Cox v. United States

• Decision Date: 16 February 1970
• Docket Number: No. 27186.,27186.
• Citation: Cox v. United States, 421 F.2d 576 (5th Cir. 1970)
• Parties: Callie L. COX and B. C. Cox, Jr., as Executors under the Will of B. C. Cox, deceased, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

421 F.2d 576 (1970)

Callie L. COX and B. C. Cox, Jr., as Executorsunder the Will of B. C. Cox, deceased, Plaintiffs-Appellants, v.UNITED STATES of America, Defendant-Appellee.

No. 27186.

United States Court of Appeals Fifth Circuit.

January 7, 1970.

Rehearing Denied February 16, 1970.

W. H. Albritton, Andalusia, Ala., for appellants, Albrittons & Rankin, Andalusia, Ala., of counsel.

Ira Dement, U. S. Atty., Montgomery, Ala., Ben Hardeman, U. S. Atty., Richard M. Roberts, Acting Asst. Atty. Gen., Lee A. Jackson, Atty., Johnnie M. Walters, Asst. Atty. Gen., Stanley L. Ruby, Elmer J. Kelsey, Attys., Tax Div., Dept. of Justice, Washington, D. C., for appellee.

Before BELL and GOLDBERG, Circuit Judges, and ATKINS, District Judge.

GOLDBERG, Circuit Judge:

In this action for refund of estate taxes we must decide (1) whether under Alabama law a widow who elects to take against her husband's will may receive, in lieu of dower, a nonterminable interest which qualifies for the marital deduction, and (2) whether under Alabama law that part of the estate other than the widow's share is required to sustain the entire burden of the federal estate tax.Our judicial labors have bordered on the Sisyphean because Alabama has been most meager in its directions.

The decedent, B. C. Cox, a resident of Alabama, died on April 29, 1960, leaving his wife, Callie L. Cox, and his two children surviving him.His widow filed a dissent from the will and elected instead to take dower and the distributive share in his estate provided by Alabama law.The Circuit Court of Covington County, Alabama, wherein administration of the estate was conducted, computed Mrs. Cox's marital share of the estate to be $42,863.18.This sum included $8,820.00, the commuted value of her dower interest.That court further charged the entire estate tax to that part of the estate remaining after the widow's marital share had been deducted.

On audit the Commissioner of Internal Revenue refused to allow the marital deduction for the commuted value of the wife's dower, claiming that this interest was terminable.The government further charged one-third of the estate taxes to the widow's share of the estate, thereby further reducing the marital deduction.The district court agreed with the action of the Commissioner, concluding that the widow's dower interest was terminable and that under Alabama law the widow's share must bear its pro rata amount of the estate tax due.296 F.Supp. 145.The estate appeals.

I.

Section 2056 of the Internal Revenue Code¹ provides a deduction of up to one-half of the adjusted gross estate of a decedent for property passing from the decedent to his surviving spouse.However, in order to qualify for the deduction, the interest received by the surviving spouse must be equivalent to absolute ownership.If the interest can terminate on the lapse of time or the occurrence of an event, no deduction is allowed.

In the instant case, Mrs. Cox elected to reject the provisions made for her in her husband's will and take her statutory share under Alabama law.The nature of the interests which she received are therefore governed by Alabama law.Alabama provides that a widow may always dissent from the will of her husband and take her dower rights along with the portion of her husband's personal estate (called distributive share) which she would have been entitled to in case of intestacy.²Generally in the case of intestacy where two children survive, the widow is entitled to one-third of her husband's personalty outright.³Her dower rights consist of a life estate in one-third of the real estate which her husband owned during marriage and to which she has not relinquished her right during marriage.⁴

Had the Alabama legislature stopped with these provisions, the disposition of this case would present no problem.It is clear and uncontested that the personalty provided for the wife is given absolutely and is a non-terminable interest which qualifies for the marital deduction.It is equally clear that the wife's dower interest is a terminable life estate and is therefore not eligible for the marital deduction.The Alabama legislature unfortunately, however, did not stop here.It went on to provide for adjustments to the share of her husband's estate which the wife would receive if she happened to have, as Mrs. Cox did, a separate estate of her own.Title 34, § 43 governs the situation where, as here, the wife has separate property but its value is less than the value of her dower right (estimated at seven years' rent)⁵ and her share of her husband's personal estate.It is the difference in interpretation of this section which created the conflict between the government and the taxpayer in this case.Title 34, § 43 provides:

"When separate estate less than dower and distributive share.— If her separate estate be less in value than her dower, as ascertained by the rule furnished by the preceding section, and her distributive share, so much must be allowed her as, with her separate estate, would be equal to her dower and distributive share in her husband\'s estate, if she had no separate estate."

