Commissioner of Internal Revenue v. Estate of Herman J. Bosch, Deceased, Irving Trust Company, Executor,respondent

OF INTERNAL REV COMMISSIONER Petitioner, ENUE, BOSCH, Deceased, of Herman J.

ESTATE Executor, Company, Irving Trust Respondent.

No. Docket 29883. Appeals

United States Court

Second Circuit. May

Argued 1966. July

Decided Atty.,

Benjamin Parker, for M. Washington, Justice, Dept. D. C. Atty. Gen., (Mitchell Rogovin, Rich Asst. Atty. Gen., Acting Roberts, Asst. M. ard Anderson, N. and Robert Lee A. Jackson brief), C., Attys., Washington, on the D. petitioner. for (John City Burke, John W. New Hardy Davies, Clark, A. Dermod Ives counsel), City, Schenck, respondent. for FRIENDLY, HAYS Before Judges. FEINBERG, Circuit Friendly, Judge, dissented. Circuit Judge. HAYS, Circuit petitions for review The Commissioner Tax Court of a decision had errone held that the Commissioner $70,222.04 ously disallowed the sum under Section a marital deduction (5) 2056(b) Revenue Internal (5)1 2056(b) 26 U.S.C. § Code Tax Court. affirm the We appoint any person “(5) with with no other estate and appoint Life any interest, surviving spouse.- part or such ment the case of —-In any property passing specific portion, person than an interest from the decedent, surviving spouse surviving spouse— if his is en * * * (A) thereof so titled for to all the income from the the interest life * * * purposes passing shall, interest, of subsec- entire passing appoint (a), surviving spouse tion be considered as the entire * * * spouse, interest, (exercisable surviving in favor passing (B) part surviving spouse, no interest so of such or of estate shall, purposes paragraph surviving spouse, of such or in favor of passing (A), either, be considered as whether or not in each case the person surviving spouse. others), other than the is exercisable in favor of fairly simple proposed and are facts Mr. and Mrs. Bosch to release, pur- dispute. not in the execution of the pose take advan- of the release was to up April set the decedent On tage Appointment of Act of the Powers by the income the terms of which a trust amending of Ch. 65 Stat. during paid her wife to his was to be 811(f) (now Code Int. Bev. of § Upon of wife death lifetime. 2041), then re- Int. Code Rev. of § grantor corpus paid or was to be enacted, prevent cently and thus “to amendable was The trust estate. being part as of the trust taxed assets and revocable. Margaret of Bosch’s estate.” February 6,1931 amended decedent On April Bosch 1957 Herman died. On grant his wife to to instrument the trust a marital deduction His executor claimed general power appointment. a of She The Commis- for value of the trust. by appoint her empowered will did not determined that the trust sioner any “persons corpus of trust qualify as- and for the marital deduction corporations.” amendment and/or provided, deficiency upon federal tax based serted a disposition a over for $70,- of of the amount disallowances her event wife failed exercise corpus 222.04, the value of the power appointment. of 25, 1951, executed the wife On October by purported to which she a document petition a in the executor filed power general portion of a of her release Tax a redetermination Court appointment and to con- under the trust pending deficiency. While the action appoint- power special a of vert it into trustee, Court, which was in the ment.2 Herman of also executor of the estate brought proceeding Bosch, in the New a - appears itself It from the document of for a settlement trustee, readily by and it is conceded part my I to release in desire Whebeas apply paragraph if such This shall contingent power of spouse appoint surviving power in the Agreement Trust in the manner said of specific por- interest, or such entire Appoint- contemplated by of the ‘Powers by thereof, will tion whether exercisable amending of Section ment Act 1951’ life, by during such or is exercisable 1000(c) (f) the Internal and Section of spouse alone and in all events.” Code United States of Revenue by contingent pow- my All These : America, 2. “Know Men Pbesents said so that Mabgabet I, Bosch, Agreement am the Whebeas er under said of beneficiary by power life the trust created shall Trust not be Agreement April appointment, certain 9, dated Trust Bosch, I, Margaret Now, 1930 between Herman J. as Thebeeobe, said Grantor, Irving Company, hereby renounce, relinquish, and Trust as Bosch, sur- Trustee, being my contingent now which trust admin- render and said by Irving Company appoint any part istered