263 F. 620 | S.D.N.Y. | 1920
Demurrer to a complaint for recovery of taxes paid by an executor raises questions as to the constitutionality and interpretation of title II, Act Sept. 8, 1916 (39 Stat. 777), the Fed
1. Constitutionality.
Again, it is urged that, until there occurs some exercise of some right as to which a private option of renunciation exists, there is nothing to which the federal taxing power can constitutionally be applied. There is, however, ordinarily no right of renunciation under intestacy laws. Moreover, the option itself is derived from the state in the exercise of its exclusive control.
2. Interpretation.
Section 203 (Comp. St. § 6336½d) defines, as the taxable net estate, the gross estate less—
“(1) Sueli amounts for funeral expenses, administration expenses, claims against the estate, unpaid mortgages, losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualty, and from*622 theft, when such losses are not compensated for by insurance or otherwise, support during the settlement of the estate of those dependent upon the decedent, and such other charges against the estate, as are allowed by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered; and
‘•(.2) An exemption of $50,000.00.”
The question presented is whether this clause permits of the deduction of state inheritance taxes paid by the executor in a number of states and allowed to him in his accounting in the Surrogate’s Court of decedent’s domicile. On November 17, 1916, the Treasury Department ruled (T. D. 2395), that as—
“state inheritance taxes are a primary charge against an estate and allowable as credits to executors and administrators, - * * they are clearly deductible.”
Subsequently on September 10, 1917, this ruling was revoked, and on an exhaustive study of the nature of state inheritance taxes they were declared not deductible.
Estate taxes or probate duties levied by the state would fall within this clause. Northern Trust Co. v. Lederer (D. C.) 257 Fed. 812. But taxes levied on the shares to be received by beneficiaries, reducing, not the estate, but the individual’s share, cannot be deemed a charge upon the estate merely because the duty, with the corresponding liability and right to account in respect thereto in his estate accounts, is imposed upon the executor or administrator to pay the tax before distributing the share itself. The nature of the tax, as a succession, not an estate, tax, remains unchanged, despite the additional obligation thus imposed.
The changes made by the present law (Act Feb. 24, 1919, § 403 [Comp. St. Ann. Supp. 1919, § 6336¾d]) afford no basis for interpreting the former law, for, while it excludes state succession and legacy taxes, it also expressly excludes state estate or inheritance taxes.
In my judgment, the later interpretation of the act by the Treasury Department is sound, and the demurrer must be sustained.