American National Bank & Trust Co. v. United States

• Decision Date: 12 April 1967
• Docket Number: Civ. A. No. 4381.
• Citation: 266 F. Supp. 1008
• Parties: AMERICAN NATIONAL BANK & TRUST CO. and Marion Munson (Powers), Executors of the Estate of William Donald Munson v. UNITED STATES of America.
• Court: U.S. District Court — Eastern District of Tennessee

266 F. Supp. 1008

AMERICAN NATIONAL BANK & TRUST CO. and Marion Munson (Powers), Executors of the Estate of William Donald Munson v. UNITED STATES of America.

Civ. A. No. 4381.

United States District Court E. D. Tennessee, S. D.

April 12, 1967.

Charles L. Claunch, Chattanooga, Tenn., for plaintiffs.

J. H. Reddy, Chattanooga, Tenn., Russell L. Davis, Department of Justice, Washington, D. C., for defendant.

OPINION

FRANK W. WILSON, District Judge.

This is an action for the recovery of estate tax paid. The parties have submitted the case to the Court upon stipulated facts. The sole issue for determination by the Court is whether or not the widow's interest in lieu of dower, awarded by the Probate Court in the amount of $31,179.33, qualifies for the marital deduction under the provisions of 26 U.S.C. § 2056. The facts stipulated by the parties and established by the stipulated exhibits are set out below.

William Donald Munson, a resident of Hamilton County, Tennessee, died testate on March 11, 1960, and his will was admitted to probate. On October 17, 1960, the plaintiff, Marion Volkhardt Munson (now Powers), the surviving widow of William Donald Munson, dissented from the will (Exhibit 1). She subsequently petitioned the Chancellor for assignment of dower out of the real property of which the decedent was seized at the time of his death (Exhibit 2). Commissioners appointed by the Chancellor (Exhibit 3) to allot and set apart the dower interest reported that it was impossible to set aside dower in kind because of the size and value of the tracts involved, and recommended that the tracts be sold and that dower be allocated to the widow out of the proceeds (Exhibit 4). The report was confirmed and a public sale ordered (Exhibits 5 and 6), sales were made and approved and dower was ordered calculated and paid unto the widow (Exhibits 7, 8 and 9). The interest in lieu of dower amounted to $31,179.33.

On September 11, 1961, the plaintiffs, as executor and executrix, respectively, of the estate of William Donald Munson, filed a United States Estate Tax Return, and in conformity therewith paid federal estate tax on behalf of the estate in the amount of $46,093.44 plus interest in the amount of $691.40, a total of $46,784.84. The return was subsequently audited by the Internal Revenue Service, which determined and assessed against the estate a deficiency of $21,583.09, plus interest in the amount of $1,876.27, a total of $23,499.36, which plaintiffs paid to the Internal Revenue Service upon November 29, 1962. Thereafter, on October 23, 1962, plaintiffs duly filed claims for refund in the amount of $23,794.17 with the District Director of Internal Revenue in Nashville, Tennessee. The claim was considered by the Commissioner of Internal Revenue on its merits and was disallowed in full on April 17, 1964. The pleadings in the case had raised issues as to the value of certain stock of Southern Chemical Cotton Company subject to estate tax, and as to the taxability of the year's support awarded by the Probate Court to the widow pursuant to Tennessee statute. However, the parties have disposed of those issues by stipulation and the only issue remaining for decision is that set out in the first paragraph of this opinion relating to the widow's interest in lieu of dower.

Provision for the marital deduction is found in Section 2056 of Title 26, United States Code, the pertinent parts of which are here set out:

"(a) Allowance of marital deduction. —For purposes of the tax imposed by section 2001, the value of the taxable estate shall, except as limited by subsections (b), (c), and (d), be determined by deducting from the value of the gross estate an amount equal to the value of any interest in property which passes or has passed from the decedent to his surviving spouse, but only to the extent that such interest is included in determining the value of the gross estate.

