Greene v. United States

• Decision Date: 04 March 1959
• Docket Number: No. 539-53.,539-53.
• Citation: 171 F. Supp. 459
• Parties: A. Crawford GREENE and Wells Fargo Bank & Union Trust Co., a Corporation, as Executors, etc. v. UNITED STATES.
• Court: U.S. Claims Court

171 F. Supp. 459

A. Crawford GREENE and Wells Fargo Bank & Union Trust Co., a Corporation, as Executors, etc. v. UNITED STATES.

No. 539-53.

United States Court of Claims.

March 4, 1959.

Walker W. Lowry, San Francisco, Cal., for plaintiffs. Richard E. Guggenhime, Allan P. Matthew and Edward W. Rosston, San Francisco, Cal., were on the brief.

Theodore D. Peyser, Jr., Washington, D. C., with whom was Asst. Atty. Gen. Charles K. Rice, for defendant. James P. Garland and Lyle M. Turner, Washington, D. C., were on the brief.

JONES, Chief Judge.

Plaintiffs¹ seek a refund of taxes in the amount of $1,113,937.37, plus interest thereon, which amount was assessed and paid by reason of the inclusion of certain United States 3% Panama Canal loan bonds in the gross estate of the decedent for Federal estate tax purposes. Plaintiffs base their claim on the ground that the plain language of the statute authorizing the issuance of these bonds and the language on the face of the bonds provide a broad and comprehensive tax exemption which necessarily includes Federal estate taxes.

These Panama Canal bonds were authorized by the act of August 5, 1909 (36 Stat. 11, 117), which provided in section 39, 31 U.S.C.A. § 745, that:

"* * * the bonds herein authorized shall be exempt from all taxes or duties of the United States, as well as from taxation in any form by or under State, municipal, or local authority * * *."

On the face of the bonds appears the following language:

"The principal and interest are exempt from all taxes or duties of the United States as well as from taxation in any form by or under State, Municipal or local authority."

Plaintiffs argue that "all taxes" means all taxes, including Federal estate taxes; that "duties" is a term of art which includes Federal estate taxes, and that certain case law relied upon by the Government is either distinguishable or in error.

The Government construes the phrase "all taxes" to mean all taxes on the bonds themselves, and contends that the Federal estate tax is not a tax upon the property comprising the estate but is a tax upon the right to transfer such property at death. The language of section 810 of the Internal Revenue Code of 1939, 26 U.S.C.A. § 810, which imposes a tax upon "the transfer of the net estate of every decedent", and case law support the Government's contention.

The earliest cases on this problem were Plummer v. Coler, 178 U.S. 115, 20 S.Ct. 829, 44 L.Ed. 998, and Murdock v. Ward, 178 U.S. 139, 20 S.Ct. 775, 44 L.Ed. 1009, both decided in 1900. Plummer held that a Federal exemption "from taxation in any form by or under state, municipal or local authority" did not exempt certain 1870 Federal bonds from a State inheritance tax. Plaintiffs analyze Plummer as involving solely a constitutional problem, to wit, whether the right to regulate the passage of property at death is strictly within the powers reserved to the States, and as holding that the Federal Government cannot limit that power.

Murdock v. Ward, supra, held that a Federal exemption from "all taxes and duties of the United States" did not exempt these 1870 bonds from the 1898 Federal inheritance tax. Plaintiffs urge that the case is distinguishable because it involved an inheritance tax, a tax upon the right of the legatee or devisee to receive the property of the erstwhile owner, and not an estate tax which is a tax on one of the attributes of ownership; i.e., the right to transfer one's property. Plaintiffs take the position that the Supreme Court, in Murdock v. Ward, supra, erred in placing reliance upon the Plummer case, which involved primarily a constitutional issue. In both cases, the rationale relied upon by the Supreme Court was that the inheritance tax was not a tax upon the bonds themselves, but a tax upon the transfer of the bonds. Plaintiffs urge that, in any event, the Supreme Court decided Murdock v. Ward, supra, erroneously because it failed to look to the legislative history of the 1870 bonds to see what Congress meant when it exempted the bonds from "all taxes or duties of the United States." Both parties in the present litigation rely upon that same legislative history, and we shall discuss it later in this opinion.