said Trust all or said Trustee; by Agreement fund trust said Trust by Whebeas, April 9, by an amendment of said made Herman dated J. Agreement February Trust, Bosch, by dated as amended instrument dated by pursuant February 6, any property made said Grantor or power thereby preserved him, may part hereafter form a of said trust provided fund, myself, my estate, my that in the event that said Gran- in favor of me, beneficiary tor my shall survive or creditors the «editors of estate. Any attempted named— therein exercise of said Margaret by my ‘then the death of said made Will which is inconsistent pay, any way Bosch the Trustee shall transfer or in in conflict with this re- principal and deliver the of the trust lease limitation me of said persons corporations fund to the appointed shall be void. and/or to receive the same Whebeoe, I have executed In Witness duplicate day Last Will and Testament of Said Mar- this instrument this 25 ’ * * * garet Bosch, October, Mabgabet (L.S.) Bosch /s/ Margaret Bosch” proceeding, Bosch, In connection as trustee. one for Mrs. one its account trustee, guardian proceeding Su- and one Court, a de- ad litem in asked for behalf of a minor interested the trustee preme validity being possible Mrs. in the trust reason of termination beneficiary part Bosch’s release of event Mrs. Bosch died | (appointment. Respondent stipulated and exercising appoint- power without her of proceeding New York conceded that argued ment. All three that briefs part for the was instituted “at least nullity. argument release was a No affecting purpose outcome of of [the] validity presented of release was before the Tax Court. case the court. to petition in York court trustee’s the New twenty-two persons having There were pending proceedings described the then the infant who was the same interest as Court, position Tax and stated the proceeding by by guardian represented taken in that the executor. ad litem. pro- Although they received notice proceeding The issue in the state appeared. ceeding, none of them by executed Mrs. whether the release Mrs. Bosch’s effective. court held that Bosch on October The state nullity.3 purported filed in the release was Three briefs were New Consol.Laws, 50], Irving (Bosch)— [McKinney’s which c. 3. “Matter of Trust Co. ‘Any judicially power proceeding which is exercisable In this to settle and stated: by by by will, deed, will, or other deed or allow the intermediate account of the special, wise, trust, whether or other trustee an inter vivos a rul- under imperative, power ing requested respecting validity which is than a in trust of by releasable, Margaret without with or consid an instrument executed either by eration, by signed Bosch, trust, written instrument wife of the settlor of the grantee 25, 1951, purportedly par- as hereinafter dated October the provided.’ and delivered although tially section, part power releasing contingent This her of Property Law, applies appointment. April of Beal to On Herman powers appointment personal provided of over J. Bosch created a trust which powers payment property for the as well as to over real of to his wife for income property (Matter grantor of N. Y. Title & Mort her life with a reversion to the if gage Co., 473]; predecease him, 150 Misc. N.Y.S. [270 his wife should or to his Will, predecease wife, [259 estate if he should re Goldwitz his Misc. Cooksey’s Estate, leaving will, 900]; or to his next of kin if N.Y.S. Matter of 880]). he should that [74 die intestate. in- 182 N.Y. 92 N.E. order The trust grantor power appointment right strument reserved to the the donee of a of re any any power, or alter amend the lease under trust at that time during right his life with must consent of donee have the to exercise the thp trustee, power 'right purported and the further at the time the without release person consent of the trustee or is made. It seems clear that the donee of power appointment part. to revoke the trust in whole of or cannot exercise it February 6, prior (Matter grantor Piffard, On its creation exer- right pro- cised his N.Y. amend N.E. [18 the trust L.R.A. wife, Margaret 193]). Bosch, case, Margaret vide that his In the instant general power appoint- Bosch, 1951, sought should have a on October to ef property partial power ment ap over the of the trust exer- fect a pointment release of the by gran- cisable Will if she survived the over the power grantor tor. power in the At further that time she lacked the ex alter, any rights amend or revoke the trust his ercise trust under the