"(b) Limitation in the case of life estate or other terminable interest.—(1) General rule.—Where, on the lapse of time, on the occurrence of an event or contingency, or on the failure of an event or contingency to occur, an interest passing to the surviving spouse will terminate or fail, no deduction shall be allowed under this section with respect to such interest—

"(A) if an interest in such property passes or has passed (for less than an adequate and full consideration in money or money's worth) from the decedent to any person other than such surviving spouse (or the estate of such spouse); and

"(B) if by reason of such passing such person (or his heirs or assigns) may possess or enjoy any part of such property after such termination or failure of the interest so passing to the surviving spouse;

* * * * * *

"(e) Definition.—For purposes of this section, an interest in property shall be considered as passing from the decedent to any person if and only if—

* * * * * *

"(3) such interest is the dower or curtesy interest (or statutory interest in lieu thereof) of such person as surviving spouse of the decedent;"

The Government advances two contentions: (1) that the property in question did not "pass" to the surviving widow within the meaning of subsection (a) of Section 2056 as defined in subsection (e) thereof, and (2) that the property in question constituted a "terminable interest" within the limitation embodied in subsection (b) of Section 2056.

The first contention of the Government is that since the widow's interest in lieu of dower was fixed by the Chancery Court under its inherent jurisdiction, and not by reason of any statutory provision, the interest in lieu of dower thus established was not included within the definition of interests that "pass" as set forth in 26 U.S.C. § 2056(e) (3), supra. Apparently the Government would concede that a "dower interest" would be deemed to have "passed" from decedent to widow within the meaning of Section 2056, and this is clear from the plain words of the statute. Likewise the Government concedes that a "statutory interest in lieu of dower" would be deemed to have "passed". However, the Government then argues that "nonstatutory interests in lieu of dower" are not deemed to have "passed" within the meaning of Section 2056. The Government cites no case law in support of its theory in this regard.

The Court is of the opinion that, whether there is, or is not, in Tennessee statutory authority for the award of compensation in lieu of dower (and the Court does not here decide this issue), nevertheless the Government's argument is met by reference to that part of the legislative history of the Internal Revenue Code of 1948 dealing with Section 812, the predecessor of the present Section 2056, which history is contained in Senate Report No. 1013, dated March 16, 1948, U. S. Code Congressional Service, 80th Congress, Vol. 2, p. 1163, at p. 1224:

"The concept of the passing of an interest in property from the decedent as used in Section 812(e) is expressed in the definition in paragraph (3) of Section 812(e). Such paragraph (3) defines as so passing, interests which company would be considered as passing from the decedent, namely, interests bequeathed, devised, or transferred by the decedent or inherited from the decedent, or the dower or curtesy interest (or statutory interest in lieu thereof) of the decedent's surviving spouse. * * *

"The definition of an interest passing from the decedent is broad enough to cover all the interest included in determining the value of the decedent's gross estate under the various subsections of section 811 of the code * * and * * * may cover interests other than those included in determining the value of the decedent's gross estate."

Section 812(e) (3) (C) of the Internal Revenue Code of 1939 and Section 2056 (e) (3) are identical. Thus, it would appear that an interest which is includable in the gross estate has "passed" within the meaning of the section relating to marital deduction. The Court is of the opinion that the definition contained in the code is broad enough to cover the interest with which we are here concerned.

A more difficult question is whether the interest is a terminable one within the limitation expressed in Section 2056 (b). If so, then it does not qualify for the marital deduction. The cases have consistently held that the widow's compensation in lieu of dower is not a terminable interest and is within the scope of the marital deduction. See United States v. Crosby (C.A.5, 1958), 257 F.2d 515; United States v. Hiles (C.A.5, 1958), 318 F.2d 56; Dougherty v. United States (C.A.6, 1961), 292 F.2d 331; First National Exchange Bank of Roanoke v. United States (C.A.4, 1964), 335 F.2d 91; Moore v. United States (D.C.Ky., 1963), 214 F.Supp. 603; Wachovia Bank and Trust Co. v. United States (D.C.N.C., 1964), 234 F.Supp. 897.

The reasoning of these cases is well expressed in the opinion of Judge Jones in United States v. Hiles, supra:

"The question we must decide has been thus stated:

"`If the surviving spouse elects to take the cash value of common-law dower (a non-deductible interest) the answer to the problem of whether the cash she receives qualifies for the marital deduction seems to depend upon whether, under local law, the cash passed to the surviving spouse from the decedent, because she had an election to take cash or dower, or the dower passed to her from the decedent and she subsequently converted it into cash.' Lowndes and Kramer, Federal Estate and Gift Taxes, 2nd ed. 382."

After reviewing the authorities, the Court went on to hold:

"Upon the death of a husband his widow, under the Alabama law, has a right of dower which is not a property right but is only a chose in action or an equity; and that dower does not become a property interest until there has been an assignment * * * The conventional assignment is by an admeasurement by metes and bounds of lands in which the widow has a life estate. There is also an assignment where an equity court decrees

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