This action was filed by the universal 'legatees and heirs of Sam Wiener, Jr., deceased, to recover an alleged overpayment of federal estate taxes in the amount of $162,329.59, with interest. The case was tried by the court without a jury on an agreed statement of facts. The stipulated facts, incorporated herein by reference, reveal the following:
Plaintiffs are the sons of Sam Wiener, Jr., who died on December 10, 1942, in Shreveport, Louisiana, leaving a last will and testament in which he constituted the present plaintiffs his sole heirs. Decedent was married in Shreveport, Louisiana, in the year 1907 to Florence Loeb with whom he lived from that time until his death.
“During the marriage, Sam Wiener, Jr., was engaged in many different kinds of business, such as the grocery business, lumber business, real estate and later, in investments of various character. All assets of every character, movable and immovable, which stood of record ,or in the possession of the decedent at the time of his death (with the exception of certain realty in Mississippi) was acquired by, and fell into the ownership of the marital community which had existed between him and his surviving wife. At no time during the existence of the community was Mrs. Wiener ever employed in a gainful occupation outside the household, nor did .she receive from any one salary or other compensation for such personal services, nor was any part of the community property derived originally from any separate property owned by Mrs. Wiener.”
In the federal estate tax return filed on behalf of the estate of Sam Wiener, Jr., deceased, plaintiffs reported the entire value of all of the separate property owned by decedent, plus the one-half of the net value of the community which had existed between decedent and his surviving wife. Included in said community, and therefore reported only to the extent of one-half thereof, were fifteen policies of life insurance contracted for by decedent during the said marriage, all naming the wife as beneficiary, and each and all of the premiums on which had been paid with community funds. Each of. said policies reserved the right to the insured of changing the beneficiary.
Under the return as filed there was an estate tax liability of $107,078.47 and this sum was paid.
In the audit of the federal estate tax return the Commissioner of Internal Revenue assessed a-deficiency of federal estate taxes of $165,821.57, which together with interest in the amount of $3,807.08 was paid by pla-intiffs to defendant herein on August 10, 1944. The additional assessment resulted in part from the inclusion by the Commissioner of Internal Revenue in decedent’s taxable estate of ’the entire value of all of the community property of every character and the inclusion in the taxable estate of the total proceeds of the life insurance above referred to.
Claim for refund of the amount sued for herein was filed by plaintiffs on August 12, 1944, and said claim was rejected in its entirety by the Commissioner of Internal Revenue on October 31, 1944.
“There exists no controversy between the parties respecting valuations. The amount claimed by the plaintiffs in their claim for refund, and which forms the subject matter of this suit, represents that part of the deficiency assessment resulting- *171 entirely from the application by the Bureau of Internal Revenue of the provisions of Section 402(b) (2) and of Section 404(a) of the Federal Revenue Act of 1942, 26 U. S.C.A. Int.Rev.Acts; that is to say, in the inclusion by the Bureau of Internal Revenue in the taxable estate of the decedent the entire community property (rather than only one-half thereof as returned), including the entire proceeds of the life insurance above referred to.”
Section 811, subsections (e) and (g) of the Internal Revenue Code, the applicable statute, was amended by Sections 402(b) (2) and 404(a), respectively, of the Revenue Act of 1942. This case presents the question of the constitutional validity of Sections 402(b) (2) and 404(a). For convenience of discussion I shall hereinafter refer only to Section 402(b) (2) as the constitutional questions raised by plaintiffs in respect to this amending section apply with equal force to Section 404(a).
Section 402(b)(2) of the Revenue Act of 1942 provides that there shall be included in a decedent’s gross estate the full value of all property “to the exent of the interest therein held as community property by the decedent and surviving spouse under the law of any State, Territory, or possession of the United States, or any foreign country, except such part thereof as may be shown to have been received as compensation for personal services actually rendered by the surviving spouse or derived originally from such compensation or from separate property of the surviving spouse. In no case shall such interest included in the gross estate of the decedent be less than the value of such part of the community property as was subject to the decedent’s power of testamentary disposition.”
By its express terms this statute provides that all property held by a decedent and spouse in community shall be included in the gross estate of the decedent, except that portion shown to have been received as compensation for personal services actually rendered by the survivor, or derived from such compensation, or from the separate property of the survivor, but in no case shall such interest included in the gross estate be less than the share over which the decedent had a testamentary power of disposition.
The community property with which we are concerned in the instant case is of the type which does not fall within either exception in the statute. We have therefore a type of community property in which the first spouse to die is taxed on the whole, including the survivor’s share.
The fact that section 402(b) (2) allows all property which can be shown to have been received for personal services actually rendered or derived originally from such compensation or from separate property of the surviving spouse does not operate in aid of its validity in Louisiana. All income of the husband is presumed under the law of this state to be community property. Civil Code Art. 2405. Furthermore, “compensation for personal services actually rendered” falls into the community (Article 2402) regardless of whether such service be rendered by the husband or by the wife living together as such. To charge the heirs with the burden of showing what part of the community consisted of the survivor’s separate earnings or separate property would not only be impracticable but would have the effect of denying one of the most important principles of the community property system, the theory that the gains of the community automatically vest in the husband and wife equally, each having full ownership of one-half of such gains. Arts. 2402, 2406. Moreover, section 402(b) (2) itself denies this allowance by providing that in no case may the gross estate be less than the value of such part of the community property as was subject to the decedent’s power of testamentary disposition. Thus the statute first states, in effect, that community property, for taxation purposes, will be regarded as the separate property of each spouse to the extent that it was earned by that spouse, then suddenly announces a recognition of the surviving spouse’s half interest in the community, regardless of its source by providing that the estate of the spouse dying first is taxable to the extent of at least one-half the community in all instances.
