Ward v. Sage

• Court: U.S. Court of Appeals — Second Circuit
• Citation: Ward v. Sage, 185 F. 7 (2nd Cir. 1911)
• Decision Date: 14 February 1911
• Docket Number: 128.
• Parties: WARD, Collector of Internal Revenue, v. SAGE et al.

185 F. 7

WARD, Collector of Internal Revenue, v. SAGE et al.

No. 128.

United States Court of Appeals, Second Circuit.

February 14, 1911

George B. Curtiss, U.S. Atty., for plaintiff in error.

Frederick Townsend (James F. Tracey, of counsel), for defendants in error.

Before LACOMBE, COXE, and NOYES, Circuit Judges.

LACOMBE Circuit Judge.

The testator left a widow and five children. The will divides the residuary estate into thirds, setting aside one-third for the benefit of the widow for life, to become at her death part of the general residue. The widow was also given a life use of the testator's residence and contents in which was personal property appraised at $25,000. The remainder interests in this $25,000 of personal property were included with the remainder interests in the widow's third of the general residue in the taxation of the children's shares. The two-thirds of residuary estate remaining after setting aside the widow's third was divided into five equal legacies for the benefit of the five children. Each child therefore had a present interest in one-fifth of two thirds of the whole estate and a remainder interest in one-fifth of the other third, subject to the widow's life estate in that. Possession of the principal of the children's shares, however, was to be deferred, in the case of sons until they arrived at 25, and in the case of daughters until 35 years of age, with gifts over in the event of death before their respective periods, to the descendants of the child so dying, if any, and, if not, to the surviving brothers and sisters. It is apparent, therefore, that the death of a child before the stated period would cut off all its rights; no power to dispose of his or her share by will or otherwise being given to such child.

The items of each tax are as follows:

One-fifth present interest in two-thirds residue	$ 9,746 91
One-fifth remainder interest in one-third residue	2,984 27
One-fifth remainder interest in $25,000	56 83
	----------
	$12,788 01

Section 29 of the war revenue act was repealed by the act of April 12, 1902 (Act April 12, 1902, c. 500, Sec. 7, 32 Stat. 97 (U.S. Comp. St. Supp. 1909, p. 875)), which by its terms took effect July 1, 1902. It preserved 'all taxes-- imposed by section 29 of the act of June 13, 1898, and amendments thereof prior to the taking effect of this act.'

The testator died June 23, 1902, leaving two sons and one daughter who had reached the named ages, and two daughters who were not yet 35. His will was admitted to probate July 9, 1902. On February 7, 1903, executors made return of property to the collector, legacies were assessed and amount of tax determined March 12th, and same paid under protest on June 25, 1903.

When the trial was had in the Circuit Court, the Supreme Court had not decided Hertz v. Woodman, opinion in which was filed July 1, 1910. The judge at circuit therefore followed the decision of this court in Eidman v. Tilghman, 136 F. 141, 69 C.C.A. 139, and held that since the tax did not become due and payable, under section 30, until June 23, 1903, it was not 'imposed' prior to July 1, 1902, and therefore under the repealing act no tax was collectible. In conformity to such finding, judgment was directed for the whole amount paid. It has been held, however, in Hertz v. Woodman, supra, that:

'Upon the passing by death of a vested right to the immediate possession or enjoyment of a legacy or distributive share, there was imposed the tax or duty exacted upon every such right of succession, which was saved by the saving clause of the repealing act.'

Applying this rule to the facts found, the government concedes that as to the tax imposed upon the two daughters, who at testator's death had not reached the designated age, upon the corpus-- one-fifth of the residue-- it was improperly assessed because they had no vested interest therein. Under Vanderbilt v. Eidman, 196 U.S. 480, 25 Sup.Ct. 331, 49 L.Ed. 563, this concession must be made because their interest in the corpus was contingent only, terminable by death before reaching 35 years of age with no power of designating a successor. The corpus did not pass to them either in possession or enjoyment. The tax laid upon their share in the corpus was therefore recoverable.

Counsel for the government contends, however, as to each of these two daughters, that on the death of the testator there passed to her a vested interest in the income of her one-fifth of said two-thirds of the residue, and that she had a right to the enjoyment of such income since it was wholly at her disposal. The district attorney stated, upon the argument, that he had been instructed by the department of justice to press this point, for the reason that the same point was about to be presented to the Supreme Court in a similar case now before that tribunal. Since the precise point is soon to be decided by the court of last resort, it seems unnecessary for us to pass upon it now. That is no reason, however, for holding back the decision of the other questions in this case, until the determination of that question. As will be seen infra plaintiffs were not entitled to recover the whole amount sued for, which requires a reversal of the judgment sought to be reviewed. Before the case comes on for a new trial, ...