Lang's Estate v. Commissioner of Internal Revenue

Decision Date27 June 1938
Docket NumberNo. 8459.,8459.
Citation97 F.2d 867
PartiesLANG'S ESTATE v. COMMISSIONER OF INTERNAL REVENUE. COMMISSIONER OF INTERNAL REVENUE v. LANG'S ESTATE.
CourtU.S. Court of Appeals — Ninth Circuit

H. B. Jones and Robert E. Bronson, both of Seattle, Wash., for petitioner.

Claude I. Parker, Ralph W. Smith, J. Everett Blum, Lloyd Rainey, Martin Gang, and Robert E. Kopp, all of Los Angeles, Cal., amici curiæ.

James W. Morris, Asst. Atty. Gen., and Sewall Key, Berryman Green, and Helen Carloss, Sp. Assts, to Atty. Gen., for respondent.

Before DENMAN, MATHEWS, and HEALY, Circuit Judges.

DENMAN, Circuit Judge.

The Estate of Julius C. Lang, deceased (a former resident of the State of Washington), and his executors petition to review a decision of the United States Board of Tax Appeals sustaining in several respects the Commissioner's determination of a deficiency in estate taxes. The Commissioner has taken a cross-petition from the Board's decision, complaining of its failure to sustain his determination of deficiency in full. Decedent died in December, 1929, and the tax liability is governed by the Revenue Act of 1926, particularly sections 302 and 303 thereof, 26 U.S.C.A. §§ 411, 412 notes.

The Taxpayers' Petition

Considering first the taxpayers' petition, four issues have been presented for our consideration, with which we will deal in the order raised.

First. The gross estate of the decedent consisted in part of proceeds of life insurance policies on his own life, some payable to his wife and some to his children. Their inclusion to the full amount (over $40,000 exemption) in the gross estate under section 302(g)1 was resisted by the taxpayers on the ground that one-half of the portion of the proceeds of policies on which the premiums were paid out of community funds of the decedent and his wife were property of the wife and not includable in the gross estate.

The Commissioner contended that the law of Washington determining the relative interests of the husband and wife, as members of the marital community, in the policies, had no relevancy to the claimed tax liability of the husband's estate. He cites the decision of this court to that effect as reported in Bank of America v. Com'r., 9 Cir., 90 F.2d 981, where, at page 983, this court held, in refusing to accept the taxpayer's claimed effect of the Washington community law in determining liability under section 302(g) that:

"There is nothing in the instant statute which says or implies that its operation is dependent upon local law. * * *

* * * * * *

"Therefore, whatever the local law may be, we believe it to be immaterial, and the Board's decision to be correct under Chase National Bank v. United States, supra. Petitioner says that case is distinguishable because there the insured paid all the premiums. See 278 U.S. 327, at page 333, 49 S.Ct. 126, at page 127, 73 L.Ed. 405, 63 A.L.R. 388. That is a distinction without a difference, for the fact is immaterial to our view."

There was a dissent and this court was faced with the situation where the decision of two judges of the circuit made a precedent for the remaining five. The three judges sitting in this review did not agree with the decision in the Bank of America Case. Since no more than three judges may sit in the Circuit Court of Appeals, there is no method of hearing or rehearing by a larger number.2 Hence, rather than overrule the holding of the Bank of America Case, it was decided to present a certificate to the Supreme Court disclosing the conflict between the two groups of judges and asking that it be resolved by that tribunal.

The Supreme Court responded by deciding that the Washington community law should be considered in determining the tax liability:

"Occasion for the certificate did not arise from doubts relating to the meaning of the community property laws of Washington, but from uncertainty concerning the application of the 1926 Revenue Act to an estate under administration in that State. The court was perplexed by Bank of America v. Commissioner of Internal Revenue, 9 Cir., 90 F.2d 981, 983, which affirmed that the operation of that Act is not dependent upon local law and `therefore, whatever the local law may be, we believe it to be immaterial.' This statement is not accurate and conflicts with what we have said. Poe v. Seaborn, 282 U.S. 101, 111, 112, 51 S. Ct. 58, 59, 75 L.Ed. 239; Blair v. Com'r, 300 U.S. 5, 9, 10, 57 S.Ct. 330, 331, 332, 81 L.Ed. 465." Lang v. Com'r, 58 S.Ct. 880, 882, 82 L.Ed. ___, May 16, 1938.

The certificate also sought the Supreme Court's solution of the several questions of law, for which the taxpayers contended, controlling the portion of the insurance policies to be deemed included in the decedent's estate. These the Supreme Court resolved in favor of the taxpayers, holding:

"1. Must the total or only one-half of the proceeds collected under the insurance policies issued after marriage on the deceased husband's life be reckoned as part of his gross estate, the wife being sole beneficiary and all premiums having been paid from community funds? To this we answer, only one-half.

"2. Must the total proceeds of the policy upon a decedent's life, taken out after marriage, children being the sole beneficiaries, and all premiums having been paid from community funds, be reckoned as part of his gross estate; or, in the circumstances, is only one-half to be included? To this we reply, only one-half should be included.

"3. Must all proceeds of the policies issued before marriage upon the deceased husband's life be reckoned as part of his gross estate, the wife being sole beneficiary, the first premium having been paid from his separate funds, and all subsequent ones from community funds; or, in the circumstances, is the total received under the policy reduced by one-half of that proportion of such total which premiums satisfied with community funds bear to all premiums paid, the amount to be regarded as belonging to the gross estate? To this we reply, only the total proceeds less one-half of the indicated proportion becomes part of the gross estate."

