COMMISSIONER OF INTERNAL REVENUE v. ESTATE OF STERNBERGER, CHASE NATIONAL BANK OF NEW YORK, EXECUTOR.
No. 24
Supreme Court of the United States
Decided January 10, 1955
348 U.S. 187
Argued October 19-20, 1954
Edward S. Greenbaum argued the cause for respondent. With him on the brief were Maurice C. Greenbaum and Charles E. Heming.
MR. JUSTICE BURTON delivered the opinion of the Court.
The issue here is whether, in determining a net estate for federal estate tax purposes, a deduction may be made on account of a charitable bequest that is to take effect
Louis Sternberger died testate June 25, 1947. His federal estate tax return discloses a gross estate of $2,406,541.71 and, for the additional estate tax, a net estate of $2,064,346.55. It includes assets owned by him at his death and others held by the Chase National Bank, respondent herein, under a revocable trust created by him. As the revocable trust makes provisions for charity that are, for our purposes, identical with those in the will, this opinion applies to both dispositions.
The will places the residuary estate in trust during the joint lives of decedent‘s wife and daughter and for the life of the survivor of them. Upon the death of such survivor, the principal of the trust fund is payable to the then living descendants of the daughter. However, if there are no such descendants, one-half of the residue goes to certain collateral relatives of decedent and the other half to certain charitable corporations. If none of the designated relatives are living, the entire residue goes to the charitable corporations.1
At decedent‘s death, his wife and daughter survived him. His wife was then 62 and his daughter 27. The latter married in 1942, was divorced in 1944, had not remarried and had not had a child.
In the estate tax return, decedent‘s executor, respondent herein, deducted $179,154.19 from the gross estate as the present value of the conditional bequest to charity of one-half of the residue. Respondent claimed no deduction for the more remote charitable bequest of the other half of the residue. The Commissioner of Internal Revenue disallowed the deduction and determined a tax
The controlling provisions of the Revenue Code are in substantially the same terms as when they were first enacted in 19192 and are as follows:
SEC. 812. NET ESTATE.
For the purpose of the tax the value of the net estate shall be determined . . . by deducting from the value of the gross estate-
. . . . .
(d) TRANSFERS FOR PUBLIC, CHARITABLE, AND RELIGIOUS USES.-The amount of all bequests, legacies, devises, or transfers . . . to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes . . . . I. R. C.
The Commissioner concedes that the corporations named in the will qualify as charitable corporations under the statute. There is no doubt, therefore, that if the bequest to them had been immediate and unconditional, its value would be deductible. The question before us is what, if any, charitable deduction may be made despite (1) the deferment of the effective date of the charitable bequest until the deaths of both decedent‘s wife and daughter and (2) the conditioning of the bequest upon a lack of descendants of decedent‘s daughter surviv
1. Section 81.44 of Treasury Regulations 105 would permit the deduction of the present value of the bequest if it were an outright bequest, merely deferred until the deaths of decedent‘s wife and daughter.
In their earliest form, the predecessors of these regulations, in 1919, recognized, in plain language, the propriety of the deduction of the present value of a deferred, but assured, bequest to charity.4 Section 81.44 (d) of Treasury Regulations 105 does so with inescapable specificity:
§ 81.44 Transfers for public, charitable, religious, etc., uses. . . .
(d) If a trust is created for both a charitable and a private purpose, deduction may be taken of the
value of the beneficial interest in favor of the former only insofar as such interest is presently ascertainable, and hence severable from the interest in favor of the private use. § 81.10 indicates the principles to be applied in the computation of the present worth of deferred uses, but such computation will not be made by the Commissioner on behalf of the executor. Thus, if money or property is placed in trust to pay the income to an individual during his life, or for a term of years, and then to pay or deliver the principal to the charitable corporation, or to apply it to a charitable purpose, the present value of the remainder is deductible. To determine the present value of such remainder, use the appropriate factor in column 3 of Table A or B of § 81.10. If the present worth of a remainder bequeathed for a charitable use is dependent upon the termination of more than one life, or in any other manner rendering inapplicable Table A or B of § 81.10, the claim for the deduction must be supported by a full statement, in duplicate, of the computation of the present worth made, in accordance with the principle set forth in § 81.10, by one skilled in actuarial computations. (Emphasis supplied.) 26 CFR.
The very explicitness of the above provisions emphasizes their restriction to the computation of the present worth of assured bequests such as are the subject of each of the illustrations and cross references in the section.
2. Section 81.46 of Treasury Regulations 105 permits no deduction for a conditional bequest to charity unless the possibility that charity will not take is so remote as to be negligible.
Here, also, the regulations in their earliest form, in 1919, were unequivocally restrictive.6 It was only after court
Section 81.46 now provides expressly that no deduction is allowable for a conditional bequest to charity unless the possibility that charity will not take is so remote as to be negligible. The whole section is significant:
§ 81.46 Conditional bequests. (a) If as of the date of decedent‘s death the transfer to charity is dependent upon the performance of some act or the happening of a precedent event in order that it might become effective, no deduction is allowable unless the possibility that charity will not take is so remote as to be negligible. If an estate or interest has passed to or is vested in charity at the time of decedent‘s death and such right or interest would be defeated by the performance of some act or the happening of some event which appeared to have been highly improbable at the time of decedent‘s death, the deduction is allowable.