instru power lifetime was respect undisturbed this amend- Her ment. 25, 1951, during ment. On being upon October trust instrument into came grantor, wife, Margaret lifetime of grantor April 6, death A Bosch, power executed an instrument created purported partial she trust, power effect a revocable deed of shall general power appointment grant- will, may be exercised exercised ed to her the trust instrument while the settlor of the trust is still alive. grantor, Bosch, amended. The Herman Since she could not have exercised the April 6, applicable died on 1957. The on October provision the law is section sub- she could not have effected a valid Property division partial the Beal Law release of the on that date. Thus, accept The Tax the state court de- Court decided to xercised.* gave New decision and the follow- * cannot rea- “[W]e Court said doing reasons for so: sonably permit will assume she unexercised, to remain juris- 1. The York court had there are indications record parties diction over the objects the immediate natural bounty of her proceeding, judg- matter of the and its many do not include all of the relatives her husband who would ment was final and conclusive as to take default of her exercise parties. Therefore, those Bosch Mrs. power.” general power appoint- now has a ment which she could exercise favor past cree was more than “a label for herself, estate, creditors, her or present events that would affect litigation; creditors of her estate. authoritatively deter- ap- mined the nature of the of 2. Decisions of the pointment potentially adverse tax represent of State of York New le- consequences at a later date.” gal precedent throughout for courts Tax Court stated that it was not state, unlike decisions of local courts necessary say it it was geographical jurisdiction with limited by “bound” the New York decision. It binding upon whose decisions are not state, held that it was sufficient other courts of the state. reasons, all of the above it would fully 3. The Commissioner was accept York an New decision “as proceeding aware of the exposition in the New authoritative York law of New adjudication rights sought of court and could have involved.” opportunity present his views to Indeed, agreed that court. he to the deciding In whether the Tax hearing continuance of the before the proper Court ascribed effect to the state pro- Court so that New York decision, preliminary a few observations ceeding might brought be to a con- may helpful. be much We believe that clusion. is confusion the cases caused by carefully the failure of the courts 4. The New York court rendered a example, formulate the issue. For it is opinion reasoned and reached a delib- quite clear that the state decision is not erate conclusion. binding upon the federal courts because by decision, principle The New York court’s the situation is covered judicata. binding of res Bosch, Freuler v. Helver may See Mrs. ing, 35, 43, 308, 291 54 78 U.S. S.Ct. offsetting certain tax' conse (1934). Obviously L.Ed. 634 the Com quences respect to her own estate missioner is not state de bound tax. The New York decree establish judicata sense, he cision in a res since general power that she has a of party litigation was not a to the appointment will result in the inclu may resulted the decision. It be that gross any proper sion in her of estate it would be desirable to hold the Commis ty passing under her exercise of that notice sioner bound when he has received power, and the record indicates opportunity appear and an this now, is not clearly reasonable to assume that this case, but that not the law change appointment would law will remain une 25, 1951, purported partial Hence granted 25, instrument was to her the trust October nullity. J., nullity (Matter Piffard, Settle order.” N. Y. L. was a supra). purported par- Accordingly, November by Margaret tial release Bosch on October 1013 then, strictly speaking, legislative is, require action. Sim- The issue no doubt ilarly not “bound not bound whether the federal court is courts are the federal tribunal, by” Erie R. R. decision state the rule of ih this situation Tompkins, 58 has 304 S.Ct. but whether or not a tribunal v. U.S. Co. (1938). authoritatively It is for this un- 82 L.Ed. 1188 determined party federal Commissioner’s der state law of a reason that most argument to be be- action. must considered point. here is not to The task side the clearly Sharp This is the effect ap- general York law New discover the Commissioner, 303 58 U.S. S.Ct. powers appoint-