Lang v. Com'r, supra.

Second. During his lifetime the decedent had contracted, on behalf of the community, debts aggregating $716,232.99. The executors seek to deduct the full amount of such liabilities from the gross estate under section 303(a) (1),3 Revenue Act of 1926, which provides:

"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) * * * claims against the estate * * *."

Article 36 of Commissioner's Regulations 70 provides:

"Claims Against the Estate. — The amounts that may be deducted under this heading are such only as represent personal obligations of the decedent existing at the time of his death, whether then matured or not, but only to the extent that the liability therefor was incurred or contracted bona fide and for an adequate and full consideration in money or money's worth. Only claims enforceable against the estate may be deducted * * *."

The Commissioner determined and the Board approved his determination that the community debts, being chargeable against the community property as a whole, are not deductible against the gross estate of the decedent to the full amount, but only to the extent of one-half thereof. Such holding is based on section 1342, Remington's Revised Statutes of Washington, vol. 3:

"Upon the death of either husband or wife, one-half of the community property shall go to the survivor, subject to the community debts, and the other half shall be subject to the testamentary disposition of the deceased husband or wife, subject also to the community debts. * * *" (Emphasis supplied.)

The Commissioner's position is in substance, that for the duration of the marriage, the community, as an entity separate from either husband or wife, is obligated for community debts. Death, dissolving the community, operates to charge such debts both upon the one-half belonging to the wife and on the remaining half subject to the testamentary disposition of the husband. Hence only one-half of such a community debt can be said to be a "personal obligation of the decedent existing at the time of his death" within the meaning of the quoted regulations, or a claim against his estate within the meaning of section 303(a) (1) of the Act.

The taxpayers concede that the community obligation and death statute of Washington are as contended by the Commissioner. They point out, however, that under the law of Washington a husband is personally liable for community debts, as fully as is the community itself. Mattinson v. Mattinson, 128 Wash. 328, 330, 222 P. 620, and cases there cited. Hence, it is argued, his personal estate or the entire share of the community subject to his testamentary disposition after his death is liable for the entire community debt, as well as the total community property per se. Therefore, they claim, the entire amount of these community debts should be deducted from the gross estate.

On this issue we think the Board was correct in permitting a deduction of only one-half of these community obligations. Regardless of the incidents of the husband's personal liability for community debts during his lifetime, section 1342, Remington's Revised Statutes, supra, as construed by the Supreme Court of Washington, requires that community debts be satisfied pro rata from that portion of the community property distributable to the wife and that portion subject to the husband's testamentary disposition. It is only by provision of a deceased husband's will that a community debt may be charged solely against his share of the community. Redelsheimer v. Zepin, 105 Wash. 199, 202, 177 P. 736; In re Hart's Estate, 150 Wash. 482, 492, 273 P. 735.

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...

To continue reading

Request your trial
20 cases
  • Western Pac. RR Corp. v. Western Pac. R. Co.
    • United States
    • U.S. Court of Appeals — Ninth Circuit
    • July 9, 1952
    ...Mills case, 314 U.S. at page 334, 62 S.Ct. at page 277, in affirming the Third Circuit and overruling our decision in Lang's Estate v. C. I. R., 97 F.2d 867, 869, where we held we could not sit en banc where two divisions of the court differed as to the law controlling, states of rehearings......
  • Lowry v. Baltimore & Ohio R. Co., 81-1976
    • United States
    • U.S. Court of Appeals — Third Circuit
    • May 10, 1983
    ...70 (referring to John Hancock Ins. Co. v. Bartels, 308 U.S. 180, 60 S.Ct. 221, 84 L.Ed. 176 (1939)).3 Lang's Estate v. Commissioner of Internal Revenue, 97 F.2d 867, 869 (9th Cir.1938).4 Western Pac. R.R. Corp. v. Western Pac. R. Co., 197 F.2d 994, On Petitions for Rehearing, 197 F.2d 1012 ......
  • Church of Scientology of California v. Foley, 77-2134
    • United States
    • U.S. Court of Appeals — District of Columbia Circuit
    • January 8, 1981
    ...the Federal Courts of Appeals: Accommodating Institutional Responsibilities, 40 N.Y.U.L.Rev. 563, 570 (1965).32 See Lang's Estate v. Commissioner, 97 F.2d 867 (9th Cir.), certified question answered, 304 U.S. 264, 58 S.Ct. 880, 82 L.Ed. 1331 (1938), rev'd, sub nom. Textile Mills Sec. Corp. ......
  • United States v. Goodyear
    • United States
    • U.S. Court of Appeals — Ninth Circuit
    • October 18, 1938
    ...287 U.S. 103, 110, 53 S.Ct. 74, 77, 77 L.Ed. 199; Lang v. Commissioner, 304 U.S. 264, 58 S.Ct. 880, 82 L.Ed. 1331; Lang's Estate v. Commissioner, 9 Cir., 97 F.2d 867; Poe v. Seaborn, 282 U.S. 101, 51 S.Ct. 58, 75 L.Ed. 239; United States v. Robbins, 269 U.S. 315, 46 S.Ct. 148, 70 L.Ed. The ......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT