COMMISSIONER OF INTERNAL REVENUE v. BEEBE, 67 F.2d 662

HALE, District Judge. This case is before us on petition of the Commissioner of Internal Revenue for review of the order of the United States Board of Tax Appeals, deducting the amount of $15,-000 paid by Junius Beebe, trustee under the will of Marcus Beebe, Sr., as an inheritance tax, on the distribution of a portion of the estate under the will of said Marcus Beebe, Sr., made to Marcus Beebe, the son of the decedent, in accordance with the provisions of' the will, as a payment made by the estate of' Marcus Beébe, Sr. Marcus Beebe, Sr., died in January, 1924..

After certain other bequests, his will provided that the residue of his estate be paid to-this trustee, and that one-third of the net estate be then bequeathed to his son, Marcus. Beebe, Jr., to be paid, on that son becoming-thirty years of age, to wit, on April 27, 1927. When that date arrived, the executor, Junius. Beebe, had filed his account and taken over the corpus of the estate as trustee, as of January 26, 1926.

Under the laws of Massachusetts, this bequest of one-third of the estate was taxable according to its value on the date of the distribution to the beneficiary, namely, April 27, 1927; and the tax was payable one year thereafter. According to the provisions of the General Laws of Massachusetts,

chapter 65, §7: “Taxes imposed by this

chapter upon property or interests therein,- passing by will or by laws regulating intestate succession, shall be payable to the state treasurer by the executors, administrators or trustees at the expiration of one year from the date of the giving of bond by the executors, administrators or trustees first appointed; except that in all cases where there shall be a devise, descent or bequest to take effect in possession or come into actual enjoyment after the expiration of one or more life estates or of a term of years, the taxes thereon shall be payable by the executors, administrators or trustees in office when such right of possession accrues, or, if there is no such executor, administrator or trustee, by the person so entitled thereto, at the expiration of one year from the date when the right of possession accrues to the persons so entitled.”

Section 13 of the same

chapter provides: “Except as otherwise provided in this and the following section, the tax imposed by this

chapter Shall be assessed upon the actual value of the property at the time of the death of the decedent.

In ease of a devise, descent, bequest or grant to take effect in possession or enjoyment after the expiration of one or more life estates or of a term of years, the tax shall be assessed on the actual value of the property or interest therein coming to the benefieiary at the time when he becomes entitled to the same in possession or enjoyment.” For the purpose of determining the tax, the commonwealth of Massachusetts made an appraisal of the corpus of the estate as of April 27, 1927, and assessed the tax in 19-28.

The tax was paid in that year and was deducted by the trustee, Junius Beebe, in determining the net income of the estate for that year. Junius Beebe had been discharged as executor before the tax was, or could be, assessed; and it was assessed to Junius Beebe as trustee, who was the only person to whom it could be assessed; and was paid by him.

Section 23 (

e) of the United States Revenue Act of 1928 (26 USCA § 2923 (e), providing that certain taxes are deductible from gross income in determining net income for tax purposes, contains this provision: “For the purpose of this subsection, estate, inheritance, legacy, and succession taxes accrue on the due date thereof, except as otherwise provided by the law of the jurisdiction imposing such taxes, and shall be allowed as a deduction only to the estate,” The Commissioner 'of Internal Revenue seeks to disallow this'tax as a deduction. He claims that under

article 154, Treasury Department Regulations 74, such tax can be deducted only by an estate in process of administration, namely, by an executor or administrator of such estate; and that it cannot be deducted, as an expense, by a trustee.

The regulation in question reads: “Estate, succession, legacy, or inheritance taxes, imposed by .any State, Territory or possession of the United States, or foreign country, are deductible by the estate, whether by the laws of the jurisdiction exacting them they are imposed upon the right or privilege to transmit or upon the right or privilege of the heir, devisee, legatee, or distributee to receive or to succeed in the property of the decedent passing to him. “The accrual dates of such taxes shall be the due date, thereof, except as otherwise provided by the law of the jurisdiction imposing, them.

Where deduction is claimed of any such taxes, the amount thereof and the name of the State, Territory or possession of the United States, or foreign country by which they have been imposed shall be stated in the return.” The Commissioner of Internal Revenue urges that an inheritance tax is to be deductible only by an estate while in the hands of an administrator or executor, and that when such estate passes into the hands of the trustee, it becomes a trust and not an “estate” within the meaning of the law and of the Regulations of the Treasury Department.

The trustee was appointed by the probate court of Massachusetts; so was the executor. In the instant ease the same person was executor and trustee. The trustee must account to the probate court in the same way that an executor must account. He is subject to removal by the probate court. The statute cited,

section 7, states that the tax “shall be payable by the executors, administrators or trustees in office when such right of possession accrues.” The Massachusetts statute in question makes no distinction between estates held by executors and administrators and estates held by trustees. In Bates v. Sparrell, 10 Mass. 323, 324, the Massachusetts court held that the word “estate” signifies all the subjects of property, citing Blaekstone. In City of Boston v.

