Bank of America Nat. T. & Sav. Ass'n v. Com'r of Int. Rev.

• Decision Date: 21 June 1937
• Docket Number: No. 8356.,8356.
• Citation: 90 F.2d 981
• Parties: BANK OF AMERICA NAT. TRUST & SAVINGS ASS'N v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Ninth Circuit

90 F.2d 981 (1937)

BANK OF AMERICA NAT. TRUST & SAVINGS ASS'N v. COMMISSIONER OF INTERNAL REVENUE.

No. 8356.

Circuit Court of Appeals, Ninth Circuit.

June 21, 1937.

Edward Hale Julien, of San Francisco, Cal., for petitioner.

Robert H. Jackson, Asst. U. S. Atty. Gen., and Sewall Key, Norman D. Keller, Louise Foster, and Edward W. Pavenstedt, Sp. Assts. to Atty. Gen., for respondent.

Before WILBUR, GARRECHT, and HANEY, Circuit Judges.

HANEY, Circuit Judge.

Petitioner filed in this court a petition to review a decision of the Board of Tax Appeals sustaining a determination of respondent that there was a deficiency in the estate tax paid for the year 1932 in connection with the estate of Merton J. Price, deceased.

Decedent and his wife were residents of California, where the community property law prevails. Decedent took out four policies of life insurance on his own life, as follows: Equitable Life Assurance Society of the United States policy for $10,000 dated October 23, 1927; two policies in Mutual Benefit Life Insurance Company, each for $5,000 and dated November 18, 1927; and Manhattan Life Insurance Company policy for $25,000 dated October 23, 1929. The total of the four policies was $45,000.

The premiums on the foregoing policies were all paid out of community property. There were certain California statutes in effect when the policies were taken out. California Civil Code, § 161a, provides:

"The respective interests of the husband and wife in community property during continuance of the marriage relation are present, existing and equal interests under the management and control of the husband as is provided in sections 172 and 172a of the Civil Code. This section shall be construed as defining the respective interests and rights of husband and wife in community property."

Section 172 provides:

"The husband has the management and control of the community personal property, with like absolute power of disposition, other than testamentary, as he has of his separate estate; provided, however, that he cannot make a gift of such community personal property, or dispose of the same without a valuable consideration * * * without the written consent of the wife."

Decedent's death occurred on December 23, 1932. Petitioner was thereafter appointed executor in the California Superior Court for the City and County of San Francisco, and included in the estate tax return only one-half the amount of the above policies in the gross estate. Respondent, upon an audit of the return, included the full amount, and assessed a deficiency of $172.82. On petition to redetermine the tax, the Board sustained respondent's determination, and the petition to review the decision entered was then filed in this court.

The Revenue Act of 1926, § 302 (26 U. S.C.A. § 411), provided:

"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 * * *

"(g) To the extent of the amount receivable by the executor as insurance under policies taken out by the decedent upon his own life; and to the extent of the excess over $40,000 of the amount receivable by all other beneficiaries as insurance under policies taken out by the decedent upon his own life."

Article 25 of Treasury Regulations 70 and 80 provides in part:

"The statute provides for the inclusion in the gross estate of insurance taken out by the decedent upon his own life, as follows: (a) All insurance receivable by, or for the benefit of, the estate; (b) all other insurance to the extent that it exceeds in the aggregate $40,000."

Other provisions of the articles mentioned bear on the question as to when insurance is considered to have been taken out by decedent. Here it is stipulated that decedent actually took out the policies on his own life, so it is doubtful if they are applicable. However, Article 25 of Regulations 70 provided:

"* * * Where a portion of the premiums were paid by the beneficiary and the remaining portion by the decedent the insurance will be deemed to have been taken out by the latter in the proportion that the premiums paid by him bear to the total of the premiums paid."

This article was amended in Regulations 80, where it was provided that

"* * * Insurance is considered to be taken out by the decedent in all cases, whether or not he makes the application, if he pays the premiums either directly or indirectly, or they are paid by a person other than the beneficiary, or decedent possesses any of the legal incidents of ownership in the policy. * * *"

Other provisions relate to "legal incidents."