plicable to releases reversing, (1938), L.Ed. 1087 may ment. well be That (3d 1937), F.2d 802 Blair v. Com- Cir. required which con- search in a case missioner, 300 U.S. 57 S.Ct. taxpayer special status cerns a whose own Helver- L.Ed. 465 and Freuler v. au- has never been York law New ing, L.Ed. U.S. thoritatively determined case, In Blair issue tribunal. determination spend- was whether a certain trust was required present take case we Illinois. thrift under the trust law colleague, Judge our learned issue with examining Appeals, Circuit Court Friendly, brilliant lecture whose subject, law of Illinois on Federal Praise of Erie —And of the New spendthrift held it to be a Law, 39 N.Y.U.L.Rev. Common thereupon brought an action trustees (1964) quoted in Commissioner’s the a construction the Illinois courts to obtain may agree Reply Brief. We indeed Appellate of the will and the Court view, Erie him that- correct that “the the court, Illinois, appellate an intermediate ground applies, the doctrine whatever spendthrift held not a that the trust was jurisdiction, issue or for federal Court The United States law,” in state claim which has its source re- ruled Commissioner was that the by Judge in Ma- is set forth Waterman accept quired Illinois decision as Yours, Maternity ternally Your Inc. v. dispositive. The Court said: Inc., (2d Shop, 234 F.2d 541 n. 1 Cir. necessary instance, “In it is not this 1956). pas- quoted The reference in the go point beyond that the obvious sage great run of in is to the cases which a the decision was in suit between obliged to search the federal courts are beneficiary and his trustees and the general principle of out the state law assignees, and the decree which apply principle to a case order to pursuance of the decision entered in refer, does under consideration. It parties these determined as between refer, and was never intended to assign- validity particular question of or not a federal whether 10, 57 at ments.” 300 U.S. at "accept court is to a state determination rights party of a under state law situa- to a federal action. In latter deciding whether the determination bar, tion, which is case at party rights law of state party comes into the federal court with authoritative, has a federal action been rights already by a decision fixed majority courts in which of federal of a tribunal. is no occasion state There question have has been raised re- inquire into law of the accept result in cases which fused to rights non-adversary.4 However, state to are. there is ascertain what those were (1962) ; Colowiek, the discussion cited in See and the cases The Bind- Rev. 545 following: Decision Effect of a State Court’s Mertens, Subsequent 10 Law of Federal Income Federal Income Tax Taxation, (Zimet (1957) ; Case, 61 Revision 12 Ch. Tax L.Rev. 213 1964) ; Impact Gerson, Holzmam, Braverman Law State ; Tax., Conclusiveness State Court Decrees Fed. 42 Taxes Litigation, Binding Sacks, in Federal Tax 17 Tax L. Effect of Nontax Liti- lington Commissioner, propo F.2d 693 authority very respectable v. for the Eisenmenger 1962); (3d v. Com that, is bind Cir. decision if the state sition ing 1944); (8th missioner, rights tq un 145 F.2d 103 Cir. parties as their on the Commissioner, Sharpe F.2d 13 (as re if it not be law it would state der denied, collusion), (3d 1939), 309 U.S. it is con cert. Cir. from fraud or sulted purposes rights 84 L.Ed. 1013 60 S.Ct. as to those clusive Gallagher v. .of federal taxation. think, said, may fairly we be It 1955), (3d Cir. F.2d (Smith, 223 open cir- question one this is an court said: Kelly’s compare (However, Trust v. cuit. (2d question Commissioner, Cir. adjudication 168 F.2d of such “An 1948). National must The decision Second title court.of (2d effect, States, given F.2d accordingly not be- Bank v. United against 1965), based, judicata court makes as the it is res Cir. cause holding clear,5 States, is conclu- determina- on the that the but because United rights parties’ Probate tion of the Connecticut sive of the far as taxed. So authoritative Connecticut. alone to be was not law parties are concerned those judge quite An able Tax Court court the state is what of the state explicitly several to balance undertook applied case. in their declared and has (see pp. su 2494-2495 factors relevant judgment bind- has If the state court’s ing accept deciding New pra) before state law final effect under the judgment authoritative parties be what rights can We, too, consid parties. It is to be. has held them the court feel of the circumstances ered all the federal this reason that We was correct. decision below that the make kind a case of this should not in judgment, ren hold that the appli- independent examination an jurisdiction had a court which dered if it reaches For cation of state law. matter, author parties and over itatively state from the conclusion a different parties, rights of the settled rights parties’ as to what court pur York, for but also for New not poses deci- law its under the state should be rights application those rights change not those sion will provisions tax law. of federal the relevant necessarily the state remain what will general power of Bosch now has Mrs. appointment be.” them to court has declared The cor under the Commissioner, qualifies 328 v. pus See Flitcroft therefore of the trust 1964); (9th of Dar- Estate F.2d 449 Cir. deduction. the marital Courts, upon gation binding 21st Inst. a federal State N.Y.U. and conclusive as Stephens (1963) ; Tax., construing applying the fed- Fed. 277 court [446,] Freeland, F.Supp. Law and Role of Local 222 The revenue laws.’ eral Adjudication in Tax Con Local Federal in accord with 457. This court at (1961) ; troversies, Minn.L.Rev. the effect of 46 223 conclusion as to trial court’s Nonadversary Peyton Note, Binding decree, of a v. Effect see Estate the state (8th Commissioner, State Court Decree a Federal 438 Cir. 323 F.2d Determination, 1963), Fordham L.Rev. law 33 705 under since Connecticut ; (1965) Note, binding Effect of State Court not Probate Court’s decisions are Litigation, higher courts, in Federal Tax Decrees 30 Heiser v. on the state’s ; Guaranty Note, Co., Morgan U. of Chi.L.Rev. 569 Trust 150 Conn. (1963), The Role of State Law Federal Tax 192 A.2d 44 and are even Determination, pro- Harv.L.Rev. 1350 72 to collateral attack another (1959). district, Appeal Culver’s from Pro- bate (1880). bate, 165, 172-174 Un- 48 Conn. carefully 5. “The trial court after consider- circumstances, unnecessary der the it was arguments many and the relevant finding ‘to make a as to whether decisions concluded that ‘the decrees of proceedings in the Probate Court were the Connecticut Court —which is Probate nonadversary or collusive nature’ and not a court of record and most of the properly judges lawyers— laymen, the court refrained from so do- of which not ing.” under no circumstances can be construed 351 F.2d at 494.

