Hollander v. United States

• Decision Date: 01 October 1957
• Docket Number: No. 246,Docket 24276.,246
• Parties: Barnett HOLLANDER, Executor of the Will of Lester Field, Deceased, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

248 F.2d 247 (1957)

Barnett HOLLANDER, Executor of the Will of Lester Field, Deceased, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

No. 246, Docket 24276.

United States Court of Appeals Second Circuit.

Argued May 17, 1957.

Decided October 1, 1957.

Sidney J. Schwartz, New York City, for appellant.

Paul W. Williams, U. S. Atty., New York City, for appellee. Robert J. Ward and Harold J. Raby, Asst. U. S. Attys., New York City, of counsel.

Before CLARK, Chief Judge, and SWAN and POPE, Circuit Judges.

SWAN, Circuit Judge.

Lester Field, a citizen of the United States domiciled in the state of New York, died on November 16, 1937 leaving a will which was duly admitted to probate and of which the appellant was appointed executor. The present action seeks recovery of part of the estate tax paid many years ago. It is founded upon a retroactive tax relief measure enacted as section 607 of the Revenue Act of 1951.¹ The amount claimed is $25,811.95, with interest from June 30, 1952, the date of filing a claim for refund.² This claim was denied on October 20, 1952, and suit was brought within less than two years thereafter.

In the court below the defendant, before answering, moved to dismiss the complaint. This motion was denied by Judge Murphy in a well-reasoned opinion which held the complaint good.³ Thereafter an answer was filed and, as there were no disputed facts, both parties moved for summary judgment. The motions came on before Judge Dimock, who denied the plaintiff's motion, granted the defendant's, and dismissed the complaint in an opinion not reported. The Government makes no attempt to support the decision in its favor on the ground taken by the District Judge.⁴

The estate tax was determined after extensive litigation.⁵ The question decided was the proper valuation of the corpus of an inter vivos trust under section 302(c) of the Revenue Act of 1926, 44 Stat. 9, 70, 26 U.S.C.A.Int.Rev.Acts, page 227, which required including in a decedent's gross estate the value at his death of all property "To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise * * * intended to take effect in possession or enjoyment at or after his death * * *." On June 8, 1922 Lester Field had transferred to a trustee property which at the date of his death was valued at $307,452.82. The trust instrument provided that $150,000 should be set aside for the settlor's widow. This sum the taxpayer has at all times conceded was properly includable in the gross estate, and the litigation concerned the remaining $157,452.82. As to this sum the trust was to continue during the lives of the settlor's two nieces, but if both died before his death the corpus would have been paid to him rather than to the beneficiaries named in the trust instrument. At his death he was survived by the two nieces and the named beneficiaries as well as his widow. Because of the retained possibility of reverter the trust corpus was "swept into the gross estate and was taxable accordingly." Commissioner of Internal Revenue v. Estate of Field, 324 U.S. 113, 114, 116, 65 S.Ct. 511, 512, 89 L.Ed. 568.

Provisions of the Revenue Acts like those of section 302(c) of the 1926 Act respecting transfers to take effect at or after the settlor's death were for many years the source of fluctuating judicial interpretation not finally settled until 1949.⁶ At the date of Field's death, the existence of a possibility of reverter did not, under the Treasury Regulations then in effect, subject the property to estate tax.⁷ Nevertheless, as already stated, the trust corpus was held to be includable in the gross estate. Shortly after the decision in Spiegel's Estate and Church's Estate, cited in note 6, supra, Congress amended the Internal Revenue Code of 1939 to provide retroactive tax relief for certain estates prejudiced by the Supreme Court's change of position.⁸ Only estates of decedents dying after February 10, 1939 were given such relief. In 1951 retroactive relief was extended to some estates of persons dying between March 18, 1937 and February 11, 1939.⁹ This is the provision upon which the appellant relies. The Government contends that the 1951 amendment did not help Field's estate because (1) any right to a refund was barred by the statute of limitations and the prior litigation in the Tax Court;¹⁰ (2) the 1951 amendment was impliedly repealed by the Technical Changes Act of 1953, section 207(b);¹¹ and (3) even under the provisions of the 1951 amendment, the corpus of the trust was properly includable in Field's estate. These points will be considered seriatim.

