Heitsch v. Kavanagh, 7229.

• Decision Date: 16 March 1951
• Docket Number: No. 7229.,7229.
• Citation: 97 F. Supp. 749
• Parties: HEITSCH v. KAVANAGH.
• Court: U.S. District Court — Western District of Michigan

97 F. Supp. 749

HEITSCH v. KAVANAGH.

No. 7229.

United States District Court E. D. Michigan, S. D.

March 16, 1951.

Robert D. Heitsch, Pontiac, Mich., for plaintiff.

Edward T. Kane, U. S. Atty., Roger P. O'Connor, Asst. U. S. Atty., Detroit, Mich., for defendant.

KOSCINSKI, District Judge.

Plaintiff filed this suit as executor of the estate of Janet H. Heitsch, deceased, to recover federal estate taxes paid by him under protest.

It is plaintiff's claim that provisions of the Internal Revenue Code requiring payment of federal estate taxes are void as violative of the Constitution of the United States in the following respects:

a. That Secs. 3760(a) (b) and 3761(a), Title 26 U.S.C.A., authorizing compromises and closing agreements, attempt to confer important legislative functions on members of the executive branch of the government, thus violating Art. I, Sec. I of the Constitution which vests legislative power in Congress, and also purport to authorize executive officers to substitute their judgment for legislative authority so as to arrive at a tax which could represent a different percentage of the value of each similar estate in any part of the United States, contrary to Art. I, Sec. 8 of the Constitution which requires all duties, imposts, and excises to be uniform throughout the United States;

b. That Sec. 811(c) governing transfers in contemplation of death or taking effect at death, purported to deprive plaintiff's decedent of the opportunity afforded others with like estates, who did not die within a period of two years after the first effective date of the estate tax, to dispose of her estate by gift, inasmuch as on such effective date she was confined to a hospital with illness which caused her death; that the difference between estate and gift tax rates was so great as to violate the uniformity clause, Art. I, Sec. 8, and also amounted to taking property for public use without just compensation and without due process of law, which is prohibited by the 5th Amendment;

c. That no adequate machinery is provided to procure equalization of assessment for estate tax purposes under the estate tax provisions throughout the United States, resulting in lack of uniformity required by Art. 1, Sec. 8;

d. That estate tax rates effective under Sec. 935, on September 21, 1941, as to persons dying after that date, are so excessive as to deprive beneficiaries of estates of property without due process of law and without just compensation, contrary to the 5th Amendment;

e. That estate tax provisions encroach upon exclusive functions of states to control descent and distribution of property in that rates are so excessive that they cannot be regarded as a mere taxing incident, and that machinery set up for administration of the Act and actual attempt to administer it are so inadequate that they unreasonably interfere with and prolong beyond a point of any reasonable taxing incident the administration of estates which is purely a state function; that such rights were reserved to the states under the 10th Amendment;

f. That the difference between taxes on transfers by gift and disposition of property by will or descent, is an attempt to induce dispositions by gift during lifetime rather than by will or descent, whereas power over such policy was expressly reserved to the states, and no other provision of the Constitution delegates such power to the United States.

Findings of Fact

1. Janet H. Heitsch executed a will on August 22, 1941, while she was a patient in a hospital, suffering from illness which caused her death on November 8, 1941. Her will was duly admitted to probate and plaintiff was appointed executor of her estate.

2. A federal estate tax return was filed by the executor which reported gifts made individually to persons named as residuary legatees in her will. All such gifts were made more than two years prior to the death of the deceased.

3. Federal estate taxes and interest were paid under protest by plaintiff as follows:

                    February 15, 1943 — $60,162.27
                    March 13, 1943    —   1,515.27
                    February 23, 1944 —   6,551.27
                    April 4, 1944     —     393.08
                

The additional assessments, made following payment of the $60,162.27, were due to errors in computation based on information in the return, minor adjustments in values of property included in the return, and disallowance of attorney and executor fees and administration expenses to the extent that actual amounts paid were exceeded by anticipated amounts in the return.

4. A claim for refund of the full amount paid for estate taxes, based on substantially the same grounds relied on in the complaint, was denied.

5. No transfers by deceased during her lifetime were included in her taxable estate.

6. No closing agreement or compromise was proposed or entered into by the executor or any other person on behalf of the estate of the deceased.

Conclusions of Law

1. Secs. 3760(a), (b), and 3761 (a), Title 26 U.S.C.A. grant authority to the administrative officers named therein to settle and compromise matters relating to tax liability. Specific rates of taxation and incidents of taxation to which they shall apply, are set forth in various other sections of the Internal Revenue Code. The administrative officers charged with the duty of assessing and collecting taxes must apply such specified rates to the objects which Congress has chosen for taxation under the Internal Revenue Code. It is clear from a reading of Secs. 3760(a), (b) and 3761(a) that no authority is conferred to apply other rates or to exclude taxable items. Such sections merely empower such administrative officers to settle disputes as to whether or not a tax liability exists. Congress has determined what the law shall be, but left the volume of detail involved in execution of the law to administrative officers. Genuine disputes may arise because of a difference of opinion as to the existence of a tax obligation. Settlement of such disputes was entrusted by Congress to officers who are familiar with the details of the tax claims and to determine whether facts exist which give rise to a tax obligation or an established series of facts falls within the taxing provisions which Congress has enacted. "The true distinction, therefore, is, between the delegation of power to make the law, which necessarily involves a discretion as to what it shall be, and conferring an authority or discretion as to its execution, to be exercised under and in pursuance of the law. The first cannot be done; to the latter no valid...