Helvering v. O'DONNELL ( 1938 )

MANTON, Circuit Judge.

A deficiency in estate tax is claimed by the Commissioner, and this petition seeks a review of the Board of Tax Appeals’ determination. Sections 1001-1003 Act of 1926, c. 27, 44 Stat. 109, as amended by section 1101, Revenue Act of 1932, c. 209, 47 Stat. 169, 26 U.S.C.A. § 641, 642, 644, 645. '

The respondent’s husband died March 18, 1933, and she received, as a beneficiary of insurance on his life, the sum of $732,-681.66, which was included by the Commissioner as part of the gross estate. The funeral expenses were paid and were found to be fair and' reasonable. The deceased had contracted bona fide debts for full consideration, and claims against the estate, amounting to $47,045.01, were filed and paid by the respondent out of the insurance proceeds received by her. At the time of his death, decedent was personally obligated to creditors in the amount of $159,583.11. At the time of his death, he was in sole control of two corporations. Notes representing the obligations of these corporations were endorsed by the decedent to the •extent of $501,844.89. Both corporations were insolvent and were without any ’assets ,at the-time of his death. His assets consisted of properties valued at $55,611.34.

The Board of Tax Appeals held that under the provisions of section 301 of the •Revenue Act of 1926, 44 Stat. 69, U.S.C. 'title 26, §§ 410, 411, 412, 26 U.S.C.A. §§ 410-412, a tax is • imposed only upon the transfer of the value of the net estate, determined as provided in sections 302, 303, 26 U.S.C.A. §§ 411, 412. Section 302 declares what classes of property of a’ decedent must be included in determining the gross estate, and section 303 provides that the value of the net estate shall be-determined by deducting from the value of the gross estate funeral expenses, administration expenses, and claims against the estate which are allowed by the laws of the jurisdiction under which the estate is being administered. This statute fixes a basis for the tax. Except for the provisions of subdivision (g) of section 302, 26 U.S.C.A. § 411(g), proceeds of life insurance policies payable to the respondent formed no part of the gross estate of the decedent. But the classes of property which must be included in the gross estate are specified, however arbitrary they may seem.

The act fixes the deductions from the gross estate to determine the taxable net estate. Among the deductions, as provided by subdivision (c), § 303(a) (1), as amended by section 805, Revenue Act of 1932, 26 U.S.C.A. § 412(b) and note, are claims against the estate, with the limitation that they must be such as are allowed by the laws of the jurisdiction under which the estate is being administered. Petitioner argues, however, that the deduction of claims should be limited to only those allowed and paid. The act, however, does not so read, and we cannot assume that Congress so intended. The fact that claims against the estate of the decedent may not have been paid at the time the tax upon the net estate is determined does not mean, that they may not later be paid in whole or in part out of the proceeds of the life insurance policies upon which the tax is levied. Section 55-a of the New York Insurance Law, Consol.Laws, c. 28, provides in substance that, if any of the life insurance policies originally payable to executors or administrators of the decedent had been changed by him so as to be payable to a beneficiary at a time when the deceased was insolvent, the proceeds of such policies could be reached by creditors. In re Feynman, 2 Cir., 77 F.2d 320. And, while the respondent may not, under the laws of New York, be obligated to pay the total amount of the claims against the estate, that does not warrant the tax here sought to be collected. However, the result is that the government receives the same amount in taxes which it would receive were all the assets of the gross estate liable for debts of the decedent. Death duties are necessarily measured by the situation as it exists at the time of his death. Ithaca Trust Co. v. U. S., 279 U.S. 151, 49 S.Ct. 291, 73 L.Ed. 647.

Other Circuit, Courts of Appeals’ decisions sustain these conclusions. Com’r of Internal Rev. v. Ames, 7 Cir., 88 F.2d 338; Helvering v. N. W. Nat. Bank & Trust Co., 8 Cir., 89 F.2d 553; Com’r of Internal Revenue v. Lyne, 1 Cir., 90 F.2d 745; Com’r of Internal Rev. v. Windrow, 5 Cir., 89 F.2d 69, 110 A.L.R. 1251.

In construing this statute, we cannot go beyond the clear and unambiguous phrase of the act, nor can we speculate that the legislative body intended something different. Crooks v. Harrelson, 282 U.S. 55, 51 S.Ct. 49, 75 L.Ed. 156; Iselin v. U. S., 270 U.S. 245, 46 S.Ct. 248, 70 L.Ed. 566; U. S. v. Goldenberg, 168 U.S. 95, 18 S.Ct. 3, 42 L.Ed. 394.

Nor does article 29 of Regulation 80 relating to estate taxes require that a claim be paid in order to be deductible. Com’r v. Windrow, supra.

Decision affirmed.