This appeal by the United States from a judgment for the plaintiff in a suit to recover the amount of a deficiency in federal estate taxes paid under protest presents no issue of fact, all facts having been either settled by the pleаdings or stipulated, and only a single question of law. That is whether, for the purpose of determining the amount of a decedent’s net estate, a deduction may be taken under § 812(d) of the Internal Revenue Code of 1939, quoted in material part in the margin, 1 for bequests to admitted charities which will take effect in the event that the testatrix’ sister, aged 82 at the decedent’s death, predeceases both the decedent’s daughter and daughter-in-law, who at the testatrix’ death were aged 67 and 68 respectively. Stated in simple terms, the contingency which will defeat the gifts to charity is that an 82-year-old woman will survive two younger women aged 67 and 68.
The parties by stipulation have agreed that on the basis of accepted actuarial tables оf mortality “the probability that charity will take the principal of the trust is 0.91, or stated another way and upon the same basis, the probability that a person aged eighty-two will survive both of two persons aged sixty-eight and sixty-nine 2 respectively is 0.09, or apрroximately one chance out of eleven.” In other words, the statistical chances are about eleven to one that charity will eventually receive the bequest. On the basis of this actuarial computation, and also taking the view that aside from mathematical computations persons m general would regard the possibility that an octogenarian would survive two persons fourteen and fifteen years younger as highly improbable, the District Court considered that the possibility that the charities would not take their bequests was so remote as to be negligible. Therefore, applying § 81.46 of Treasury Regulations 105 quoted in material part below, 3 it denied the Government’s motion for judgment on the pleadings and entered judgment for the plaintiff in the amount stipulated by the parties as correct in the event that the plaintiff was entitled to judgment.
The Government, placing heavy reliance upon certain statements in the opinion of the Supreme Court in the recent case of Commissioner of Internal Revenue v. Sternberger’s Estate, 1955,
The question decided in Commissioner of Internal Revenue v. Sternberger’s Estate, was whether, in determining a net estate for federal estate tax purposes, a deductiоn could be taken on account of a charitable bequest to take effect in the event that the decedent’s childless 27-year-old daughter, a divorcee, should die without issue surviving her and her 62-year-old-mother. The Tax Court had answered this questiоn in the affirmative. It found that the probability that charity would eventually enjoy the bequest could be computed by the application of established and accepted actuarial principles to known and reliable data, and, overruling the Commissioner, it held that the decedent’s estate was entitled to an immediate tax deduction in the amount of the present value of the fraction of the bequest to charity which corresponded, actuarially, to the chance that charity would benefit. That is to say, it reduced the bequest to charity in proportion to the chance that charity would receive it, and then allowed a deduction in the amount of the present value of the bequest as so reduced cоmputed on the basis of 4% interest compounded annually. The Court of Appeals for the Second Circuit affirmed the decision of the Tax Court per curiam,
The Supreme Court, however, reversed. In doing sо it used some language tending out of context to support the Government’s basic contention. But it did not rest its reversal on the broad proposition that charitable bequests which at the decedent’s death are not assured but are in fact conditional are never deductible. It rested its reversal on the ground that the actuarial art was unable to cope with the contingency of that particular case. The Court called attention to the fact that the bequest it was considering “offers to the daughter an inducement of about $2,000,000 to remarry and leave a descendant”, and noted that such an inducement would render quite undependable the actuarially computed average probability that a 27-year-old woman would have issue. It then based its reversal on the authority of Humes v. United States, 1928,
Nеither the Humes nor the Sternberger case rules this one, for here the chance that charity will take does not depend upon the probability of anyone having issue, a matter involving an element of volition. In this case the chance that charity will benefit depends entirely upon the relative longevity of three persons, a matter unaffected by volition or personal inducement, for it would be preposterous to assume that either the daughter or the daughter-in-law, or both, would сhoose to commit suicide in order to defeat the decedent’s bequest to charity. In the present situation, then, statistical data is not subject to distortion by any individual’s self-interest, and since mortality tables are generally recognized as reliаble and have long been used in the courts in tax and other cases, it follows that recognized principles of the actuarial art can safely be relied upon to cope with the contingency that charity will take in this particular cаse.
It does not follow, however, from the fact that in this case the chance that charity will take is actuarially calculable that a deduction is to be allowed in the amount of the present value of the fraction of the bequest which corresponds, actuarially, to the chance that charity will benefit, as the Tax Court ruled in the Sternberger case and the Court of Appeals for the Second Circuit held in *29 Meierhof v. Higgins, supra. Off hand it would seem eminently fair and administratively simple to allow such a deduction in cases such as this where the chance that charity will take can be accurately computed actuarially. But the Supreme Court in the Sternberger case rejected the argument that the applicable regulations permit proportional deductions. The Court construed § 81.46 quoted in footnote 3 supra as taking not a proportional but an all or nothing approach to the problem of deductions on account of contingеnt bequests to charity. Thus the section either denies any deduction at all for a contingent bequest to charity, or else it permits the deduction of the present value of the entire contingent bequest, allowing the latter whenever “the possibility thаt charity will not take is so remote as to be negligible.”
Since we hold that in this particular case the chance that charity will take can be accurately computed by the application of recognized principles of thе actuarial art to generally accepted statistical data, and since it is stipulated that so computed the chance that charity will take is approximately eleven to one, we come to the question whether the chance that charity will not take is “so remote as to be negligible.” The District Court thought that it was. We feel constrained to disagree.
In Newton Trust Co. v. Commissioner, 1 Cir., 1947,
In the Newton Trust Co. case at page 180 et seq. of 160 F.2d, we held, citing Robinette v. Helvering, 1943,
The line between those chances which are so remote as to be negligible and those which are not lies somewhere between these extremes. We cannot say exactly where. We can only decide specific cases as they arise using the best, judgment we have in placing them on one side or the other of the line. And there is no standard to guide us except our estimate of the extent of the encouragement tax-wise which Congress wished to givе testators to make gifts to charity. Our judgment being largely subjective, about all we can say is that we do not think that one chance in eleven can be considered so remote a chance as to be negligible, that is, a chance which рersons generally would disregard as so highly improbable that it might be ignored with reasonable safety in undertaking a serious business transaction.
The judgment of the District Court is set aside and the case is remanded to that court for entry of a judgment for the defendant. No costs.
Notes
. Internal Revenue Code of 1939:
Ҥ 812. Net estate
“For the purpose of the tax the value of the net estate shall be determined, in the case of a citizen or resident of the United States by deducting from the value of the gross estate— ******
“(d) Transfers for public, charitable, and religious uses.
“The amount of all bequests, legacies, devices, or transfers, * * * to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, * * * ” 26 U.S.O.A. § 812 (d).
. These were the ages of the daughter and daughtеr-in-law for actuarial purposes at the death of the testatrix.
. Ҥ 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. * * * ”