Opinion
No. J-679.
November 2, 1931.
Action by Barnim Kombst and others against the United States.
Judgment in accordance with opinion.
This is a suit to recover federal estate taxes in the sum of $23,563.03, together with interest thereon, and the basis of the action is the refusal of the Commissioner of Internal Revenue to allow as a deduction from the gross estate in arriving at the net estate subject to tax the sum of $261,811.42 paid to the proper officers of the state of California as an inheritance tax under the laws of the said state. The decedent, Rosa von Zimmermann, died on April 25, 1917, and federal estate taxes were paid under the Revenue Act of 1916, as amended.
This case having been heard by the Court of Claims, the court, upon the stipulation of facts entered into by the parties, makes the following special findings of fact:
1. Rosa von Zimmermann, a resident of the United States, died in Pasadena, Cal., on or about April 25, 1917, leaving a will dated December 29, 1916, making certain bequests, and devising and bequeathing to her sisters, Klara Kombst, Gertrude Luckhardt, and Ilka Wichmann, all the rest and residue of her estate, real, personal, or mixed, share and share alike, and, in the event of the death of either of them, the share of such decedent to go to the legal heirs of such decedent, and naming as executors Joseph Friedlander and Walter F. Haas, citizens of the United States and residents of San Francisco, Cal. Rosa von Zimmermann at the time of her death was a German alien enemy.
2. On or about May 14, 1917, letters testamentary were duly issued to Joseph Friedlander and Walter F. Haas by the superior court of the state of California in and for the county of Los Angeles. They qualified and acted as executors of the said estate of Rosa von Zimmermann, deceased, and, after the payment of debts and bequests to persons other than the plaintiffs herein, they rendered their final account to the said court and were discharged on or about October 26, 1922.
3. Klara Kombst died in Germany on August 16, 1917, and at the time of her death was an alien enemy. She left surviving her, as her sole heir, her husband, Barnim Kombst, who is a citizen of Germany, residing at Kassel, Germany, Kirchweg 84. Gertrude Luckhardt is an heir of Rosa von Zimmermann, deceased, and is a citizen of Germany residing at Berlin, Dahlem, Germany, Schorlemer, Allee 17a. Ilka Wichmann is an heir of said decedent and is a citizen of Germany residing at Gorlitz, Silesia, Germany. These parties were at all times during the World War alien enemies resident in Germany.
4. On June 12, 1918, the Alien Property Custodian, under authority of the "Trading with the Enemy Act," approved October 6, 1917, and the executive orders issued in pursuance thereof, served a notice and demand upon Joseph Friedlander and Walter A. Haas as executors of the said estate of Rosa von Zimmermann, deceased, to convey, transfer, assign, deliver, and pay to him every right, title, and interest of the said Gertrude Luckhardt in and to the estate of Rosa von Zimmermann, deceased. A copy of the said notice and demand is attached to the stipulation marked "Exhibit A" and made a part hereof by reference. A similar notice and demand was served by the Alien Property Custodian on the said executors on June 12, 1918, covering the right, title, and interest of Ilka Wichmann and Klara Kombst in and to the said estate.
5. Pursuant to the Revenue Act of September 8, 1916, said executors on or about April 19, 1918, filed with the collector of internal revenue at Los Angeles, Cal., a federal estate tax return for the estate of Rosa von Zimmermann, deceased, showing a net estate for the purpose of the federal estate tax of $1,861,152.35, and a tax of $138,908.51, which tax was paid by the said executors to the said collector on April 19, 1918.
6. Upon a review and audit of said return, the Commissioner of Internal Revenue increased the net estate to $1,927,610.88 and assessed an additional tax of $5,981.27, which was paid by said executors to the said collector of internal revenue on September 10, 1918.
7. On October 23, 1918, said executors paid to the proper officers of the state of California the sum of $261,811.42 out of said estate as an inheritance tax under the laws of California on the estate of said decedent.
8. Neither the net estate returned by said executors nor the net estate as finally determined by the Commissioner of Internal Revenue was computed by deducting from the gross estate of said decedent the sum of $261,811.42, paid by said executors as inheritance taxes under the laws of the state of California.
9. On September 29, 1922, the Alien Property Custodian filed a petition for distribution of the said estate with the superior court of the state of California in and for the county of Los Angeles, and on October 26, 1922, the said court entered an order distributing the said estate in accordance with the will of the said decedent, and, after the payment of debts and bequests to persons other than the plaintiffs herein, the residue of the estate devised and bequeathed to the plaintiffs was conveyed, transferred, assigned, delivered, and paid over to the Alien Property Custodian.