(b) If the legatee, devisee, donee, or trustee is empowered to divert the property or fund, in whole or in part, to a use or purpose which would have rendered it, to the extent that it is subject to such power, not deductible had it been directly so bequeathed, devised, or given by the decedent, deduction will be limited to that portion, if any, of the property or fund which is exempt from an exercise of such power. (Emphasis supplied.) 26 CFR.
Sections 81.44 and 81.46 fully implement
Respondent concedes that the chance that charity will not take is much more than negligible. Therefore, if § 81.46 (a) applies to the instant case, no charitable deduction is permissible.
Respondent claims, however, that § 81.44 covers this case. In doing so, it reads §§ 81.44 and 81.46 together and, instead of confining them to their mutually exclusive subjects, makes them overlap. It applies § 81.44 to some deferred conditional bequests. It does so in any case where it can compute, on approved actuarial standards, the degree of possibility that charity will receive the conditional bequest. Respondent then computes the present value of a corresponding percentage of the entire deferred bequest. In short, respondent claims an immediate tax deduction equal to the present value of whatever fraction of the bequest corresponds, actuarially, to the chance that charity may benefit from it.
One may guess, or gamble on, or even insure against, any future event. The Solicitor General tells us that Lloyds of London will insure against having twins. But the fundamental question in the case at bar, is not whether this contingent interest can be insured against or its value guessed at, but what construction shall be given to a statute. Did Congress in providing for the determination of the net estate taxable, intend that a deduction should be made for a contingency, the actual value of which cannot be determined from any known data? Neither taxpayer, nor revenue officer-even if equipped with all the aid which the actuarial art can supply-could do more than guess at the value of this contingency. It is clear that Congress did not intend that a deduction should be made for a contingent gift of that character. (Emphasis supplied.) Id., at 494.
Since the above was written, there have been advances in the actuarial art. Today, actuarial estimates are employed more widely than they were then. The computa
The Tax Court and the Court of Appeals have approved respondent‘s actuarial computations as fairly reflecting the present value of one-half of a two-million-dollar residue, reduced in proportion to the chance that charity will receive it. In making this estimate, respondent has computed the present value of the deferred bequest on the basis of 4% interest compounded annually and has used the following actuarial tables:
1. To determine the joint life expectancy of decedent‘s wife and daughter, the Combined Experience Mortality Table prescribed in § 81.10 of the estate tax regulations.
2. To estimate the probability of remarriage of the daughter, the American Remarriage Table, published by the Casualty Actuarial Society.
3. To estimate the chance of a first child being born to decedent‘s daughter, a specially devised table which has been found by the Tax Court to have been prepared in accordance with accepted actuarial principles upon data derived from statistics published by the Bureau of the Census.8
If respondent is successful, it means the allowance of an immediate and irrevocable deduction of over $175,000 from the gross estate of decedent, although respondent admits there is a real possibility that charity will receive nothing. The bequest, in fact, offers to the daughter an inducement of about $2,000,000 to remarry and leave a descendant. To the extent that this inducement reduces the actuarially computed average probability that charity will receive this bequest, it further demonstrates the inappropriateness of authorizing charitable tax deductions based upon highly conditional bequests to charity.
An even clearer illustration of the effect of respondent‘s interpretation of the code readily suggests itself. If
We find no suggestion of authority for such a deduction in
If the present worth of a remainder bequeathed for a charitable use is dependent upon the termination of more than one life, or in any other manner rendering inapplicable Table A or B of § 81.10, the claim for the deduction must be supported by a full statement, in duplicate, of the computation of the present worth made, in accordance with the principle set forth in § 81.10, by one skilled in actuarial computations. (Emphasis supplied.)
This Court has not specifically faced the issue now before us since Humes v. United States, supra, but we see no reason to retreat from the views there stated. This Court finds no statutory authority for the deduction from a gross estate of any percentage of a conditional bequest to charity where there is no assurance that charity will receive the bequest or some determinable part of it. Where the amount of a bequest to charity has not been determinable, the deduction properly has been denied. Henslee v. Union Planters Bank, 335 U. S. 595, 598-600; Merchants Bank v. Commissioner, 320 U. S. 256, 259-263; and see Robinette v. Helvering, 318 U. S. 184, 189. Where the amount has been determinable, the deduction has, with equal propriety, been allowed where the designated charity has been sure to benefit from it. United States v. Provident Trust Co., 291 U. S. 272; Ithaca Trust Co. v. United States, 279 U. S. 151.
Some of the lower courts have squarely met the instant problem and denied the deduction. For example, the de
The judgment of the Court of Appeals, accordingly, is reversed and the cause remanded for action in conformity with this opinion.
