Hernandez v. Becker

• Decision Date: 07 December 1931
• Docket Number: No. 465.,465.
• Citation: 54 F.2d 542
• Parties: HERNANDEZ, Collector of Internal Revenue, v. BECKER.
• Court: U.S. Court of Appeals — Tenth Circuit

54 F.2d 542 (1931)

HERNANDEZ, Collector of Internal Revenue, v. BECKER.

No. 465.

Circuit Court of Appeals, Tenth Circuit.

December 7, 1931.

Frederick W. Dewart, Sp. Atty., Bureau of Internal Revenue, of Washington, D. C. (Hugh B. Woodward, U. S. Atty., and Dudley Cornell, Asst. U. S. Atty., both of Albuquerque, N. M., and C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, of Washington, D. C., on the brief), for appellant.

R. H. Hanna and Fred E. Wilson, both of Albuquerque, N. M., for appellee.

Louis C. Ilfeld, of Las Vegas, N. M., filed brief as amicus curiæ.

Before COTTERAL and PHILLIPS, Circuit Judges, and JOHNSON, District Judge.

PHILLIPS, Circuit Judge.

John Becker brought this suit to recover a federal estate tax paid under protest on the estate of Anna Becker. From a judgment in favor of John Becker, the collector has appealed.

The stipulated facts are as follows: John Becker and Anna Becker were married in 1877, and thereafter continuously resided in New Mexico until the death of Anna Becker in December, 1922. John Becker, as executor of her estate, filed under protest a return for federal estate tax purposes on October 26, 1923. The property reported in the return as the gross estate was accumulated by the Beckers after their marriage while residents of New Mexico, and was their community estate. A tax of $3,498.74 was assessed on the transfer of one-half of such property. The tax was paid under protest. On March 22, 1928, John Becker filed a claim for refund of the entire tax. Such claim was rejected April 19, 1928.

The question here presented is whether the wife's interest in the community property, upon the transfer of which the tax was computed and collected, was of such a character as to give rise, upon her death, to a federal estate tax measured by the value of such interest.

The Revenue Act of 1921 (42 Stat. 277, 278) provides in part as follows:

"Sec. 401. That, in lieu of the tax imposed by Title IV of the Revenue Act of 1918, a tax equal to the sum of the following percentages of the value of the net estate (determined as provided in section 403) is hereby imposed upon the transfer of the net estate of every decedent dying after the passage of this act. * * *

"Sec. 402. That 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 which after his death is subject to the payment of the charges against his estate and the expenses of its administration and is subject to distribution as part of his estate;

"(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 lieu of dower or curtesy; * * *

"(d) To the extent of the interest therein held jointly or as tenants in the entirety by the decedent and any other person, or deposited in banks or other institutions in their joint names and payable to either or the survivor, except such part thereof as may be shown to have originally belonged to such other person and never to have been received or acquired by the latter from the decedent for less than a fair consideration in money or money's worth; * * *

"(f) To the extent of the amount receivable by the executor as insurance under policies taken out by the decedent upon his own life; and to the extent of the excess over $40,000 of the amount receivable by all other beneficiaries as insurance under policies taken out by the decedent upon his own life."

In Chase National Bank v. United States, 278 U. S. 327, 334, 49 S. Ct. 126, 127, 73 L. Ed. 405, 63 A. L. R. 388, the court said:

"The statute in terms taxes transfers. Like provisions in earlier acts have been generally upheld as imposing a tax on the privilege of transferring the property of a decedent at death, measured by the value of the interest transferred or which ceases at death. Cf. Y. M. C. A. v. Davis, 264 U. S. 47, 50, 44 S. Ct. 291, 68 L. Ed. 558; Edwards v. Slocum, 264 U. S. 61, 62, 44 S. Ct. 293, 68 L. Ed. 564; New York Trust Co. v. Eisner, 256 U. S. 345, 349, 41 S. Ct. 506, 65 L. Ed. 963, 16 A. L. R. 660; Nichols v. Coolidge, 274 U. S. 531, 47 S. Ct. 710, 71 L. Ed. 1184, 52 A. L. R. 1081."

