in it as the beneficiary. The policies of insurance in the Hume case quite possibly did not provide that the insured could change the beneficiary but this feature, as we have indicated, is irrelevant here. Hume was admittedly insolvent at the time that the insurance was effected and it was argued that the policies were within the provisions of 13 Elizabeth, c. 5. The Supreme Court was...

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