Wisconsin Valley Trust Co. v. Comm'r of Internal Revenue (In re Estate of Steffke)

• Decision Date: 08 July 1975
• Docket Number: Docket No. 4834-73.
• Citation: 64 T.C. 530
• Parties: ESTATE OF WESLEY A. STEFFKE, DECEASED, WISCONSIN VALLEY TRUST COMPANY AND PRISCILLA BAKER LANE STEFFKE, CO-EXECUTORS, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

64 T.C. 530

ESTATE OF WESLEY A. STEFFKE, DECEASED, WISCONSIN VALLEY TRUST COMPANY AND PRISCILLA BAKER LANE STEFFKE, CO-EXECUTORS, PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 4834-73.

United States Tax Court

Filed July 8, 1975.

Leonard F. Schmitt, for the petitioner.

Rodney J. Bartlett, for the respondent.

Decedent, a resident and domiciliary of Wisconsin who died testate on Nov. 1, 1968, left the bulk of his estate to his ‘friend, Priscilla Baker Lane,‘ under his will executed on Jan. 30, 1967. She had obtained a Mexican divorce from Crockett W. Lane on June 9, 1966, and married decedent on July 3, 1967. The Mexican divorce was never declared invalid by the Mexican court that granted it, but it was held invalid by the Wisconsin Supreme Court in a case decided after decedent died. Held, Priscilla Baker Lane Steffke was not the surviving spouse of decedent within the meaning of sec. 2056, I.R.C. 1954, and decedent's estate is not entitled to the marital deduction allowed by that section.

OPINION

FEATHERSTON, Judge:

Respondent determined a deficiency in the amount of $495,217.27 in petitioner's estate tax. The parties have settled several issues, and the only one remaining in dispute is whether, for purposes of the marital deduction, Priscilla Baker Lane Steffke was the ‘surviving spouse’ of decedent Wesley A. Steffke, within the meaning of section 2056(a).¹

All the facts are stipulated.

Wesley A. Steffke (hereinafter decedent) died on November 1, 1968, a resident and domiciliary of the State of Wisconsin. Wisconsin Valley Trust Co. (hereinafter the trust company) and Priscilla Baker Lane Steffke are the executors of decedent's estate. At the time the petition was filed herein, the trust company had its principal office in Wausau, Wis., and Priscilla Baker Lane Steffke was a legal resident of the same city. The executors filed a Federal estate tax return with the District Director of Internal Revenue at Milwaukee, Wis.

On May 31, 1930, decedent married Dorothy Nickelson Steffke. In 1964, he obtained a judgment of divorce from her in a court in the State of Chihuahua, Republic of Mexico. Decedent obtained a second divorce decree in the State of Wisconsin in 1965, dissolving the same marriage.

Priscilla Baker Lane Steffke (hereinafter Priscilla) had married Crockett W. Lane (hereinafter Crockett) on November 11, 1944. The State of Wisconsin was, at all times material hereto, the residence and domicile of both Priscilla and Crockett. Prior to June 9, 1966, while married to Crockett, Priscilla went to Mexico to obtain a divorce from him. She entered a personal appearance in an action for divorce in the First Civil Court of Bravos District (hereinafter the Mexican court), State of Chihuahua, Republic of Mexico. Crockett did not go to Mexico but entered a general appearance through counsel in the divorce proceeding. Priscilla complied with the jurisdictional requirements prescribed by Mexican law. Immediately after her appearance in the Mexican court, she returned to her home in Wisconsin. A judgment of divorce was entered by the Mexican court on June 9, 1966, granting Priscilla a divorce on grounds not recognized under the laws of Wisconsin. This judgment of divorce was never vacated, voided, or set aside by the Mexican court which entered it.

On July 3, 1967, Priscilla and decedent took marriage vows in Marinette County, Wis.

In his last will and testament, executed January 30, 1967, decedent provided that the overwhelming bulk of his estate would pass to his ‘friend, Priscilla Baker Lane,‘ while most of the rest of the estate was to go to a trust of which his mother was a beneficiary.

By order dated January 17, 1973, the Probate Branch of the Court of Marathon County, State of Wisconsin, determined the identity of decedent's heirs-at-law for purposes of calculating State inheritance tax liability.² The order provides, in pertinent part:

2. That PRISCILLA BAKER LANE STEFFKE is found not to be the legal wife and widow of the decedent on the basis of the Court's decision that her divorce in Mexico from her former husband although presumptively valid where granted was not valid and binding in the State of Wisconsin.

On October 29, 1974, the Supreme Court of the State of Wisconsin affirmed the order of the Court of Marathon County, concluding in the final paragraph of its opinion, published as In re Estate of Steffke, 65 Wis.2d 199, 222 N.W.2d 628, 633 (1974):

The Mexican divorce granted to Priscilla Lane in 1966 is of no effect in the State of Wisconsin. She was not the wife of Wesley Steffke under the laws of the State of Wisconsin * * *³

In his notice of deficiency, respondent determined that since Priscilla was not decedent's surviving spouse within the meaning of section 2056, decedent's estate was not entitled to a marital deduction claimed on the estate tax return for the property passing to her. To support his determination, respondent relies on the decision of the Supreme Court of Wisconsin holding that Priscilla was not decedent's wife.