(1) To a majority of the court both the language of section 607 of the Revenue Act of 1951 and its legislative history make clear that the purpose of the legislation was to extend to estates of decedents dying after March 18, 1937 and before February 11, 1939 retroactive tax relief similar to that already granted by the Technical Changes Act of 1949 to estates of persons dying after February 10, 1939. The Joint Committee Staff Summary of Provisions of the Revenue Act of 1951 contains the following comment:

"The provisions of the Technical Changes Act of 1949 apply only with respect to decedents dying after February 10, 1939, the date of enactment of the Internal Revenue Code. In the case of such decedents, property is included in the gross estate by reason of the retention of a reversionary interest in a transfer made before October 8, 1949, only if the reversionary interest is express and is worth more than 5 percent immediately before the decedent\'s death.

On March 18, 1937, Treasury Decision 4729 was issued by the Treasury Department, providing that property should not be taxed by reason of the retention of a reversionary interest. Section 607 of the bill provides that property transferred by a decedent dying after March 18, 1937, and before February 11, 1939 is not to be included in the estate of the decedent because of a possibility of reverter if the regulations in effect at the time of the death of the decedent did not provide for the inclusion of property so transferred."¹²

The legislation would be an empty gesture and its purpose largely, if not completely, frustrated if sections 910 and 911 of the 1939 Code stand as bars to a claim for refund.

The 1951 legislation was designed to provide retroactive tax relief under circumstances where Congress must have known that the application of the limitation of section 910 would probably nullify the promised relief, since it was patently unlikely that few, if any, estates of decedents dying between March 18, 1937 and February 11, 1939 would not have paid the estate tax more than three years before a claim for refund under the 1951 amendment could be presented. Failure to refer to the statute of limitations and provide explicitly for lifting its bar does not, in our opinion, justify the Government's contention that section 607 was intended to "remedy the hardship only in those cases still pending in the administrative process or in the Courts." With respect to section 911, the legislative purpose of such a statute, as this court stated in Elbert v. Johnson, 2 Cir., 164 F.2d 421, 423, is "to achieve finality in the determination by the Board of Tax Appeals (now the Tax Court) of the taxpayer's liability for the year in suit." But the purpose of the 1951 legislation was exactly the opposite. It was designed to destroy the finality of the Tax Court decisions, even after affirmance by the Supreme Court, as in the Field, Spiegel and Church cases.

The question for decision is whether the 1951 statute should be construed to repeal or suspend for purposes here involved the bars provided in sections 910 and 911. We think this question should be answered in the affirmative. The statute may be characterized as a remedial one intended for the relief of certain classes of taxpayers. It is axiomatic that such a statute should be construed in favor of those intended to be benefited.¹³ We have already indicated our view that to apply sections 910 and 911 would make the 1951 relief measure a dead letter.¹⁴ The decisions are legion in which courts have refused to be bound by the letter, when it frustrates the patent purpose of the whole statute.¹⁵ As Circuit Justice Holmes said in a much quoted passage in Johnson v. United States, 1 Cir., 163 F. 30, 32:

"The major premise of the conclusion expressed in a statute, the change of policy that induces the enactment, may not be set out in terms, but it is not an adequate discharge of duty for courts to say: We see what you are driving at, but you have not said it, and therefore we shall go on as before."

(2) The next question is whether section 607 was repealed by section 207(b) of the Technical Changes Act of 1953. It was not expressly repealed. Hence the applicable rule is that stated in United States v. Borden Co., 308 U.S. 188, 198, 60 S.Ct. 182, 188, 84 L.Ed. 181:

"It is a cardinal principle of construction that repeals by implication are not favored. When there are two acts upon the same subject, the rule is to give effect to both if possible."

And after citing numerous cases the court declared, quoting from Wood v. United States, 16 Pet. 342, 362, 10 L.Ed. 987, that there must be "a positive repugnancy between the provisions of the new law and those of the old; and even then the old law is repealed by implication only pro tanto to the extent of the repugnancy."

We do not see any such repugnancy as to require holding that the later act destroyed the right to refund granted by the earlier and completely matured by the Commissioner's rejection of the claim on October 20, 1952. Section 207(b) of the 1953 Act is printed in footnote 11, supra. The scope of the two acts is not the same. Section 607 dealt solely with possibilities of reverter not taxable under the Treasury Regulations. As clearly appears from the legislative history of section...