Estate of Steffke, 75-2161

• Decision Date: 24 June 1976
• Docket Number: No. 75-2161,75-2161
• Citation: 538 F.2d 730
• Parties: 76-2 USTC P 13,145 ESTATE of Wesley A. STEFFKE, Deceased. WISCONSIN VALLEY TRUST COMPANY and Priscilla Baker (Lane) Steffke, co-executors, Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 730

538 F.2d 730

76-2 USTC P 13,145

ESTATE of Wesley A. STEFFKE, Deceased.

WISCONSIN VALLEY TRUST COMPANY and Priscilla Baker (Lane)

Steffke, co-executors, Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.

No. 75-2161.

United States Court of Appeals, Seventh Circuit.

Argued April 16, 1976.

Decided June 24, 1976.

Leonard F. Schmitt, Merrill, Wis., for appellants.

Meade Whitaker, Scott P. Crampton, Asst. Atty. Gen., William S. Estabrook, III, Atty., Tax Div., Dept. of Justice, Washington, D. C., for appellee.

Before FAIRCHILD, Chief Judge, PELL, Circuit Judge, and NOLAND, District Judge. ^*

PELL, Circuit Judge.

The issue in this appeal from a judgment of the Tax Court is the meaning of the term "surviving spouse" as used in section 2056(a) of the Internal Revenue Code of 1954. ¹

The facts in this case are undisputed. In 1944 Priscilla Baker married Crockett W. Lane. At all relevant times they resided in Wisconsin. In 1966 she obtained a judgment of divorce in a Mexican court. Before obtaining this judgment, she entered a personal appearance and complied with the jurisdictional requirements prescribed by Mexican law. Crockett did not go to Mexico but appeared through counsel. The judgment was based on grounds not recognized under Wisconsin law, but it has never been set aside by the Mexican court which entered it. In January of 1967, the decedent, Wesley Steffke, executed a will which provided that the bulk of his estate would pass to his "friend, Priscilla Baker Lane." In July of that year Priscilla and decedent were married. The decedent died in November of 1968. Following his death, the Supreme Court of Wisconsin was presented with the question of whether the property passing to Priscilla should be taxed under the Wisconsin inheritance tax at rates applicable to widows or at rates applicable to strangers. In deciding this issue, the Wisconsin Supreme Court held that the Mexican divorce was of no effect in the state of Wisconsin and that Priscilla was not the wife of decedent under the laws of Wisconsin. In re Estate of Steffke, 65 Wis.2d 199, 222 N.W.2d 628 (1974).

The decedent's estate claimed the marital deduction under section 2056 on the estate tax return. The Commissioner disallowed the deduction on the grounds that Priscilla was not decedent's surviving spouse. The estate petitioned the Tax Court to determine the issue, and in due course the court ruled in favor of the Commissioner. ² This appeal followed.

Section 2056 allows the deduction from a decedent's gross estate of an amount equal to the value of any interest in property passing from a decedent to a surviving spouse to the extent the interest is not a terminable one and to the extent the value of the interest passing does not exceed fifty percent of the adjusted gross estate. The term "surviving spouse" is neither defined in the section nor elsewhere in the Internal Revenue Code.

The meaning of the words or the legal status of circumstances for federal tax purposes need not be identical to their meaning or their legal effect under state law. See Commissioner v. Tower, 327 U.S. 280, 66 S.Ct. 532, 90 L.Ed. 670 (1946); Lyeth v. Hoey, 305 U.S. 188, 59 S.Ct. 155, 83 L.Ed. 119 (1938). In Lyeth the Supreme Court indicated that it is the will of Congress that controls the meaning of the taxation statutes and that in the absence of language evidencing a different purpose, the statutes should be interpreted so as to produce a uniform result nationwide. According to the Court, state law can only control "when the federal taxing act by express language or necessary implication makes its operation dependent upon state law." 305 U.S. at 194, 59 S.Ct. at 158.

The taxpayer's principal argument in this case is that uniformity can best be achieved by applying the holdings of Borax v. Commissioner, 349 F.2d 666 (2d Cir. 1965), cert. denied, 383 U.S. 935, 86 S.Ct. 1064, 15 L.Ed.2d 852 (1966); Wondsel v. Commissioner, 350 F.2d 339 (2d Cir. 1965); and Feinberg v. Commissioner, 198 F.2d 260 (3d Cir. 1952). These cases were income tax cases, but the taxpayer argues that the same logic and principles apply in the estate tax context.