But in Tyler et al., Adm'rs, v. United States, 281 U. S. 497, 50 S. Ct. 356, 358, 74 L. Ed. 991, 69 A. L. R. 758, the court gave section 402 (d), supra, a broad construction and held that a technical transfer of an estate from the decedent to the beneficiary was not essential with respect to estates by the entirety. In that case the court said:

"1. The contention that, by including in the gross estate the value of property held by husband and wife as tenants by the entirety, the tax pro tanto becomes a direct tax — that is, a tax on property — and therefore invalid without apportionment, proceeds upon the ground that no right in such property is transferred by death, but the survivor retains only what he already had. Section 201 imposes the tax `upon the transfer of the net estate'; and if that section stood alone, the inclusion of such property in the gross estate of the decedent probably could not be justified by the terms of the statute. But section 202 definitely includes the property and brings it within the reach of the words imposing the tax. * * * A tax laid upon the happening of an event, as distinguished from its tangible fruits, is an indirect tax which Congress, in respect of some events not necessary now to be described more definitely, undoubtedly may impose. If the event is death and the result which is made the occasion of the tax is the bringing into being or the enlargement of property rights, and Congress chooses to treat the tax imposed upon that result as a death duty, even though, strictly, in the absence of an expression of the legislative will, it might not thus be denominated, there is nothing in the Constitution which stands in the way.

"The question here, then, is, not whether there has been, in the strict sense of that word, a `transfer' of the property by the death of the decedent, or a receipt of it by right of succession, but whether the death has brought into being or ripened for the survivor, property rights of such character as to make appropriate the imposition of a tax upon that result (which Congress may call a transfer tax, a death duty or anything else it sees fit), to be measured, in whole or in part, by the value of such rights.

"According to the amiable fiction of the common law, adhered to in Pennsylvania and Maryland, husband and wife are but one person, and the point made is that, by the death of one party to this unit, no interest in property held by them as tenants by the entirety passes to the other. * * *

"Taxation, as it many times has been said, is eminently practical, and a practical mind, considering results, would have some difficulty in accepting the conclusion that the death of one of the tenants in each of these cases did not have the effect of passing to the survivor substantial rights, in respect of the property, theretofore never enjoyed by such survivor. Before the death of the husband (to take the Tyler Case, No. 428) the wife had the right to possess and use the whole property, but so also had her husband; she could not dispose of the property except with her husband's concurrence; her rights were hedged about at all points by the equal rights of her husband. At his death, however, and because of it, she, for the first time, became entitled to exclusive possession, use and enjoyment; she ceased to hold the property subject to qualifications imposed by the law relating to tenancy by the entirety, and became entitled to hold and enjoy it absolutely as her own; and then, and then only, she acquired the power, not theretofore possessed, of disposing of the property by an exercise of her sole will. Thus the death of one of the parties to the tenancy became the `generating source' of important and definite accessions to the property rights of the other. These circumstances, together with the fact, the existence of which the statute requires, that no part of the property originally had belonged to the wife, are sufficient, in our opinion, to make valid the inclusion of the property in the gross estate which forms the primary base for the measurement of the tax. And in that view the resulting tax attributable to such property is plainly indirect."

Again in construing section 402 (f), supra, in Chase National Bank v. United States, supra, the court held that a technical passing of the proceeds of insurance policies from the decedent to the beneficiaries was not essential, and in the opinion said:

"Obviously, the word `transfer' in the statute, or the privilege which may constitutionally be taxed, cannot be taken in such a restricted sense as to refer only to the passing of particular items of property directly from the decedent to the transferee. It must, we think, at least include the transfer of property procured through expenditures by the decedent with the purpose, effected at his death, of having it pass to another."

In determining the character of the interests of John and Anna Becker in such community estate, the statutes and rules of decision in New Mexico, where the property is located, are controlling. Allen v. Henggeler (C. C. A. 8) 32 F.(2d) 69, 70; United States v. Robbins, 269 U. S. 315, 326, 46 S. Ct. 148, 70 L. Ed. 285; Talcott v. United States (C. C. A. 9) 23 F.(2d) 897, 899.

A statutory system of community property in New Mexico has obtained continuously since 1852 (see Act of Jan. 12, 1852, Rev. St. Ter. N. Mex. 1855, pp. 494-496; Comp. Laws N. Mex. 1884, §§ 1407-1411), with the possible exception of the period between February 24, 1887, and February 26, 1889, when rights analogous to dower and curtesy were...