The federal estate tax is not a tax on property, but on the transmission of property from the dead to the living. United States v. Perkins,
“The nature and character of the right of the wife in the community for the purpose of taxation (is) peculiarly a local question” and determination of the state court thereon is not reviewable by the Supreme Court. Moffitt v. Kelly,
“In Louisiana, the wife has a present vested interest in community property equal to that of her husband.” Bender v. Pfaff,
The Louisiana Code speaks of the community always as a partnership, the husband being its manager. The husband is the managing partner of the partnership but his powers of management are restricted and circumscribed. His management of the wife’s interest in the property terminates upon separation, upon divorce, upon a showing of fraud, or whenever the husband proves to be incompetent, a bad manager, of a reckless and speculative disposition or whenever his affairs are in such disorder .that her property rights are jeopardized. Under the statutes of Louisiana the wife can by ante-nuptial agreement with her husband stipulate that there shall be no community, or by agreement make herself rather than him the managing partner, or agree that the community partnership shall be managed jointly by husband and wife or vary the partnership agreement in any other way they see fit. Failure to exercise such option carries with it .the conclusive presumption that they had elected that future acquisitions should be under the régime of the ordinary community which “consists of the profits of all .the effects of which the husband has the administration and enjoyment, either of right or in fact, of the produce of the reciprocal industry and labor of both husband and wife, and of the estate which they may acquire during the marriage,” etc. Article 2402. Accordingly all property found in the possession of either spouse upon dissolution of the community is presumed to be community partnership property unless it can be clearly identified as belonging to .the separate estate of one or the other. Art. 2405. The source and nature of community partnership property was summarized in Succession of Wiener, supra, and *173 it would serve no useful purpose to repeat that summarization here.
I believe in the reality of the wife’s interest in the Louisiana marital community, and I believe in the inequity of taxing a decedent’s estate with respect to wealth which he never owned. These principles the statute patently ignores.
The law in question clearly violates the principle announced in Hoeper v. Tax Commission,
In Heiner v. Donnan,
The statute cannot be supported on the basis that economic benefits were shifted by death. It is quite true that there is frequently a shift in management at the husband’s death, but the rights held by the wife when contrasted to the restrictions and circumscribed agency powers of the husband do not lend support to the view that the husband’s death confers a real or substantial economic benefit on the wife with respect to the one-half interest in the partnership property, which she has always owned. A shift of bare management powers is not a shift in economic interest and cannot be made the subject of the tax. That the tax must be measured by the shifting of real economic benefits as distinguished by mere agency or trust powers is shown by the decision of Reinecke v. Northern Trust Co.,
The committee reports show that section 402(b) (2) was enacted upon the theory that its constitutionality was assured under the cases of Tyler v. United States, supra, and United States v. Jacobs,
Tenancy by the entirety and joint tenancy are created only by a private conveyance or devise and are disfavored in most common-law states in preference to tenancy in common. In Louisiana the marriage of the parties automatically superinduces the community property system unless there is stipulation to the contrary, and all property, real and personal, acquired during the marriage is presumed to fall into the community. In the Tyler and Jacobs cases, death became the generating source of important and definite accessions to the survivor’s property rights and all the property came mediately or immediately to the tenancy as a pure gift from the decedent. In Louisiana the wife’s interest does not proceed from a gratuity nor does the death of a community partnership spouse generate added property rights in the survivor’s one-half of the property.
In the Tyler case the statute expressly included such estates but also expressly excepted “such part thereof as may be shown to have originally belonged to such' other person and never to have belonged to the decedent.” 39 Stat. 778, §. 202(c). And as to the estate held to be taxable it is said: “None of the property constituting it had, prior to its creation, ever belonged to the surviving spouse.” [
In view of the foregoing the court deems it unnecessary to pass on the remaining constitutional questions raised by plaintiffs.
Findings of Fact.
The court finds as the facts the allegations of fact contained in the complaint, to the extent that they were admitted by the defendant’s answer, and the additional facts contained in the written stipulation on file. These are incorporated herein by reference.
Conclusions of Law.
1. Section 402(b) and Section 404(a) of the Revenue Act of 1942 are unconstitutional and void, being in conflict with the requirements as to due process contained in the 5th Amendment to the Constitution of the United States.
Plaintiffs are entitled to recover from the defendant the aforesaid sum of $162,-329.59, with interest at the rate of six per cent, per annum from August 10, 1944 until paid.
The clerk is directed to enter judgment accordingly.
Notes
14 Am.Jur., Cotenancy, Secs. 6, 7, 8, 12, 15, 86.