Continental Ill. Nat. B. & T. Co. of Chicago v. United States

Decision Date15 November 1968
Docket NumberNo. 396-65.,396-65.
Citation403 F.2d 721,185 Ct. Cl. 642
CourtU.S. Claims Court


John F. Beggan, Washington, D. C., atty. of record, for plaintiff. James A. Velde, Peter H. Merlin, and Gardner, Carton, Douglas, Chilgren & Waud, Chicago, Ill., of counsel.

William C. Ballard, Jr., Washington, D. C., with whom was Asst. Atty. Gen. Mitchell Rogovin, for defendant. Philip R. Miller and Joseph Kovner, Washington, D. C., of counsel.


COWEN, Chief Judge.

Richard Wasserman, the testator, an American citizen at the time of his death, bequeathed the residue of his estate to "the Mayor & Magistratsraete of Fuerth, Bayern, Germany 13a, to be used and expended for the benefit of said city of Fuerth." Fuerth's City Council1 has used the money thus far for construction of an old peoples' home for the city's inhabitants, and has earmarked any additional funds for operating and maintaining the home.

The Internal Revenue Service included the amount of the bequest, about $341,000, in the testator's gross estate. Plaintiff, as executor, paid the tax and filed a claim for refund. This was disallowed. Now the executor sues for a refund of about $86,000 plus interest, arguing that the residuary bequest is deductible from the testator's gross estate as a charitable contribution within the provisions of § 2055(a) of the Internal Revenue Code of 1954,2 or is exempt from estate taxation under Article XI3 of the 1954 German-American Treaty of Friendship, Commerce, and Navigation of October 29, 1954, 7 U.S. Treaties 1839. On the undisputed facts, we hold that plaintiff's contentions fail, and hence that its claim for refund was correctly disallowed.


Plaintiff's first contention is that this bequest was charitable, and thus entitled to be deducted from the gross estate under the provisions of § 2055(a) (2) or (3). For the reasons which follow, we reject this contention.4


Section 2055(a) (1) permits an estate to deduct the amount of a bequest to or for the use of the United States, any state, or any political subdivision thereof for exclusively public purposes. Since the bequest before us was to a foreign municipality, the taxpayer admits that the gift is excluded from the coverage of § 2055(a) (1) unless the Treaty makes it applicable (see infra, Part II of this opinion for a discussion of this point). Nevertheless, an examination of the entire structure of § 2055(a) is essential to a resolution of this issue. Paragraph 1, with some modifications not here pertinent, has been continuously included in the estate tax law since the Revenue Act of 1918. Although legislative history of the paragraph is almost totally lacking, we should not attribute to Congress a futile act, but should endeavor to ascertain the purpose for the broad exemption permitted only for bequests to governmental bodies within the United States. If Congress thought that governmental units were charitable organizations, there surely would have been no need to give domestic governmental bodies special treatment, for bequests to charitable organizations or for exclusively charitable purposes are covered in other paragraphs of § 2055(a).

The Supreme Court in United States v. Perkins, 163 U.S. 625, 16 S.Ct. 1073, 41 L.Ed. 287 (1896), said that the United States was not a charitable institution within the meaning of the New York inheritance tax statute. The Court went on to say that the United States was "a purely political or governmental corporation" and thus was not a "religious, educational, charitable, or reformatory" institution. Although the statement was dicta, the Court was observing the fairly obvious fact that a governmental unit, be it local or national, is basically a political organization and not a charitable one, although it may engage in some "charitable" functions. It is reasonable to suppose that Congress in enacting the predecessor of § 2055(a) (1) meant to provide a special deduction for bequests to domestic governmental bodies, although such deductions would not be permitted under the rubric of bequests for charitable purposes.

It should also be noted that § 2055(a) (1) allows the deduction to bequests made for "public purposes." Surely Congress chose the word "public" to encompass something more than "charitable," which is used in the rest of the section. It seems to us that the word "public" embodies a broader concept, and envisions gifts to domestic governmental bodies for purposes other than the ordinary philanthropic purposes most people associate with "charity." Consequently, it is our opinion that the use of the word "public" shows a congressional intention to bring within the statutory exemption gifts which could be used for such standard governmental functions as the payment of salaries to policemen and firemen. We think there is a clear indication that Congress considered that many contributions which would benefit domestic municipalities are not charitable, because the exemption permits different and broader uses of a bequest than those which are exclusively for charitable purposes.

