United States v. Hiles

• Decision Date: 17 May 1963
• Docket Number: No. 19712.,19712.
• Citation: 318 F.2d 56
• Parties: UNITED STATES of America, Appellant, v. Mary Isabel HILES, individually and as Executrix under the Will of Morgan Hiles, deceased, Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

318 F.2d 56 (1963)

UNITED STATES of America, Appellant, v. Mary Isabel HILES, individually and as Executrix under the Will of Morgan Hiles, deceased, Appellee.

No. 19712.

United States Court of Appeals Fifth Circuit.

May 17, 1963.

Vernol R. Jansen, Jr., U. S. Atty., Mobile, Ala., Harold C. Wilkenfeld, Harold M. Seidel, Benjamin M. Parker, Attys., Dept. of Justice, Washington, D. C., Louis F. Oberdorfer, Asst. Atty. Gen., Lee A. Jackson, Attorney, Department of Justice, Washington, D. C., for appellant.

Hardy B. Smith, David Wallace Green, of Gaillard, Gaillard & Smith, Mobile, Ala., for appellee.

Before RIVES, JONES and BELL, Circuit Judges.

JONES, Circuit Judge.

The appellee, in her own right and as Executrix under the will of her deceased husband, recovered judgment for a federal estate tax deficiency assessment which she asserted had been illegally exacted. The United States has appealed. The facts were stipulated. Morgan Hiles, a resident of Mobile County, Alabama, died testate on February 4, 1957, survived by his widow, the appellee here, and their two minor children. The will was admitted to probate in the Probate Court of Mobile County and Mrs. Hiles qualified as Executrix. She dissented from the will and by so doing became entitled to dower, a homestead interest, an interest in exempt personal property, and a widow's distributive share. In her dissent she invoked the equity powers of the Probate Court of Mobile County¹ and prayed that the value of her dower interest be ascertained and the amount of such value be paid to her from the assets of the estate; and that she be further paid the sum of $6,000 representing the amount of her homestead exemption pursuant to Section 689² and Section 687,³ Title 7, of the 1940 Code of Alabama. Other relief was sought with respect to matters not here involved.

The Probate Court, having evidence as to the market value of the real property owned by the decedent at the time of his death, its rental value, and the age and health of the widow, found the reasonable value of the dower interest⁴ to be $14,000. The Probate Court also found that, under Section 689 of Title 7 of the Alabama Code, the widow and children were entitled to receive $6,000 to clear the title to the homestead. The order of the Probate Court directed the payment of the two items, $14,000 and $6,000, and other sums with which we are not concerned in this case. The widow as Executrix paid to herself in her own right the sum of $14,000 in satisfaction of her claim for dower. Also, as Executrix, she paid to herself for the use and benefit of herself and two minor children the sum of $6,000 to remove the claim of homestead from the real property of the estate. In the Federal Estate Tax Return for the Morgan Hiles Estate there was a marital deduction claimed which included the dower interest in the amount of $14,000 and the homestead interest in the amount of $6,000. The District Director of Internal Revenue disallowed the deduction taken for the dower and homestead interests and assessed a tax deficiency which was paid. The filing of a claim for refund was followed by suit. The district court agreed with the estate as to the deduction of the dower amount. It allowed a marital deduction for the value of the widow's homestead interest but reduced the amount to $2,000. The district court's well-reasoned opinion gives the basis for its conclusions. Hiles v. United States, 198 F.Supp. 857.

The moneys paid to Mrs. Hiles as dower under the court decree were hers absolutely. If this fund was, in fact and in law, a dower interest (or statutory interest in lieu thereof) which passed to her from her husband, it should be included in the marital deduction. Such was the contention of Mrs. Hiles and such was the holding of the district court. If, however, the dower of Mrs. Hiles was a life estate, and hence a terminable interest, which she converted into cash, as is contended by the Government, the amount which she received would not qualify for the marital deduction. The purpose of the marital deduction provision, as this Court has said, "was to extend to married taxpayers in common law states the advantages of residents of community property jurisdictions by permitting a surviving spouse to acquire, free from the estate tax exaction, one-half of what is referred to as the adjusted gross estate of the deceased spouse. * * To limit the effect to the intended purpose, terminable interests are disallowed in determining the marital deduction." United States v. Crosby, 5th Cir., 1958, 257 F.2d 515. See United States v. First National Bank and Trust Co., 5th Cir., 1961, 297 F.2d 312. The statute should be so construed and applied to give effect, to the extent permissible, to the intent and purpose of the enactment.

The election of Mrs. Hiles to take dower rather than the share of the estate which she would have received under her husband's will did not prevent her dower from being an interest passing to her from her husband. Estate Tax. Regs. § 20.2056(e)-2(c). Dower is an estate for life under the Alabama statute, Alabama Code 1940, Title 34, § 40. Courts of equity have jurisdiction to assign dower and to decree compensation in lieu of dower. McClendon v. Straub, 5th Cir., 1952, 193 F.2d 596; 5 Cir., 194 F.2d 1008. The jurisdiction of the Alabama court to entertain the suit, the bona fides of the proceeding, and the validity of the decree for a lump-sum award to Mrs. Hiles are not questioned. We think it unnecessary for this Court to consider the nature of the equity which gave to Mrs. Hiles the right to the cash payment although it may be noted that the Alabama court recited in its decree that the dower of Mrs. Hiles could not be set off by metes and bounds.

The question we must decide has been thus stated:

"If the surviving spouse elects to take the cash value of common-law dower (a non-deductible interest) the answer to the problem of whether the cash she receives qualifies for the marital deduction seems to depend upon whether, under local law, the cash passed to the surviving spouse from the decedent, because she had an election to take cash or dower, or the dower passed to her from the decedent and she subsequently converted it into cash." Lowndes and Kramer, Federal Estate and Gift Taxes, 2nd Ed. 382.

This Court held, in United States v. Crosby, that where there was a necessity for selling lands subject to dower, the widow had an election to receive the cash equivalent of her dower and that the amount so received was to be included in the marital deduction as passing to her from the decedent. In United States v. Traders National Bank, 8th Cir., 1957, 248 F.2d 667, cited with approval in the Crosby case and in the First National Bank and Trust Co. case, it was held that, where the surviving spouse exercised a statutory right to take the commuted value of her dower, the amount received by the widow passed to her from the decedent, and the money she received was not derived from the conversion of a...