Rehearing Denied Feb. 11, 1946
See 327 U.S. 814 , 66 S.Ct. 525.
Appeal from the District Court of the United States for the Eastern District of Louisiana.
[326 U.S. 340, 342] Samuel O. Clark, Jr., Asst. Atty. Gen., for appellant.
Messrs. Sidney L. Herold, of Shreveport, La., and Charles E. Dunbar, Jr., of New Orleans, La., for appellees.
Mr. Max Radin, of Berkeley, Cal., for the State of California et al., as amici curiae by special leave of court.
Mr. Chief Justice STONE delivered the opinion of the Court.
In this case the Commissioner of Internal Revenue, proceeding under 811(e) (2) of the Internal Revenue Code, 26 U.S.C. 811(e)(2), as amended by 402 of the Revenue Act of 1942, 56 Stat. 798, 26 U.S.C.A. Int.Rev. Code, 811(e)(2), has levied an estate tax on the termination of the marital community by the death of the husband, a domiciled resident of Louisiana, the tax being measured by the value of the entire community property. And, on the authority of 811(g)(4) of the Code, 26 U.S.C. 811(g)(4), as amended by 404 of the same statute, 26 U.S.C.A. Int.Rev. Code, 811(g)(4), he also included in decedent's gross estate the entire proceeds of insurance policies on the decedent's life.
The principal questions for decision are (1) whether the power asserted by the statute, to tax the entire community interest, is within the taxing power of the United States; [326 U.S. 340, 343] (2) whether the tax infringes the due process clause of the Fifth Amendment; (3) whether the taxing statute contravenes the command of Article I, 8 of the Constitution that 'Excises shall be uniform throughout the United States'; (4) whether the tax so far as it is measured by the surviving wife's share of the community property, is a direct tax, invalid because not apportioned as required by Article I, 8 of the Constitution; and (5) whether the tax invades the powers reserved to the states by the Tenth Amendment.
Appellees, the children and sole heirs of decedent, brought this suit in the District Court for Eastern Louisiana, to recover from appellant, the collector, as an alleged overpayment, so much of the estate tax paid as is attributable to the inclusion in decedent's gross estate of his wife's share of the community property, and of all, rather than half, of the insurance money. The district court gave judgment for appellees, 60 F. Supp. 169, holding that the statute as applied violated the due process clause of the Fifth Amendment. The case comes here on direct appeal from the judgment of the district court under 2 of the Act of August 24, 1937, 50 Stat. 751, 28 U.S.C. 349a, 28 U.S.C.A. 349a, appellant assigning as error the lower court's ruling that the statute denied due process, and the court's failure to sustain the levy as a constitutional exercise of the federal taxing power.
The facts as found by the district court are not in dispute. In 1907, decedent, a resident of Louisiana, married a Louisiana resident with whom he lived in that state until his death, his wife surviving. During the marriage he carried on in Louisiana various kinds of business. With the exception of certain real estate located in Mississippi, all the property of decedent at the time of his death was held in ownership by the martial community which existed between him and his wife. As no time during the existence of the community was the wife gainfully em- [326 U.S. 340, 344] ployed outside the household, nor did she receive from any one any salary or other compensation for personal services, nor was any part of the community property derived originally from any separate property of her own. Decedent, having by his will constituted appellees his sole heirs, and having no debts of consequence, no administration was had on his estate, and appellees were by judgment of the probate court placed in possession of all decedent's property.
Appellees filed the federal estate tax return, in which they reported only onehalf of the net value of the community property as subject to the tax. Included in the community property, and also reported to the extent of only one-half, were the proceeds of fifteen policies of insurance on the life of decedent, all of which were (a) effected by decedent during the marriage, (b) named the wife as beneficiary, and (c) reserved the right to the insured of changing the beneficiary. All of the premiums on these policies had been paid from community funds. The Commissioner assessed a deficiency in estate tax based upon respondents' failure to include in the gross estate, subject to tax, the entire value of all the community property, and the proceeds of the fifteen insurance policies. Appellees paid the deficiency and, following rejection of their claim for refund, brought the present suit to recover the amount of the deficiency payment which has resulted in the judgment in their favor,
Section 402 of the Revenue Act of 1942 amended 811(e) of the Internal Revenue Code, 26 U.S.C., 811(e), 26 U.S.C.A.Int.Rev.Code, 811( e), so as to include in the gross estate of decedent, subject to the estate tax:
The revenue laws make no provision for the distribution of the burden of the tax beyond providing that the tax shall be a lien on all of the property included in the decedent's gross estate. Section 827(a) I.R.C., 26 U.S.C. 827(a), 26 U.S.C.A. Int.Rev.Code, 827(a). See Detroit Bank v. United States, 317 U.S. 329 , 331-333, 63 S.Ct. 297, 298, 299. Section 826(b) of the I.R.C., 26 U.S.C.A.Int.Rev.Code, 826(b), contemplates that the tax 'be paid out of the (taxable) estate before its distribution,' unless otherwise directed by decedent's will. Although the share of the surviving spouse is subject to the lien and the tax must be paid out of the estate [326 U.S. 340, 346] as a whole, the federal statute leaves it to the states to determine how the tax burden shall be distributed among those who share in the taxed estate. See Riggs v. Del Drago, 317 U.S. 95 , 63 S.Ct. 109, 142 A.L.R. 1131.