Inhabitants of Dedham, 4 Metc. (45 Mass.) 178, 180, the Massachusetts court holds that the word “estate” is of broad and extensive application, and that whenever legal enactments are intended to apply exclusively to one or another of different species of property, the statutes use qualifying words. In Duggan v. Bay State Street Railway Co., 230 Mass. 370, 374, 119 N. E. 757, 758, L. R. A. 1918E, 680, in speaking for the Massachusetts court, Mr.

Chief Justice Rugg says: “It is a principle of general scope that a statute must be interpreted according to the intent of the makers, to be ascertained from its several parts and all its words construed by the ordinary and approved usage of the language, unless they have acquired a peculiar meaning in the law.” The Supreme Court of the United States has held substantially the same general principles of

interpretation. In Maillard et al. v. Lawrence, 16 How. 251, 261, 14 L. Ed. 925, speaking for the court, Mr. Justice Daniel said: “The popular or received import of words furnishes the general rule for the

interpretation of public laws as well as of private and social transactions; and wherever the legislature adopts such language in order to define and promulge their action or their will, the just conclusion from such a course must be, that they not only themselves comprehended the meaning of the language they have selected, but have ehosen it with reference to the known apprehension of those to whom the legislative language is addressed, and for whom it is designed to constitute a rule of conduct, namely, the community at large.” In United States v. Temple, 105 U. S. 97, 99, 26 L.

Ed. 967, speaking for the court, Mr. Justice Woods said: “Our duty is to read the statute according to the natural and obvious import of the language, without resorting to subtle and forced construction for the purpose of either limiting or extending its operation.” In the instant case we think the meaning of the word “estate” must be interpreted according to the ordinary use of language, in harmony with common sense and reason.

It seems to us to mean property of all kinds held, under the provisions of the will, by any legal representative appointed by the probate court, by whatever name he may be called, whose duty it is to keep safely such property, and finally to distribute it under the direction of the probate court. We think the record does not show that the property or estate was distributed when it passed out of the hands of the respondent as executor into his hands as trustee. We find no intent to “distribute” the property. To those familiar with probate proceedings, “distribution” has a distinct meaning.

As used with reference to the estate of a deceased person, it may be defined as the division by order of a court having authority among those entitled thereto. If the officer acting both as trustee and executor had sought to obtain a final distribution of the estate, he would have been likely to proceed in the orderly and well-defined manner marked out by the Massachusetts statute,

chapter 206, General Laws of Massachusetts, § 21, and to have thus obtained an order of distribution. He did not so proceed; and while it is true that an actual distribution might have been obtained without such action, we think no actual distribution of the estate has been shown in the record.

We think the Board of Tax Appeals was right in pointing out that when the tax became payable, the party in charge of the estate, namely, the respondent, had already served in the capacity of executor and ha'd filed his final account with the court as such officer; and in holding that the fact that the tax did not fall due against the estate during the term of office of executor, but during his term of office as trustee, ought not to prevent the trustee from taking the deduction in the computation of net taxable income of the decedent’s estate.

The Federal Revenue Act of 1928, § 23 (c), explicitly allows deduction for income tax purposes of “estate, inheritance, legacy, and succession taxes.” By the terms of the statute this deduction is allowable “only to the estate”; in other words, such taxes are a proper offset against the income received by an estate.

For the reasons which we have given we think the Board of Tax Appeals was right in holding that the word “estate” was used in this connection in a sense sufficiently broad to include the property of a decedent held by an official appointed by the probate court on whom was imposed by state law the duty of paying such taxes. The basic purpose of the statute and regulations is that inheritance taxes, in whatever guise imposed, shall be “deductible by the estate” with reference to federal income taxes.

The Massachusetts statute views the distribution of a decedent’s estate as a proceeding by which the property left by the decedent reaches the new owners to whom it is ultimately destined. While the property is being held together for that purpose, it seems to us that in Massachusetts at least it constitutes the estate of the decedent, and as such comes within the language, as it certainly comes within the intention, of the federal statute.

The amendment of 1928 clearly made a sharp distinction from the former law under which the taxes in question were permitted to be used as a deduction by the beneficiaries as well as by the estate. There is much general and equitable force in the suggestion that if a beneficiary cannot deduct an inheritance tax from his ineome, his trustee should not be permitted to do so. But there is the statute, and the

interpretation which we have given to it in this opinion. We think the Board of Tax Appeals was right in holding that the term “estate” as used in the statute in question, is broad enough to include all estates deriving their powers from the will of a decedent, and required by the statutes of the state to pay inheritance, estate, legacy, and succession taxes upon property of deceased persons, whether the person charged with its administration be an administrator, executor, or a testamentary trustee. The order of the Board of Tax Appeals is affirmed.