1015 1 L.Ed.2d 79 is af- 77 Tax Court U.S. S.Ct. decision S., (1956); U. Estate v. and Faulkerson’s firmed. denied, Cir.), 371 (7 cert. 301 F.2d 231 121 L.Ed.2d 9 83 U.S. S.Ct. (dissent- Judge FRIENDLY, Circuit refusing give (1962), to state effect ing). Smith, Gallagher 223 judgments, v. with appeal concerns an The Commissioner’s Darlington’s 1955); (3 Cir. F.2d important problem in administration (3 R., Cir. F.2d 693 I. Estate v. C. conclusiveness of the revenue laws —the R., 1962), C. I. Estate v. and Goodwin’s court, judgment a lower state of a doing op (6 1953), 201 F.2d 576 Cir. intra-family setting, typically in an posite. declined has The Fourth Circuit entailing property interests determines judg give court to a lower state effect consequences. The federal tax respect ment with to widow’s point spoken to the has not circum rendered nearly thirty years. Difficulties arise here, quite Pier to those stances similar unacceptability practical because of the R., pont’s 336 F.2d Estate v. C. I. positions; strictly logical polar (1964), denied, 380 U.S. 281-282 cert. judgment of an inferior (1965), 13 L.Ed.2d 795 judicata binding res can court distinguishing in Pitts its earlier decision rebuttable evidence never be more than (1955), Hamrick, Cir., 228 F.2d 486 judgment law, of state and that refusing expressly rule to follow the as a determination which is effective my ^brothers Third Circuit rights among parties property Eighth adopt. seems to Circuit fisc. The for- conclusive the federal judgments now less deferential to state unfairly operate position mer could Straight’s than it used to be. Contrast having gen- many persons cases where (1957), R., I. 245 F.2d 327 Trust v. C. controversy de- over uine R., Peyton’s I. 323 F.2d Estate v. C. appropriate local an sire resolution Helvering (1963), v. Rhodes’ wishing press their tribunal without (1941); Estate, and Eisen 117 F.2d 509 highest differences (1944). menger R., 145 F.2d 103 v. C. I. citizens, permit state. latter would appears be more The Ninth Circuit unwilling accept consequences the tax R., 328 C. I. so. Flitcroft v. Contrast by them or their dece- of actions taken (1964), I. v. C. F.2d 449 with Newman by taking dents, taxes to evade federal R., (1955), and Wolf sen v. F.2d advantage unwitting lower state an Smyth, The con 223 F.2d tribunal. among among judges flict is echoed variables, compounding disap The of factual of them the commentators. Most prove acquiescent the somewhat intractable nature identi attitude now See, g., problem, cryptic character of the and e. fied with the Third Circuit. pronounce Cardozo, Court’s rather dated Radiat and the Federal Taxes Helvering, Decisions, ments, 291 see Freuler v. U.S. Potencies State 35, 43-47, 308, Cahn, (1942); L.Ed. 634 54 S.Ct. 78 Local Yale L.J. 783 51 (1934); R., Taxation, 300 Blair v. C. I. U.S. 52 Yale L.J. Law in Federal 9-10, (1937); (1943); Oliver, 81 465 57 S.Ct. L.Ed. 818-19 The Nature Sharp R., 624, 58 Compulsive v. C. I. 303 in and U.S. Law of the Effect of State (1938), Proceedings, 82 L.Ed. 1087 S.Ct. Tax 41 Calif.L.Rev. Federal widespread among Freeland, (1953); conflict The Stephens created 638 and Saulsbury Contrast, g., Adjudica circuits. e. v. Local and Local Role of Law (5 Controversies, States, 46 United 199 F.2d 578 Cir. tions in Federal Tax ; (1961) 1952), denied, 73 Brav cert. 345 U.S. 242-51 Minn.L.Rev. ; Gerson, The Conclusiveness 645, 97 L.Ed. 1342 Stallworth’s erman & (5 R., Tax F.2d Cir. in Federal Liti C. I. 260 760 State Court Decrees Estate v. Note, (1962); R., gation, 1958); 545 I. 234 17 L.Rev. C. Tax Sweet’s Estate denied, (10 Cir.), in Federal 352 Court Decrees F.2d 401 cert. Effect State 1016 Litigation: Proposal doing A

