This proceeding involves estate tax liability, a deficiency in which was determined in the amount of $17,514.64. All facts were stipulated, and we adopt as our findings of fact those set forth in such stipulation. The Federal estate tax return was filed with the collector at Denver, Colorado. The questions presented are as to whether the Commissioner erred in the reduction of deductions for charitable transfers, attorneys' fees, and trustees' commissions.
In summary, the facts involved are: That Charles W. Waterman died in 1932, leaving, in addition to property jointly owned with his wife and not here involved, no property of any consequence, except that held in trust in two revocable trusts established by him during his lifetime, having at the date of decedent's death a total value of $1,384,605.88; that each of the trusts provided for payment of the income to the trustor for his life, then to the trustor's wife for her life, thereafter the remainder (aside from another provision not here
The Commissioner allowed a deduction from gross estate for the value of the remainder of the trust estate after expiration of the life estate of the decedent's wife, but reduced the deduction by the amount of the state inheritance taxes, $157,140.24 (as stipulated), and by the net Federal estate tax of $31,303.98, debts and funeral expenses; and the petitioner urges error.
We will consider the points in the above order.
With reference first to Federal estate taxes and state inheritance taxes, the petitioners' position is this: That the first sentence of section 303 (a) (3) of the Revenue Act of 1926, as amended,
The petitioner relies in large degree upon Edwards v. Slocum, 264 U.S. 61, as authority for the position that in the absence of a statute requiring the deduction for charity to be reduced by taxes payable therefrom, the Commissioner's action here must be disapproved. We find two reasons, however, for hesitation in giving to that decision the effect petitioner urges. First, it was decided prior to the present statute and interpreted one which merely provided a tax upon net estate, ascertained after deduction of charities, and held in substance that the amount of the tax may not be included in the net estate. The statute there involved contained no language with reference to reduction of deduction for charities, by the amount of taxes, so did not present the instant problem of interpretation. Secondly, the statute here presented for analysis was first passed in 1924, and "as a legislative reversal of the decision in that case," i. e., Edwards v. Slocum, as is recited in the Congressional Committee Reports upon the Revenue Act of 1932, at which time the original provision, repealed in 1926, was reinstated. We consider, therefore, that our question requires more light than is cast upon it by the decision cited.
The gist of the petitioner's idea here is that though section 303 (a) (3) particularly allowed deduction of inter vivos transfers to charities, yet in providing for reduction, by the amount of estate
Undoubtedly, Congress may require that property subsequently transferred in contemplation of death be treated as part of the estate for purposes of taxation. * * *
If, however, we are thus to regard the revocable inter vivos transfer as a part of the transferor's estate, and as testamentary disposition, we can make no effective distinction between inter vivos transfers and those by way of legacy, devise, or bequest. Logic, under the above authority, requires that all alike be considered species of transfer. This is indicated by the closing sentence of section 303 (a) (3), reading:
* * * The amount of the deduction under this paragraph for any transfer shall not exceed the value of the transferred property required to be included in the gross estate. * * *
Under such language deduction for charity must be limited to the value of property transferred to charity, whether by inter vivos transfer, devise, bequest, or legacy. We consider that the sentence was by no means directed only to inter vivos transfers, for the illogic of allowing deduction of more than value transferred applies alike to any conveyance to charity, whether testamentary or otherwise. This being true, there is reason for using the words transfer, devise, bequest, and legacy as in pari materia, and therefore of applying the reduction-by-taxes idea to all deductions allowed therefor, in case they are to charity. Obviously, for that purpose at least, the words "transfer" and "transferred property" apply to devises, bequests, and legacies; and in our opinion this indicates that all were intended to
The Supreme Court on February 18, 1924. In the case of Edwards v. Slocum (264 U.S. 61), held that, as a matter of construction, a residuary gift to charity was not to be reduced by the Federal estate tax which was imposed on so much of the estate as the testatrix had bequeathed to individuals. Under the State law the estate tax was payable generally out of the estate and so fell upon and reduced the residuary estate given to charity. As a legislative reversal of the decision in that case, the sentence referred to was incorporated in the Revenue Act of 1924 and covered Federal estate taxes as well as State inheritance taxes where, either by the terms of the will or by the local law, any such tax operated to reduce the amount given to and received by charity. * * * [Italics supplied.]
The phrase "amount given to and received by charity" is general. It is not limited to devises, legacies, or bequests. In this language we discern intent to construe the language in the Act of 1924 as applying to any amount devoted to charity, irrespective of the form in which "given to and received" by such charity; and to reapply that intendment by the Revenue Act of 1932. Such intent and such view are truly consistent with the expressions from the Supreme Court regarding certain inter vivos transfers, such as here involved, as substitutes for testamentary disposition, for if such tranfers are regarded as testamentary in character, they necessarily partake of the nature of bequests, legacies, or devises—the only means of transferring by will. So construing section 303 (a) (3) of the Revenue Act of 1926, as amended, we conclude and hold that the deduction for transfers to charity here involved should be reduced by the amount of Federal estate taxes and state inheritance taxes paid.
The next question is whether the respondent erred in disallowing the deduction from gross estate of certain trustees' commissions and attorneys' fees. He allowed attorneys' fees incurred in connection with Colorado inheritance tax and Federal estate tax proceedings, but disallowed those incurred for services in connection with first accountings of the trustees, following the death of the decedent, settled by judgment of court in 1937, and those incurred for the same class of services, settled by judgment of court in 1940. He allowed trustees' commissions on principal received (except upon increase in value) and denied deduction of commission upon principal paid out. The commissions on trust principal received were paid prior to decedent's death; those for paying out principal, after decedent's death. A written agreement executed at the time of creation of the trusts entitled the trustees to commissions of one percent of principal paid out,
With respect to attorneys' fees for services in connection with trustees' accountings after decedent's death: These being for service in connection with trustees' accountings, in our opinion they were, like the trustees' commissions, necessary charges against the estate at the date of death. Estate of Frederic E. Baldwin, 44 B. T. A. 900, relied on by the respondent, involved attorneys' fees for controversies arising after the death; here the trustees must necessarily file accounting, in order to pass the estate. The deduction of the attorneys' fees from gross estate is allowed.
The petitioner urges that since $750 for funeral expenses and $6,820.51 for debts of decedent were paid from funds other than the trust funds, the Commissioner should not have reduced the charitable deduction to that extent. The respondent does not advert to the question. We sustain the petitioner on this point.
Decision will be entered under Rule 50.
(a) In the case of a resident, by deducting from the value of the gross estate—
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(3) The amount of all bequests, legacies, devises, or transfers, to or for the use of the United States, any State, Territory, any political subdivision thereof, or the District of Columbia, for exclusively public purposes, or to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art and the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual, or to a trustee or trustees, or a fraternal society, order, or association operating under the lodge system, but only if such contributions or gifts are to be used by such trustee or trustees, or by such fraternal society, order, or association, exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals. If the tax imposed by section 301, or any estate, succession, legacy, or inheritance taxes, are, either by the terms of the will, by the law of the jurisdiction under which the estate is administered, or by the law of the jurisdiction imposing the particular tax, payable in whole or in part out of the bequests, legacies, or devises otherwise deductible under this paragraph, then the amount deductible under this paragraph shall be the amount of such bequests, legacies, or devises reduced by the amount of such taxes. The amount of the deduction under this paragraph for any transfer shall not exceed the value of the transferred property required to be included in the gross estate; * * *