Jacobs v. Commissioner of Internal Revenue

• Citation: 34 F.2d 233
• Decision Date: 30 September 1929
• Docket Number: No. 8249.,8249.
• Parties: JACOBS et al. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

34 F.2d 233 (1929)

JACOBS et al. v. COMMISSIONER OF INTERNAL REVENUE.

No. 8249.

Circuit Court of Appeals, Eighth Circuit.

July 23, 1929.

Rehearing Denied September 30, 1929.

David Goldsmith, of St. Louis, Mo., for appellants.

John Vaughan Groner, Sp. Asst. to Atty. Gen. (Mabel Walker Willebrandt, Asst. Atty. Gen., Sewall Key, Sp. Asst. to Atty. Gen., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Donald V. Hunter, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for appellee.

Before KENYON, Circuit Judge, and JOHNSON and McDERMOTT, District Judges.

JOHNSON, District Judge.

Morris Eisenstadt, now deceased, in his lifetime entered into an antenuptial contract with his widow, Marie Eisenstadt, then Marie Johnston, by which it was agreed that, if she survived him, she should be paid out of his estate the sum of $75,000, and that said sum should be in lieu of all her rights of dower and other marital rights. He died on July 27, 1923. His will contained a provision that his widow, at her election, in lieu of the $75,000 stipulated in the antenuptial contract to be paid her from his estate upon his death, should be paid during her natural life the net income from $250,000 of his estate, to be placed in trust for such purpose. The widow on September 17, 1924, notified the executors of the estate that she elected to accept the provision of the will in her favor in lieu of the $75,000 stipulated in the antenuptial contract. On September 24, 1924, the executors made return of the federal estate tax due from the estate, and in their return deducted this $75,000 from the value of the gross estate in determining the value of the net estate upon which to calculate the tax. The Commissioner of Internal Revenue disallowed the deduction, and was sustained by the Board of Tax Appeals. 9 B. T. A. 636. The matter is now before this court upon the petition of the executors for a review of the decision of the Board of Tax Appeals.

The statute involved is section 403 of the Revenue Act of 1921, 42 Stat. p. 279, c. 136, which so far as material reads:

"That for the purpose of the tax the value of the net estate shall be determined — (a) in the case of a resident, by deducting from the value of the gross estate — (1) such amounts for funeral expenses, administration expenses, claims against the estate, unpaid mortgages upon, or any indebtedness in respect to, property," etc.

The contentions of the respective parties are: On behalf of the estate:

(1) That the antenuptial agreement was a valid and subsisting contract and gave the widow the right to demand and receive the $75,000 stipulated therein from the estate of her husband. The following cases are cited in the brief in support of this contention: Vogel v. Vogel's Adm'r, 22 Mo. 161; Matter of Baker, 83 App. Div. 530, 82 N. Y. S. 390, affirmed 178 N. Y. 575, 70 N. E. 1094; In Matter of Vanderbilt, 184 App. Div. 661, 172 N. Y. S. 511, affirmed 226 N. Y. 638, 123 N. E. 893; Hill v. Treasurer and Receiver General, 227 Mass. 331, 116 N. E. 509.

This contention of the executors of the estate is conceded by the government. Its brief contains this statement:

"It seems to be the settled law of the state of Missouri, as it is generally, that an antenuptial contract, for the payment of money or property in consideration for the release by a wife of her dower and other rights growing out of her marital status is a valid contract which may be enforced against the estate of the deceased husband. Vogel v. Vogel's Adm'r, 22 Mo. 161. However, that proposition, so much relied upon by petitioners, is not determinative of this case."

In the brief of the executors the above proposition is modified, and, as modified, is made the minor premise of counsel's argument; the statute as construed by counsel being the major premise. The argument as stated in the brief is:

"Since the claim of Mrs. Eisenstadt under the antenuptial contract was a subsisting and enforceable claim against the estate of her husband at the time of his death, its amount was deductible from his gross estate in the determination of the amount of his net estate. This follows from the express provisions of the federal statutes. Section 403 of the Revenue Act of 1921, which was in force at the time of the death of Mr. Eisenstadt, directs that `claims against the estate' shall be deducted from the gross estate in computing the amount of the net estate. This direction is absolute, and it applies to all claims against the estate, without any limitation whatsoever. The courts cannot supply a limitation by construction.

