Broderick v. Keefe, 3513.

• Decision Date: 14 May 1940
• Docket Number: No. 3513.,3513.
• Citation: 112 F.2d 293
• Parties: BRODERICK, Collector of Internal Revenue, v. KEEFE et al.
• Court: U.S. Court of Appeals — First Circuit

112 F.2d 293 (1940)

BRODERICK, Collector of Internal Revenue, v. KEEFE et al.

No. 3513.

Circuit Court of Appeals, First Circuit.

May 14, 1940.

James P. Garland, Sp. Asst. to Atty. Gen. (Samuel O. Clerk, Jr., Asst. Atty. Gen., Sewall Key, Sp. Asst. to Atty. Gen., Arthur L. Jacobs, of Washington, D. C., and J. Howard McGrath, of Providence, R. I., on the brief), for appellant.

Richard F. Canning, of Providence, R. I. (Andrew P. Quinn, of Providence, R. I., on the brief), for appellees.

Roger B. Hull, of New York City, for National Ass'n of Life Underwriters, amicus curiæ.

Before MAGRUDER, Circuit Judge, and PETERS and SWEENEY, District Judges.

SWEENEY, District Judge.

This is an appeal from a judgment of the District Court for the District of Rhode Island entered in favor of the plaintiffs below. The question presented is whether, after the exhaustion of the $40,000 exemption provided in the statute, the proceeds of two life insurance policies, taken out by the decedent on his own life, should have been included in his gross estate subject to federal estate tax. Both policies are sufficiently similar to treat them as one.

The facts disclose that John W. Keefe, who died on August 3, 1935, was the owner of two insurance policies for which he paid the annual premiums. In each case, on April 18, 1930, he executed a "Nomination of Beneficiary and Request"^* in which he designated a "vested, irrevocable beneficiary", who "if she survives me" was to receive the income during her lifetime, and it was further declared that "her consent in writing is necessary before any subsequent change in the beneficial interest can be made" or any loans secured on the policies. After having designated the primary beneficiary, the insured also designated certain contingent beneficiaries who would receive benefits after the death of the primary beneficiary. As to the contingent beneficiaries, the assured expressly withheld any vested interest and reserved the right to cancel or change the beneficiaries without their consent.

The executrices filed a return, but did not include in the gross estate any value on account of the policies described. In 1937, the Commissioner made a deficiency assessment on this account which was paid. These suits were brought to recover the assessment in whole or in part.

The Revenue Act of 1926, c. 27, 44 Stat. 9, as amended by, section 803(a), Revenue Act 1932 and Section 401 of the Revenue Act of 1934, c. 277, 48 Stat. 680, 26 U. S.C.A.Int.Rev.Acts, p. 227, is as follows:

"Sec. 302. 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 — * * *

"(c) To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, or of which he has at any time made a transfer, by trust or otherwise, under which he has retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death (1) the possession or enjoyment of, or the right to the income from, the property, or (2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom; except in case of a bona fide sale for an adequate and full consideration in money or money's worth. Any transfer of a material part of his property in the nature of a final disposition or distribution thereof, made by the decedent within two years prior to his death, without such consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this title;

"(d) (1) To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power, either by the decedent alone or in conjunction with any person, to alter, amend, or revoke, or where the decedent relinquished any such power in contemplation of his death, except in case of a bona fide sale for an adequate and full consideration in money or money's worth. * * *

"(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."

The Government contends, if it is determined that the proceeds of this insurance are not brought into the gross estate by subdivision (g) above, that subdivision (d) covers the proceeds of an insurance policy as well as any other property. We prefer to reach our decision without recourse to subdivision (d). See Walker v. United States, 8 Cir., 83 F.2d 103, and to an opposite conclusion see Paul on Life Insurance and Federal Estate Tax, 52 Harvard Law Review 1051. We can rest our decision in this case squarely on subdivision (g).

The language of Section 302(g) appears to cover much more than the Government claims for it, and seems broad enough to include the proceeds of policies involving no transfer of property in a testamentary sense. See Harvard Law Review, Vol. 52, 1047. However, it has never been the contention of the Treasury Department that subdivision (g) is as broad as this, and, in Treasury Regulations 80, Article 27, it limits the type of policies that are to be included in the gross estate to those where "the decedent possessed at the time of his death any of the legal incidents of ownership". Since the adoption of this regulation, Congress has failed in its various amendatory acts to change this administrative interpretation. We are therefore bound to follow it. It is the settled rule that the practical interpretation of an ambiguous or doubtful statute that has been acted upon by officials charged with its administration will not be disturbed except for weighty reasons. Brewster v. Gage, 280 U.S. 327, 336, 50 S.Ct. 115, 74 L.Ed. 457. Treasury regulations and interpretations long continued without substantial change, applying to unamended or substantially reenacted statutes, are deemed to have received congressional approval, and have the effect of law. Helvering v. Winmill, 305 U.S. 79, 83, 59 S.Ct. 45, 83 L.Ed. 52.

Section 302(g) and the Treasury Regulations promulgated thereunder seek to compel an estate, after the specified exemption, to pay a tax on proceeds of insurance policies in which the insured had an interest or legal incidents of ownership up to the time of his death. In Chase National Bank v. United States, 278 U.S. 327, 49 S.Ct. 126, 73 L.Ed. 405, 63 A.L.R. 388, the Supreme Court held, where an insured retained until his death a legal interest in policies which gave him the power of disposition, and there was at his death a shifting of the economic benefits to the beneficiaries free from the exercise of the powers retained during the lifetime of the insured, that such a transfer was a legitimate subject of a transfer of a transfer tax. At page 338, of 278 U.S., at page 129 of 49 S.Ct., 73 L.Ed. 405, 63 A.L.R. 388, the court said: "Termination of the power of control at the time of death inures to the benefit of him who owns the property subject to the power and thus brings about, at death, the completion of that shifting of the economic benefits of property which is the real subject of the tax."

The gift to the primary beneficiary, although declared to be a full and complete gift to a "vested, irrevocable beneficiary", was nevertheless expressly made contingent upon the primary beneficiary's surviving the insured. It was only a life estate. Consequently, it is plain that the event which effectively transferred the life estate to the beneficiary was the death of the insured. Cf. Helvering v. Hallock, 309 U.S. 106, 60 S.Ct. 444, 84 L.Ed. ___, 125 A.L.R. 1368; Klein v. United States, 283 U.S. 231, 234, 51 S.Ct. 398, 75 L.Ed. 996. While these cases dealt with Section 302 (c), by parity of reasoning they throw light upon the proper construction of Section 302 (g). The insured retained the power "to cancel or change the interests" of the contingent beneficiaries "without their consent". Under the power reserved, the insured, in the event of surviving the primary beneficiary, became complete master of the policy and could dispose of it as he pleased.

It follows that as to all the beneficiaries, the death of the insured was the "indispensable and intended event" 309 U.S. 106, 60 S.Ct. 448, 84 L.Ed. ___, 125 A.L.R. 1368 which effected the transmission of the estate from the dead to the living. See Klein v. United States, supra. As the court pointed out in the Hallock case the basic purpose of the estate tax is to bring within the gross estate of the transferor that which he gave "upon a contingency...