De Lappe v. Commissioner of Internal Revenue, 9503.

• Decision Date: 29 June 1940
• Docket Number: No. 9503.,9503.
• Citation: 113 F.2d 48
• Parties: DE LAPPE v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Fifth Circuit

113 F.2d 48 (1940)

DE LAPPE v. COMMISSIONER OF INTERNAL REVENUE.

No. 9503.

Circuit Court of Appeals, Fifth Circuit.

June 29, 1940.

Arthur A. Moreno and Felix W. Gaudin, both of New Orleans, La., for petitioners.

S. Dee Hanson, Sewall Key, and Miss Helen R. Carloss, Sp. Assts. to the Atty. Gen., Samuel O. Clark, Jr., Asst. Atty. Gen., and J. P. Wenchel, Chief Counsel, Bureau of Internal Revenue, and Ralph F. Staubly, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., for respondent.

Before FOSTER, HUTCHESON, and HOLMES, Circuit Judges.

FOSTER, Circuit Judge.

In this case the facts are undisputed. Cyprian A. Sporl, senior, died intestate in New Orleans, on January 27, 1936. The marital community, under the law of Louisiana, had existed between himself and his widow, Adrienne deLappe, petitioner. During the existence of the community, he had taken out six policies of insurance on his life, in value, at his death, aggregating $100,990, three payable to his wife, one to each of his two sons, petitioners, and the other to his mother, with the remainder to two sisters. All the premiums had been paid out of community funds. The policies gave the insured the right to change the beneficiary at will but he had never done so. The widow and heirs were put in possession of his estate without administration. In making returns for estate taxes they allocated only one-half of the value of each policy to the estate of decedent. The Commissioner ruled that the entire value of the policies should be credited to the decedent's estate and determined a deficiency. On appeal the Board affirmed. There were other items before the Board but they are not involved in the case before us. For a statement of the case more in detail we refer to the opinion of the Board, Estate of Sporl, Sr., v. Comm., 40 B.T.A. 924.

For reversal of the decision of the Board, petitioners rely upon Lang v. Commissioner, 304 U.S. 264, 265, 58 S.Ct. 880, 883, 82 L.Ed. 1331, 118 A.L.R. 319, in which the facts were similar to those in the case at bar. That case arose under provisions of the Revenue Act of 1926, which are the same as provisions of subsequent revenue acts governing the case. Section 301, 26 U.S.C.A. Int.Rev.Acts, page 225, imposes a tax upon the transfer of the net estate of every decedent. Section 302, 26 U.S.C.A. Int.Rev.Acts, page 227, provides: "The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated — (a) To the extent of the interest therein of the decedent at the time of his death; * * * (g) To the extent of the amount receivable by the executor as insurance under policies taken out by the decedent upon his own life; and to the extent of the excess over $40,000 of the amount receivable by all other beneficiaries as insurance under policies taken out by the decedent upon his own life."

The case involved an application of the community property laws of the state of Washington. As to this there is no difference between the law of Washington and the law of Louisiana in regard to life insurance except that under the Washington law if a life insurance policy is payable to the wife the husband can not change the beneficiary without her consent. That is immaterial in this case as the husband did not at any time change the beneficiary under the policies herein involved. Treasury Regulations 70 and 80 were in force when Lang died. The court quoted pertinent provisions of Treasury Regulations 68, promulgated under the 1924 Act, identical with provisions of Regulations 70, treated them as having Congressional approval and found it unnecessary to discuss the meaning, validity or effect of the changes introduced by Regulations 80. It was held that under the community statutes of Washington one-half of the amounts of the community funds applied to payments of premiums was property of the wife; that where she is the beneficiary, under the words of the Regulations quoted, she became entitled to the proceeds of the policy in proportion to the amount so paid; that where children were named beneficiaries and premiums were paid from community funds the situation is not within the precise words of the Regulations; but the rather obvious reason underlying the definition of what constitutes a policy taken out by the insured should be respected.

The opinion concludes with this significant statement. "In the absence of a clear declaration it cannot be assumed that Congress intended insurance bought and paid for with the funds of another than the insured and not payable to the latter's estate, should be reckoned as part of such estate for purposes of taxation."

The Board concluded the Supreme Court had decided the Lang case on the authority of Treasury Regulations 70 and, since the case at bar comes under Regulations 80,¹ the decision was not in point. We consider the Supreme Court decided the case on the statute and reference to the regulations was incidental. In Louisiana the wife has a present, vested interest in one-half of the community property and not a mere expectancy. Upon the death of the husband she does not take by inheritance but in her own right as owner. The husband is the head of the community and he may dispose of the community property without the consent of the wife. But in doing so he acts as agent for the community and not by right of ownership of the whole. Bender v. Pfaff, 282 U.S. 127, 51 S.Ct. 64, 75 L.Ed. 252; See, also, Bender v. Pfaff, 5 Cir., 38 F.2d 649; 13 Tulane Law Review, 424, Taxation of Community Life Ins. As applied to the policies in this case, if the husband without fraud had changed the beneficiaries to a third person, the wife would have had no redress. If he had surrendered them and received the cash value the funds would have been community property. Had he invested those funds in other property, that in turn, would have been community property. In Louisiana the estate of a decedent vests directly in the heirs, instantly upon his death, and not in his personal representative, as in other states. La.Civil Code, Arts. 940-945. There is no need for administration if the heirs elect to accept the succession without it.

The Board cited Newman v. Comm., 5 Cir., 76 F.2d 449; Sizeler v. Sizeler, 170 La. 128, 127 So. 388; and Douglass v. Equitable Life...