Industrial Trust Co. v. Commissioner of Int. Rev.

• Decision Date: 29 October 1945
• Docket Number: No. 4038.,4038.
• Citation: 151 F.2d 592
• Parties: INDUSTRIAL TRUST CO. et al. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — First Circuit

151 F.2d 592 (1945)

INDUSTRIAL TRUST CO. et al. v. COMMISSIONER OF INTERNAL REVENUE.

No. 4038.

Circuit Court of Appeals, First Circuit.

October 29, 1945.

Stuart H. Tucker and Hinckley, Allen, Tillinghast & Wheeler, all of Providence, R. I., for petitioners for review.

Eugene E. Beyer, Sp. Asst. to the Atty. Gen., Samuel O. Clark, Jr., Asst. Atty. Gen., Seawall Key and Carleton Fox, Sp. Assts. to the Atty. Gen., and J. P. Wenchel, Chief Counsel, and John T. Rogers, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., for Commissioner of Internal Revenue.

Before MAGRUDER, MAHONEY and WOODBURY, Circuit Judges.

MAHONEY, Circuit Judge.

This case is here on the petition of the executors of the estate of J. Jerome Hahn to review the decision of the Tax Court which sustained the determination by the Commissioner of Internal Revenue of a deficiency in the estate tax of $381,138.88.

The testator died in Providence, Rhode Island, December 6, 1938, leaving a widow sixty-five years of age, his mother who died in 1941 and a sister who died in 1945. His gross estate was estimated to be $1,873,436.05 and after the executors made certain deductions amounting to $1,456,073.64 and a specific exemption of $100,000, reported a net estate of $317,362.41. The Commissioner disallowed the deduction of $1,326,274.57 claimed as charitable bequests and adjusted the net estate to $1,658,460.45. The testator made certain specific bequests and left the remainder of his estate in trust. Under the Thirteenth paragraph of the will the trustees were directed to pay from the net income of the trust estate an annuity of $12,000 to his wife and an annuity of $6,000 each to his mother and sister during their respective lives. The Trustees were authorized and directed to pay over to the testator's wife in addition to the fixed income so much of the net income of the trust, or if that be insufficient, so much of the principal as the trustees other than the widow, deem proper for the "comfort and pleasure" of the widow, in their "sole and uncontrolled discretion". The testator further directed that "said powers and discretion be liberally construed for the benefit of my wife for the assurance of her comfortable maintenance and support". The trustees were given the same powers and discretion with regard to the testator's mother and sister.

Upon the death of the widow the Trustees were directed to pay a total of $21,000 to certain charitable and educational institutions and upon the decease of the annuitants or upon annuities being provided for such annuitants as survived the widow, the Trustees were directed to pay $150,000 to Miriam Hospital, seven-eighths of the remainder of the trust fund to the Rhode Island Hospital and the remaining one-eighth to certain relatives. From 1939 to 1942 payments from the trust fund were substantially less than its income.

The question presented here is whether, in view of the terms of the trust instrument, the value of the charitable bequests was sufficiently ascertainable at the time of the testator's death to warrant a deduction under § 812(d) of the Internal Revenue Code, 53 Stat. 123, 26 U.S.C.A. Int. Rev.Code, § 812,¹ and the applicable Regulations thereunder.²

We think the Tax Court was correct in sustaining the Commissioner's denial of the deduction. It is well established that a deduction for a charitable gift will not be allowed if the value of the charitable gift cannot be definitely ascertained at the date of the testator's death. Merchants National Bank v. Commissioner, 1943, 320 U.S. 256, 64 S.Ct. 108, 88 L.Ed. 35; United States v. Provident Trust Company, 1934, 291 U.S. 272, 54 S.Ct. 389, 78 L.Ed. 793; Ithaca Trust Company v. United States, 1929, 279 U.S. 151, 49 S.Ct. 291, 73 L.Ed. 647; Humes v. United States, 1928, 276 U.S. 487, 48 S.Ct. 347, 72 L.Ed. 667.

The Trustees have not sustained the burden of establishing that the value of the bequest to the charities was accurately ascertainable at the death of the testator. The broad language of the will prevents a definite appraisal of the value of the charitable gifts at the time of the death of the testator.

In Gammons v. Hassett, 1 Cir., 1941, 121 F.2d 229, certiorari denied 1941, 314 U.S. 673, 62 S.Ct. 136, 86 L.Ed. 539, the testator left his estate in trust directing the trustees to pay the income thereof and so much of the principal to his widow as she may need or desire during her life, with remainders over to charity. At the time of his death the widow was ninety-three years of age, an invalid, and possessed property valued at about $190,000. This court held that the value of the charitable gifts was not definitely ascertainable at the date of the testator's death, that he (121 F.2d at page 232) "intended to give her (his widow) a broad power of invasion of the principal, not restricted to a mere use of the corpus for the purpose of satisfying her needs."

In Commissioner v. Merchants National Bank, 1 Cir., 1942, 132 F.2d 483, 484, the trustee of a testamentary trust was directed to pay the net income to the widow for life and was authorized to pay her "such sum or sums from the principal of the trust fund and at such time or times as my said Trustee shall in its sole discretion deem wise and proper for the comfort, support, maintenance, and/or happiness of my said wife * * *." The widow possessed a large amount of property, real and personal, in her own right. We held that it did not appear that the term "happiness" should be considered a mere superfluity, that "happiness" was a subjective matter to be left to an honest determination by the widow, and hence the value of the charitable bequests was not ascertainable at the time the testator died and consequently was not deductible from the gross estate, even though the likelihood of the invasion of the trust was extremely remote. On certiorari, the Supreme Court affirmed this decision in Merchants Nat. Bank v. Commissioner, 1943, 320 U.S. 256, 64 S.Ct. 108, 88 L.Ed. 35, and held that the taxpayer has the burden of proving that the amounts to be spent by the beneficiary or to reach the charities are accurately calculable at the time of the testator's death. It said (320 U.S. at page 260, 64 S.Ct. at page 111): "The limit of permissible contingencies has been blocked out in a more convenient administrative form in Treasury Regulations which provide that, where a trust is created for both charitable and private purposes the charitable bequest, to be...