Kasper v. Kellar, 14974.

• Decision Date: 06 January 1955
• Docket Number: No. 14974.,14974.
• Citation: 217 F.2d 744
• Parties: T. C. KASPER, Collector of Internal Revenue for the United States of America for the District of South Dakota, Appellant, v. Kenneth C. KELLAR, Surviving Executor of the Last Will and Testament and Estate of Chambers Kellar, Deceased, and as Executor of the Estate of Floy B. Kellar, Deceased, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

217 F.2d 744 (1954)

T. C. KASPER, Collector of Internal Revenue for the United States of America for the District of South Dakota, Appellant, v. Kenneth C. KELLAR, Surviving Executor of the Last Will and Testament and Estate of Chambers Kellar, Deceased, and as Executor of the Estate of Floy B. Kellar, Deceased, Appellee.

No. 14974.

United States Court of Appeals Eighth Circuit.

December 16, 1954.

Rehearing Denied January 6, 1955.

L. W. Post, Sp. Asst. to the Atty. Gen. (H. Brian Holland, Asst. Atty. Gen., Ellis N. Slack, Sp. Asst. to the Atty. Gen., Clinton G. Richards, U. S. Atty., and Francis G. Dunn, Asst. U. S. Atty., Sioux Falls, S. D., with him on the brief), for appellant.

Kenneth C. Kellar, Lead, S. D. (R. E. Driscoll, Jr., Lead, S. D., with him on the brief), for appellee.

Before SANBORN, JOHNSEN and COLLET, Circuit Judges.

JOHNSEN, Circuit Judge.

Section 812(e) (1) (A) of the Internal Revenue Code, 26 U.S.C.A., in effect in 1950, the time here involved, provides for a "marital deduction", from the value of the gross estate of a decedent, for estate tax purposes, of "An amount equal to the value of any interest in property which passes or has passed from the decedent to his surviving spouse."

Subparagraph (B) thereof, however, makes the deduction inapplicable in general to life estates or other terminable interests passing to the surviving spouse. But Subparagraph (D) in turn removes or excepts from the operation of Subparagraph (B), and so leaves subject to the deduction, any interest passing to and terminable upon the death of the surviving spouse as to which "such surviving spouse's death will cause a termination or failure of such interest only if it occurs within a period not exceeding six months after the decedent's death, * * and * * * such termination or failure does not in fact occur."

The Estate of Chambers Kellar, Deceased (a practicing attorney at Lead, South Dakota) had made a marital deduction, in the estate-tax return filed by the executors, of the value of the property devised and bequeathed by Kellar's will to his widow. The Commissioner refused to allow the deduction and assessed a deficiency tax in relation to such property, on the ground that the interest given to the widow by the will was one which would not become vested until distribution of the testator's estate; which was to go to other persons, if the widow was not living at the time that such distribution was made; and which, since the law of South Dakota did not compel distributions of decedents' estates to be made within six months after their death, was not within the qualification of Subparagraph (D), supra, as legally constituting an interest which could only be caused to terminate or fail by the widow's death occurring "within a period not exceeding six months after the decedent's death."

The Estate paid the assessed deficiency and then sued in the District Court for refund of it. Recovery was granted by the court, and the Government has appealed.¹

The material portions of the will are as follows:

"Item 2. I give and bequeath to my wife, Floy B. Kellar, if living at the time of the distribution of my estate, the sum of One Hundred Thousand Dollars ($100,000), * * *; if she be then dead this legacy to lapse and become a part of my residuary estate. * * *"

"Item 5. If living at the time of the distribution of my estate, I give, devise and bequeath to my wife, Floy B. Kellar, one-third * * * of all the rest, residue and remainder of my property and estate * * *." The widow\'s share of the residuary estate was devised and bequeathed to other named persons, "if * * * my wife * * * dies prior to the distribution of my estate * * *."

The evidence showed that administration of the estate had in fact been had, and distribution of its assets made, within six months after the decedent's death, and that the widow was living at the time. The court² appears to have taken the view that the occurring of these events and the removal of the contingencies thereby, within the period of six months after the decedent's death, were sufficient under the statute to establish the right to the marital deduction in the situation. It said: "* * * we are not concerned with what might have happened. The thing that concerns us is what did happen. Chambers Kellar bequeathed the property to his wife if she was alive when his estate was probated and distributed, and she was alive when his estate was probated and distributed, and that is all that is necessary, since it was within six months subsequent to his death."

But this construction and conclusion can not be held to be in harmony with the language of the statute. The statute is correctly read, we think, in Treasury Regulations 105, sec. 81.47b (d), when it says: "Where the only condition which will cause the interest taken by the surviving spouse to terminate is of such nature that it can occur only within 6 months following the decedent's death, the exception provided under section 812 (e) (1) (D), will apply, provided the condition does not in fact occur. However, where such condition * * * is one which may occur either within such 6-month period or thereafter, the exception provided under section 812(e) (1) (D) will not apply." See also Sen.Rep. No. 1013, Part 2, 80th Cong., 2d Sess., pp. 2, 7-8, 15-16.

The letter of the Commissioner to the Estate, rejecting the claim made for refund, still more directly stated the effect of the statute in the present situation, as follows: "The fact that distribution here actually took place within the six months' period is immaterial since subsection (D) applies only if on the date of the decedent's death it is certain that the surviving spouse's interests will become absolute if she survives such six-months' period. As of the date of the decedent's death there was no certainty that within the six-months' period the spouse's interests would become absolute inasmuch as it was possible that distribution might not have been made within six months of death."

There can be no question as to the right of Congress to make any contingency, legal or testamentary, to which the transmitting of a decedent's property is subject, the basis of a difference in estate-tax liability. Such a contingency, therefore, can as properly be made to consist of an existing legal possibility as of an existing fact condition. Whatever the selected contingency may be, it necessarily may be made admeasurable for tax purposes as of the time of the decedent's death. See Ithaca Trust Co. v. United States, 279 U.S. 151, 155, 49 S.Ct. 291, 73...