Commissioner of Internal Revenue v. Fletcher Savings & Trust Co.

SPARKS, Circuit Judge (after stating the facts as above).

The sole controversy in this appeal arises over the construction of section 303 (a) (2) of the Revenue Act of 1924 (26 USCA § 1095 note), which deals with allowable deductions from deceased taxpayer’s gross estate. That section refers to two classes of property which under certain circumstances are deductible and are referred to as (A) and (B). The Board held that class (A) constitutes a separate description of deductible property, and is not modified by any language of the statute appearing .after tho letter (B).

It is contended by the government that much of the section following (B) is intended to and does also modify clause (A) to the extent that neither clause permits a deduction unless the property therein referred to was received by decedent by way of gift, devise, bequest, or inheritance. Under Commissioner’s construction the two classes of property would read as follows: (A) (Any property) forming a part of the gross estate, situated in the United States, of any person who died within five years prior to the death of the decedent, where such property can be identified as having been received by the decedent from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property sp received. (B) (Any property) transferred to the decedent by gift within five years prior to his death, where such property can be identified as having been received by the decedent from such donor by gift, or which can be identified as having been acquired in exchange for property so received.

Considerable support is furnished to Commissioner’s contention by the legislative history of the section under discussion. Revenue Act 1918, § 403 (a) (2), e. 18, 40 Stat. 1057; Report of Committee on Ways and Means (H. R. No. 767, 65th Cong., 2nd Session, pp. 22-23); Revenue Act 1921, § 403 (a) (2), c. 136, 42 Stat. 227. It is further supported by the fact that the antecedent of the phrase “prior decedent” in clause (B) is found in clause (A) and not in clause (B). If respondent’s contention is correct, as found by the Board, a deduction would be allowable under section 303 (a) (2) for property received from prior decedents by purchase, and we find nothing in the statute or in previous legislation to indicate any such intention on the part of Congress.

We are convinced, however, that respondent is entitled to recover under clause (B) of the section referred to.

In Tyler et al., Administrators, v. United States, 281 U. S. 497, 50 S. Ct. 356, 74 L. Ed. 991, 69 A. L. R. 758, the constitutionality of section 202 (c) of the Act of 1916, supra, was attacked on two grounds: (1) That so far as the tax is based upon the inclusion of the value of the interest in the estate held by the decedent and spouse as tenants by the entirety, it is an unapportioned direct tax and violates article 1, § 2, cl. 3, and section 9, el. 4; (2) that such a tax, being so arbitrary and capricious as to amount to confiscation, results in the deprivation of property without due process of law, in violation of the Fifth Amendment. The court held that the section was not violative of the Constitution in either respect mentioned, and that under the statute it was proper to include the property in the gross estate which forms the primary base for the measurement of the tax. Thus the property so included in the husband’s gross estate, although not subject to his debts, became a part of his estate, otherwise it would not be subject to the tax, for the tax is laid only on the transfer of the net estate, and the transfer must be from the estate to the survivor in order to come within the taxing statute.

Respondent’s right to deduct from the gross estate of Mrs. Pettis the one-half in val-_ ue of the entire estate by entirety, which was included in the gross estate of her husband, and upon which federal estate tax was assessed and paid within five years of her death, depends upon whether the transfer of that interest to her from his estate came bjr way of gift, bequest, devise, or inheritance. In all other respects section 303 (a) (2), supra, which authorizes deductions, has been complied with.

We think the word “inheritance” may be fairly construed to include this transfer, and we are convinced that Congress so intended it. While in legal parlance we generally regard the meaning of the word “inheritance” as the acquisition of property by one person as heir to another, yet it also means the act of possessing, receiving, obtaining, or succeeding to. The right to receive the entire property upon her husband’s death came from the deed which created the estate by the entirety. The transfer to her of the interest therein which her husband had at the time of his death, and which transfer was necessary for her to completely hold and enjoy that right which the deed had given her, came froni her husband’s estate. She succeeded to her husband’s right. She received and obtained and came into possession of it, and in that sense we think she must be considered as having inherited it from her husband’s estate.

The order of the Board of Tax Appeals is affirmed.