SMITH et al. v. COMMISSIONER OF INTERNAL REVENUE, 78 F.2d 897

MORTON, Circuit Judge. This appeal involves estate taxes under the Revenue Act of 1926, chap. 27, § 303, 44 Stat. 9 (26 USCA § 1095 and note). The question is whether certain amounts paid to charitable and educational institutions were properly included in the decedent’s net estate for the purpose of the federal tax. The facts are not in dispute. Sharpe, the decedent, was a resident of Rhode Island. He died in January, 1931, leaving an instrument which purported to be his will in which after making one specific legacy he left all the rest of his property to a friend, F. S.

Archibald of Paris, France, who was named executor. The gross estate amounted to about $3,250,000. The alleged will was offered for probate and objection was made by Sharpe’s next of kin to its allowance. A compromise was made between Archibald and the contestants whereby the provisions of the will were greatly modified. The gift to Archibald was cut down to a specific legacy to him $360,000 and certain articles of personal property; other specific legacies were written into the will including certain legacies to establish charities amounting to $235,000, the portion here in controversy.

The instrument as so modified was duly admitted to probate as Sharpe’s will. His estate has been administered under it. The practice followed was in accordance with the statutes of Rhode Island which provide for compromises of contests on wills and state explicitly that, “the estate of such. deceased person shall be administered and disposed of according to the provisions of the will as modified by the compromise.” Gen. Laws R. I. 1923, c. 363, § 23. Under this statute it has been held by the Supreme Court of Rhode Island that “the effect of the provisions of

section 26 [the same as here relied on] is to embody the award or compromise in the will, and to give effect to it as if originally a part of the will.” Barber v. Westcott, 21 R. I. 355, 356, 43 A. 844, 845. The Rhode Island law as stated in Barber v. Westcott, supra, has been fully recognized by this court. Chase National Bank v. Sayles, 11 F.(2d) 948, 958 (C. C. A. 1). See, too, Codman v. Commissioner (C. C. A.) 50 F.(2d) 763. In the Chase National Bank Case we said, “The nature of Mrs.

Sayles’ right, though the result of a statutory compromise, is the .same as it would have been, had the will originally included such provision in her favor. She takes as a legatee. This is the meaning of the statutes of Rhode Island, as construed by its courts. Gen. Laws of R. I. (1909), chap. 312, § 23; Barber v. Westcott, 43 A. 844, 21 R. I. 355.” In the Codman Case, supra, the government urged the view now maintained by the petitioner and was sustained in its contention.

On matters of this sort the federal courts are bound by the state law. “It is very' properly admitted by the government that the New York decree is in this proceeding binding with respect to the meaning and effect of the will. The right to succeed to the property of the decedent depends upon and is regulated by state law (Knowlton v. Moore, 178 U. S. 41, 57, 20 S. Ct. 747, 44 L.

Ed. 969, 976), and it is obvious that a judicial construction of the will by a state court of competent jurisdiction determines not only legally but practically the extent and character of the interests taken by the legatees.” Pitney, J., Uterhart v. U. S., 240 U. S. 598, 603, 36 S. Ct. 417, 418, 60 L. Ed. 819. See, too, Freuler v. Helvering, 291 U. S. 35, 45, 54 S. Ct. 308, 78 L. Ed. 634; Helvering v. Grinnell, 294 U. S. 153, 55 S. Ct. 354, 79 L. Ed. 825. The decisions relied on by the goyernment do not alter . or modify the rule thus stated and are distinguishable on the facts from the present case.

The Board of Tax Appeals assumed' that Sharpe’s will was the instrument as originally offered for probate. This assumption was erroneous; and it led the Board into an erroneous conclusion. The judgment below must be reversed and the case remanded to the Board of Tax Appeals to determine the amount which the petitioners are entitled to recover. The decision of the Board of Tax Appeals is reversed and the case is remanded to that Board for further proceedings not inconsistent with this opinion.