Union Planters Nat. Bank v. Henslee

• Decision Date: 15 March 1948
• Docket Number: No. 10576.,10576.
• Citation: 166 F.2d 993
• Parties: UNION PLANTERS NAT. BANK v. HENSLEE.
• Court: U.S. Court of Appeals — Sixth Circuit

166 F.2d 993 (1948)

UNION PLANTERS NAT. BANK v. HENSLEE.

No. 10576.

Circuit Court of Appeals, Sixth Circuit.

March 15, 1948.

Sam P. Walker, of Memphis Tenn. (Sam P. Walker and D. T. Page, both of Memphis, Tenn., on the brief; Waring, Walker & Cox, of Memphis, Tenn., of counsel), for appellants.

Louise Foster, of Washington, D. C. (Theron Lamar Caudle, Sewall Key, George A. Stinson and Irving I. Axelrod, all of Washington, D. C., Ward Hudgins, of Franklin, Tenn. and A. C. Denning, of Nashville, Tenn., on the brief), for appellee.

Before HICKS, SIMONS and MILLER, Circuit Judges.

HICKS, Circuit Judge.

Suit by the Executors of the Will of Willam Bate Williams to recover of the Collector of Internal Revenue for the District of Tennessee the sum of $35,899.12, with interest.

The court sustained defendant's motion to dismiss upon the ground that the complaint did not state a cause of action; hence this appeal.

No citation of authorities is needed to support the proposition that upon such a motion all allegations of fact, properly pleaded in the complaint and its amendments, must be taken as true and the motion to dismiss must be denied unless it clearly appears that the allegations of fact are insufficient to entitle the plaintiff to recover.

The facts as stated in the complaint and its amendments are as follows: William Bate Williams, a resident and citizen of Shelby County, Tennessee, died on July 22, 1943, leaving a Will of which the plaintiffs qualified as Executors. They, as such executors, made careful inventories and determined that the gross value of the estate was $508,411.17 and that the necessary expenses of administration would reduce this value to a net of $426,899.10. The will, filed as Exhibit A to the complaint, made a number of specific bequests and contained a residuary clause directing the executors to pay the balance of the estate, when converted into cash, to, (1) The Mary Galloway Home for Aged Women; (2) The Crippled Children's Hospital School; (3) The Home for Incurables; and (4) The Sunshine Home for Aged Men. Each was a charitable institution qualified to take the bequests under the laws of Tennessee.

On October 26, 1944, appellants filed their Federal Estate Tax return which was due four days earlier. In the return they deducted the charitable bequests to the value of $121,869.20. The deductions were normally allowable under Sec. 303(a) (3) of the Revenue Act of 1926, 44 Stat. 9, as amended by Sec. 403(a) of the Revenue Act of 1934, 48 Stat. 680, if the amount of the deduction is "presently ascertainable." Sec. 812(d), Internal Revenue Code, 26 U.S.C.A. Int.Rev.Code, § 812(d). By the Regulations the deductions must be "ascertainable" at the time of the testator's death. Treas. Reg. 105, Sec. 81.44.

On March 9, 1945, the Collector made a deficiency assessment against the estate of $1,920.61, which was paid. On August 10, 1945, he made an additional assessment of $33,081.52, basing it upon the disallowance of the charitable bequests deducted in the return. On September 6, 1945, appellants protested this second deficiency assessment, which protest was overruled on September 26, 1945. The assessment, together with interest, was paid, and on April 18, 1946, appellants filed a claim for refund, which was denied on August 14, 1946. This suit to recover the amount of the second deficiency assessment tax, with interest, paid under protest, followed.

Our question is, whether the court erred in dismissing the complaint. We think it did. The District Court was of the opinion that the case as set forth in the complaint was governed by Merchants National Bank of Boston, Executor, v. Commissioner of Internal Revenue, 320 U.S. 256, 64 S.Ct. 108, 88 L.Ed. 35. It did not specifically say so, but necessarily must have concluded that the averments of the complaint failed to show that the deductions for the charitable bequests, if established, were ascertainable at the date of the testator's death, or in other words, that the averments failed to show that the bequests to the mother would not encroach upon the corpus of the estate from which the charitable bequests would be paid.

In the Merchants Bank case, the court said, at page 261 of 320 U.S., page 111 of 64 S.Ct.: "For a deduction under § 303 (a) (3) to be allowed, Congress and the Treasury require that a highly reliable appraisal of the amount the charity will receive be available, and made, at the death of the testator. Rough guesses, approximations, or even the relatively accurate valuations on which the market place might be willing to act are not sufficient. Cf. Humes v. United States, 276 U.S. 487, 494, 48 S.Ct. 347, 348, 72 L.Ed. 667. Only where the conditions on which the extent of invasion of the corpus depends are fixed by reference to some readily ascertainable and reliably predictable facts do the amount which will be diverted from the charity and the present value of the bequest become adequately measurable. And, in these cases, the taxpayer has the burden of establishing that the amounts which will either be spent by the private beneficiary or reach the charity are thus accurately calculable. Cf. Bank of America Assn. v. Commissioner, 9 Cir., 126 F.2d 48 (C.C.A.)."

This is the latest pronouncement of the Supreme Court and we are bound by it. It would serve no good purpose to attempt to differentiate it from the previous case of Ithaca Trust Co. v. United States, 279 U. S. 151, 49 S.Ct. 291, 73 L.Ed. 647, which the opinion in the Merchants Bank case recognized. It is enough to say that the Ithaca case is more nearly akin to our case.

The will was made Exhibit A to the complaint. The mother took a life estate only. The relevant portion thereof is found in Item 3, to wit:

"I hereby devise and bequeath all of my property, real, personal and mixed wheresoever located, including all insurance of any kind, to the said Milburn K. Noell, and the Union Planters National Bank and Trust Company, as trustees, to be administered for the use and benefit of my beloved mother, Elizabeth Bate Williams, for and during her natural life, with the full power and authority herein conferred.

"I hereby direct both my executors and my trustees to pay to my mother the sum of Seven Hundred Fifty ($750.00) Dollars a month to be used by her as she sees fit. In the event the income from my estate is not sufficient to pay the said Seven Hundred Fifty ($750.00) Dollars each month, then my executors and trustees are hereby empowered, authorized and directed to enroach on the corpus of the estate to pay said amount and to sell any of my property, real or personal, for this purpose.

"In addition to this amount my said executors and trustees are authorized and empowered to use and expend in their discretion any portion of my estate, either income or principal, for the pleasure, comfort and welfare of my mother.

"The first object to be accomplished in the administration and...