In Borax the Commissioner asserted deficiencies for the years 1952 through 1955 and 1957 against Herman and Hermine Borax, who had filed joint returns and had deducted payments made by Herman to his former wife, Ruth. Herman and Ruth had separated by mutual consent in 1946 and had entered a separation agreement. In August 1952, Herman obtained a divorce in Mexico. Ruth did not appear in the Mexican proceedings. Later that month Herman married Hermine. In 1953 a New York court entered a decree declaring that Ruth was the lawful wife of Herman, that Herman and Hermine were not husband and wife, and that the Mexican divorce decree was invalid and of no force or effect. The New York court had jurisdiction over Herman and Hermine. Each had been personally served and participated in the New York proceedings with counsel. In deciding the case, the Second Circuit established a rule that it characterized as a rule of validation. The rule provided:

The subsequent declaration of invalidity (of a divorce) by a jurisdiction other than the one that decreed the divorce is of no consequence under these provisions of the tax law.

349 F.2d at 670. The court first pronounced the rule when discussing the issue of the deductibility of payments made in discharge of a legal obligation incurred incident to a divorce, but it later applied the rule to allow Herman and Hermine to file joint returns. The court indicated that the rule tended to promote uniformity because all persons who obtained a divorce in a particular jurisdiction would be treated in the same way under it regardless of whether someone invoked the power of another jurisdiction to have the decree declared invalid.

In Wondsel the same court reached a similar result on similar facts. The divorce not recognized by New York in Wondsel was granted by Florida rather than a foreign country but was not entitled to full faith and credit because the New York court found that the Florida court lacked jurisdiction.

Feinberg also involved the deductibility of payments made incident to a divorce decree. Feinberg was decided by the Third Circuit before the Second Circuit annunciated its rule of validation, but the court reached the same result. It indicated that the mere fact that the marital domicile of the parties did not recognize a Florida divorce did not render it a nullity for federal income tax purposes.

These decisions have not received a favorable reception from either the Commissioner or the Tax Court, at least where taxpayers have tried to extend the holdings to an estate tax situation.

In Rev.Rul. 67-442, 1967-2 Cum.Bull. 65, the Commissioner indicated that the Service would not follow Borax and Wondsel for estate tax purposes. The ruling indicated that the Service would not question a divorce decree unless it had been declared invalid but that if a decree were declared invalid by a court with jurisdiction over the parties, the Service would follow the later decision. This appears to have been the consistent view of the Service. In Feinberg the Third Circuit indicated that General Counsel Memorandum 25250, 1947-2 Cum.Bull. 32, supported its position. In the Memorandum the General Counsel indicated that a taxpayer could deduct alimony payments which were paid on the basis of a separation agreement but after a Mexican divorce was obtained by one of the parties. ³ Under the facts posited, it appeared unlikely that the divorce would have been recognized by the taxpayer's state of domicile; but the divorce had not been declared invalid, and the parties relied on the decree by remarrying. The Service indicated in Rev.Rul. 67-442, as it had in Rev.Rul. 57-113, 1957-1 Cum.Bull. 106, that the Memorandum was not intended to recognize Mexican decrees over subsequent decrees in other jurisdictions. The Second Circuit in Borax indicated that the Commissioner had taken a position in Rev.Rul. 58-66, 1958-1 Cum.Bull. 60, which conflicted with his position in that case. In Rev.Rul. 58-66 the Commissioner indicated that the marital status of individuals as determined by state law would be recognized for federal income tax purposes. It then applied this rule to the situation where parties initiate a common law marriage in a state which recognizes such a relationship and later move to a jurisdiction which requires a ceremony. It held that such persons may take the dual allowance for personal exemptions and file a joint return. We do not conceive that this Rev.Rul. conflicts with the position taken by the Commissioner in the present case.

The Tax Court has distinguished Borax in two recent cases other than the one at bar. In Estate of Goldwater v. Commissioner, 64 T.C. 540 (1975), appealed --- F.2d ---- No. 75-4277 (2d Cir.), the Tax Court refused to recognize a Mexican divorce in the face of a declaratory judgment entered in favor of decedent's first wife, holding that she remained his lawful wife. The court allowed the marital deduction to the extent property passed to his first wife by reason of her elective share under state law but denied the deduction to the extent property passed under decedent's will to the person who purported to be his wife at the time of his death. In Estate of Spaulding v. Commissioner, 34 CCH Tax Ct Mem P 33,360 (1975), appealed No. 75-4248 (2d Cir.), the Tax Court followed its decision in Goldwater and in the case at bar to deny the marital deduction to the estate of the purported wife of a New York resident who had been divorced in Nevada but which divorce had been declared invalid by a New York court. At the time of decedent's death, she was a resident of California; but the court ruled that this did not change the result, because since all relevant parties had participated in the New York proceedings which resulted in the declaration that the divorce...