Tax for Judicial basis so. There had indeed (1963); Reform, power U.Chi.L.Rev. been New decisions that Binding Sacks, appointment by will, of Nontax Effect or not con- whether Courts, Litigation surviving tingent 21st N.Y.U. State on the donee’s Inst, (1963). donor, on Fed. Tax. 277 But this' could be released since not preserving purpose a defender. Third Circuit also has See would defeat Note, Binding Effect of a Nonad- until the donee’s of action freedom versary Tallmadge, in a Federal 26 Barb. State Court Decree death. Learned v. Determination, (1856); L.Rev. and Trust Fordham Farmers’ Loan Mortimer, our court uncom- N.E. With own Co. v. N.Y. regret my mitted,1 (1916). But, upon I brothers’ vote enactment align mechani- ourselves the rather the Revenue Act of thenceforth taxing property subject preexist- rather than all to a cal Third Circuit view the ing general power unless more one of the Fourth realistic date,2 needlessly handicapping specified Fifth, thereby released this was equal legislature swiftly to in the fair and York’s moved the Commissioner permit laws. of such federal revenue holders rid themselves enforcement of the statute, powers part. I would hold that when it is evident whole or brought phrased litigation Property state court has been Real Law § primarily federal have an effect on broadest terms: taxes, judgment of an inferior “Any is exercisable adjudicating property is en- deed, will, by will, or or other- deed weight, titled to little when general special, wise, or whether of a not had the benefit state court has impera- in trust than * * * presentation fair both sides tive, with re- is releaseable controversy, none. it is entitled to While any part spect or whole cases, principles will not resolve all these such they ample decide this one. may in such manner also be released persons or to reduce or limit 1957, the Bosch died in When Herman objects, persons or ob- or classes of determining taxes on critical date for jects, would whose favor only special power estate, his wife had exercisable.” otherwise be over trust whose Admittedly question. suggests Nothing language a de- status is here were, purported all except powers have and Mrs. she like this sire to all. thought contingent Bosch’s, she had. So or her husband donee’s sur- she on the lived, ques- long had viving as Mr. Bosch no one or destructible the settlor revoking validity partial amending tioned the or settlor’s normally quondam power, trust;3 least of “exercisable” would attorneys experienced including who had all cases where read as Nor was there if the recommended it. be effective would the exercise Kelly’s R., Cong. I. Trust v. 1530- The decision in C. Ad.News 1951 U.S.Code inapposite (2 1948), 2041(a) 1537; 168 F.2d 198 Cir. § Int.Rev.Code given my view deference in since the adjudication was on the the state court York no New cases 3. We have been cited to adversary, “appeal it basis that its made drawn this distinction. that had ever * * * as, appeal especially from the on by one New case cited judgment, judge one disssent state-court Justice, Piffard, 111 N.Y. In re ed.” 168 F.2d at 198-199. (1888), 718, N.E. 2 L.R.A. 193 Initially January although power appoint- this was held that successively Congress by granted Stat. 944. Later will could not have been ment granted postponements by prede- until who November exercised as such a donee partial testator, latter’s will should and made clear that a re ceased the qualify. Ap incorporating legatee’s lease would See be read as dis- Powers pointment 91; position. Act of 1951. 