10. On December 27, 1923, Barnim Kombst, Gertrude Luckhardt, and Ilka Wichmann filed claims for refund in the sum of $25,000 each with the Commissioner of Internal Revenue, which claims were based on the contention that certain foreign securities and other property were overvalued, and on January 31, 1924, the Alien Property Custodian filed a claim for refund in the sum of $75,000 with the said Commissioner based on the same contention. On November 23, 1925, the said Commissioner was advised by letter on behalf of the Alien Property Custodian and the plaintiffs herein that claim for refund was also made on the ground that the sum of $261,811.42 paid to the state of California for inheritance taxes should have been allowed as a deduction from the value of the gross estate in computing the net estate subject to the federal estate tax. On January 7, 1926, a formal claim for refund was filed with the said Commissioner based on the contention that the sum of $261,811.42 paid to the state of California for inheritance taxes should have been allowed as a deduction from the gross estate of the said decedent in computing the net estate subject to the federal estate tax. A copy of said claim for refund is attached to the stipulation marked "Exhibit B" and is made a part hereof by reference.
11. On July 11, 1928, said Commissioner rejected said claim for refund as to the contention that the sum of $261,811.42 paid to the state of California as inheritance tax should have been allowed as a deduction, by letter as follows:
"The Bureau has examined the claim filed by you on behalf of the above-named estate for refund of Federal estate tax paid under the provisions of the Revenue Act of 1916 as amended by the Act of March 3, 1917. The question presented was whether the amount paid by the executor of the estate in satisfaction of the California inheritance tax is deductible from the decedent's gross estate in determining the net estate for tax.
"Section 203 of the Revenue Act of 1916 ( 39 Stat. 778) allows certain deductions to be made for the purpose of computing the value of the net estate for Federal estate tax purposes. Among the deductions allowed are `such other charges against the estate as are allowed by the laws of the jurisdiction * * * under which the estate is being administered.'
"The courts of the State of California have uniformly interpreted the inheritance tax as being imposed on the right of the beneficiary to succeed to the estate. The State inheritance tax is not imposed on the estate but constitutes a charge against the beneficiaries; therefore, it is not a proper deduction under section 203 of the Revenue Act of 1916. Accordingly, your claim for refund as herein referred to is rejected in its entirety."
12. Should it be determined that the said sum of $261,811.42 paid to the state of California as inheritance tax is a proper deduction from the gross estate of said decedent, federal estate taxes were overpaid in the sum of $23,563.03.
Frederick Schwertner, of Washington, D.C. (Clarence W. De Knight, of Washington, D.C., on the brief), for plaintiffs.
Fred K. Dyar, of Washington, D.C., and Charles B. Rugg, Asst. Atty. Gen. (William T. Sabine, Jr., of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
The facts in this case, which were stipulated, disclose that the property of the plaintiffs was seized, confiscated, and impounded by the President of the United States, acting through the Alien Property Custodian and at the present time the corpus of the legacies is still held by him and cannot be returned to them until further legislative enactment by Congress. Trading with the Enemy Act, Oct. 6, 1917, c. 106, 40 Stat. 411, amended Act March 28, 1918, c. 28, 40 Stat. 459, 460; Act Nov. 4, 1918, c. 201, 40 Stat. 1020; Act July 11, 1919, c. 6, 41 Stat. 35; Act June 5, 1920, c. 241, 41 Stat. 977 (see 50 USCA Appendix § 1 et seq.).
What part, if any, has been returned to them, under the Act of March 4, 1923 ( 42 Stat. 1511, c. 285), and the Act of March 10, 1928 ( 45 Stat. 254, c. 167), the record does not disclose and is immaterial to the case before us. The Alien Property Custodian took over all the right, title, and interest of these plaintiffs in 1918 and has ever since remained in control and possession.
The tax in question was paid in October, 1918, by the executors of the estate after notice to them by the Custodian of the confiscation. Actual possession of the property by the Alien Property Custodian was had in 1922. Upon the notification to the executors by the Custodian, under the terms of the act, he succeeded to all the rights in the property to which the alien enemies were entitled as completely as if by conveyance, transfer, or assignment. Commercial Trust Co. v. Miller, 262 U.S. 56, 43 S. Ct. 486, 67 L. Ed. 858; Central Union Trust Co. v. Garvan, 254 U.S. 554, 41 S. Ct. 214, 65 L. Ed. 403. The funds have been ever since, and are now, in the possession and control, subject to the acts of Congress, of an agent of the defendant. The refund claim by the Custodian was not filed until January 7, 1926, eight years after the payment of the tax, and more than four years after the declaration of peace on July 2, 1921. The Commissioner of Internal Revenue rejected the claim on July 11, 1928. It is contended by the defendant that under section 1316 of the Revenue Act of 1921, amending section 3228, Rev. Stat. (26 USCA § 157), all claims for refund of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, or any sum alleged to have been excessive, must be presented to the Commissioner within four years after payment of such tax or sum. If this limitation of four years applies, the claim which has been filed by the Custodian cannot afford the basis of any refund, since it was filed subsequent to the expiration of the four-year period. Does the bar interposed by section 1316 apply to a refund claim filed by an agent of the government? There can be no question the executors could not have filed a claim for refund in behalf of alien enemies. Borovitz v. American Hard Rubber Co. (D.C.) 287 F. 368; Crawford et al. v. Wm. Penn, Fed. Cas. No. 3372, 6 Fed. Cas. 779; Sierra v. United States, 9 Ct. Cl. 224. The plaintiffs, being alien enemies, could not file a claim during the period of the war, and, since the declaration of peace in July, 1921, having no right to the corpus of the estate, could not file a claim for refund within the statutory period. Stoehr v. Wallace, 255 U.S. 239, 41 S. Ct. 293, 65 L. Ed. 604. It is unnecessary to decide whether the statute has ever begun to run against plaintiffs. If there is a refund allowed it must be paid to the Custodian, who is now in control of the corpus. Does the statute of limitations apply to the Custodian who holds the property of the plaintiffs, subject to the direction of the Congress? The Custodian is the representative of the Government.
