MR. JUSTICE BURTON delivered the opinion of the Court.
The issue here is whether, in determining a net estate for federal estate tax purposes, a deduction may be made on account of a charitable bequest that is to take effect
Louis Sternberger died testate June 25, 1947. His federal estate tax return discloses a gross estate of $2,406,541.71 and, for the additional estate tax, a net estate of $2,064,346.55. It includes assets owned by him at his death and others held by the Chase National Bank, respondent herein, under a revocable trust created by him. As the revocable trust makes provisions for charity that are, for our purposes, identical with those in the will, this opinion applies to both dispositions.
The will places the residuary estate in trust during the joint lives of decedent's wife and daughter and for the life of the survivor of them. Upon the death of such survivor, the principal of the trust fund is payable to the then living descendants of the daughter. However, if there are no such descendants, one-half of the residue goes to certain collateral relatives of decedent and the other half to certain charitable corporations. If none of the designated relatives are living, the entire residue goes to the charitable corporations.
At decedent's death, his wife and daughter survived him. His wife was then 62 and his daughter 27. The latter married in 1942, was divorced in 1944, had not remarried and had not had a child.
In the estate tax return, decedent's executor, respondent herein, deducted $179,154.19 from the gross estate as the present value of the conditional bequest to charity of one-half of the residue. Respondent claimed no deduction for the more remote charitable bequest of the other half of the residue. The Commissioner of Internal Revenue disallowed the deduction and determined a tax
The controlling provisions of the Revenue Code are in substantially the same terms as when they were first enacted in 1919
The Commissioner concedes that the corporations named in the will qualify as charitable corporations under the statute. There is no doubt, therefore, that if the bequest to them had been immediate and unconditional, its value would be deductible. The question before us is what, if any, charitable deduction may be made despite (1) the deferment of the effective date of the charitable bequest until the deaths of both decedent's wife and daughter and (2) the conditioning of the bequest upon a lack of descendants of decedent's daughter surviving
1. Section 81.44 of Treasury Regulations 105 would permit the deduction of the present value of the bequest if it were an outright bequest, merely deferred until the deaths of decedent's wife and daughter.
In their earliest form, the predecessors of these regulations, in 1919, recognized, in plain language, the propriety of the deduction of the present value of a deferred, but assured, bequest to charity.
The very explicitness of the above provisions emphasizes their restriction to "the computation of the present worth" of assured bequests such as are the subject of each of the illustrations and cross references in the section.
2. Section 81.46 of Treasury Regulations 105 permits no deduction for a conditional bequest to charity "unless the possibility that charity will not take is so remote as to be negligible."
Here, also, the regulations in their earliest form, in 1919, were unequivocally restrictive.
Section 81.46 now provides expressly that no deduction is allowable for a conditional bequest to charity "unless the possibility that charity will not take is so remote as to be negligible." The whole section is significant:
Sections 81.44 and 81.46 fully implement § 812 (d) of the code. In their early forms they were obviously mutually
Respondent concedes that the chance that charity will not take is much more than negligible. Therefore, if § 81.46 (a) applies to the instant case, no charitable deduction is permissible.
Respondent claims, however, that § 81.44 covers this case. In doing so, it reads §§ 81.44 and 81.46 together and, instead of confining them to their mutually exclusive subjects, makes them overlap. It applies § 81.44 to some deferred conditional bequests. It does so in any case where it can compute, on approved actuarial standards, the degree of possibility that charity will receive the conditional bequest. Respondent then computes the present value of a corresponding percentage of the entire deferred bequest. In short, respondent claims an immediate tax deduction equal to the present value of whatever fraction of the bequest corresponds, actuarially, to the chance that charity may benefit from it.
Since the above was written, there have been advances in the actuarial art. Today, actuarial estimates are employed more widely than they were then. The computations
The Tax Court and the Court of Appeals have approved respondent's actuarial computations as fairly reflecting the present value of one-half of a two-million-dollar residue, reduced in proportion to the chance that charity will receive it. In making this estimate, respondent has computed the present value of the deferred bequest on the basis of 4% interest compounded annually and has used the following actuarial tables:
1. To determine the joint life expectancy of decedent's wife and daughter, the Combined Experience Mortality Table prescribed in § 81.10 of the estate tax regulations.
