Lang's Estate v. Commissioner of Internal Revenue
Decision Date | 27 June 1938 |
Docket Number | No. 8459.,8459. |
Citation | 97 F.2d 867 |
Parties | LANG'S ESTATE v. COMMISSIONER OF INTERNAL REVENUE. COMMISSIONER OF INTERNAL REVENUE v. LANG'S ESTATE. |
Court | U.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.
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.
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. * * *
* * * * * *
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:
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:
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:
Article 36 of Commissioner's Regulations 70 provides:
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...
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