Many activities of cities are in no sense charitable, and in fact are generally available only to paying customers. These are proprietary activities and include the operation of golf courses, wharves, market places, transportation facilities, and such public utilities as gas, water, and electric systems. It is a meaningful distinction to say that while these activities are not "charitable," they nevertheless are for public purposes, as the local government conceives the needs of its public.

Plaintiff's motion is supported by the affidavit of Professor Max Rheinstein, who provided translations of various Bavarian laws relating to municipal functions.5 Even a cursory reading of these laws indicates that Fuerth is empowered to perform proprietary functions, functions which are strictly governmental, such as police and fire protection, and other functions which are more traditionally charitable in nature, such as health care. It is clear, therefore, that the beneficiary of this gift is not a "corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes" within the meaning of § 2055(a) (2). This is especially true in light of the recognition by Congress that gifts to American governmental units to be used for any public purpose are deductible only by reason of the provisions of § 2055(a) (1).


We turn now to consider whether a bequest — not clearly restricted to a charitable use — to a foreign municipality can qualify under § 2055(a) (3) as a gift or contribution to be used exclusively for charitable purposes. We first note that a tax deduction is allowable only if specifically authorized by the Internal Revenue Code (see, e. g., New Colonial Ice Co., Inc. v. Helvering, 292 U.S. 435, 440, 54 S.Ct. 788, 78 L.Ed. 1348 (1934)). In this case, the Code is specific: to be deductible, the gift must be "to a trustee or trustees, * * * but only if such contributions or gifts are to be used * * * exclusively for religious, charitable, scientific, literary, or educational purposes * * *" emphasis added. We have no doubts that this gift was in fact in trust. While it is true the form of the gift was "to the Mayor & Magistratsraete of Fuerth, Bayern, Germany 13a," we accept Professor Rheinstein's uncontradicted affidavit that German courts would consider this a gift to the city of Fuerth. We think the language which follows the gift shows that the testator had no intention of making a gift to the persons of the Mayor and Magistratsraete, because the gift is qualified: it is "to be used and expended for the benefit of said city of Fuerth." Thus, we encounter no problem in finding that an outright gift on its face to the Mayor and Magistratsraete was a gift in trust because of the qualifying language which follows. We do not doubt that a city administration can serve as trustee for a gift in trust for the benefit of the city. See, e. g., In re Sage's Estate, 122 F.2d 480, 137 A.L.R. 658 (3rd Cir. 1941).

The fact that the gift involved here was used for a charitable purpose presents plaintiff's most appealing argument. But this is not sufficient to meet the requirements of § 2055(a) (3). If the right to make the deduction could be met by showing only a charitable use of the contribution, the applicability of the estate tax in all similar situations would depend upon the vagaries of post-estate planning. The testator, and he alone, must order the recipient to hold or use the contribution exclusively for charitable purposes. Further, the statute does not permit the deduction unless it is shown that the testator intended that the gift be used exclusively for a charitable project. Estate of Lamson v. United States, 338 F.2d 376, 168 Ct.Cl. 33 (1964) and cases cited therein. Entitlement to the deduction must rest on more than a doubt or ambiguity. Commissioner of Internal Revenue v. Sternberger's Estate, 348 U.S. 187, 190, n. 3, 75 S.Ct. 229, 99 L.Ed. 246 (1955). Plaintiff's proof simply fails to lift the taxpayer over this hurdle.

The only restriction imposed by the will was that the bequest "be used and expended for the benefit of said city of Fuerth." We find nothing in this language to establish that the testator intended that the contribution be used solely for charitable purposes. Rather, as we noted above, it seems quite likely that the purpose of this language was to make it clear that the gift, which was outright in form to the Mayor and Magistratsraete, was not intended for their own personal use, but was for the benefit of the city. But it takes a great deal of imagination to impute more to these words of the will.

Since no extraneous evidence was introduced to show...

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