Petitioner maintains that on the date of decedent's death, decedent was married to Priscilla, contending that his marital status ‘for purposes of the federal tax statutes and specifically for purposes of determining the allowance of the marital deduction is controlled by Federal law.’ Citing Borax' Estate v. Commissioner, 349 F.2d 666 (2d Cir. 1965), revg. 40 T.C. 1001 (1963), cert. denied 383 U.S. 935 (1966); Wondsel v. Commissioner, 350 F.2d 339 (2d Cir. 1965), affg. in part and revg. in part a Memorandum Opinion of this Court, cert. denied 383 U.S. 935 (1966); and Feinberg v. Commissioner, 198 F.2d 260 (3d Cir. 1952), revg. and remanding 16 T.C. 1485 (1951), petitioner contends that, for Federal tax law purposes, a divorce is valid unless it is declared invalid by the court that granted it. Since Priscilla's divorce was never declared a nullity by the Mexican court, the argument goes, the divorce remains valid for Federal tax purposes, and she was decedent's surviving spouse within the meaning of the marital deduction provisions of section 2056.

The parties have stipulated that Wisconsin was the residence and domicile of both Priscilla and Crockett. That State, therefore, had the dominant interest in the marital status of decedent and Priscilla. 2 Restatement,conflict of Laws 2d, 285. The judgment of the Supreme Court of that State, holding that Priscilla was not the wife of decedent, is entitled to full faith and credit. Sutton v. Leib, 342 U.S. 402, 409 (1952); Williams v. North Carolina, 325 U.S. 226, 227-230 (1945); Williams v. North Carolina, 317 U.S. 287, 291-304 (1942). Accordingly, petitioner can prevail in this case only if section 2056 uses the term ‘surviving spouse’ in some special sense which would give validity to Priscilla's Mexican divorce from Crockett and her subsequent marriage to decedent, notwithstanding the Wisconsin Supreme Court decision, thus causing her to be regarded, for the purposes of section 2056, as decedent's surviving spouse.

Section 2056 allows a deduction of an amount equal to the value of any interest in property passing from the decedent to the surviving spouse to the extent (1) such interest is not a terminable one and (2) the value thereof does not exceed 50 percent of the adjusted gross estate. This provision first came into the law as part of the Revenue Act of 1948, ch. 168, 62 Stat. 110, 117. Its basic purpose is to permit spouses to pass noncommunity property to their spouses and receive tax advantages comparable to those obtainable under a community property system if they give to the recipient spouse substantially the same property rights as a surviving spouse has or receives in community property. See H. Rept. No. 1274, 80th Cong., 2d Sess. (1948), 1948-1 C.B. 241, 261; S. Rept. No. 1013, 80th Cong., 2d Sess. (1948), 1948-1 C.B. 285, 305; Northeastern Nat. Bank v. United States, 387 U.S. 213, 219-221 (1967); United States v. Stapf, 375 U.S. 118, 128 (1963).⁴

Section 2056 does not contain any special definition of the term ‘surviving spouse.’ Its meaning, of necessity, depends upon the marital status of the decedent, and there is no body of Federal law from which the marital status of a decedent or his survivor can be ascertained. Marriage, its existence and dissolution, is particularly within the province of the States. Marriner S. Eccles, 19 T.C. 1049, 1051 (1953), affd. per curiam 208 F.2d 796 (4th Cir. 1953); Ruth Borax, 40 T.C. 1001, 1007 (1963), revd. on other grounds 349 F.2d 666 (2d Cir. 1965), cert. denied 383 U.S. 935 (1966); Albert Gersten, 28 T.C. 756, 770 (1957), affd. on this issue 267 F.2d 195 (9th Cir. 1959).

Petitioner is undoubtedly correct, however, in its position that, for tax purposes, the meaning of the term ‘surviving spouse’ as used in section 2056 is a Federal question. State law may control the meaning of a term in a Federal taxing statute ‘only when the federal taxing act by express language or necessary implication makes its operation dependent upon state law.’ Lyeth v. Hoey, 305 U.S. 188, 194 (1938); United States v. Pelzer, 312 U.S. 399, 402-403 (1941); Burnet v. Harmel, 287 U.S. 103, 110 (1932).

Even though the section contains no express language on the subject, we think the ‘necessary implication’ of section 2056, read as a whole,⁵ is that the identification of a decedent's surviving spouse depends upon local law. The entire section is intimately related to the law of the State where the decedent's estate is administered and, in certain instances, the State where his property is located. The legal interests⁶ for which the deduction is allowable depend upon local law, Eggleston v. Dudley, 257 F.2d 398, 400 (3d Cir. 1958), and an analysis of the section shows that where a State Supreme Court decision has adjudged the decedent's marital status the ‘necessary implication’ is that the deduction is to be allowed only with respect to interests received...