In the instant case Mrs. Cox had separate personalty worth $29,373.86.The value of her dower estimated at seven years' rent as provided by Title 34, § 43 was $8,820.00.Mrs. Cox's share of her husband's personalty before the deduction for her separate estate was $63,416.46.In applying the provisions of Title 34, § 43, the government subtracted the value of Mrs. Cox's personal estate, $29,373.86, from her share of her husband's personalty, but made no adjustment for the value of her dower right.Thus computed, her marital share before estate taxes was $34,042.80 in cash, an interest eligible for the marital deduction, plus the terminable dower interest in one-third of her husband's land, an interest not eligible for the marital deduction.

On the other hand, the Covington County Court, in administering the estate, held that it was compelled under Title 34, § 43 to award the wife the money equivalent of her dower interest rather than the conventional dower.The court, therefore, added the commuted value of her dower, $8,820.00, to her distributive share, $63,416.46, subtracted the value of her separate estate, $29,373.28, and awarded her the gross sum of $42,863.18 outright.The commuted dower and the distributive share being non-terminable interests, the estate attempted to claim this entire amount as a marital deduction.

Although the government appears to argue otherwise, it seems apparent that the Covington County Court decree had the real effect of assigning to Mrs. Cox $42,863.18 as her share of the estate.However, our inquiry does not end with this determination because under the holding of the Supreme Court in Commissioner of Internal Revenue v. Bosch's Estate, 1967, 387 U.S. 456, 87 S.Ct. 1776, 18 L.Ed.2d 886, when "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."387 U.S. at 457, 87 S.Ct. at 1779.The federal court must base its determination of the property interest received upon the rulings of the state's highest court; if there be no decision by that court the federal court is to determine the relevant state law itself.Applied to this casethe Bosch rule means that if the award of non-terminable commuted dower made by the Covington County Court was valid under Alabama law, then the taxpayer is correct in asserting that this interest qualifies for the marital deduction.United States v. Hiles, 5 Cir.1963, 318 F.2d 56;United States v. Crosby, 5 Cir.1958, 257 F.2d 515.On the other hand, if as a matter of state law such an interest should not have been awarded to Mrs. Cox under the circumstances of this case, then the government is not bound by the award, and for federal tax purposes the estate will be treated as if Mrs. Cox actually received the interest she should receive under Alabama law.Commissioner of Internal Revenue v. Bosch's Estate, supra;Schmidt v. United States, D.Kan.1968, 279 F.Supp. 811.

In determining that it was required to award Mrs. Cox the cash value of her dower interest rather than the conventional life estate in her husband's land, the Covington County Court relied upon Glenn v. Glenn, 1868, 41 Ala. 571, wherein the Alabama Supreme Court remarked that if the wife had a separate estate less than her dower and distributive share, she had no right to dower but only a money allowance in lieu of dower.Glenn v. Glenn, however, was overruled in a subsequent appeal, sub nom,Billingslea v. Glenn, 1871, 45 Ala. 540.The Covington County Court dismissed the Billingslea case as not controlling on this point, a conclusion with which we cannot agree.In Billingsleathe court said:

"Section 2381 of the Revised Code provides that if the separate estate be less than the dower and distributive share, so much shall be allowed as will make it equal.Does this mean that her separate estate shall deprive the widow of her life estate in a portion of the lands of her husband, and compel her to take the equivalent?The statute does not say so, nor is such an interpretation imperative.On the contrary, if she cannot have her life estate in the full proportion of the lands, she may take it in less, and if the heir insists on it, perhaps, must do so.Because she cannot have a thousand acres for life, may she not have five hundred?The common law regards a life estate in lands as superior to an absolute estate in personal property, and favors dower.The statute prescribing an equivalent under certain circumstances is in restraint of dower, and should be strictly construed."45 Ala. at 545.

Were this insufficient to toll the death knell for the decision in Glenn, the Billingslea court went on to make its holding unquestionably clear:

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