COMMISSIONER OF INTERNAL REVENUE v. PLESTCHEEFF (two cases), 100 F.2d 62

HANEY, Circuit Judge. The Commissioner of Internal Revenue has filed a petition to review a decision of the Board of Tax Appeals which permitted respondents in their income tax return for the year 1932, to deduct the amount of taxes paid during that year on real property acquired by respondents under a devise in 1931. Respondents were, at times material herein, husband and wife. On April 5, 1931, the wife’s father died, leaving a will, by the terms of which real estate in Washington was devised to the wife. A decree, in the probate proceeding, confirmed the devise on December 31, 1931.

The wife, during 1932, paid $4,266.69 as taxes on the property devised to her. In their income tax return for the year 1932, which was made on the “cash” basis, respondents claimed a deduction for the amount of the taxes paid. Petitioner audited the return and adjusted the net income by disallowing the deduction for taxes, and assessed a deficiency in the tax of $309.22, on the ground that “the ownership of property in the State of Washington on March 1 is the event which determines the liability for both real estate and personal property taxes and fixes the amount, although not ascertainable on that date”.

Upon petition for review, the Board determined that there was no deficiency, on the ground that “the taxes assessed on real estate for the year 1931 did not, under the statutes of Washington as construed by its courts, attach and become a perfected lien on said realty prior to October 1931, in which month the tax levy is made in that state.” The Commissioner filed in this court a petition to review that decision. By Remington’s Rev. St. of Wash. § 1366, title to real property of a deceased vests in the heirs or devisees immediately upon the death.

Real property is “subject to assessment and taxation” on March 1st of each year. § 11111. The assessment year commences “on the first day of March and [ends] on the last day of February in each year”. § 11242. The .board of county commissioners is required to “levy taxes” at its October session, and “on or before the second Monday in October in each year, to certify to the county assessor of the county the amount of taxes levied upon the property in the county”. §§ 11238, 11239.

The county auditor is required to deliver “to the county treasurer the tax-rolls of his county for such a-sscssment year” on the “first Monday in January next succeeding the date of levy of taxes”, but no collection thereof shall be made prior to the first Monday in the following February. §

Section 11265 provides in part: “The taxes assessed upon real property shall be a lien thereon from and including the first day of March in the year in which they are levied until the same are paid, but as between a grantor and grantee such lien shall not attach until the first Monday in February of the succeeding year.” The Revenue Act of 1932, § 23(c), 47 Stat. 169, 26 U.S.C.A. § 23 note, applicable here, provides that “Taxes paid or accrued within the taxable year” shall be allowed as a deduction in computing net income.

It does not limit the deduction to cases where the taxpayer owns the property on which the taxes are paid, but literally includes the case where a taxpayer pays taxes on property not owned by him. The administrative

interpretation of the statute, however, limits the deduction to the person who owned the property at the time the lien for the taxes attaches. G.C.M. 6667 (C.B. VIII — 2, 94). Subsequent tax acts have contained the same provision as the Revenue Act of 1928, the act under which the administrative interpretatioiT above referred to, was made. The administra! ive

interpretation therefore stands approved by Congress. Massachusetts Mutual Life Ins. Co. v. United States, 288 U.S. 269, 273, 53 S.Ct. 337, 77 L.Ed. 739. Therefore, the right to the deduction is dependent upon the date upon which the lien for the taxes attached. Both of the parties hereto rely upon the law of Washington as the determinative factor in ascertaining such date, and we consider the cause upon that assumption. Cf. Burnet v. Harmel, 287 U.S. 103, 110, 53 S.Ct. 74, 77 L.Ed. 199. See also Welch v. Kerckhoff, 9 Cir., 84 F.2d 295, 298, 106 A.L.R. 1434, and cases cited.

If it attached prior to April 5, 1931, the deduction cannot be permitted. We may here assume that the lieu attached on March 1, 1931, unless the deceased father and wife were in the position of “grantor and grantee”, thus making applicable the provision in § 11265 that “as between a grantor and grantee such Hen shall not attach until the first Monday in February of the succeeding year”. Since a “grantee” is one to whom a grant is made, we must determine whether or not a devise is included within the term “grant”. Petitioner contends that a “grant” does not include a “devise”.

In ancient times, the word “grant” had a limited meaning and included only a conveyance of incorporeal fights which were transferable only by deed. 2 Tiffany on Real Property (2d Ed.) § 427, 1567. The word now is a “generic term applicable to all transfers of real property”. Black’s Law Dict. (3d Ed.) 855. It is defined in Webster as a “transfer of property, real or personal, by deed or writing”. See also: Ballentine’s Law Diet., 561; 1 Bouv. Law Diet., Rawle’s Third Revision, 1379; 4 Words and Phrases, First Series, grant, 3151. Thus the broad meaning of the word would now include a devise.

That the restricted meaning of “grant” was not intended by the Washington legislature is shown, we think, by the holdings that the relation of grantor and grantee is created by the condemnation of land by a city. Bethany Presbyterian Church v. Seattle, 154 Wash. 529, 282 P. 922; Port of Seattle v. Yesler Estate, 83 Wash. 166, 172, 145 P. 209. We must indulge the presumption that the legislative authority in enacting § 11265, supra, used words in their ordi-nary sense and with the meaning commonly attributed to them. The ordinarily accepted meaning of “grant” is as above indicated.

A further point which suggests itself, relates to the kind of a controversy to which it was intended that the phrase “as between a grantor and grantee” would be applicable. Should the statute be construed to mean “but in a controversy solely between a grantor and grantee as to who is liable for unpaid taxes, such Hen shall not attach until the first Monday in February of the succeeding year”? In other words, is the provision which postpones the date when the lien attaches, limited to a controversy solely between a grantor and grantee? In Bethany Presbyterian Church v. Seattle, supra, and Port of Seattle v.

Yesler Estate, supra, sufficient of the awards to pay unpaid taxes was left on deposit in the registry of the court in the condemnation proceeding. The taxing authorities made claims to the deposits. Although the grantees (the parties who brought the condemnation proceeding) were still nominal parties to the proceeding, actually the real parties were the taxing authorities and the grantors (the owners of the. property condemned), and the actual controversy was between such parties.

In any view, the Supreme Court of Washington did not restrict the application of the statute to controversies solely between grantors and grantees. We think it is implied in these cases that such application is not so restricted. As thus construed, we think the Hen did not attach until the February after respondents acquired the property, and they are entitled to the deduction. Affirmed.

Article 151 of Regulations 77, promulgated under the Revenue Act of 1SXJ2, provides: “In general taxes are deductible only by the person upon whom they are imposed. * * * ” This regulation does not aid the solution of the question before us, because in Washington a lax on real property is not a “personal liability against the owner”. Clizer v. Krauss, 57 Wash. 26, 106 P. 145, 146. 25 R.C.L. 988.