Central Hanover B. & T. Co. v. Commissioner of Int. Rev.
| Decision Date | 29 January 1947 |
| Docket Number | No. 120,Docket 20299.,120 |
| Citation | 159 F.2d 167 |
| Parties | CENTRAL HANOVER BANK & TRUST CO. v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Second Circuit |
Denis B. Maduro, of New York City, for petitioner.
Sewall Key, Acting Asst. Atty. Gen., and Robert N. Anderson, Muriel S. Paul, Sp. Assts. to the Atty. Gen., for respondent.
Before L. HAND, SWAN, and CLARK, Circuit Judges.
The issue raised by this appeal is of the proper deduction from the gross estate of a deceased wife for property which she "received" by "bequest" from her husband who died less than five years before, and whose estate had paid an estate tax.1 The facts were stipulated and are as follows. The husband died on April 11, 1937, leaving his wife as executrix and sole legatee; she died on March 5, 1941. She exercised the privilege granted her as executrix to suspend for a year the appraisal of his estate,2 which was finally appraised at $3,421,672.81. Deductions amounting to $411,039.93 were allowed to fix the net estate; but there were other charges, for the most part taxes, which were not deductible, amounting to $965,231.64. The net value of all the assets coming to the wife was therefore $2,045,401.46. The administration of the estate being suspended, on October 21, 1937, the Probate Court on the wife's application directed her to distribute "to herself as sole legatee" personal property — shares of stock — which had an appraised value of $2,931,766.03; and in 1938 she distributed to herself the other personal property of the estate, appraised at $44,266.09. At the time of these distributions the husband's estate was still indebted in one way or another in the amount of $1,080,961.77, which the wife paid before she died. Certain of the assets so "received" by her have been identified as part of her estate: (1.) securities of the value of $2,341,421.90 (the appraised value for the husband's estate); (2.) the proceeds of life insurance policies amounting to $135,119.72; (3.) real estate of the value of $1090.
The wife's executor claimed a deduction of $2,477,631.62 for property taxed within five years, that being the sum of the three items just mentioned; but this the Commissioner cut down to $1,627,174.47 and assessed a deficiency accordingly. He allowed in full the proceeds of the insurance policies, and the value of the real estate, and the remaining item ($1,490,964.70) he arrived at in the following way. The value of all the shares of stock distributed to the wife was $2,931,766.60 and the debts then unpaid were $1,080,961.77, as we have already said: the proportion of the debts to these assets was therefore roughly 36 13%. The Commissioner spread the debts equally over all the assets "distributed," and thought that the wife "received" by "bequest" only 63 1/3% of each asset of distributed property. Since only $2,341,421,90 of the shares bequeathed were identified in her estate he allowed her only 63 1/3 of that sum. (Why he did not include in his computation $44,266.90 "distributed" in 1938 does not appear; but the difference is trifling and we will ignore it.) The question is whether by "identity" the statute means the physical identity of the asset, or the identity of the legatee's financial interest in it. The Tax Court held that the debts were in effect liens or charges upon all the husband's assets, to be ratably allocated; and that he bequeathed and could bequeath to his wife only an interest in each asset measured by its value less its proportion of the debts as a whole. If the debts were progressively paid, the interest of the wife in each of the remaining assets increased; therefore, when she "received" the shares of stock on October 21, 1937, the only interest "bequeathed" to her was that proportion of their value which was free of the debts then still unpaid; and when she paid the debts, she acquired a new interest by transfer.
It seems to us that this is the proper interpretation of the section. It is of no consequence whether the debts were liens in...
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