United States v. Stapf Ii

• Decision Date: 02 December 1963
• Docket Number: No. 54,54
• Citation: 84 S.Ct. 248,375 U.S. 118,11 L.Ed.2d 195
• Parties: UNITED STATES, Petitioner, v. Dorothy Anne STAPF and B. T. Ware, II, Executors and Trustees of the Estate of Lowell H. Stapf, deceased, and Dorothy Ann Stapf, Individually
• Court: U.S. Supreme Court

375 U.S. 118

84 S.Ct. 248

11 L.Ed.2d 195

UNITED STATES, Petitioner,

v Dorothy Anne STAPF and B. T. Ware, II, Executors and Trustees of the Estate of Lowell H. Stapf, deceased, and Dorothy Ann Stapf, Individually.

No. 54.

Argued Oct. 23 and 24, 1963.

Decided Dec. 2, 1963.

Rehearing Denied Jan. 6, 1964.

See 375 U.S. 981, 84 S.Ct. 477.

Wayne G. Barrett, for petitioner.

Mr. W. M. Sutton, Amarillo, Tex., for respondents.

Mr. Justice GOLDBERG delivered the opinion of the Court.

Respondents brought this suit against the Government in the District Court for the Northern District of Texas for a refund of estate taxes paid pursuant to an asserted deficiency. The Court of Appeals for the Fifth Circuit held that respondents were entitled to certain marital deductions under § 812(e) of the Internal Revenue Code of 1939¹ and also to deductions for other payments as 'claims against the estate' and 'administration expenses' under § 812(b)(3) and (2) of the 1969 Code.² 5 Cir., 309 F.2d 592. We granted certiorari to consider questions of statutory interpretation important to the administration of the federal estate tax laws. 372 U.S. 928, 83 S.Ct. 873, 9 L.Ed.2d 7 2.

Lowell H. Stapf died testate on July 29, 1953, a resident and domiciliary of Texas, a community property jurisdiction. At the time of his death he owned, in addition to his separate estate, a substantial amount of property in community with his wife. His will required that his widow elect either to retain her one-half interest in the community or to take under the will and allow its terms to govern the disposition of her community interest. If Mrs. Stapf were to elect to take under the will, she would be given, after specific bequests to others, one-third of the community property and one-third of her husband's sepa- rate estate. By accepting this bequest she would allow her one-half interest in the community to pass, in accordance with the will, into a trust for the benefit of the children. It was further provided that if she chose to take under the will the executors were to pay 'all and not merely one-half' of the community debts and administration expenses.

The relevant facts and computations are not in dispute. The decedent's separate property was valued at $65,100 and the community property at $258,105. ³ The only debts were community debts totalling $32,368. The administration expenses, including attorneys' fees, were $4,073. If Mrs. Stapf had not elected to take under the will, she would have retained her fully vested one-half interest in the community property ($129,052) which would have been charged with one-half of the community debts ($16,184) and 35% of the administration expenses ($1,426).⁴ Thus, as the parties agree, she would have received a net of $111,443.

In fact Mrs. Stapf elected to take under the will. She received, after specific bequests to others, one-third of the combined separate and community property, a devise valued at $106,268,⁵ which was $5,175 less than she would have received had she retained her community property and refused to take under the will.⁶

In computing the net taxable estate, the executors claimed a marital deduction under § 812(e)(1) of the Internal Revenue Code of 1939 for the full value of the one-third of decedent's separate estate ($22,367) which passed to his wife under the will. The executors also claimed a deduction for the entire $32,368 of community debts as 'claims against the estate' under § 812(b)(3) and for the entire $4,073 of expenses as 'administration expenses' under § 812(b)(2). The Commissioner of Internal Revenue disallowed the marital deduction and the deductions for claims and administration insofar as these represented debts (50%) and expenses (35%) chargeable to the wife's one-half of the community. Respondents then instituted this suit for a tax refund. The District Court allowed the full marital deduction but disallowed the disputed claims and expenses. 189 F.Supp. 830. On cross-appeals the Court of Appeals, with one judge dissenting on all issues, held that each of the claimed deductions was allowable in full. 309 F.2d 592. For reasons stated below, we hold that the Commissioner was correct and that none of the disputed deductions is allowable. ⁷

I. THE MARITAL DEDUCTION

By electing to take under the will, Mrs. Stapf, in effect, agreed to accept the property devised to her and, in turn, to surrender property of greater value to the trust for the benefit of the children. This raises the question of whether a decedent's estate is allowed a marital deduction under § 812(e)(1) (E)(ii) of the 1939 Code where the bequest to the surviving spouse is on the condition that she convey property of equivalent or greater value to her children. The Government contends that, for purposes of a marital deduction, 'the value of the interest passing to the wife is the value of the property given her less the value of the property she is required to give another as a condition to receiving it.' On this view, since the widow had no net benefit from the exercise of her election, the estate would be entitled to no marital deduction. Respondents reject this net benefit approach a d argue that the plain meaning of the statute makes detriment to the surviving spouse immaterial.

