Commissioner of Internal Revenue v. Estate Bosch Second National Bank of New Haven v. United States, Nos. 673

CourtUnited States Supreme Court
Writing for the CourtCLARK
Citation87 S.Ct. 1776,387 U.S. 456,18 L.Ed.2d 886
PartiesCOMMISSIONER OF INTERNAL REVENUE, Petitioner, v. ESTATE of Herman J. BOSCH, Deceased. The SECOND NATIONAL BANK OF NEW HAVEN, Petitioner, v. UNITED STATES
Docket NumberNos. 673,240
Decision Date05 June 1967

387 U.S. 456
87 S.Ct. 1776
18 L.Ed.2d 886
COMMISSIONER OF INTERNAL REVENUE, Petitioner,

v.

ESTATE of Herman J. BOSCH, Deceased. The SECOND NATIONAL BANK OF NEW HAVEN, Petitioner, v. UNITED STATES.

Nos. 673, 240.
Argued March 22, 1967.
Decided June 5, 1967.

No. 673:

Jack S. Levin, Washington, D.C., for petitioner.

John W. Burke, New York City, for respondent.

No. 240:

Curtiss K. Thompson, New Haven, Conn., for petitioner.

Jack S. Levin, Washington, D.C., for respondent.

Mr. Justice CLARK delivered the opinion of the Court.

These two federal estate tax cases present a common issue for our determination: Whether a federal court or agency in a federal estate tax controversy is conclusively bound by a state trial court adjudication of property

Page 457

rights or characterization of property interests when the United States is not made a party to such proceeding.

In No. 673, Commissioner of Internal Revenue v. Estate of Bosch, 363 F.2d 1009, the Court of Appeals for the Second Circuit held that since the state trial court had 'authoritatively determined' the rights of the parties, it was not required to delve into the correctness of that state court decree. In No. 240, Second National Bank of New Haven, Executor v. United States, 351 F.2d 489, another panel of the same Circuit held that the 'decrees of the Connecticut Probate Court * * * under no circumstances can be construed as binding' on a federal court in subsequent litigation involving federal revenue laws. Whether these cases conflict in principle or not, which is disputed here, there does exist a widespread conflict among the circuits1 over the question and we granted certiorari to resolve it. 385 U.S. 966, 968, 87 S.Ct. 499, 512, 17 L.Ed.2d 432. He hold that where the federal estate tax liability turns upon the character of a property interest held and transferred by the decedent under state law, federal authorities are not bound by the determination made of such property interest by a state trial court.

I.

(a) No. 673, Commissioner v. Estate of Bosch.

In 1930, decedent, a resident of New York, created a revocable trust which, as amended in 1931, provided that the income from the corpus was to be paid to his wife during her lifetime. The instrument also gave her a general power of appointment, in default of which it provided that half of the corpus was to go to his heirs and the remaining half was to go to those of his wife.

Page 458

In 1951 the wife executed an instrument purporting to release the general power of appointment and convert it into a special power. Upon decedent's death in 1957, respondent, in paying federal estate taxes, claimed a marital deduction for the value of the widow's trust. The Commissioner determined, however, that the trust corpus did not qualify for the deduction under § 2056(b)(5)2 of the 1954 Internal Revenue Code and levied a deficiency. Respondent then filed a petition for redetermination in the Tax Court. The ultimate outcome of the controversy hinged on whether the release executed by Mrs. Bosch in 1951 was invalid—as she claimed it to be—in which case she would have enjoyed a general power of appointment at her husband's death and the trust would therefore qualify for the maritalde duction. While the Tax Court proceeding was pending, the respondent filed a petition in the Supreme Court

Page 459

of New York for settlement of the trustee's account; it also sought a determination as to the validity of the release under state law. The Tax Court, with the Commissioner's consent, abstained from making its decision pending the outcome of the state court action. The state court found the release to be a nullity; the Tax Court then accepted the state court judgment as being an 'authoritative exposition of New York law and adjudication of the property rights involved,' 43 T.C. 120, 124, and permitted the deduction. On appeal, a divided Court of Appeals affirmed. It held that '(t)he issue is * * * not whether the federal court is 'bound by' the decision of the state tribunal, but whether or not a state tribunal has authoritatively determined the rights under state law of a party to the federal action.' 363 F.2d, at 1013. The court concluded that the 'New York judgment, rendered by a court which had jurisdiction over parties and subject matter, authoritatively settled the rights of the parties, not only for New York, but also for purposes of the application to those rights of the relevant provisions of federal tax law.' Id., at 1014. It declared that since the state court had held the wife to have a general power of appointment under its law, the corpus of the trust qualified for the marital deduction. We do not agree and reverse.

