Kirshbaum's Estate, In re
| Decision Date | 13 December 1968 |
| Citation | 73 Cal.Rptr. 711,268 Cal.App.2d 155 |
| Court | California Court of Appeals Court of Appeals |
| Parties | In the Matter of the ESTATE of Lillian KIRSHBAUM, Deceased. Houston I. FLOURNOY, State Controller, Appellant, v. Joseph B. KIRSHBAUM and Ira Kirshbaum, Petitioners and Respondents. Civ. 32671. |
Joseph D. Lear, Chief Inheritance Tax Atty., Walter H. Miller, Chief Asst. Inheritance Tax Atty., and Margaret Groscup, Asst. Inheritance Tax Atty., for appellant.
Shearer & Fields, Jacob Shearer and Bernard Shearer, Los Angeles, for respondents.
Heller, Ehrman, White & McAuliffe, Julian N. Stern, Jerry H. Robinson and Stephen V. Bomse, San Francisco, as amicus curiae for respondents.
This is an appeal by the state controller from an order sustaining written objections by the decedent's executors to the inheritance tax appraiser's report and fixing the inheritance tax payable in said matter. As will hereinafter appear, in determining the tax due it became necessary to apply the provisions of section 13441, Revenue and Taxation Code, imposing a so-called 'pick-up' tax. The issue here involves the correct measure of such additional tax when a decedent has made an Inter vivos transfer subject to the California gift tax credit (§ 14059, Rev. & Tax. Code) and which is also subject to the California inheritance tax. (§ 13401, Rev. & Tax. Code.)
Upon decedent's death in December of 1962, the fair market value of her total taxable estate was $376,895.87. Most of this estate consisted of an Inter vivos trust, created several months earlier (March 1962), having a fair market value as of the date of decedent's death of $301,650.79. At the time the trust was created, a California gift tax in the amount of $7,284.82 was assessed and paid; a gift tax credit in the above amount was thereupon claimed against the inheritance tax payable with respect to the entire taxable estate, amounting to $9,060.26, leaving a net inheritance tax (at that point) of $1,775.44. Additionally, the total inheritance tax above payable ($9,060.26) being less than the maximum credit ($11,007.67) allowed by the federal estate tax law (Internal Revenue Code, § 2011), the California taxing agency invoked the 'pick-up' provisions of section 13441, supra. 1
As mentioned earlier, the present controversy involves the determination of the correct amount of such additional or 'pick-up' tax in view of the provisions of section 14059 () which necessarily must be taken into consideration. The controller contended below that the measure of the additional tax should be the difference between the final amount of inheritance tax calculated on all transfers, after credit for gift tax paid, and $11,007.67. Respondent executors, on the other hand, took the position (with which the trial court agreed) that such additional tax represented the difference between the inheritance tax imposed (§ 13401) before deduction of the gift tax credit (§ 14059) and the California death tax credit allowable under section 2011, Internal Revenue Code. These contrasting contentions become more readily understandable when read with certain tables of computations or calculations appearing in the brief of amicus curiae:
Respondent-executors
1. $7,284.82-- Gift tax paid on includible inter vivos transfer.
2. k $1,775.44-- Inheritance tax ($9,060.26) as reduced by section 14059
gift tax credit ($7,284.82).
3. k $1,947.41-- (Additional tax under section, such tax being
determined by subtracting the state inheritance tax
before
reduction by the section credit ($9,060.26) from
maximum credit allowed by section 2011, Internal Revenue
Code ($11,007.67).
--------------
$11,007.67-- Total tax payable.
Appellant-controller
1. $7,284.82-- (Gift tax paid on inter vivos trust).
2. k $1,775.44-- (Inheritance tax ($9,060.26) as reduced by section 14059
tax credit ($7,284.82)).
3. k $9,232.23-- (Additional tax under section, such tax being
determined by subtracting the state inheritance tax after
reduction by the section 14059 credit ($1,775.44) from
the
maximum credit permitted by section 2011, Internal
Revenue
Code ($11,007.67).
$18,292.49-- Total tax payable.
--------------
For the following reasons we believe that respondents' contentions are sustainable and that the order here challenged must be affirmed. The trial court drew the conclusion of law, among other such determinations, that 'The gift tax credit hereinabove referred to is deemed a partial payment of the inheritance tax imposed, leaving an inheritance tax to be paid after application of such credit in the amount of $1,775.44.' The correctness of this determination is disputed by the controller upon the premise that the gift tax law is no part of the inheritance tax law and that any attempted correlation between the two systems is unwarranted. Cited is Douglas v. State of California, 48 Cal.App.2d 835, 837--838, 120 P.2d 927, where the court pointed out that the gift tax law was enacted to raise revenue in cases where it was losing income tax, as well as death tax, by virtue of Inter vivos transfers. It appears, however, that the cited case does not completely rule out the possibility of some correlation between the various taxing systems; too, the gift statute (§ 14059) expressly provides, in part, that 'the credit shall not exceed an amount which bears the same proportion to the total Inheritance tax imposed by this part on transfers to the donee from the donor as the net reduced includible gift bears to the gross value of the property transferred.' (Italics added.) It seems rather clear, therefore, that if the transfer originally subject to a gift tax is ultimately subject to an inheritance tax, the credit provision contained in the above statute makes the payment of such gift tax tantamount to a down payment on the inheritance tax. Federal courts have thus viewed a similar gift tax credit provided by section 2012, Internal Revenue Code; thus, in Ingalls v. C.I.R. (4th Cir.), 336 F.2d 874, 876, the court stated that In so holding, the court took cognizance of the declaration in Smith v. Shaughnessy, 318 U.S. 176, 179, 63 S.Ct. 545, 547, 87 L.Ed. 690, that 'the (federal) gift tax amounts in some instances to a security, a form of down-payment on the estate tax which secures the eventual payment of the latter.'
The trial court also drew the conclusion of law, likewise challenged, to the effect that 'The inheritance tax payable, which is the amount to be deducted from the maximum state credit allowed by the federal estate tax law under § 13441 is equal to the amount of the inheritance tax imposed without deduction for any gift tax credit granted by the state.' While section 13441 provides that the additional tax imposed is 'the difference between the maximum (federal) credit and the inheritance tax payable,' the words 'inheritance tax payable' apparently have never been expressly defined; their use elsewhere, however, serves to throw some light on their proper interpretation here. Thus, section 14059 Mandatorily provides that 'the inheritance tax payable on an includible gift shall be reduced by a gift tax credit equal to the gift tax paid on the includible gift.' Compliance with the mandate of the above provisions requires that the 'inheritance tax payable' must first be computed, which sum is then reduced by the gift tax allowed under section 14059. Manifestly a Reduction by the gift tax credit of the inheritance tax payable would be impossible without a prior determination of such 'inheritance tax payable.' It is contended by respondents, and properly so in our opinion, that the words 'inheritance tax payable' appearing in section 13441 have the same meaning as they have in section 14059; accordingly, the additional tax imposed by section 13441 is the difference between the federal credit and the inheritance tax payable without any reduction for the state gift tax credit under section 14059. We reach the above conclusion in view of the established rule of construction that when a word or phrase has been given a particular...
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