Clarke v. United States

• Citation: 189 F.2d 101
• Decision Date: 25 May 1951
• Docket Number: No. 10419.,10419.
• Parties: CLARKE v. UNITED STATES.
• Court: United States Courts of Appeals. United States Court of Appeals (3rd Circuit)

189 F.2d 101 (1951)

CLARKE v. UNITED STATES.

No. 10419.

United States Court of Appeals Third Circuit.

Argued May 10, 1951.

Filed May 25, 1951.

John Wintersteen, Morse Garwood, Philadelphia, Pa. (MacCoy, Evans & Lewis, Philadelphia, Pa., on the brief), for appellant.

Morton K. Rothschild, Washington, D. C., (Theron Lamar Caudle, Asst. Atty. Gen., Ellis N. Slack, Lee A. Jackson, Special Assts. to the Atty. Gen., Gerald A. Gleeson, U. S. Atty., Thomas J. Curtin, Asst. U. S. Atty., Philadelphia, Pa., on the brief), for appellee.

Before MARIS, STALEY and HASTIE, Circuit Judges.

MARIS, Circuit Judge.

This is an appeal from a judgment entered against the plaintiff by the District Court for the Eastern District of Pennsylvania in a suit brought by her against the United States to recover income taxes which she alleges have been erroneously exacted.

The plaintiff was the widow of Edward S. Wagner and is coexecutor of his estate with the Provident Trust Company of Philadelphia. Wagner, who was a resident of Montgomery County, Pennsylvania, died August 15, 1939 leaving a very substantial estate. During the course of the administration of the estate certain differences arose between the executors and the plaintiff in her individual capacity and as beneficiary under her husband's will. One of these questions was whether an extraordinary dividend received from the Scott Paper Company, amounting to $37,491.60, should be treated as principal or income.

The other question arose under the Pennsylvania Apportionment Act of July 2, 1937, P.L. 2762, 20 P.S.Pa. § 844. It appears that the decedent and the plaintiff held as tenants by entireties certain real estate and bank accounts which passed to the plaintiff on the decedent's death but which were included in the decedent's gross estate for purposes of federal and Pennsylvania estate taxes. Under the Pennsylvania Apportionment Act the estate tax levied in respect of such jointly owned property is to be prorated and charged against the person to whom the property passes unless the decedent has provided otherwise by his will. By his will Wagner had made provision in this regard as follows: "SIXTH: I will and direct that all estate tax, inheritance tax, succession tax, transfer tax, or any other tax in the nature of any thereof which may be chargeable upon my estate or any portion thereof, or upon any bequest, trust, benefaction or any interest in my estate or any part thereof given or provided for by this my Will, shall be paid out of my general estate, so that all provisions or benefactions of every kind or nature given or made by this my Will shall be free and clear of all taxes as aforesaid." Thus the second dispute between the parties involved the proper interpretation to be put upon this testamentary provision, the plaintiff contending that it should be construed as imposing upon the decedent's general estate the estate taxes attributable to the property held by entireties and the executors taking the position that those taxes should be charged to the plaintiff.

In order to terminate these controversies and to provide for the amicable settlement of the estate a formal agreement was entered into on May 26, 1941 between the Provident Trust Company and the plaintiff as executors and the plaintiff individually. The agreement recited that the questions to which we have referred had arisen, that the plaintiff was entitled to compensation for her services as coexecutor and claimed on that account the sum of $48,116.12, being 1% of the appraised value of the decedent's personal estate, and that she was willing to forego her claim for compensation as coexecutor and her claim to any share in the dividend from the Scott Paper Company as income if the executors would make no claim against her individually for prorated estate taxes under the Pennsylvania Apportionment Act.

The agreement accordingly provided on the one hand that the federal and Pennsylvania estate taxes applicable to the property held by entireties and amounting to approximately $84,000 should be borne by the estate and that no claim for reimbursement therefor should be made against the plaintiff and on the other hand that the plaintiff would make no claim for compensation as coexecutor nor any claim for a share in the extraordinary dividend from the Scott Paper Company as income. This agreement was approved by the Orphans' Court of Montgomery County on June 2, 1941 and two months later that court confirmed the executors' account and awarded executors' commissions at 3%, amounting to $144,348.36, which amount had previously been paid to the Provident Trust Company alone and which was retained by that company, the plaintiff making no claim thereto.

The plaintiff filed a federal income tax return for 1941 disclosing a tax liability of $25,480.14 which she paid. Subsequently the Commissioner of Internal Revenue determined a deficiency in her income tax for the year 1941 in the amount of $34,317.01. This deficiency resulted from his inclusion in...