"By `claims against the estate' must have been intended claims existing at the time of death; for all of the provisions of the statute which enter into the determination of the amount of value of the taxable estate relate to that time. Indeed, the net value of the estate at any given time is the value at that time of all the property belonging to the estate, less the amount of the charges against the estate at that time. To fix the value of the property as of one time, and the amount of the charges as of another time, would not be the determination of the net value of the estate at either time; and section 402 of the Revenue Act of 1921 (42 Stat. 278) provides expressly `that the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated.'" (Italics ours.)

In support of this argument the following cases are cited: Young Men's Christian Association v. Davis, 264 U. S. 47, 44 S. Ct. 291, 68 L. Ed. 558; Edwards v. Slocum, 264 U. S. 61, 44 S. Ct. 293, 68 L. Ed. 564; Nichols v. Coolidge, 274 U. S. 531, 47 S. Ct. 710, 71 L. Ed. 1184, 52 A. L. R. 1081 — and commented upon.

The government states its contention in its brief in this language:

"The will of Morris Eisenstadt created an interest in lieu of the amount agreed to be paid by the antenuptial contract. This provision preserved the $75,000 as part of the estate, and gave the widow a life interest in a trust fund. Under those circumstances, a duty to elect arose, which, until exercised, left the status of the estate unsettled, and when exercised in favor of the bequest, canceled, as of the death of Morris Eisenstadt, the claim arising out of the antenuptial contract. The Congress was taxing net estates remaining after all valid claims were satisfied, and did not intend to authorize deductions, for estate tax purposes, of amounts not deductible in law or in fact."

This contention of the government is elaborated in the argument, and the following cases are cited in support of the proposition that, when the widow elected to accept the provision made for her in the will, her election "canceled, as of the death of Morris Eisenstadt, the claim arising out of the antenuptial contract," viz.: Wood v. Conqueror Trust Co. et al., 265 Mo. 511, 178 S. W. 201; Sparks v. Dorrell, 151 Mo. App. 173, 131 S. W. 761; Moseley v. Bogy, 272 Mo. 319, 198 S. W. 847.

An analysis of the respective arguments reveals that the contention in behalf of the estate is built upon the antenuptial contract, and the moment of the death of the deceased as the chief corner stones of the structure. The argument in behalf of the government, on the other hand, makes the election of the widow to take under the provision of the will the decisive fact in the case.

The fact that the matter for decision lies within narrow limits does not render its solution less difficult, and for the same reason that it is more difficult to cross a stream over a foot pole than over a bridge. The foot pole is so narrow that balancing is difficult, and the slightest misstep hazardous; the bridge so broad that one is not conscious of balancing, and a misstep usually of no moment. The principle or principles controlling in a narrow case are usually uncertain and elusive. In a case of broader scope, the threads leading toward a correct solution are usually numerous, and to be encountered at many points.

The contentions of the parties are irreconcilable, and neither satisfying. Their consideration has led to the conclusion that the case turns upon what Congress intended to include by the phrase "claims against the estate," found in the statute, rather than upon the antenuptial contract and the moment of the death of the deceased, put forward by the estate, or upon the election of the widow, put forward by the government.

The Supreme Court of the United States, in Nichols v. Coolidge, 274 U. S. 531, page 541, 47 S. Ct. 710, 713 (71 L. Ed. 1184, 52 A. L. R. 1081), has said: "Taxes are very real things and statutes imposing them are estimated by practical results." In New York Trust Co. v. Eisner, 256 U. S. 345, 41 S. Ct. 506, 507, 65 L. Ed. 963, 16 A. L. R. 660, Justice Holmes remarked that: "A page of history is worth a volume of logic."

Tax laws deal with actualities, and the rules prescribed by Congress are intended to produce practical results, when applied by untechnical men. We think actuality was the thought foremost in the mind of Congress when it put the phrase "claims against the estate" in this and other Revenue Acts. The claims which Congress intended to be deducted were actual claims, not theoretical ones. Indeed, a claim without a claimant is a sort of legal figment, which has the tendency to produce intellectual dizziness, comparable to that felt when gazing down into running water from an insecure footing. The widow never claimed anything from the estate under the antenuptial contract, and the gross estate was not decreased one single cent by reason of the $75,000 stipulated in the antenuptial contract. All the logic in the world cannot change these facts. If an executor or administrator leaves his statutory fees in the estate, can it be said that they should nevertheless be deducted in determining this tax? If a father or mother,...