Howard v. United States

• Citation: 125 F.2d 986
• Decision Date: 06 April 1942
• Docket Number: 10124.,No. 10061,10061
• Parties: HOWARD et al. v. UNITED STATES et al. UNITED STATES et al. v. HOWARD et al.
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

125 F.2d 986 (1942)

HOWARD et al. v. UNITED STATES et al. UNITED STATES et al. v. HOWARD et al.

Nos. 10061, 10124.

Circuit Court of Appeals, Fifth Circuit.

February 6, 1942.

Rehearing Denied April 6, 1942.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Esmond Phelps, of New Orleans, La., for appellants Howard.

Arthur A. Moreno, of New Orleans, La., for Amicus Curiæ.

Milford S. Zimmerman, J. Louis Monarch, and Sewall Key, Sp. Assts. to the Atty. Gen., Samuel O. Clark, Jr., Asst. Atty. Gen., and Robert Weinstein and J. Skelly Wright, Asst. U. S. Attys., both of New Orleans, La., for the United States and another, appellees.

Before FOSTER, HOLMES, and McCORD, Circuit Judges.

HOLMES, Circuit Judge.

This action was filed by the executors of Howard, a life long resident of Louisiana, to recover money paid under protest as federal estate taxes. Each side has appealed from separate portions of the lower court's judgment.

The appeal of the executors is from that portion of the judgment assessing estate taxes against them in respect to certain gifts inter vivos made by the decedent to his wife prior to 1926. Though the donor alienated the property as completely as he could, it was the opinion of the court below that the gifts at all times were revocable at the option of the donor by virtue of Article 1749 of the Civil Code of Louisiana, and that the gifts, being incomplete at the time of his death, remained the property of the decedent for estate tax purposes.

Article 1749 provides that all donations made between married persons, during marriage, though termed inter vivos, shall always be revocable. Section 302(d) (1) of the Revenue Act of 1926, as amended in 1934, which was in force at the time of Howard's death in 1937, included in the estate of the decedent, as property belonging to him and subject to the estate tax, all property owned by the decedent and transferred by him where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power by the decedent to alter, amend, revoke, or terminate.¹

All of the transfers in question were made in Louisiana, conveyed property in that state, and were subject to the laws thereof. Said article 1749 operates as a limitation upon every transfer of property by gift from a husband to his wife during the marriage state as effectively through statutory enactment as by express contract provision.² Whether this power resulted from the intentional act of the donor or was reserved to him by operation of law, the fact remains that the gifts constituted transfers subject, at the date of the decedent's death, to change in enjoyment through the exercise of a power vested in the donor. Commissioner v. Allen, 3 Cir., 108 F.2d 961.

The cases of Helvering v. Helmholz, 296 U.S. 93, 56 S.Ct. 68, 80 L.Ed. 76, and White v. Poor, 296 U.S. 98, 56 S.Ct. 66, 80 L.Ed. 80, are relied upon in support of the contention that Section 302(d) distinguishes between a power to revoke derived from the donor's own act, and an identical power vested in him by state law. We do not so construe those cases. The Helmholz case involved a gift in trust that, under the state law and the provisions of the trust indenture, was terminable by the joint act of all the beneficiaries. In White v. Poor the declaration of trust could be terminated by the concerted action of the trustees. The declarant resigned as trustee in 1920, and was reappointed in 1921 by the written nomination of the remaining trustees. Her power to revoke, therefore, was attributable to the action of the other trustees, not to a power vested in her as settlor of the trust.

The revenue statute does not create any distinction as to the source of the power to revoke. It has been uniformly construed to operate alike upon all gifts rendered incomplete by the reservation in the donor of a power to revoke.³ We think these gifts fall squarely within the terms of the statute, and were proper subjects of the estate tax.

We have been cited no authority, and we are aware of none, to the effect that the Revenue Act has no application to property otherwise subject to the tax because the taxpayer is powerless to deal therewith in a manner that will place it beyond the coverage of the Act. Weil v. Commissioner, 5 Cir., 82 F.2d 561, 563, which is relied upon as authority, simply holds that a taxpayer must, ordinarily, do all that his power and the nature of the property permit in parting with ownership and dominion in order to make a gift irrevocable. It does not hold that, where a taxpayer does all he can to make an irrevocable gift, and the gift then remains revocable upon the exercise of a power vested in the donor, an irrevocable gift has been made.

