Child v. U.S., s. 1024

• Citation: 540 F.2d 579
• Decision Date: 19 August 1976
• Docket Number: D,1025,Nos. 1024,s. 1024
• Parties: 76-2 USTC P 13,150 Ruth K. CHILD et al., Appellants, v. UNITED STATES of America, Appellee. ockets 76-6030, 76-6036.
• Court: U.S. Court of Appeals — Second Circuit

Page 579

540 F.2d 579

76-2 USTC P 13,150

Ruth K. CHILD et al., Appellants, v. UNITED STATES of America, Appellee.

Nos. 1024, 1025, Dockets 76-6030, 76-6036.

United States Court of Appeals, Second Circuit.

Argued May 21, 1976.

Decided Aug. 19, 1976.

Henry H. Wilmott, Watertown, N. Y., for appellant Nat. Bank of northern N. Y.

Lawrence Conboy, Conboy, McKay, Bachman & Kendall, Watertown, N. Y., for appellant Watertown Cemetery Ass'n.

Jonathan S. Cohen, Atty., Tax Div., U. S. Dept. of Justice, Washington, D. C. (James M. Sullivan, Jr., U. S. Atty., N. D. N. Y., Syracuse, N. Y., Scott P. Crampton, Asst. U. S. Atty., Gilbert E. Andrews and William A. Whitledge, Attys., Tax Div., U. S. Dept. of Justice, Washington, D. C., of counsel), for appellee.

Before LUMBARD, ANDERSON and OAKES, Circuit Judges.

OAKES, Circuit Judge:

This appeal presents the question whether a general bequest to a non-profit cemetery association is deductible for estate tax purposes as a bequest to an entity organized exclusively for charitable or religious purposes. The National Bank of Northern New York, as executor of the estate of Elizabeth M. Haas, ¹ and the Watertown Cemetery Association, a principal beneficiary of that estate, appeal from a judgment of the United States District Court for Northern District of New York, Edmund Port, Judge, denying a petition for refund of estate taxes paid under protest, and dismissing the complaint of Watertown Cemetery Association for lack of jurisdiction.

Elizabeth M. Haas, who died on January 15, 1966, bequeathed a large portion of her ample estate to two nonprofit cemetery associations located in northern New York State. She left $25,000 to the Grove Cemetery Association in LaFargeville, New York, partly for the perpetual care of the Frederick Wetterham family burial plot. ² To the Watertown Cemetery Association of Watertown, New York, she bequeathed a 50 per cent portion of her residuary estate, a share which approximates $2,500,000. The executor claims that the two cemetery associations are "charitable" or "religious" entities within the meaning of 26 U.S.C. § 2055(a)(2) ³ and that under that provision the estate is entitled to an estate tax deduction for the two bequests. ⁴ The Commissioner rejected the claim. The estate thereupon paid under protest the sum of $935,096.66 in federal estate taxes and interest on the cemetery bequests. This action was brought for refund of $916,085.78 of that amount; the remainder has been voluntarily refunded by the Commissioner. The district court rejected the refund claim, ruling that the cemeteries are not "corporation(s) organized and operated exclusively for religious (or) charitable . . . purposes . . . ." 26 U.S.C. § 2055(a). We affirm. ⁵

The executor does not argue that bequests to cemeteries will always qualify for estate tax deduction under § 2055. Such a position would be most difficult to maintain in view of the legislative history of the estate tax and income tax provisions relating to charitable and religious entities. The 1939 Internal Revenue Code did not expressly provide for either income or estate tax deductions for donations to cemetery associations. In 1954, however, the Code was amended to provide an express exemption from the income tax for "(c) emetery companies owned and operated exclusively for the benefit of their members or which are not operated for profit . . . ." 26 U.S.C. § 501(c) (13). But it is significant that this was done as a special exemption, wholly outside the rubric of "charitable" or "religious" status under § 501(c)(3).

At the very same time, 26 U.S.C. § 170(c)(5) was added to make clear that donations to such cemetery associations were specially defined as deductible for the purpose of computing the donee's income tax. This subsection was entirely distinct from the general deduction provision for donations to corporations, trusts and funds "organized and operated exclusively for religious, charitable . . . purposes," contained in 26 U.S.C. § 170(c)(2) (B). As the Senate Report on the 1954 Code stated, this new provision "extend(ed) the deduction for charitable contributions beyond those allowed under present law to contributions made to nonprofit cemetery and burial companies." S.Rep. on Int.Rev.Code of 1954, 83d Cong., 2d Sess. (1954); 1954 U.S.Code Cong. & Admin.News, pp. 4621, 4660.

