Empire Trust Co. v. Commissioner of Internal Revenue

• Decision Date: 04 January 1938
• Docket Number: No. 4230.,4230.
• Citation: 94 F.2d 307
• Parties: EMPIRE TRUST CO. et al. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Fourth Circuit

94 F.2d 307 (1938)

EMPIRE TRUST CO. et al. v. COMMISSIONER OF INTERNAL REVENUE.

No. 4230.

Circuit Court of Appeals, Fourth Circuit.

January 4, 1938.

H. Cecil Kilpatrick, of Washington, D. C. (Albert F. Hillix and Gage, Hillix, Hodges & Cowherd, all of Kansas City, Mo., and Underwood, Mills & Kilpatrick, of Washington, D. C., on the brief), for petitioners.

W. Croft Jennings, Sp. Asst. to Atty. Gen. (James W. Morris, Asst. Atty. Gen., and Sewall Key and Norman D. Keller, Sp. Assts. to Atty. Gen., on the brief), for respondent.

Before PARKER, NORTHCOTT, and SOPER, Circuit Judges.

NORTHCOTT, Circuit Judge.

This is a petition to review a decision of the United States Board of Tax Appeals. The petition was filed by Empire Trust Company, Levis A. Hamilton, and Alexander Hamilton, executors of the estate of Levis C. Hamilton, deceased, here referred to as the petitioners. The opinion of the Board, handed down in April, 1937, is reported in 35 B.T.A. 866.

This review involves estate taxes in the sum of $3,892.88, assessed against the estate of the decedent, Levis C. Hamilton, who died April 27, 1931.

There is no dispute as to the facts. On September 30, 1924, the decedent, then sixty-seven years of age and possessed of personal property worth about $1,000,000, entered into an antenuptial agreement with Katherine W. Bonnie, whom he later married, and who possessed a substantial estate of her own. The agreement, in effect, provided that in consideration of the marriage and of the mutual agreements therein set forth, each of the parties should retain title and control of each separate estate, free of interference by the other, with an untrammeled right of disposition, and that each renounced all rights of inheritance, descent, dower, or courtesy, or maintenance, or other statutory rights in the estate of the other. The agreement further provided that in the event the future wife should survive the decedent, she should be paid the sum of $50,000 in further complete extinguishment of all claims given by law and waived by the agreement. Decedent left a will which provided in part as follows:

"I give and bequeath to my beloved wife, Katherine W. Hamilton, the sum of Fifty Thousand and no/100 Dollars ($50,000.00) in cash, said sum being the amount specified in a certain written antenuptial agreement."

Shortly after Levis C. Hamilton died Mrs. Hamilton made demand upon the estate for the $50,000. The executors prevailed upon her to refrain from insisting upon payment as such would entail the sale of securities of the estate at a considerable discount. She agreed, instead, to accept the sum of $3,000, being interest at 6 per centum on the sum due her, in consideration of her release of the executors from further payments under the antenuptial agreement for one year.

At the termination of the year's period of grace, Mrs. Hamilton received the $50,000 partly in property, partly in cash, in conformity with the antenuptial agreement and the will.

In the estate tax return the executors deducted from the gross estate the $50,000 provided for in the antenuptial contract. The Commissioner disallowed this deduction.

To test the question, the executors took an appeal to the Board of Tax Appeals which, after handing down a well-considered opinion, entered a decison for the Commissioner. This petition for review resulted.

The question involved is whether, for purposes of taxation, the amount paid decedent's widow was deductible from the gross estate of the decedent.

The applicable statutes are sections 301 (a), 302, and 303 of the Revenue Act of 1926, 44 Stat. 69, 70, 72, 26 U.S.C.A. §§ 410-412 and notes.

The contention on behalf of the petitioners is that, under section 303(a) (1) of the Revenue Act of 1926, 44 Stat. 72, 26 U.S. C.A. § 412 note, the amount paid the widow was deductible as a claim against the estate. Section 303(a) (1) provides:

"For the purpose of the tax the value of the net estate shall be determined —

"(a) In the case of a resident, by deducting from the value of the gross estate —

"(1) Such amounts for * * * claims against the estate, * * * to the extent that such claims * * * were incurred or contracted bona fide and for an adequate and full consideration in money or money's worth."

It is contended on behalf of the respondent that the amount agreed to be paid the widow was intended to and did supplant the right of dower possessed by her, incident to marriage; that dower is not deductible from gross estate of a deceased in ascertaining the estate tax; and that therefore the amount was not properly deductible.

Section 302 of the Revenue Act of 1926, 44 Stat. 70, 26 U.S.C.A. § 411, provides in part as follows:

"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;

"(b) To the extent of any interest therein of the surviving spouse, existing at the time of the decedent's death as dower, curtesy, or by virtue of a statute creating an estate in lien of dower or curtesy."

It was the evident purpose of Congress in passing the Revenue Act of 1926 to include in the gross estate of a decedent, for purposes of taxation, any amount paid a widow as dower. The question then arises, Does an agreement entered into prior to death, fixing an amount to be received in lieu of dower, create a claim against decedent's estate that is deductible?

The amount paid the widow under the antenuptial agreement became payable to her only on the death of her husband. Hed the wife died first, her estate would have had no valid enforceable claim against the husband. The shifting of the economic benefits was occasioned by the death of the husband and did not take place on the execution of the antenuptial agreement under which the wife acquired no property rights unless the agreement was matured and made effective by her survival of the husband. Had there been no antenuptial agreement and had the widow taken under decedent's will, the amount of her dower would unquestionably have been included in the gross estate. United States v. Dietz, 8 Cir., 33 F. 2d 576; Jacobs v. Commissioner, 8 Cir., 34 F.2d 233, certiorari denied Jacobs v. Lucas, 280 U.S. 603, 50 S.Ct. 85, 74 L.Ed. 647. See, also, Crooks v. Loose, 8 Cir., 36 F.2d 571; Allen v. Henggeler, 8 Cir., 32 F.(2d) 69.

The statute is explicit in including dower in the gross estate of a deceased individual. To allow a deduction through the substitution, by a mutual agreement, of an amount fixed in lieu of dower would be an evasion of the statute. As was said in the opinion of the Board:

"It makes no difference, therefore, whether we consider the widow as taking as a beneficiary under the will, or as a purchaser for full...