The tax levy in this case is not upon those transfers made by the decedent prior to 1924. The extinguishment by death in 1937 of the power to revoke completed the transfer to which the tax was applied. That this transfer at death was a taxable event, and that the levy upon that transfer in 1937 was neither a retroactive nor an unconstitutional application of the statute, has been settled beyond question.⁴

The executors contend in the alternative that, of the property given, only that of a value of $347,925.88 is subject to the tax, because only this amount of the identical securities donated remained in unaltered form in the hands of the donee on the date of decedent's death; that the power of revocation exercisable by the donor was effective only as to the particular thing given, and had previously ceased to exist as to all securities that were changed in form. This contention is unsound for the reason that the statutory power of revocation is enforceable so long as the substance of the donation is tangible or is susceptible of identification.⁵ That the entire amount assessed was susceptible of identification in 1937 is evidenced conclusively by the recitation in the stipulation of facts that the disputed assets either were acquired by the donee by purchase with cash given to her by her husband, or were acquired by the redemption, sale, or exchange of other securities given by him to her. It therefore appears that the Commissioner's assessment of estate taxes in respect to the donations made by the decedent to his wife during coverture was properly sustained by the court below, and that, on the appeal of the executors, the judgment should be affirmed.

The appeal of the Commissioner originally presented two questions. It is conceded that the first was decided in favor of the taxpayer in Maass v. Higgins, 312 U.S. 443, 61 S.Ct. 631, 85 L.Ed. 940, 132 A.L.R. 1035, and the point has been abandoned. The remaining question is whether certain policies of insurance on the life of Howard, purchased during wedlock, were community property or were the separate property of the decedent.

Howard was married in 1914 to the wife who survived him. The policies were taken out in 1917, and the annual premiums thereon were paid by checks drawn by Howard upon a bank account standing in his name. He was a man of considerable wealth and income before his marriage, and thereafter his wealth steadily increased, and his income each year substantially exceeded his expenditures. These facts were stipulated, and no further proof was submitted on the issue of the ownership of the policies.

This being a suit to recover taxes wrongfully collected, the executors admit that upon them rested the burden of proving that the policies were community property; and they contend that the facts agreed upon, aided by two legal presumptions created by Louisiana statutes, satisfied that burden. Articles 2402 and 2405 of the Civil Code of Louisiana create disputable presumptions that all property acquired during the existence of the community belongs to the community, and that property purchased during the marriage in the name of one spouse only, by the use of funds deposited to the credit of that spouse only, is community property.⁶

The Government admits that a community of acquets and gains existed between Mr. and Mrs. Howard, and that, if the presumptions of Louisiana law are applicable to this case, only one-half of the net taxable value of the proceeds of the policies is subject to the estate tax under the holding in the Lang and De Lappe cases.⁷ It contends that these presumptions under Louisiana law may not be used to help sustain the burden of proof upon the executors, for the reason that the federal revenue laws are not subject to state control or limitation, in the absence of an express provision in the federal statute providing therefor.⁸ It is said that the general purpose of those laws, to establish a nationwide scheme of uniform taxation, otherwise would be defeated.⁹ The question, therefore, turns upon whether or not the federal court may apply these presumptions in a case like this where the issue depends upon the ownership of property within the State of Louisiana.

The operation of these presumptions is only to supply an inference of fact from other facts in evidence.¹⁰ The facts stipulated by the parties in this case take the place of evidence, and supply the bases for two inferences: (1) that the policies, being acquired during the marriage state, were community property; (2) that the premiums paid thereon were derived from community funds deposited in bank to the checking account of the husband. These inferences merely cast upon the opposite party the duty of producing some evidence to the contrary, and would yield readily to such evidence, but none is offered. They are not arbitrary inferences capriciously drawn by legislative fiat;¹¹ they are legal presumptions based upon human experience, and the constitutionality of the statutes creating them is not assailed in their ordinary application to community property rights in Louisiana. The contention is that the presumptions cannot be applied in the statutory action to recover taxes erroneously or illegally paid, because their...