In United States v. Nashville, C. St. L. Ry. Co., 118 U.S. 120, 125, 6 S. Ct. 1006, 1008, 30 L. Ed. 81, it is held: "It is settled beyond doubt or controversy, upon the foundation of the great principle of public policy, applicable to all governments alike, which forbids that the public interests should be prejudiced by the negligence of the officers or agents to whose care they are confided, that the United States, asserting rights vested in them as a sovereign government, are not bound by any statute of limitations unless congress has clearly manifested its intention that they should be so bound." See, also, United States v. Whited Wheless, 246 U.S. 552, 561, 38 S. Ct. 367, 62 L. Ed. 879.
In Du Pont de Nemours Co. v. Davis, Director General of Railroad, 264 U.S. 456, 462, 44 S. Ct. 364, 366, 68 L. Ed. 788, the Supreme Court said: "In taking over and operating the railroad systems of the country, the United States did so in its sovereign capacity, as a war measure. * * * An action by the Director General to recover upon a liability arising out of such control is an action on behalf of the United States in its governmental capacity, * * * and, therefore, is subject to no time limitation, in the absence of congressional enactment clearly imposing it."
It is manifest the bar of the provision of section 1316 of the act of 1921 does not apply to the Alien Property Custodian, and therefore the refund claim was timely.
The next question which confronts us is whether the inheritance tax paid to the state of California is a charge against the estate, or against those who succeed to the estate. A similar question has been before the Supreme Court on several occasions involving the construction of the inheritance tax statutes of the state of New York (United States v. Mitchell, 271 U.S. 9, 46 S. Ct. 418, 70 L. Ed. 799), and of the state of Texas (Keith, Collector, v. Johnson, Administrator, 271 U.S. 1, 46 S. Ct. 415, 70 L. Ed. 795, 44 A.L.R. 1432). This court has had a case involving the construction of the inheritance tax statute of the state of Massachusetts. Merrill v. United States, 66 Ct. Cl. 136. In all of these cases it has been held that the tax is a charge against the estate, and therefore deductible in the estate tax return made to the federal government. We have carefully compared the statute of the state of California with the statute of the other states involved in those cases. We can find no substantial differences. The value of the estate was fixed as of the time of the death of the testator; the tax is due and payable at the death of the decedent; the executors are made responsible for the payment of the tax; it must be paid in eighteen months, otherwise bond has to be given by the executors; no payment can be made to any heir or legatee until a receipt has been filed in court showing the payment of the tax; and other provisions are almost identical with the statutes of the states we have mentioned before. The decisions of the courts of California as to whether this is a transfer or a succession tax are somewhat clouded. In one case, they determine it a transfer tax (Estate of Potter, 188 Cal. 55, 204 P. 826), in another, a succession tax, and in a third, a transfer and succession tax (Estate of Letchworth, 201 Cal. 1, 255 P. 195); but, all of the cases are uniform in holding that the amount of the tax is based on the value of the estate at the time of the death of the testator and that the impairment of the estate by the executors does not reduce the amount of the tax which must be paid on the gross value of the estate at the time of death. Estate of Hite, 159 Cal. 392, 113 P. 1072, 36 L.R.A. (N.S.) 303. We can see no difference between this statute and that held in the case of United States v. Mitchell, supra, the case of Keith, Collector, v. Johnson, Administrator, supra, and the case decided by this court, Merrill v. United States, supra. We are therefore of the opinion that the amount paid from the estate of Rosa von Zimmermann to the state of California was a charge against the estate and was deductible from the estate tax paid to the federal government and the refund claim should have been allowed by the Commissioner of Internal Revenue.
It is so ordered.