No similar estate tax provision expanding deductibility for bequests to cemeteries either specially or as "charitable" or "religious" contributions has been made by Congress. The estate tax provision regarding such bequests in the 1939 and 1954 Codes is identical in content to the old income tax charitable contribution provision, see 26 U.S.C. § 170(c)(2), which the 1954 Congress felt did not extend to include gifts or bequests to cemetery associations. Under the congressional understanding and the prior case law, see, e. g., Schuster v. Nichols, 20 F.2d 179, 181 (D.Mass.1927), it appears that a per se rule allowing deduction for bequests to cemetery associations would be "beyond (that) allowed under present law . . . ." S.Rep. on Int.Rev.Code of 1954, supra.

In this situation, the executor is constrained to argue that the two cemetery association beneficiaries involved in this case serve in the traditional sense as charitable or religious enterprises. As was stated in Gund's Estate v. Commissioner, 113 F.2d 61, 62 (6th Cir. 1940) (bequest to association not deductible where no free burial space provided or less than fair value charged for burial or upkeep), cert. denied, 311 U.S. 696, 61 S.Ct. 134, 85 L.Ed. 451 (1941), "(a) cemetery association doubtless could be so organized and operated as to be a charitable organization within the meaning of the (Internal Revenue Code) . . . ."

The factors relied upon by the executor in the present case, however fall short of such a result. The primary features of an allegedly charitable nature claimed for the Watertown Cemetery Association are that down through the years it has: (a) conveyed a section of lots to the Volunteer Firemen of Watertown at reduced price, which it has maintained free of charge; (b) in 1871 rehabilitated and has since maintained free of charge the adjacent Old Burrville Burying Ground; (c) in the 19th century contributed over $9,000 to the construction of an access road from the city limits of Watertown to the cemetery; (d) in 1885 dedicated a plot of 1,100 square feet to the Henry Keep Home, a nonprofit home for aged persons, for burial purposes; (e) in 1872 dedicated a plot of land without charge for the erection of a chapel; (f) has provided temporary winter storage of bodies destined for other cemeteries free of charge; and (g) has maintained a number of burial plots as to which no perpetual care payment was ever made and for which annual assessments are not being paid. ⁶ As the district court found, however, "(t)he Cemetery Associations did not make it a practice of providing free burial to indigents, nor is it their usual custom to provide any plots at reduced prices." Here, as in Bank of Carthage v. United States, 304 F.Supp. 77, 80 (W.D.Mo.1969), "(i)t appears the rich, the poor, and the in-between are treated alike." While some of the various functions claimed to be charitable by the cemetery may in fact be so, here as in Bank of Carthage "the conclusion is inescapable that the (cemetery's) funds are not used exclusively for charitable purposes," as the statute requires. Id. (emphasis original). See also Gund's Estate v. Commissioner, supra, 113 F.2d at 62; note 3 supra.

We cannot accept the broad view of Dulles v. Johnson, 273 F.2d 362 (2d Cir. 1959), cert. denied, 364 U.S. 834, 81 S.Ct. 54, 5 L.Ed.2d 60 (1960), espoused by the executor, that if the activity of burying the dead were not undertaken by these and like associations, the cost would devolve upon the public, thereby rendering the associations "charitable" in purpose. In Dulles this court upheld the deductibility of bequests made from the estate of William Nelson Cromwell to various New York bar associations. That opinion surveyed most of the various activities of the associations, including their efforts at regulating improper and unauthorized practice of law, and concluded that "the total operations of the three (associations) . . . are 'charitable, scientific . . . (and) educational' within the meaning of (what is now 26 U.S.C. § 2055) . . . ." 273 F.2d at 368. Among the factors there present which inclined the court to its conclusion of charitable status, despite incidental economic benefit to members of the legal fraternity, was that if the regulatory "activities were not undertaken by the Associations, the cost of this necessary regulation would descend upon the public." Id. at 366. The executor, however, mistakes this single factual element for the entire rationale of the case. The executor contends that since the cemeteries involved herein relieve the public fisc by the perpetual maintenance of the cemetery grounds a task assumed in cases of neglect by the local governments, see N.Y. County Law § 222-5-a (McKinney 1972); N.Y. Town Law § 291-1 (McKinney Supp.1975) the cemeteries are "charitable" within the terms of Dulles. In Dulles, however, it is clear that substantial "charitable" and "educational" activities of a more traditional sort were continuously being performed by the beneficiary associations: "maintaining libraries for legal research, sponsoring lectures and forums on the law, providing free legal service through participation in legal aid, and providing low cost legal service through participation in a legal referral system." 273 F.2d at 367-68. In our view, Dulles should be read for the proposition that public dedication of services by an organization may be colored by a history of that organization's performance of more traditional charitable activities to such an extent that the entire enterprise, or the "total operations" of the association, id. at 368, assume...