Scott v. Commissioner of Internal Revenue, 9646.

• Decision Date: 16 February 1934
• Docket Number: No. 9646.,9646.
• Citation: 92 ALR 531,69 F.2d 444
• Parties: SCOTT et al. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Eighth Circuit

92 ALR 531, 69 F.2d 444 (1934)

SCOTT et al. v. COMMISSIONER OF INTERNAL REVENUE.

No. 9646.

Circuit Court of Appeals, Eighth Circuit.

February 16, 1934.

Lydia Lee, of St. Louis, Mo. (Sam B. Jeffries, Arthur E. Simpson, and Paul F. Plummer, all of St. Louis, Mo., on the brief), for petitioners.

S. Dee Hanson, Sp. Asst. to Atty. Gen. (Sewall Key, Sp. Asst. to Atty. Gen., on the brief), for respondent.

Before STONE, SANBORN, and VAN VALKENBURGH, Circuit Judges.

STONE, Circuit Judge.

This is an appeal from the Board of Tax Appeals sustaining the Commissioner in including three items in calculating the estate tax on the estate of Philip A. McDermott, a resident of Missouri who died in 1925.

One of the three items, which the taxpayer claimed as a proper deduction from the gross estate, was the full amount of commissions paid to the executors. In accordance with the law of Missouri (R. S. 1929, § 221 Mo. St. Ann. § 221, p. 142), such commissions are allowed upon a percentage basis of moneys disbursed by the executors. Part of the moneys here disbursed arose from sales of real estate belonging to the estate. Under the law of Missouri real estate belonging to the estate of a deceased is not liable for administration expenses, and therefore is not subject to the federal inheritance tax (Crooks v. Harrelson, 282 U. S. 55, 51 S. Ct. 49, 75 L. Ed. 156), but the state statute (section 221) expressly allows commissions to executors "on money arising from the sale of real estate" disbursed by them. The issue here is as to deduction (by the taxpayers) of commissions based on disbursements by the executors of proceeds from sale of real estate belonging to the estate. The position of the Commissioner (sustained by the Board) is that: "Since, under the law, the value of the Missouri real estate, not subject to administration expenses, may not be included in the decedent's gross estate, it follows that any charges or expenses incurred in selling such real estate may not be classified as expenses of administration or as claims against the estate; also, since they did not otherwise accrue during decedent's life-time or as a part of the administration of the estate, they may not be deducted from the gross estate for estate-tax purposes."

Petitioners contend the deduction is proper under section 303 (a) (1) of the Revenue Act of 1924, 26 USCA § 1095 note.

Section 302 of the above act, 26 USCA § 1094 note, defines "gross estate" for the purposes of the tax. Paragraph (a) thereof includes within such gross estate all property of the decedent "subject to the payment of the charges against his estate and the expenses of its administration and is subject to distribution as part of his estate." Real estate in Missouri is subject to payment of the debts of the estate after exhaustion of personal property, and is subject to distribution as part of the estate, but it is not subject to "the expenses of its administration." Because not subject to expenses of administration under the Missouri law, the Supreme Court in the Harrelson Case, supra, held such real estate was no part of the taxable "gross estate" under the Revenue Act of 1918 (40 Stat. 1057), which is the same in this respect as section 302 of the act of 1924.

Section 303 of the act of 1924 defines the taxable "net estate" by setting forth the allowable deductions from the above gross estate. Paragraph (a) (1) thereof sets forth as one of such deductions "administration expenses." Obviously, commissions allowable and paid to executors under the laws of the state of administration are administration expenses within the meaning of section 303 (a) (1).

The Commissioner contended, and the Board determined, that commissions allowed and paid to the executors for disbursements of proceeds from sales of real estate belonging to the estate were not deductible under section 303 (a) (1) as "administration expenses," because the real estate was not, under the Missouri law, subject to administration expenses, and therefore not liable to the federal tax. Section 303 (a) (1) contains no such qualification. Here no ambiguity exists either in section 303 (a) (1) which expressly leaves the meaning of "administration expenses" to the state law nor in the state law which expressly allows commissions on disbursements "on money arising from the sale of real estate" belonging to the estate by the executors. Nor is there room to conclude that to allow such deduction where the real estate is not subject to the tax leads to an absurd result. Although not subject to the federal tax, real estate comes within the sphere of the administration proceeding in Missouri (R. S. 1929, art. 6 § 130 et seq., Mo. St. Ann. art. 6, § 130 et seq., p. 80 et seq.), requires care, management, and responsibility from the executors, and even may be sold by them (under order of the probate court) for various reasons (among which are payment of the debts of decedent if the personalty prove insufficient therefor). It is for all services rendered in the management and disposition of the entire estate that the executors are compensated, and this compensation can be none other than an administration expense. The state statute measures this compensation by a percentage of disbursements of all moneys by the executors, and includes therein, expressly, disbursements of moneys "arising from the sale of real estate." R. S. 1929, § 221 (Mo. St. Ann. § 221, p. 142). Such commissions are deductible.

The second item in issue here is the inclusion in the gross estate of the dower interest of the widow. This administration was under a will which disposed of the real estate. Under the statutes of Missouri (R. S. 1929, § 318 Mo. St. Ann. § 318, p. 202), the wife has a dower interest of one-third with power to assign such (section 320 Mo. St. Ann. § 320, p. 207). Also the widow is bound by a will disposing of the real estate (in part to her) without reservation of her dower unless she renounce the will within twelve months after proof thereof (sections 332 and 333 Mo. St. Ann. §§ 332, 333, pp. 219, 221). Here, she took under the will without renunciation thereof, so that she actually received no dower interest.

Section 302 of the Revenue Act of 1924 (26 USCA § 1094 note) in defining what shall constitute gross estate for purposes of the tax, includes "(b) To the extent of any interest therein of the surviving spouse, existing at the time of the decedent's death as dower."

Petitioners present two contentions. The first is that section 302 (b) should be construed to exclude dower where the real estate to which it attaches is not part of the taxable estate. The argument is that Congress, in this enactment, did not foresee exclusion of any real estate from the taxable estate (as later determined in the Harrelson Case, supra), and, desiring to make sure that dower interests therein should not escape taxation (because some courts had determined dower was not subject to administration expenses and such expenses were one of the requirements of the section for inclusion in taxable gross estate), specifically provided, as above, for inclusion of dower; that, this being the purpose of Congress, it could not have been its intention to include dower unless the real estate to which it attached was part of the taxable gross estate. It is possible that the reason for specifically naming dower as included in the gross estate was as argued by petitioners, but this furnishes no warrant for this court to annul the dower provision of the section where Congress has expressly provided that it should be included irrespective of liability for administration expenses either of dower or of the real estate to which it attaches. Crooks v. Harrelson, 282 U. S. 55, 61, 51 S. Ct. 49, 75 L. Ed. 156; U. S. v. Waite, 33 F.(2d) 567, 573, this court.

The second contention as to dower is that section 302 (b), 26 USCA § 1094 note, requires that the dower interest be "existing at the time of the decedent's death," and that the dower interest here had no existence at the time of this decedent's death, because the will speaks as of the time of death, and operated to prevent dower ever attaching, and the widow thereafter did not renounce the will and take dower. There is no doubt that during twelve months...