Petitioner in this case is the executor of the will of one Brewster, a resident of Connecticut who died in September of 1958. The decedent's will, together with a codicil thereto, was admitted to probate by the Probate Court for the District of Hamden, Connecticut. The will was executed in 1958 and directed the payment 'out of my estate my just debts and funeral expenses and any death taxes which may be legally assessed * * *.' It further

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directed that the 'provisions of any statute requiring the apportionment or proration of such taxes among the beneficiaries of this will or the transferees of such property, or the ultimate payment of such taxes by them, shall be without effect in the settlement of my estate.' The will also provided for certain bequests and left the residue in trust; one-third of the income from such trust was to be given to decedent's wife for life, and the other two-thirds for the benefit of his grandchildren that were living at the time of his death. In July of 1958, the decedent executed a codicil to his will, the pertinent part of which gave his wife a general testamentary power of appointment over the corpus of the trust provided for her. This qualified it for the maritl deduction as provided by the Internal Revenue Code of 1954, § 2056(b)(5). In the federal estate tax return filed in 1959, the widow's trust was claimed as part of the marital deduction and that was computed as one-third of the residue of the estate before the payment of federal estate taxes. It was then deducted, along with other deductions not involved here, from the total value of the estate and the estate tax was then computed on the basis of the balance. The Commissioner disallowed the claimed deduction and levied a deficiency which was based on the denial of the widow's allowance as part of the marital deduction and the reduction of the marital deduction for the widow's trust, by requiring that the estate tax be charged to the full estate prior to the deduction of the widow's trust. After receipt of the deficiency notice, the petitioner filed an application in the state probate court to determine, under state law, the proration of the federal estate taxes paid. Notice of such proceeding was given all interested parties and the District Director of Internal Revenue. The guardian ad litem for the minor grandchildren filed a verified report

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stating that there was no legal objection to the proration of the federal estate tax as set out in the application of the executor. Neither the adult grandchildren nor the District Director of Internal Revenue filed or appeared in the Probate Court. The court then approved the application, found that the decedent's will did not negate the application of the state proration statute and ordered that the entire federal tax be prorated and charged against the grandchildren's trusts. This interpretation allowed the widow a marital deduction of some $3,600,000 clear of all federal estate tax. The Commissioner, however, subsequently concluded that the ruling of the Probate Court was erroneous and not binding on him, and he assessed a deficiency. After payment of the deficiency, petitioner brought this suit in the United States District Court for a refund. On petitioner's motion for summary judgment, the Government claimed that there was a genuine issue of material fact, i.e., whether the probate proceedings had been adversary in nature. The District Court held that the 'decrees of the Connecticut Probate Court * * * under no circumstances can be construed as binding and conclusive upon a federal court in construing and applying the federal revenue laws.' 222 F.Supp. 446, 457. The court went on to hold that under the standard applied by the state courts, there was no 'clear and unambiguous direction against proration,' and that therefore the state proration statute applied. Id., at 454. The Court of Appeals reversed, holding that the decedent's will 'would seem to be clear and unambiguous to the effect that taxes were to come out of his residual estate and that despite any contrary statute the testator specifically wished to avoid any proration.' 351 F.2d, at 491. It agreed with the District Court that, in any event, the judgment of the State Probate Court was not binding on the federal court.

Page 462

II.

Petitioner in No. 240 raises the additional point that the Court of Appeals was incorrect in holding that decedent's will clearly negated the application of the state proration statute. While we did not limit the grant of certiorari, we affirm without discussion the holding of the Court of Appeals on the point. The issue presents solely a question of state law and '(w)e ordinarily accept the determination of local law by the Court of Appeals * * * and we will not disturb it here.' Ragan v. Merchants Transfer Co., 337 U.S. 530, 534, 69 S.Ct. 1233, 1235, 93 L.Ed. 1520 (1949); General Box Co. v. United States, 351 U.S. 159, 165, 76 S.Ct. 728, 732, 100 L.Ed. 1055 (1956); The Tungus v. Skovgaard, 358 U.S. 588, 596, 79 S.Ct. 503, 508, 3 L.Ed.2d 524 (1959). The Court of Appeals did not pass on the correctness of the resolution of the state law problem involved in Bosch, No. 673, and it is remanded for that purpose.