Appellees' argument is in substance that the nature of community property is such that husband and wife each has, by virtue of the establishment of their marital community, and from its beginning, a present half interest in such property; that the death of either effects no transfer or relinquishment of any interest in the property other than that of the half share which the decedent had before his death; and that the survivor in consequence of the death of the other spouse acquires no new or different interest in the property, but only retains the half share he or she had prior to the death of the other spouse. From this appellees conclude that the death of either spouse is not an event which in any case can bring more than one-half of the community property within the reach of the power to 'lay and collect ... Imposts and Excises' conferred on Congress by Article, I, 8 of the Constitution, and that the present amendment taxing the entire value of the community property on the death of either spouse is a denial of due process because the death of neither operates to transfer, relinquish or enlarge any legal or economic interest in the property of the other spouse. Hence it is said that the statute infringes due process by adding to the concededly valid tax on the decedent's half share a further tax measured by the one-half interest of the surviving spouse. Further, it is urged in support of the due process contention, that the statute arbitrarily and capriciously invents different rules of taxation whose alternative application is governed by a single consideration, namely, which will yield the greater tax; and that the statute creates a presumption contrary to state law, and having no rational basis in fact, that the entire com- [326 U.S. 340, 347] munity is owned or economically attributable to the spouse first to die. It is also argued that even if Congress could validly impose the tax where, as here, the husband is first to die, there is no basis for the tax where the wife dies first, and that since the statute purports to apply in either case, and is not separable, it cannot be validly applied in this.
It is also contended that the tax is not uniform as required by Article I, 8, Clause 1 of the Constitution, because the joint interests of husband and wife in community property states are taxed according to a different and more onerous standard than is applied to comparable joint interests, and specifically to tenancies in common and limited partnerships, created under the laws of other states in which the presumption is not applied; and because the statute disregards for purposes of taxation the property laws of the community property states, while recognizing the property laws of other states for those purposes.
It is said too that the levy is a direct tax, invalid because not apportioned (Article I, 9, Clause 4 of the Constitution), insofar as it contemplates collection of part of the tax out of the wife's half of the community property, since, it is said, there is no excisable event touching her property on her husband's death and the tax collected out of her property is in effect a direct tax upon it. And finally the tax is said to invade the powers reserved to the states by the Tenth Amendment, to determine property relationships within their borders.
The merits of these contentions cannot be accurately appraised without some inquiry as to the nature of respective spouses' community property interests as defined by Louisiana law. We have had occasion in several earlier cases to make some examination of the laws governing the interests of the spouses in community property states. [326 U.S. 340, 348] See eG., Moffitt v. Kelly, 218 U.S. 400 , 31 S.Ct. 79, 30 L. R.A.,N.S., 1179; Poe v. Seaborn, 282 U.S. 101 , 51 S.Ct. 58; Bender v. Pfaff, 282 U.S. 127 , 51 S.Ct. 64; Commissioner v. Harmon, 323 U.S. 44 , 65 S.Ct. 103. Counsel for appellees concede that the opinion in Bender v. Pfaff, supra, so far as it goes, correctly defines the several interests of the spouses in Louisiana community property. To that we now add a more detailed statement so far as it may be relevant to the decision of the present case.
By the law of Louisiana, every marital status subject to the laws of the state superinduces a partnership or community of the spouses with respect to property in the state acquired during the life of the community, unless there be at the time of the marriage a stipulation to the contrary. 2 All earnings and all property acquired by the husband or wife during the life of the community become community property, with certain limited exceptions not here involved, and which need not be detailed further than to say that the spouses can acquire some separate property during marriage. 3 It is said that all property acquired by the spouses during the marriage which falls into the community is 'due to the joint or common efforts, labor, industry, economy, and sacrifices of the husband and wife,' and that for this reason the husband and wife each has at all times an equal present interest in an undivided half of the whole community. 4 The management of the community is entrusted to the exclusive control of the husband,5 and he may deal with and dispose of community property with no liability to account to the wife so long [326 U.S. 340, 349] as the community continues. 6 The rule is, however, that the husband may not give away any of the immoveables, nor a quota of the moveables, nor may he fraudulently make any alienation of property 'to injure (his) wife.'