Section 812(e)(1)(A) provides that 'in general' the marital deduction is for 'the value of any interest in property which passes * * * from the decedent to his surviving spouse.' Subparagraph (E) then deals specifically with the question of valuation:

'(E) Valuation Of interest passing To surviving spouse. In determining for the purposes of subparagraph (A) the value of any interest in property passing to the surviving spouse for which a deduction is allowed by this subsection— '(ii) where such interest or property is incumbered in any manner, or where the surviving spouse incurs any obligation imposed by the decedent with respect to the passing of such interest, such incumbrance or obligation shall be taken into account in the same manner as if the amount of a gift to such spouse of such interest were being determined.'

The disputed deduction turns upon the interpretation of (1) the introductory phrase 'any obligation imposed by the decedent with respect to the passing of such interest,' and (2) the concluding provision that 'such * * * obligation shall be taken into account in the same manner as if the amount of a gift to such spouse of such interest were being determined.'

The Court of Appeals, in allowing the claimed marital deduction, reasoned that since the valuation is to be 'as if' a gift were being taxed, the legal analysis should be the same as if a husband had made an inter vivos gift to his wife on the condition that she give something to the children. In such a case, it was stated, the husband is taxable in the full amount for his gift. The detriment incurred by the wife would not ordinarily reduce the amount of the gift taxable to the husband, the original donor.⁸ The court concluded:

'Within gift tax confines the community property of the widow passing under the will of the husband to others may not be 'netted' against the devise to the widow, and thus testator, were the transfer inter vivos, would be liable for gift taxes on the full value of the devise.' 309 F.2d 592, 598.

This conclusion, based on the alleged plain meaning of the final gift-amount clause of § 812(e)(1)(E)(ii),⁹ is not supported by a reading of the entire statutory provision. First, § 812(e) allows a marital deduction only for the decedent's gifts or bequests which pass 'to his surviving spouse.' In the present case the effect of the devise was not to distribute wealth to the surviving spouse, but instead to transmit, through the widow, a gift to the couple's children. The gift-to-the-surviving-spouse terminology reflects concern with the status of the actual recipient or donee of the gift. What the statute provides is a 'marital deduction'—a deduction for gifts to the surviving spouse not a deduction for gifts to the children or a deduction for gifts to privately selected beneficiaries. The appropriate reference, therefore, is not to the value of the gift moving from the deceased spouse but to the net value of the gift received by the surviving spouse.

Second, the introductory phrases of § 812(e)(1)(E)(ii) provide that the gift-amount determination is to be made 'where such interest or property is incumbered in any manner, or where the surviving spouse incurs any obligation imposed by th decedent with respect to the passing of such interest * * *.' The Government, drawing upon the broad import of this language, argues: 'An undertaking by the wife to convey property to a third person, upon which her receipt of property under the decedent's will is conditioned, is plainly an 'obligation imposed by the de- cedent with respect to the passing of such interest." Respondents contend that 'incumbrance or obligation' refers only to 'a payment to be made out of property passing to the surviving spouse.' Respondents' narrow construction certainly is not compelled by a literal interpretation of the statutory language. Their construction would embrace only, for example, an obligation on the property passing whereas the statute speaks of an obligation 'with respect to the passing' gift. Finally, to arrive at the real value of the gift 'such * * * obligation shall be taken into account * * *.' In context we think this relates the gift-amount determination to the net economic interest received by the surviving spouse.

This interpretation is supported by authoritative declarations of congressional intent. The Senate Committee on Finance, in explaining the operation of the marital deduction, stated its understanding as follows:

'If the decedent bequeaths certain property to his surviving spouse subject, however, to her agreement, or a charge on the property, for payment of $1,000 to X, the value of the bequest (and, accordingly, the value of the...