II
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1507 practice notes
  • McNeilab, Inc. v. North River Ins. Co., Civ. A. No. 82-3934.
    • United States
    • United States District Courts. 3th Circuit. United States District Courts. 3th Circuit. District of New Jersey
    • 31 October 1986
    ...9 Under the doctrine of Erie v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, as developed in Commissioner v. Estate of Bosch, 387 U.S. 456, 87 S.Ct. 1776, 18 L.Ed.2d 886 (1967), this court must therefore decide this and other questions of novel impression in this state by predicting ......
  • PHILADELPHIA RESERVE SUPPLY v. Nowalk & Associates, Civ. A. No. 91-0449.
    • United States
    • United States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)
    • 27 September 1994
    ...has not ruled on an issue of state law, a federal court is required to predict how that court would rule. Commissioner v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 1782-83, 864 F. Supp. 1462 18 L.Ed.2d 886 (1967). The federal court may consider a range of information, including "re......
  • Hakimoglu v. Trump Taj Mahal Associates, Civ. No. 93-2084(JBS).
    • United States
    • U.S. District Court — District of New Jersey
    • 23 December 1994
    ...by the highest court of the state, while not dispositive, are evidence of state law. See 876 F. Supp. 630 Commissioner v. Estate of Bosch, 387 U.S. 456, 464-65 87 S.Ct. 1776, 1782-83, 18 L.Ed.2d 886 (1967); West v. American Tel. and Tel. Co., 311 U.S. 223 61 S.Ct. 179, 85 L.Ed. 139 (1940); ......
  • Williams v. First Federal Sav. and Loan Ass'n of Arlington, WASHINGTON-LEE
    • United States
    • United States Courts of Appeals. United States Court of Appeals (4th Circuit)
    • 7 July 1981
    ...Six Companies of California v. Joint Highway Dist. No. 13, 311 U.S. 180, 188, 61 S.Ct. 186, 188, 85 L.Ed. 114 (1940); C.I.R. v. Bosch, 387 U.S. 456, 87 S.Ct. 1776, 18 L.Ed.2d 886 38 The FHLBB regulation, 12 C.F.R. § 545.8-3(g)(2), explicitly forbids "a prepayment charge or equivalent fee fo......
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1553 cases
  • McNeilab, Inc. v. North River Ins. Co., Civ. A. No. 82-3934.
    • United States
    • United States District Courts. 3th Circuit. United States District Courts. 3th Circuit. District of New Jersey
    • 31 October 1986
    ...9 Under the doctrine of Erie v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188, as developed in Commissioner v. Estate of Bosch, 387 U.S. 456, 87 S.Ct. 1776, 18 L.Ed.2d 886 (1967), this court must therefore decide this and other questions of novel impression in this state by predicting ......
  • PHILADELPHIA RESERVE SUPPLY v. Nowalk & Associates, Civ. A. No. 91-0449.
    • United States
    • United States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)
    • 27 September 1994
    ...has not ruled on an issue of state law, a federal court is required to predict how that court would rule. Commissioner v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 1782-83, 864 F. Supp. 1462 18 L.Ed.2d 886 (1967). The federal court may consider a range of information, including "re......
  • Hakimoglu v. Trump Taj Mahal Associates, Civ. No. 93-2084(JBS).
    • United States
    • U.S. District Court — District of New Jersey
    • 23 December 1994
    ...by the highest court of the state, while not dispositive, are evidence of state law. See 876 F. Supp. 630 Commissioner v. Estate of Bosch, 387 U.S. 456, 464-65 87 S.Ct. 1776, 1782-83, 18 L.Ed.2d 886 (1967); West v. American Tel. and Tel. Co., 311 U.S. 223 61 S.Ct. 179, 85 L.Ed. 139 (1940); ......
  • Barnes v. Thompson, Nos. 94-4001
    • United States
    • United States Courts of Appeals. United States Court of Appeals (4th Circuit)
    • 10 August 1995
    ...the path that the highest court of the state has indicated it would take if faced with the question. See Commissioner v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 1783, 18 L.Ed.2d 886 (1967) ("[When] the underlying substantive rule involved is based on state law ... the State's hig......
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2 books & journal articles
  • HORIZONTAL CHOICE OF LAW IN FEDERAL COURT.
    • United States
    • University of Pennsylvania Law Review Vol. 169 Nbr. 8, August 2021
    • 1 August 2021
    ...to any issue or claim which has its source in state law.") (internal citation omitted); see, e.g., Comm'r v. Estate of Bosch, 387 U.S. 456 (1967) (discussing Erie in federal question case); United Mine Workers of Am. v. Gibbs, 383 U.S. 715, 726 (1966) (citing Erie in pendent jurisdiction ca......
  • Recent developments in estate planning.
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    • The Tax Adviser Vol. 51 Nbr. 11, November 2020
    • 1 November 2020
    ...148T.C. 392 (2017). (9.) Badgley, No. 18-16053 (9th Cir. 4/28/20), aff'g No. 4:17-cv-00877 (N.D. Cal. 5/17/18). (10.) fofafe of Bosch, 387 U.S. 456 EXECUTIVE SUMMARY * The IRS issued taxpayer-friendly regulations on how to calculate the applicable exclusion amount when calculating estate an......

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