Crooks v. Harrelson

• Decision Date: 01 October 1929
• Docket Number: No. 8533.,8533.
• Citation: 35 F.2d 416
• Parties: CROOKS, Collector of Internal Revenue, v. HARRELSON et al.
• Court: U.S. Court of Appeals — Eighth Circuit

35 F.2d 416 (1929)

CROOKS, Collector of Internal Revenue, v. HARRELSON et al.

No. 8533.

Circuit Court of Appeals, Eighth Circuit.

October 1, 1929.

William T. Sabine, Jr., Sp. Atty., Bureau of Internal Revenue, of Washington, D. C. (William L. Vandeventer, U. S. Atty., and Harry L. Thomas, Asst. U. S. Atty., both of Kansas City, Mo., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, of Washington, D. C., on the brief), for appellant.

S. L. Swarts, of St. Louis, Mo., and F. S. Bright, of Washington, D. C. (Massey Holmes, of Kansas City, Mo., and L. C. Connally, of Washington, D. C., on the brief), for appellees.

Before STONE, BOOTH, and GARDNER, Circuit Judges.

BOOTH, Circuit Judge.

This was an action brought by the appellees, beneficiaries under the will of William H. Harrelson, deceased, against Noah Crooks, appellant, as Collector of Internal Revenue for the Sixth United States Collection District of Missouri. The action was to recover a refund of $37,762.20 of federal estate taxes which had been paid by the executors of the estate.

The complaint alleged that William H. Harrelson of Kansas City, Mo., died testate March 8, 1920; that the executors under his will in due time, acting under the provisions of the Revenue Act of 1918 (40 Stat. 1057), filed with the collector of internal revenue a return for the purposes of the federal estate tax; that the Commissioner of Internal Revenue upon a final audit and review determined that the total net valuation of decedent's estate for federal estate tax purposes was $2,279,068.28, of which amount the value of the real estate owned by decedent at the time of his death was $269,730; that the amount of the tax as fixed by the Commissioner of Internal Revenue was paid by the executors, and a claim for refund of $37,762.20 was filed, based upon the contention that the value of the real estate situated in Missouri and owned by the decedent at the time of his death was not, under the provisions of the Revenue Act of 1918, subject to the federal estate tax, and that the amount of the tax ($37,762.20) paid on the value of said real estate, was illegally assessed and collected and should be refunded.

The complaint further alleged: "That under the laws of the State of Missouri under which the estate of said decedent was administered, the real estate situated in the State of Missouri and owned by the decedent at the time of his death was not subject to the payment of the expenses of administration of said estate and, for this reason, the value of said real estate should not, and could not lawfully, have been included in the value of the gross estate of the decedent for the purpose of calculating the amount of the Federal estate tax due from said estate."

The defendant demurred to the complaint. The court overruled the demurrer, and, the defendant refusing to plead further, judgment was entered for the plaintiffs in the amount asked.

The question involved in this appeal is whether, under the provisions of section 402 (a) of the Revenue Act of 1918 (40 Stat. 1097), the value of real estate situated in the state of Missouri should be included in the value of the gross estate of the decedent Harrelson who died the owner thereof.

Section 402(a) of the Revenue Act of 1918 reads as follows:

"Sec. 402. That 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."

There are two main contentions made by the appellant: (1) That section 402(a) has no application to real estate, but applies only to personal property; (2) even if the statute has application to real estate, yet, that real estate in Missouri is subject to the payment of the expenses of administration.

The argument that section 402(a) relates solely to personal property is based upon the use of certain phrases and words used in the section. It is contended that the phrases, "subject to the payment of the charges against his estate," "the expenses of its administration," and "subject to distribution as part of his estate," were all anciently used in connection with personalty only; that Congress knew this, and accordingly used the phrases with their ancient technical meaning, and as relating solely to personal property.

We do not acquiesce in the contention thus made for several reasons. It was doubtless the intention of Congress to include both real estate and personal property within the provisions of section 402 considered as a whole. The entire section constitutes a single sentence. The opening words of the section, "that 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," include no definite amount of any kind of property. It is only by reading the opening words in connection with one or more of the clauses (a) to (f) that any definite amounts of any kind of property can be arrived at. Clauses (a) to (f) are what their language states them to be — extent clauses and not exception clauses. If, therefore, clause (a) should be construed as relating to personal property only, a large amount of real property would not be included within the purview of section 402 at all, for the opening words of that section, read in connection with clauses (b) to (f), would fail to cover many interests in real property. Furthermore, the argument of appellant, based upon the ancient technical meaning of the words used in section 402(a), goes too far and defeats itself. The word "distribution" as applied to estates meant at common law the division of estates of interstates only. It was not properly applied to testate estates. 18 C. J. 803; Rogers v. Gillett, 56 Iowa, 266, 9 N. W. 204. If, therefore, the ancient technical meaning is applied in section 402(a), personal property of intestate estates only would be covered, while personal property passing by will would not be included. Such a result plainly could not have been intended by Congress.

Our conclusion on this branch of the case is that the language of section 402(a) is not to be given any ancient technical meaning, but is to be read giving to the words their ordinary, popular meaning; and that, when so read, both real and personal property are included.

With such meaning given to the words used, the construction of section 402(a) is, in our opinion, perfectly plain. The value of such real estate of the decedent as fulfills the conditions of clause (a), and such only, is to be included in the value of the gross estate. The conditions attaching to such real estate are that the decedent at the time of his death had an interest therein; that the real estate after the death of decedent is subject to the payment of the charges against this estate; that the real estate is subject to the expenses of the administration of the estate; that the real estate is subject to distribution as part of the estate of decedent. In our opinion it makes very little practical difference whether these conditions are considered as four separate, independent conditions, or three separate conditions, treating the second and the third as a single but combined condition. The latter method seems to have been adopted as a matter of convenience in the case of United States v. Field, 255 U. S. 257, 41 S. Ct. 256, 65 L. Ed. 617, 18 A. L. R. 1461. There was no intimation, however, in thus combining two of the conditions that both were not equally important. Nor was there any intimation that the word "and" before the words "the expenses of its administration" in section 402 (a), should be construed as meaning "or," which is what the appellant in effect contends for. What the Field Case did hold was that all of the conditions must be met before the property could be included as part of the gross estate; that the particular property there in question was not "subject to distribution as part of the testator's estate," and therefore was not thus included.

It may also be noted that the regulations relating to the estate tax, which were promulgated by the Commissioner of Internal Revenue after the decision in the Field Case, expressly recognize that real estate, in order to be included in the gross estate, must fulfill the condition that such real estate is "subject to * * * the payment of the expenses of * * * administration." This condition is recognized as an independent one. See regulations 63, article 11, approved by the Secretary of the Treasury July 27, 1922, under the Revenue Act of 1921; regulations 68, article 10, approved by the Secretary of the Treasury March 26, 1925, under the Revenue Act of 1924. The Revenue Act of 1926, § 302(a), 26 USCA § 1094, cut out all of the conditions contained in section 402(a) of the Revenue Act of 1918, except the first, "(a) to the extent of the interest therein of the decedent at the time of his death"; so that under the present law the question here involved can no longer arise.

It is also a contention of counsel for appellant that the expression "charges against his estate" in section 402(a) includes "expenses of its administration." To hold thus would be to wipe out a plain distinction made by the statute itself, and which has existed in many jurisdictions; to hold thus would also violate one of the primary canons of statutory construction — that each clause and each word of a statute should, if reasonably possible, be given meaning and effect. We think this contention of counsel should not be sustained.

As to the second main contention — that in the state of Missouri real estate is subject to the payment of the expenses of...