2. To estimate the probability of remarriage of the daughter, the American Remarriage Table, published by the Casualty Actuarial Society.
3. To estimate the chance of a first child being born to decedent's daughter a specially devised table which has been found by the Tax Court to have been prepared in accordance with accepted actuarial principles upon data derived from statistics published by the Bureau of the Census.
If respondent is successful, it means the allowance of an immediate and irrevocable deduction of over $175,000 from the gross estate of decedent, although respondent admits there is a real possibility that charity will receive nothing. The bequest in fact, offers to the daughter an inducement of about $2,000,000 to remarry and leave a descendant. To the extent that this inducement reduces the actuarially computed average probability that charity will receive this bequest, it further demonstrates the inappropriateness of authorizing charitable tax deductions based upon highly conditional bequests to charity.
An even clearer illustration of the effect of respondent's interpretation of the code readily suggests itself. If
We find no suggestion of authority for such a deduction in § 812 (d). That section remains substantially the same as it was when Humes v. United States, supra, 276 U.S. 487, was decided. We also find no authorization for the deduction wither in § 81.46 or § 81.44 of the regulations, as thus far discussed. This relegates respondent to the following words now in § 81.44 (d):
This Court has not specifically faced the issue now before us since Humes v. United States, supra, but we see no reason to retreat from the views there stated. This Court finds no statutory authority for the deduction from a gross estate of any percentage of a conditional bequest to charity where there is no assurance that charity will receive the bequest or some determinable part of it. Where the amount of a bequest to charity has not been determinable, the deduction properly has been denied. Henslee v. Union Planters Bank, 335 U.S. 595, 598-600; Merchants Bank v. Commissioner, 320 U.S. 256, 259-263; and see Robinette v. Helvering, 318 U.S. 184, 189. Where the amount has been determinable the deduction has, with equal propriety, been allowed where the designated charity has been sure to benefit from it. United States v. Provident Trust Co., 291 U.S. 272; Ithaca Trust Co. v. United States, 279 U.S. 151.
Some of the lower courts have squarely met the instant problem and denied the deduction. For example, the deduction
The judgment of the Court of Appeals, accordingly, is reversed and the cause remanded for action in conformity with this opinion.
MR. JUSTICE REED, with whom MR. JUSTICE DOUGLAS joins, dissenting.
The facts are fully and fairly stated in the Court's opinion. Its statement of the legal issues accords with our understanding of the case, to wit:
The reason for dissenting, at some length, is that the Court's conclusion seems to disregard the words of the statute in question and to subvert the purpose of Congress in its enactment, that purpose admittedly being to encourage testamentary gifts to corporations organized for certain objects considered highly desirable for the good of our people.
First. The statute, 26 U. S. C. § 812 (d), allows as deductions from the gross estate the "amount of all bequests, legacies, devises, or transfers . . . to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes . . . ." There is no legislative history explanatory of its meaning.
Under the Court's interpretation, if a child were bequeathed his father's estate for life with remainder in default of issue to the recognized institutions, the full estate tax would have to be paid. On the other hand, if the estate were left simply to the child for life and then to the same institutions, the estate would be free from the tax on the present value of the remainder. Such a differentiation is not found in the statute. The Congress said that charitable bequests should be deductible. The valuation of the charitable interest in one instance would be greater than in the other; the tax less. But in each case the net estate would be reduced only by the present actuarial value of the charitable bequest. While particular
Our interpretation of the statute has support in the language of Treasury Regulation 105, § 81.44. After referring to the valuation of bequests whose value is presently ascertainable, the regulation adds:
The tables refer to a remainder contingent on the termination of one life only. Section 81.44 alone would allow, in the light of the statutory language, a deduction for a contingent bequest, uncertain as to ultimate receipt. See the Court's opinion, ante, pp. 198 and 199. The Court does not follow this language of the Regulations because of § 81.46 and because of "statutory emphasis upon
The Court agrees, however, with the Government's contention that "it is immaterial whether the charity's contingent possibility of receipt can be valued as of the decedent's death." It holds that it is only when ultimate receipt must follow that § 812 (d) allows a deduction. Although the Government asserts its conclusion is upheld by our decisions, we do not think they so hold. In this Court five cases have touched upon the problem. Three of them were disposed of because of the failure to introduce, or the impossibility of making, a valuation upon sound actuarial principles.