Reversed.
MR. JUSTICE REED, with whom MR. JUSTICE DOUGLAS joins, dissenting.
The facts are fully and fairly stated in the Court‘s opinion. Its statement of the legal issues accords with our understanding of the case, to wit:
The question before us is what, if any, charitable deduction may be made despite (1) the deferment of the effective date of the charitable bequest until the deaths of both decedent‘s wife and daughter and (2) the conditioning of the bequest upon a lack of descendants of decedent‘s daughter surviving at that time.
The reason for dissenting, at some length, is that the Court‘s conclusion seems to disregard the words of the statute in question and to subvert the purpose of Congress in its enactment, that purpose admittedly being to encourage testamentary gifts to corporations organized for certain objects considered highly desirable for the good of our people.1 There is a certain hesitation in dissent
First. The statute,
Under the Court‘s interpretation, if a child were bequeathed his father‘s estate for life with remainder in default of issue to the recognized institutions, the full estate tax would have to be paid. On the other hand, if the estate were left simply to the child for life and then to the same institutions, the estate would be free from the tax on the present value of the remainder. Such a differentiation is not found in the statute. The Congress said that charitable bequests should be deductible. The valuation of the charitable interest in one instance would be greater than in the other; the tax less. But in each case the net estate would be reduced only by the present actuarial value of the charitable bequest. While particu
Our interpretation of the statute has support in the language of Treasury Regulation 105, § 81.44. After referring to the valuation of bequests whose value is presently ascertainable, the regulation adds:
If the present worth of a remainder bequeathed for a charitable use is dependent upon the termination of more than one life, or in any other manner rendering inapplicable Table A or B of § 81.10, the claim for the deduction must be supported by a full statement, in duplicate, of the computation of the present worth made, in accordance with the principle set forth in § 81.10, by one skilled in actuarial computations.
The tables refer to a remainder contingent on the termination of one life only. Section 81.44 alone would allow, in the light of the statutory language, a deduction for a contingent bequest, uncertain as to ultimate receipt. See the Court‘s opinion, ante, pp. 198 and 199. The Court does not follow this language of the Regulations because of § 81.46 and because of statutory emphasis upon
The Court agrees, however, with the Government‘s contention that it is immaterial whether the charity‘s contingent possibility of receipt can be valued as of the decedent‘s death. It holds that it is only when ultimate receipt must follow that
Two-Ithaca Trust Co. v. United States, 279 U. S. 151, and United States v. Provident Trust Co., 291 U. S. 272-allowed a deduction for conditional charitable bequests. The former because a right to invade the corpus was fixed by a standard capable of being stated in money and, as the income of the estate was ample for the needs of the
The sole question to be considered is-What is the value of the interest to be saved from the tax? That is a practical question, not concluded by the presumption invoked but to be determined by ascertaining in terms of money what the property constituting that interest would bring in the market,
subject to such uncertainty as ordinarily attaches to such an inquiry. See Ithaca Trust Co. v. United States . . . . 279 U. S., at 286.
Our conclusion is that the purpose of § 812 was to allow a deduction for charitable bequests that are capable of valuation at the time of death, although it is not certain that the gift will ultimately fall to the contingent beneficiary. See in accord Meierhof v. Higgins, 129 F. 2d 1002, a case in conflict with Newton Trust Co. v. Commissioner, 160 F. 2d 175, which ultimately led to the allowance of this certiorari. The purpose of § 812 and its background forbid, we think, a conclusion that Congress intended to exclude a deduction in those cases.
Second. The Government asserts and this Court agrees that although it is clear that § 812 allows a deduction for some contingent bequests, § 81.46 of the regulations limits those contingencies to instances where the possibility that charity will not take is so remote as to be negligible. Clearly the possibility here is not remote. The chances are against the charity taking. It is quite true that § 81.46 has survived reenactment of
Whether the Regulations are written into the Estate Tax law by reenactment or are merely indicative of congressional purpose,7 the deduction section and the regulations are to be interpreted in the light of the congressional purpose. Whatever may be the varying views as to the desirability of testamentary gifts of moneys or businesses
If it were not for the reenactment of § 812 after the promulgation of § 81.46, we would have no hesitation in declaring it in conflict with the statute. Even in interpreting statutes when isolated provisions would produce results plainly at variance with the policy of the legislation as a whole, we follow the purpose rather than the literal words. United States v. American Trucking Assns., 310 U. S. 534, 543. That rule is applicable here. Regulations do not have the safeguards of federal statutory enactments. Interested parties outside the Internal Revenue Service perhaps may not be heard. Reports explaining the action are not available. Public discussion, such as happens in Congress, does not take place. In short, we think that reenactment of a statute after the due adoption of a regulation does not make the regulation a part of the statute. It is only an indication of congressional purpose to be weighed in the context and circumstances of the statutory language. In this instance the congressional purpose to encourage gifts to charity should not be frustrated by the issuance of a regulation.
For the foregoing reasons we would affirm the judgment of the Second Circuit.