Haffner v. U.S., 84-1946

• Decision Date: 23 April 1985
• Docket Number: No. 84-1946,84-1946
• Citation: 757 F.2d 920
• Parties: -1575, 85-1 USTC P 13,611 Charles C. HAFFNER III and The Northern Trust Company, as Executors of the Will of Charles C. Haffner, Jr., deceased, Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 920

757 F.2d 920

55 A.F.T.R.2d 85-1575, 85-1 USTC P 13,611

Charles C. HAFFNER III and The Northern Trust Company, as Executors of the Will of Charles C. Haffner, Jr., deceased, Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant.

No. 84-1946.

United States Court of Appeals, Seventh Circuit.

Argued Jan. 21, 1985.

Decided March 21, 1985.

As amended April 23, 1985.

Middleton Miller, Sidley & Austin, Chicago, Ill., for plaintiffs-appellees.

Ernest J. Brown, Dept. of Justice, Washington, D.C., for defendant-appellant.

Before BAUER and POSNER, Circuit Judges, and JAMESON, Senior District Judge. ^*

PER CURIAM.

The executors of the estate of Charles C. Haffner, Jr., Deceased, brought this action against the United States, asserting a claim for refund of estate taxes paid on public housing agency obligations, known as Project Notes, issued pursuant to the "United States Housing Act of 1937," as amended by the Housing and Community Development Act of 1974, 42 U.S.C. Sec. 1437. On cross motions for summary judgment the district court, in a detailed and well reasoned opinion, held that the Project Notes were exempt from federal estate taxes under section 11(b) of the Housing Act of 1937, 42 U.S.C. Sec. 1437i(b). Haffner v. United States, 585 F.Supp. 354 (N.D.Ill.1984).

We agree with the district court. With the following minor corrections we adopt Judge Will's opinion and affirm the judgment.

In the fourth full paragraph on page 356, lines 12-13, the citation should read United States v. Manufacturers Nat'l Bank of Detroit.

In the fourth full paragraph on page 357, lines 9-11, the final phrase of the quotation should read: shall be exempt from all taxation now or hereafter imposed by the United States.

In the second full paragraph on page 358, lines 18-19, the citation should read American Bank and Trust Co. v. Dallas County.

The third full paragraph on page 359 should read:

The Jandorf case is practically on all fours with this one. At issue there was the tax treatment of Victory Liberty bonds held by a foreign investor, obligations that were authorized by section 4 of the Victory Liberty Loan Act of March 3, 1919, Pub.L. No. 65-328, 40 Stat. 1309, 1311 (1919). Section 1 of the First Liberty Bond Act of April 24, 1917, Pub.L. No. 65-3, 40 Stat. 35 (1917) describes the tax treatment accorded bonds sold to United States investors and section 4 of the Victory Liberty Loan Act amends a prior act which describes that of bonds sold to foreign investors and purchased with foreign money. The wording of sections 1 and 4 is materially identical to that of sections 20(b) and 5(e), respectively, of the 1937 Act.

In the first full paragraph on page 361, line 8, the citation should read: 88 Stat. 633 (1974). The citation in the final line of that paragraph should read: 88 Stat. 633, 653 (1974).

The second full paragraph on page 361 should read as follows:

In 1949, Congress rewrote section 20 of the 1937 Act deleting any reference to the tax treatment of Authority obligations. See Section 304 of the Housing Act of 1949, Pub.L. No. 81-171, 63 Stat. 413, 427 (1949); 42 U.S.C. Sec. 1420. After the 1949 Act became law, there were two tax exemptions for local housing agency obligations: Section 5(e) of the 1937 Act, 42 U.S.C. Sec. 1437i(b), which applied to obligations issued pursuant to the 1937 Act, and Section 102(g) of the 1949 Act, Pub.L. No. 81-171, 63 Stat. 413, 416 (1949), 42 U.S.C. Sec. 1452(g), which applied to obligations issued pursuant to the 1949 Act.

With the corrections set forth above, we adopt the opinion of the district court as the opinion of this court and affirm the judgment. ¹

AFFIRMED.

POSNER, Circuit Judge, dissenting.

I disagree that notes issued by state or local public housing agencies are exempt from federal estate taxation by virtue of section 5(e) of the Housing Act of 1937.

The statutory language may seem emphatic and unqualified: the notes and income thereon "shall be exempt from all taxation now or hereafter imposed by the United States." But as has been held many times, both before and since 1937, such language does not create an exemption from estate taxation. See, e.g., United States Trust Co. v. Helvering, 307 U.S. 57, 60, 59 S.Ct. 692, 693, 83 L.Ed. 1104 (1939); Murdock v. Ward, 178 U.S. 139, 147-48, 20 S.Ct. 775, 778-79, 44 L.Ed. 1009 (1900); Lowndes, Kramer & McCord, Federal Estate and Gift Taxes Sec. 1.1, at p. 2 (3d ed. 1974). An estate tax is a tax on a transfer of property, not a tax on the property itself or the income from it. This may seem an awfully refined distinction, but no one connected with this case has questioned that if section 5(e) stood alone, the taxpayer would lose.

Three points have carried the day for the taxpayer:

1. An alternative bill to the one that was enacted had, in its version of section 5(e), an express exclusion of estate, gift, and inheritance taxes from the tax exemption conferred by the section; section 5(e) as enacted does not.

2. Senator Walsh, a sponsor of the Housing Act, said on the floor of the Senate that "the bill gives the public housing agencies the right to issue tax-exempt bonds, which means they are free from income tax, surtax, estate, gift, and inheritance taxes." 81 Cong.Rec. 8085 (1937) (emphasis added).

3. Another section of the Act, section 20(b), provides that the obligations of the Federal Housing Authority itself (which the Act created) "shall be exempt, both as to principal and interest, from all taxation (except surtaxes, estate, inheritance, and gift taxes ) now or hereafter imposed by the United States or by any State, county, municipality, or local taxing authority" (emphasis added); the parenthetical is missing from section 5(e).

None of these ambiguous tidbits, nor all three together, persuade me that Congress meant to grant extraordinary tax favors to the holders of notes of public housing agencies.

The alternative bill differed from the one enacted in other respects besides estate taxation, and I can find no discussion of that difference. Also, the bill was rejected in committee, hence didn't reach the floor of the Congress and no doubt was unknown to most members of Congress. There is no evidence that the alternative bill was rejected because it failed to exempt obligations of public housing agencies from estate taxes.

The phrasing of Senator Walsh's statement ("which means") suggests that he misunderstood the well-settled meaning of "tax-exempt bonds." Of course if this misunderstanding was enacted by Congress, that is the end of the case. But it would be unrealistic to think it was. The statement occurred in the course of a long speech by Senator Walsh explaining the provisions of the Act. The fact that no one jumped up and said, "Senator, I think you have misstated the effect of the tax-exemption language in section 5(e)," provides but weak evidence that the Senate (and House, whose concurrence was, of course, necessary for the enactment of the bill) intended to adopt a novel form of tax exemption. It is true that Senator Wagner, the author of the bill, was present and corrected Senator Walsh on some other matters; but since Homer nods, maybe Senator Wagner did too, on this occasion. In Jandorf's Estate v. Commissioner of Internal Revenue, 171 F.2d 464 (2d Cir.1948), as in this case, one section of the statute excepted estate taxes from the exemption granted by the statute and another did not, but the legislative history makes crystal clear that the difference was deliberate. See id. at 466 and n. 1. Furthermore, for 20 years the Treasury had construed the section to grant an...