Commissioner of Internal Revenue v. Brooks, 462.

• Decision Date: 29 July 1932
• Docket Number: No. 462.,462.
• Citation: 60 F.2d 890
• Parties: COMMISSIONER OF INTERNAL REVENUE v. BROOKS et al.
• Court: U.S. Court of Appeals — Second Circuit

60 F.2d 890 (1932)

COMMISSIONER OF INTERNAL REVENUE v. BROOKS et al.

No. 462.

Circuit Court of Appeals, Second Circuit.

July 29, 1932.

G. A. Youngquist, Asst. Atty. Gen., and Sewall Key and J. Louis Monarch, Sp. Assts. to Atty. Gen. (C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, and Frank T. Horner, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for petitioner.

Greene & Hurd, of New York City (Francis B. Hamlin and James L. Dohr, both of New York City, of counsel), for respondents.

Milbank, Tweed, Hope & Webb, Edward N. Perkins, and Selden Bacon, all of New York City, amicus curiæ.

Before L. HAND, AUGUSTUS N. HAND, and CHASE, Circuit Judges.

CHASE, Circuit Judge.

The decedent, Ernest Augustus Brooks, died October 31, 1924. He was domiciled in Cuba and a British subject. At the time of his death, he was not engaged in business in the United States. He then owned bonds of foreign corporations, bonds of foreign governments, bonds of domestic corporations, bonds of a domestic municipality, and stock in a foreign corporation which were either in the possession of his son, Ernest Brooks, or of the brokerage firm of Lawrence, Turnure & Co., and were all in New York City. These securities were not used in any business or pledged or held in any way as security for any debt. They were left in the care of his son or the brokerage company. The son collected the income on the securities he held and deposited it in his father's account with the Fifth Avenue Bank of New York City. The brokerage firm collected income and deposited it in an account with that firm, against which the decedent drew checks that were always honored. At his death, the decedent had on deposit with Lawrence, Turnure & Co. $14,517.98 in this checking account.

The deficiency assessment was due to the fact that the Commissioner included the above-mentioned property in the gross estate of the decedent situated in the United States. The Board of Tax Appeals held that its inclusion was erroneous, and the petition for review brings this question before us.

It is claimed that the provisions of the Revenue Act of 1924, c. 234, 43 Stat. 253, required the action taken by the Commissioner. So far as pertinent, the statute (sections 302 (a), 303 (b-e) of the act, 26 USCA §§ 1094 note, 1095 note) is quoted:

"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 —

"(a) To the extent of the interest therein of the decedent at the time of his death which after his death is subject to the payment of the charges against his estate and the expenses of its administration and is subject to distribution as part of his estate. * * *

"Sec. 303. For the purpose of the tax the value of the net estate shall be determined — * * *

"(b) In the case of a nonresident, by deducting from the value of that part of his gross estate which at the time of his death is situated in the United States — * * *

"(d) For the purpose of Part I of this title, stock in a domestic corporation owned and held by a nonresident decedent shall be deemed property within the United States. * * *

"(e) The amount receivable as insurance upon the life of a nonresident decedent, and any moneys deposited with any person carrying on the banking business, by or for a nonresident decedent who was not engaged in business in the United States at the time of his death, shall not, for the purpose of Part I of this title, be deemed property within the United States. * * *"

The respondents meet the contentions of the Commissioner in two ways. First they say that the intangibles mentioned should not be held to be "property situated in the United States" at the time the decedent died. And, second, if Congress intended to subject these intangibles to the estate tax, it was powerless to do so because of the Fifth Amendment.

To decide the first question, it is necessary to determine whether such securities as these came within the phrase "property situated within the United States" as of the time the statute was passed and took effect. We shall confine our consideration to intangible personal property. It had long been the law of the United States in respect to state taxation that such property had its taxable situs at the domicile of the owner regardless of the place where the paper evidences of the obligations were kept. State Tax on Foreign Held Bonds, 15 Wall. 300, 21 L. Ed. 179; Kirtland v. Hotchkiss, 100 U. S. 491, 25 L. Ed. 558; New Orleans v. Stempel, 175 U. S. 309, 20 S. Ct. 110, 44 L. Ed. 174. This limitation on the state taxation of intangibles was, however, modified in Blackstone v. Miller, 188 U. S. 189, 23 S. Ct. 277, 47 L. Ed. 439, to permit New York to tax the transfer by will of debts due the decedent, who died domiciled in Illinois, from residents of New York. This decision recognized as lawful the power of the state of the domicile of the debtors to tax the transfer of the debts. It did not expressly hold that intangible property had a taxable situs also at the place where the securities themselves were located, but the close applicability of the reasoning of the opinion to give such a taxable situs cannot be gainsaid. Blackstone v. Miller was expressly overruled in Farmers' Loan & Trust Co. v. Minnesota, 280 U. S. 204, 50 S. Ct. 98, 74 L. Ed. 371, 65 A. L. R. 1000, but that was not until some years after the statute here involved was passed, and cannot help in determining what Congress meant in 1924 by "property situated in the United States." In De Ganay v. Lederer, 250 U. S. 376, 39 S. Ct. 524, 63 L. Ed. 1042, it was held that securities owned by a nonresident but physically present in Philadelphia in the possession of an agent who collected and remitted the income to the owner abroad were property. These securities were stocks, bonds, and mortgages secured upon property in the United States, or payable by persons or corporations domiciled in the United States, and it was further held, on the authority of Blackstone v. Miller, supra, among other decisions cited, that such property was within the United States and so within the meaning of Congress in taxing the income derived from property owned in the United States by persons residing elsewhere. While this case dealt with income, that alone does not serve to distinguish what was held as to the location of the income...