Commissioner of Internal Rev. v. State Street T. Co.

• Decision Date: 03 June 1942
• Docket Number: No. 3751.,3751.
• Citation: 128 F.2d 618
• Parties: COMMISSIONER OF INTERNAL REVENUE v. STATE STREET TRUST CO. et al.
• Court: U.S. Court of Appeals — First Circuit

128 F.2d 618 (1942)

COMMISSIONER OF INTERNAL REVENUE v. STATE STREET TRUST CO. et al.

No. 3751.

Circuit Court of Appeals, First Circuit.

June 3, 1942.

Helen R. Carloss, Sp. Asst. to Atty. Gen. (Samuel O. Clark, Jr., Asst. Atty. Gen., Sewall Key, J. Louis Monarch, and Joseph M. Jones, Sp. Assts. to Atty. Gen., and J. P. Wenchel and Ralph F. Staubly, both of Washington, D. C., on the brief), for the Commissioner.

Samuel H. Batchelder, of Boston, Mass. (Charles W. Morrill and Peabody, Arnold, Batchelder & Luther, all of Boston, Mass., on the brief), for State Street Trust Co. et al.

Before MAGRUDER, MAHONEY, and WOODBURY, Circuit Judges.

MAHONEY, Circuit Judge.

The Commissioner of Internal Revenue disallowed as a deduction a claim of $156,473.04 against the Estate of Francis Browne Grinnell for alimony payments and determined a deficiency in the estate taxes. The Board of Tax Appeals disapproved the determination of the Commissioner and decided that there was no deficiency. The deduction of $156,473.04 represents the value at the date of the decedent's death of monthly payments of $1,000 for life to a person of the age of the widow, Elizabeth M. Grinnell. The Commissioner has petitioned this court to review the decision of the Board.

The issue is whether a claim for monthly payments to a wife for life in satisfaction of her right to alimony or otherwise under a divorce decree which is subject to modification on her remarriage is an allowable deduction in a deceased husband's estate tax return under Section 303(a) and (d) of the Revenue Act of 1926, as amended,¹ 44 Stat. 9, 26 U.S.C.A. Int.Rev.Acts, pages 232, 240, § 303.

On January 4, 1917, Elizabeth M. Grinnell was granted a divorce from her husband, Francis Browne Grinnell, in the Superior Court of the Commonwealth of Massachusetts. The decree contained the following provision for the payment of alimony:

"And, upon consideration, and hearing counsel for said libellant and libellee, and upon consent of said parties represented by said counsel and hereby conclusively affirmed, it is further ordered, adjudged and decreed —

"That said libellee shall, on the said decree nisi becoming absolute, and thereafter during the life of the libellant, well and truly pay, or cause to be paid to her, the sum of twelve thousand dollars ($12,000) annually in installments of one thousand dollars ($1,000) monthly, each of said installments to be payable on the first day of each month, the first of said installments to be paid as of November 1, 1916;

"That the said payments shall constitute full, final and conclusive satisfaction of any and all demands and rights of any and every nature, whether at law or in equity, of said libellant, for or on account of alimony or otherwise, against said libellee.

"Provided, however, that in the event of the marriage of said libellant, but not otherwise, further obligations of said libellee to said libellant, as hereinabove fixed and determined, shall be subject to any further order or modification by this Court, upon the motion of either of said parties."

The husband died on November 17, 1937, and his will was admitted to probate in the Norfolk County Probate Court. His wife, who was born in 1889, is still living and has never remarried. She filed a claim against the estate of the deceased for the payment of the amounts due her under the divorce decree and the court ordered the administrators to retain in their hands sufficient assets to meet such liability. In 1938 the probate court approved a compromise agreement for the liquidation of the claim by the payment of $30,000 in cash and monthly payments of $650 as long as she lived and remained unmarried. The taxpayer computes the present value of the claim under the decree of the probate court to be $132,107.48.

The Board of Tax Appeals rests its decision upon the ground that the claim of the decedent's widow against the estate is based upon a decree of the Massachusetts court and not upon an agreement entered into by the parties. However, the Commissioner stresses the fact that the decree in question is a consent decree and that there is evidence of an agreement between the husband and wife entered into prior to the divorce. He argues that insofar as the decree relates to payments it has its origin in the prior agreement, and, therefore, falls within the scope of the statute. There is some evidence in the case that an agreement was reached prior to the decree but as the Board says: "The record does not show clearly the agreement of the parties to the decree." The Commissioner further argues that even if there had been no prior agreement this court should make no distinction between the relinquishment of marital rights based upon an agreement entered into by the parties and a court decree affecting those rights. We are constrained to reject these contentions. The question involves an interpretation of the statute and this court is limited by the explicit language contained therein. The applicable statute, Section 303, supra, provides for a deduction of claims against the estate as are allowed by the laws of the jurisdiction under which the estate is being administered, and further provides "the deduction herein allowed in the case of claims against the estate * * shall, when founded upon a promise or agreement, be limited to the extent that they were contracted bona fide and for an adequate and full consideration in money or money's worth."² (Italics supplied.) It also defines what is not consideration in money or money's worth as follows: "For the purposes of this subchapter title, a relinquishment or promised relinquishment of dower, curtesy, or of a statutory estate created in lieu of dower, or curtesy, or of other marital rights in the decedent's property or estate, shall not be considered to any extent a consideration `in money or money's worth.'" It is to be observed from a consideration of the statute that a prerequisite for a deduction, if such deduction is based upon the relinquishment of a marital right, is that the claim be not founded upon a promise or an agreement. Estate of Silas Mason, 43 B.T.A. 813, 821; Young v. Commissioner, 39 B.T.A. 230, 234. See Nantke v. United States, D.C., 35 F.Supp. 450.

The cases of Markwell's Estate v. Commissioner, 7 Cir., 1940, 112 F.2d 253 and Helvering v. United States Trust Co., 2 Cir., 1940, 111 F.2d 576, certiorari denied United States Trust Co. v. Commissioner, 311 U.S. 678, 61 S.Ct. 45, 85 L.Ed. 437, cited to us by the Commissioner in support of the proposition that no distinction should be made between a separation agreement and a decree affecting marital rights are clearly distinguishable. While in these cases the courts entered divorce decrees subsequent to the consummation of the agreements, no reliance was placed upon the decrees.

Under Massachusetts law a decree by the court creates and fixes the rights of the divorced wife. The decree rests on its own foundation and a contract entered into by the parties does not in any sense deprive the court of its jurisdiction to adjust the marital rights and duties of the parties. This is equally true when, as here, there is some evidence of a prior agreement which has been superseded by the decree of the court. Bradford v. Bradford, 296 Mass. 187, 4 N.E.2d 1005; Wilson v. Caswell, 272 Mass. 297, 172 N.E. 251; Oakes v. Oakes, 266 Mass. 150, 165 N.E. 17. See French v. McAnarney, 290 Mass. 544, 547, 195 N.E. 714, 716, 98 A.L.R. 530. Cf. Schillander v. Schillander, 307 Mass. 96, 29 N.E.2d 686.³ As was said in Oakes v. Oakes, supra, at pages 17, 18, of 165 N.E.:

"The so-called agreement between the husband and wife did not in any way deprive the court of...