65 Stat. S. Rep. Cong., 2-8, 382, 82d No. 1st Sess. liability donee died the next minute. And there share of the the trust’s for its legis- why allegedly no reason was New York’s taxes on Mr. Bosch’s estate — part only lature should thus fail in to enable valid if the. release was not $930 Congress $21,479 peti- its to do citizens what con- but if The trustee’s it was. templated they might. gave Unless no rea- tion to the New York court contingent power partially why question released son of that determination grace period by litigation before the end of the ac- there the Tax Court by Congress, fully protect pending corded the settlor’s death it. The would not joining Bosch, would leave the donee in the same un- in trus- brief for Mrs. position any request enviable other holder be de- tee’s the release general power invalid, suggestion of a created on or clared no before made 21, 1942, any exercise, October al- of the where she desired to avail herself re- though herself, persons power by appoint in favor than will to leased donee, Indeed, estate, creditors, his or their her estate or her creditors. regaining general power would result in the inclusion in it less his estate made property any likely in over which he held the it that she would exercise just sug- respect. what the release here Under Internal Revenue — gested by any 2041(a) (1), in trustee October while Code § meant avoid. Since there is no cause the exercise of the would apparent why legis- property reason the New in her trust to be included pro- estate, lature should have wished to discriminate failure to exercise it would against contingent availability optimum holders of or revocable duce result of powers language and the affords no in- the trust marital deduc- did, surprising dication that it is not tion in Mr. and freedom Bosch’s estate appears only that what to be from feat taxation his widow’s —a raising problem truly accomplished York case in a which could not have been adversary by during context held that the contin- Mr. revocation trust of.the gent appointment, nature of a Bosch’s life. default of equally’ in that instance death of the donee trust was to be be- divided issue, prevent without did not release of kin of two tween the then next Will, many spouses; per- re Woodcock’s § the interest 268,186 (Surr. remaindermen, Misc.2d presumptive N.Y.S.2d sons cited as 1959).4 Ct. class, Westchester Co. This was taken as a also favored a thus unpropitious background invalidity in which the declaration which would attorneys who had counseled that Mrs. make exercise in of Mrs. Bosch’s favor general power Bosch likely, convert her into a relatives less as was conceded special engage by guardian one 1951 determined to ad litem the brief filed aptly in what the Commissioner has char- only Bosch, for a re- relative of Mr. post plan- acterized as mortem estate position. Mrs. mainderman to take a ning, regaining through for her the New way if the Bosch in no indicated that general power long- York courts a no she valid, would exer- release was held she er had at Mr. Bosch’s death. any special power cise her in favor ’ particular might person, thus be who reason advanced the trus- seeking validity. briefs, urging tee for a declaration as to the interested validity of the release was the effect trustee, filed Mrs. Bosch Any dissipated shadow doubt has not, ability been way, abridge 146 of the new § Article 5 Real pres- donee of a Property Law, ently added Laws c. exercisable, power, 1, 1965, effective June was not part, pursuant provi- whole or in called to the attention of the Tax Court— forty- sions of section one hundred and ** provides or to us. This section that three Section is old § presently donee a not exercisable apparent 183. It is thus no cannot contract to an make in Yorker Mrs. Bosch’s situation can provisions “[t]he but of this ruling section sháll ever obtain a like that made here. guardian, invalidity treated the seeks a declaration of absolute owner- ship beyond “adversary” surely the release as reasonable almost in a formal attorneys sense, may'not practical one, did debate. The for the trustee in a it be they aged not inform the on basis as court what when life is an mother tenant seeking qualify bequest in 1951 which for had recommended action to a nullity— they plainly now considered a so marital deduction and the remaindermen something they Peyton’s have to which would Estate as adult sons. See truly questioned sharply R., supra, in a been adver- v. I. 323 F.2d 438. What C. sary proceeding. easy au- relevant this so sole makes case that the state thority, Will, supra, significant pur- proceeding In was re Woodcock’s court had no cited, legislative pose purpose not be- and the other than the reduction tax explored. liability; hind 