Subsequent to the decisions in Plummer and Murdock, supra, the rationale that certain taxes, such as estate or gift taxes, are not taxes upon the property but merely taxes upon the right to transfer the property has been followed. United States Trust Co. of New York v. Helvering, 1939, 307 U.S. 57, 59 S.Ct. 692, 83 L.Ed. 1104; Hamersley v. United States, 1936, 16 F.Supp. 768, 83 Ct.Cl. 687; Waud v. United States, 1931, 48 F. 2d 444, 71 Ct.Cl. 567; Chase Nat. Bank of City of New York v. United States, 1929, 278 U.S. 327, 49 S.Ct. 126, 73 L.Ed. 405; Greiner v. Lewellyn, 1922, 258 U.S. 384, 42 S.Ct. 324, 66 L.Ed. 676; New York Trust Co. v. Eisner, 1921, 256 U.S. 345, 41 S.Ct. 506, 65 L.Ed. 963.

This distinction is clearly stated in the case of United States Trust Co. of New York v. Helvering, supra, passing on whether the proceeds of a war risk insurance policy payable to the widow on the veteran's death should be included in his gross estate for estate tax purposes, from which we quote, 307 U.S. at page 60, 59 S.Ct. at page 693, the following:

"* * * Exemptions from taxation do not rest upon implication.

"An estate tax is not levied upon the property of which an estate is composed. It is an excise imposed upon the transfer of or shifting in relationships to property at death. The tax here is no less an estate tax because the proceeds of the policy were paid by the Government directly to the beneficiary; the taxing power was nevertheless exercised upon `the transfer of property procured through expenditures by the decedent with the purpose, effected at his death, of having it pass to another.' In an analogous situation, Federal bonds exempt by statute from all taxation have been held subject to a Federal inheritance tax. And State inheritance taxes can be measured by the value of Federal bonds exempted by statute from State taxation in any form."

The plaintiffs also insist that the holding in Murdock v. Ward, supra, has been qualified and limited in the case of Oklahoma Tax Commission v. United States, 1943, 319 U.S. 598, 63 S.Ct. 1284, 87 L. Ed. 1612, and in Landman v. United States, 1945, 58 F.Supp. 836, 103 Ct.Cl. 199. A careful reading of these decisions will show clearly that they were exceptions to the general rule and are not applicable to the instant case. They involve tax-exempt Indian land. Indians being wards of the Government, an entirely different and more liberal rule applies to them.

The only other exception involves tax exemptions for aliens. The legislative history shows that Congress did not intend to subject alien holders of the exempt bonds to Federal estate taxes. Jandorf's Estate v. Commissioner, 2 Cir., 1948, 171 F.2d 464; Pennsylvania Co. for Banking & Trusts v. United States, 3 Cir., 1950, 185 F.2d 125.

As plaintiffs point out, no case involving these Panama Canal bonds has been decided and none of the cases cited would be controlling if we could find that Congress, in enacting the tax exemption provision in these Panama Canal bonds, did, in fact, intend to relieve the bonds from Federal estate taxes. In support of its argument that such was the intention of Congress, plaintiffs maintain (1) that the legislative history of the prototype of the exemption provision here involved shows such an intention, and (2) that the historical background of the word "duties" shows that the word refers to "death duties" such as estate taxes and that therefore Congress in using that word intended to exempt these bonds from the payment of estate taxes.

The legislative history of the statute authorizing the issuance of the Panama Canal bonds is, as both parties concede, unenlightening as to the particular issue involved here. By way of analogy the parties rely upon the legislative history accompanying the act of July 14, 1870 (16 Stat. 272), which authorized the first issue of Federal bonds exempt from "all taxes or duties of the United States," and which exemption provision is the prototype of the exemption clause involved in this suit. The exemption clause in the 1870 act was the provision construed by the Supreme Court in Murdock v. Ward, supra, and it is this same legislative history which plaintiffs claim was not considered by the Supreme Court in reaching what the plaintiffs assert was an erroneous result in that case.

When the 1870 tax exemption provision was introduced in Congress, there was vigorous opposition to it. Debate on the measure was only in terms of the income tax. See 41 Cong. Globe pp. 1877-1880; 5021-5025. Plaintiffs say that the mention of the income tax was merely for purposes of illustration, and that Congress intended to make these bonds free of all taxes, of whatever nature and however levied, and that this tax exemption was absolute. These 1870 bonds were issued at the beginning of a period when the Government's method of financing the public debt was to issue bonds at a low interest rate, but with a tax exemption to insure marketability and to make the bonds attractive to prospective purchasers.

Whether Congress in 1870 thought that it had to make, and did make, these bonds tax free in the absolute sense contended for by plaintiffs is the question for the court to decide. The language of the exemption does not require such an absolute exemption, unless "duties" is a term of art necessarily including Federal estate taxes, an argument which we will discuss later in this opinion. The language of the exemption does not give a clear answer; the legislative history also fails to provide a clear-cut answer to the question of the legislative intention. It is possible that the reference to income tax during the debates was merely for purposes of illustration, as plaintiffs suggest, but it was stated during the debates that the...