Two—Ithaca Trust Co. v. United States, 279 U.S. 151, and United States v. Provident Trust Co., 291 U.S. 272— allowed a deduction for conditional charitable bequests. The former because a right to invade the corpus was fixed by a standard capable of being stated in money and, as the income of the estate was ample for the needs of the
Our conclusion is that the purpose of § 812 was to allow a deduction for charitable bequests that are capable of valuation at the time of death, although it is not certain that the gift will ultimately fall to the contingent beneficiary. See in accord Meierhof v. Higgins, 129 F.2d 1002, a case in conflict with Newton Trust Co. v. Commissioner, 160 F.2d 175, which ultimately led to the allowance of this certiorari. The purpose of § 812 and its background forbid, we think, a conclusion that Congress intended to exclude a deduction in those cases.
Second. The Government asserts and this Court agrees that although it is clear that § 812 allows a deduction for some contingent bequests, § 81.46 of the regulations limits those contingencies to instances where the "possibility that charity will not take is so remote as to be negligible." Clearly the possibility here is not "remote." The chances are against the charity taking. It is quite true that § 81.46 has survived reenactment of I. R. C., § 812, and that it can be interpreted as a limitation upon the deducibility of contingent remainders. However, we do not think such a ruling would be consistent with the purpose of Congress, manifested by I. R. C., § 812.
Whether the Regulations are written into the Estate Tax law by reenactment or are merely indicative of congressional purpose,
If it were not for the reenactment of § 812 after the promulgation of § 81.46, we would have no hesitation in declaring it in conflict with the statute. Even in interpreting statutes when isolated provisions would produce results "plainly at variance with the policy of the legislation as a whole," we follow the purpose rather than the literal words. United States v. American Trucking Assns., 310 U.S. 534, 543. That rule is applicable here. Regulations do not have the safeguards of federal statutory enactments. Interested parties outside the Internal Revenue Service perhaps may not be heard. Reports explaining the action are not available. Public discussion, such as happens in Congress, does not take place. In short, we think that reenactment of a statute after the due adoption of a regulation does not make the regulation a part of the statute. It is only an indication of congressional purpose to be weighed in the context and circumstances of the statutory language. In this instance the congressional purpose to encourage gifts to charity should not be frustrated by the issuance of a regulation.
For the foregoing reasons we would affirm the judgment of the Second Circuit.
Section 408 (a) of the Revenue Act of 1942, 56 Stat. 949, added to I. R. C., § 812 (d), the so-called "disclaimer provision," whereby, under certain conditions, the renunciation of a private bequest which effectuates a gift to charity earns a charitable deduction from the decedent's gross estate.
Article 20 prescribed methods of determining the present worth of a remainder subject to a single life interest.
"The amount of all bequests . . . to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes . . . 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 . . . exclusively for religious, charitable, scientific, literary, or educational purposes . . . ." (Emphasis supplied.) I. R. C., § 812 (d).
"The Court of Claims did not find that the present value of the contingent bequests to the charities can be determined by the calculations of actuaries based upon experience tables. . . .
"If all the facts stated had been embodied in findings, no legal basis would be laid for the deduction claimed. the volume and character of the experience upon which the conclusions drawn from these two tables are based, differ from the volume and character of the experience embodied in standard mortality tables, almost as widely as possibility from certainty." 276 U. S., at 492-493.
The tables were based on the limited experience of male and female members of the Scotch peerage. Merchants Bank v. Commissioner, 320 U.S. 256; Henslee v. Union Planters Bank, 335 U.S. 595. Compare Robinette v. Helvering, 318 U.S. 184.