183 not Under these Mrs. Bosch not shown to was § using slightest it is to be wondered circumstances not have intention sitting judge busy a motion that part New York court was her, for New led to special or even the thrust erroneously County only have one if she held have should to parties’ practical ratified the tion, unanimous conten- decision that. a sense the citing except inapposite decision on was thus devoid of effect Piffard, affecting question 3. In re see n. taxes.5 There was no integrity Freuler, corpus, in as perfectly The case the de- thus fits assignability beneficiary’s or the scription way in of contrast cited income, R., right as Blair in v. C. I. Helvering, supra, where “all Freuler v. supra. a such case the considerations joined parties in a submission respecting a the determination of sought issues and adversely which would decision product not lower court which is right affect the Government’s weighing opposing arguments ap- * * * at to additional 45, tax.” U.S. proach zero.6 One well-considered article (cid:127) problem in this S.Ct. at 312. The parties said: all has “Whenever area has been bedeviled iteration proceeding approve and have “non-ad- terms such as “collusive” or result, opposed proffered never versary.” require proof To of collusion appears embodying decree serve prearrangement in the normal sense of purpose no other than avoid federal impose nigh impossible burden would regard- taxation, the decree should not Commissioner; yet shrinks a court prop- ed determinative of state law epithet using opprobrious an from such adjudicated.” erty purportedly prearrangement has when no been shown. Gerson, supra, 17 Tax L. which, Braverman Again, proceeding while a appears suggests example, a with what 576. Another comment life tenant Rev. at right principal invade intending to be a limited taxpayer, to avoid “If a years policy twenty It is immaterial if Mrs. Bosch the announced surely Service, should choose to exercise the Internal well Revenue relatives, appropriate favor her own she would committees of known apparently Congress, her estate to a been has to intervene tax — smaller much than sum at here issue suits if made and to move dismiss party. (1947). —which if re would been saved the- Mim. 6134 The reasons post staff, had lease not been attacked. unfamili are obvious —insufficient planning arity procedures, mortem estate condemned with state and lack of Pierpont’s R., supra, standing appeal Estate v. I. C. intervene thus to Peyton’s R., unless, indeed, F.2d I. Estate v. C. the Commissioner were to supra, very point 323 F.2d would also have in concede conclusive payable judgment prop creased the tax estate on the wid ness the state which he erly disputes. contrary ow’s death. In the absence of congressional direction the United States significance litigate liability I fail to see the attributed is entitled to for federal my Compare brothers to Commissioner’s knowl- taxes its own courts. Leiter edge proceeding Minerals, States, of the New York or his Inc. v. United 352 U.S. courtesy awaiting its For 1 L.Ed.2d outcome. liability, suit, and institutes a state .tax argu- party presents the if no interested Commissioner, urged by then

ment judgment con- be

the state court should collusively been ob- sidered Note, supra, 30 U.Chi.L.Rev.

tained.” proposes A third at 581. adjudication

respected col- “unless it was obtained single

lusion, e., pur- i. for the sole defeating

pose tax im- the federal supra, rights.” Sacks, posed those Inst,

N.Y.U. 21st on Fed.Tax. at among unnecessary It is these choose

formulations; all call for reversal here.

Clay FRANCISCO, Appellant, INSURANCE

The TRAVELERS COM- PANY, Appellee.

No. 18309. Appeals States

United Court of Eighth Circuit.

Aug.

Elwyn Cady, Mo., Jr., City, L. Kansas appellant. Gentry, Rogers, O. Reed Field Gentry, City, Mo., appellee; Kansas

Case Details

Case Name: Commissioner of Internal Revenue v. Estate of Herman J. Bosch, Deceased, Irving Trust Company, Executor,respondent

Court Name: Court of Appeals for the Second Circuit

Date Published: Jul 6, 1966

Citation: 363 F.2d 1009

Docket Number: 29883_1

Court Abbreviation: 2d Cir.