The stipulation does not state to whom the policies were payable, but the Board said: "No controversy exists as to petitioner's right to the exemption of $40,000 under section 302(g). * * *" We may properly assume that the policies were payable to beneficiaries other than the estate of the decedent, and that only $5,000 of the $40,000 is in question. Under section 302(g) the entire $5,000 must be included in the gross estate if the one condition named in the statute is met, namely, that such amount was receivable "under policies taken out by the decedent upon his own life." Since that fact was stipulated, it would seem that the case was ended when the stipulation was agreed upon.

The act in question imposes "a tax on the privilege of transferring the property of a decedent at death, measured by the value of the interest transferred or which ceases at death." Chase National Bank v. United States, 278 U.S. 327, 334, 49 S.Ct. 126, 127, 73 L.Ed. 405, 63 A.L.R. 388. Proceeds of life insurance are properly taxable as such a transfer, which is effected by death of decedent. Id.

Petitioner contends that under California community property law, the wife was the owner of one-half of the proceeds of the insurance, and that therefore decedent had no power of disposition and control, at his death, over the wife's half of such proceeds. We must first determine whether or not the local statute has any significance in settling the dispute. In Burnet v. Harmel, 287 U.S. 103, 110, 53 S. Ct. 74, 77, 77 L.Ed. 199, it is said that "state law may control only when the federal taxing act, by express language or necessary implication, makes its own operation dependent upon state law." See, also, Welch v. Kerckhoff (C.C.A.9) 84 F.(2d) 295, 298, 106 A.L.R. 1434. There is nothing in the instant statute which says or implies that its operation is dependent upon local law. The Supreme Court so construed the same statute in Porter v. Commissioner, 288 U.S. 436, 441, 53 S.Ct. 451, 452, 77 L. Ed. 880, saying:

"The net estate as there used does not mean an amount to be ascertained as such under any general rule of law or under statutes governing the administration of estates, but is the gross estate as specifically defined in section 302 * * * less deductions permitted by section 303 * * *."

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 in our view.

Petitioner also urges that since decedent had no power of disposition over his wife's half of the proceeds, to tax it would constitute violations of the Fifth Amendment to, and sections 2 and 9 of article 1 of the Constitution. This contention is based on the assumption that local law is applicable, an assumption which, we believe, is incorrect.

We are not determining the validity of Article 25 of Regulations 70. The provision quoted deals with a case where "a portion of the premiums were paid by the beneficiary." Here the premiums were paid out of community property, but we do not know who the beneficiary was. Therefore the provision is not in question.

Petitioner strongly relies on Walker v. United States (C.C.A.8) 83 F.(2d) 103. In so far as that case is contrary to what we have said, we are unable to follow it.

Decision affirmed.

WILBUR, Circuit Judge (dissenting).

Petitioner seeks a review of a decision of the Board of Tax Appeals sustaining the Commissioner of Internal Revenue in his holding that four life insurance policies on the life of Merton J. Price, deceased, were properly included in the estate of the decedent for the purpose of fixing the amount of the estate tax. Decedent died December 23, 1932. The policies involved are two in the Mutual Benefit Life Insurance Company for $5,000 each, dated November 18, 1927, one in the Equitable Life Assurance Society of the United States for $10,000 dated October 23, 1927, and one in the Manhattan Life Insurance Company for $25,000 dated October 23, 1929. These policies were procured and the premiums paid from community property of the deceased and his wife acquired after July 29, 1927, the effective date of the amendment of section 161a of the California Civil Code, vesting a half interest in the community property thereafter acquired, in the wife. The facts were not in dispute, having been stipulated. The amount of tax involved was $172.82.

The petitioner contends that one-half of the amount of these policies should have been excluded from the estate liable for tax for the reason that it belonged to the wife. The Board of Tax Appeals, sustaining the tax, concluded that it was unnecessary to decide the exact interest of the wife in the policies in question for the reason that in their opinion the proceeds of the policy were taxable as a part of the estate under section 302(g) of the Revenue Act of 1926 (26 U.S.C.A. § 411(g), which provides for the inclusion in the gross estate of the decedent the proceeds of insurance policies "to the extent of the amount receivable by the...