Herold v. Kahn

• Decision Date: 07 February 1908
• Docket Number: 49.
• Citation: 159 F. 608
• Parties: HEROLD, Internal Revenue Collector, v. KAHN et al.
• Court: U.S. Court of Appeals — Third Circuit

159 F. 608

HEROLD, Internal Revenue Collector, v. KAHN et al.

No. 49.

United States Court of Appeals, Third Circuit.

February 7, 1908

Harrison P. Lindabury, for plaintiff in error.

Robert H. McCarter and Conovers English, for defendants in error.

Before DALLAS, GRAY, and BUFFINGTON, Circuit Judges.

GRAY Circuit Judge.

This case comes before the court on writ of error to the United States Circuit Court for the District of New Jersey, to review a final judgment of that court, entered December 11 1906.

Suit was brought by the defendants in error, in the Supreme Court of the state of New Jersey, against the plaintiff in error to recover legacy taxes assessed and paid under the act of Congress of 1898, known as the 'War Revenue Act.' The suit was removed, under the statute in that behalf, to the court below, and finally resulted in the judgment now under review. The case was tried by the court below without a jury trial by jury having been, by agreement of the parties expressly waived. Pursuant to the request, of counsel, the court made certain findings of fact in the case, and entered the same as a special verdict therein. From these findings of fact, we summarize the following:

The defendants in error are the duly qualified executors of the last will and testament of Abraham Wolff, who died October 1, 1900, leaving to survive him two daughters as his only issue, viz., Addie W. Kahn and Clara W. Wertheim. By his last will and testament, the testator gave all the rest, residue, and remainder of his estate, real and personal, to his trustees, the survivors and survivor of them, and his successors, upon the following trusts:

'1. To divide, set apart and hold the same in as many equal portions or shares as I shall leave daughters me surviving and the issue of a deceased daughter, allotting, however, and turning over to the issue of a deceased daughter only the portion or share which their parent would have taken if living, that is to say per stirpes and not per capita, and as to the share of a surviving daughter, to invest and keep invested the personal estate and proceeds of real estate of such share, if sold, in such securities as by the Thirty-sixth article of this my will they are authorized to invest in.

'2. To collect and receive the rents, issues, interest and income of the portion or share so to be set apart for each of my said daughters and to apply the same to her use so long as she shall live free from any control of her husband.

'3. Upon the death of such daughter leaving issue her surviving, to dispose of her share or portion among such issue in shares as she may appoint by will, and in default of such appointment, or so far as such appointment shall not be made, to dispose thereof among such issue in shares per stirpes and not per capita, and if she shall leave no issue her surviving, to continue to hold her share or portion for the benefit of her sister, if living, for life, in trust to collect and receive the rents, issues, interest and income thereof, and to apply the same to her use so long as she shall live, and upon or in case of her death, to divide the same to and among her issue, if any, in shares as she may appoint by will, and in default of such appointment, or so far as such appointment shall not be made, to dispose thereof among such issue, in shares per stirpes and not per capita, and in default of such issue to divide the same to and among the following persons in the proportions herein provided, that is to say: (naming them).'

On May 19, 1903, the said executors, pursuant to the requirement of section 30 of the war revenue act (Act June 13, 1898, c. 448, 30 Stat. 465 (U.S. Comp. St. 1901, p. 2308)), filed with the plaintiff in error, as internal revenue collector, a schedule and return, together with an affidavit, showing the legacies and distributive shares arising from the personal property of every kind belonging to the estate of Abraham Wolff, including therein the life interests of the two daughters, under the foregoing sections of his said will. This affidavit was filed with the return, for the purpose of bringing to the attention of the collector certain items not included in the return, which the executors claimed were not taxable. These disputed items have no relation to the claim in suit. According to this return, the amount of the said testator's residuary estate was $5,295,537.94. The inventoried valuation of one-half of the said residuary estate, which, by the terms of the said will, was trusteed for the benefit of the said Clara W. Wertheim, was the sum of $2,647,768.97. By a letter dated July 10, 1903, the executors were advised by the collector that the commissioner at Washington was not satisfied with the return, in reference to matters having no bearing on the issue before us, and they were requested to forward a new return, for transmission to the department.

Following this, correspondence ensued between the attorneys of the executors and the said collector, and also the Commissioner of Internal Revenue, at Washington, with the result that Mr. Carnochan, one of said attorneys, went to Washington on the 13th of August, 1903, and had a personal interview with the solicitor of the Internal Revenue Department, in reference to the various items which the executors claimed should not be taxed, but which the department claimed were taxable. Mr. Carnochan, at this interview, stated to the said solicitor that, until the legal questions relating to the taxability of said items were determined, it would not be possible to file a new return. At the same time, he stated that the executors were willing to have the legal questions involved determined in any suitable way. The solicitor stated that he would consider the matter. Under date of September 2, 1903, the attorneys for the executors wrote to the Commissioner of Internal Revenue at Washington, referring to the interview of Mr. Carnochan with the solicitor of the department, and stated that:

'He (Carnochan) was informed that the course of business was such that the matter could not be formally reported to your department from the collector of Newark, until the latter part of last month, August, and that then the matter would be taken up and a determination reached as to certain items, the taxability of which was more or less discussed with the solicitor.'

The letter then asks:

'Is there anything further, by way of proof or brief, that your department desires in the matter? We understand that no assessment has yet been made.'

Under date of September 8, 1903, the said attorneys received the following letter from the deputy commissioner:

'This office is in receipt of your letter of the 2d inst., relative to the estate of Abraham Wolff, in which you ask if anything further, by way of proof or brief, is desired in the matter. In reply, you are advised that no further information is desired, and that action will be taken in the matter in the near future.'

No further information or communications were had, from either the collector or the Internal Revenue Commissioner, until under date of October 26, 1903, a letter from the collector, the plaintiff in error, was received by the executors, inclosing a notice and demand for taxes assessed against the estate of Abraham Wolff, and addressed to the defendants in error, as executors. This notice was as follows:

'You are hereby notified that a tax under the internal revenue laws of the United States, amounting to $107,398.16, the same being a tax upon legacies and distributive shares, has been assessed against you by the Commissioner of Internal Revenue and transmitted by him to me for collection. Demand is hereby made for this tax, which is due and payable within one year of death of testator when death occurred on or after July 1, 1901, and in case testator died before July 1, 1901, tax must be paid before July 1, 1902, but in all cases payment of tax before distribution is imperative and unless paid on or before the time when due and payable, it will be my duty to collect the same with a penalty of 5 per centum additional, and interest at 1 per centum per month.

'Payment may be made to me at Newark P. O. Building.

'$107,398.16.

Herman C. H. Herold, Collector.' Under the same date, the attorneys for the executors received a like letter from the collector, inclosing a copy of said notice. Following the receipt of this notice and demand one of the said attorneys, on behalf of the executors, on November 4, 1903, personally called at the office of the plaintiff in error, collector as aforesaid, with a certified check for the amount of money specified in the notice, and paid the tax. At the same time, he stated on behalf of the executors that the tax was paid under protest, and in addition, filed with the said collector a written protest, in which they asserted that the whole of the said tax was illegal and invalid, illegally and improperly assessed, that they paid the same only under protest, and only because of the requirement of the department, and to prevent proceedings to compel collection, and for interest and penalty. They then proceed, as follows:

'They particularly protest that the said tax is illegal and invalid, and is illegally and improperly assessed, so far as it includes a tax on life interests created by said will, and they pay the same only under protest, and only for the reasons above given.'

The said Clara W. Wertheim, the life beneficiary of the share of the residuary estate here in question, died...