In determining a net estate for federal estate tax purposes, a deduction may not be made under 812 (d) of the Internal Revenue Code on account of a charitable bequest that is to take effect only if decedent's childless 27-year-old daughter dies without descendants surviving her and her mother. Humes v. United States, 276 U.S. 487 . Pp. 187-200.
Melva M. Graney argued the cause for petitioner. With her on the brief were Solicitor General Sobeloff, Assistant Attorney General Holland, Ellis N. Slack and Robert N. Anderson.
Edward S. Greenbaum argued the cause for respondent. With him on the brief were Maurice C. Greenbaum and Charles E. Heming.
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 [348 U.S. 187, 188] only if decedent's childless 27-year-old daughter dies without descendants surviving her and her mother. For the reasons hereafter stated, we hold that it may not.
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. 1
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 [348 U.S. 187, 189] deficiency on that ground. The Tax Court reversed the Commissioner. 18 T. C. 836. The Court of Appeals for the Second Circuit affirmed the Tax Court, 207 F.2d 600, on the authority of Meierhof v. Higgins, 129 F.2d 1002. To resolve the resulting conflict with the Court of Appeals for the First Circuit in Newton Trust Co. v. Commissioner, 160 F.2d 175, we granted certiorari, 347 U.S. 932 .
The controlling provisions of the Revenue Code are in substantially the same terms as when they were first enacted in 1919 2 and are as follows:
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. 4 Section 81.44 (d) of Treasury Regulations 105 does so with inescapable specificity:
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. 6 It was only after court [348 U.S. 187, 193] decisions had demonstrated the need for doing so 7 that the restrictions were restated so as expressly to permit deductions of bequests assured in fact but conditional in form.
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:
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. [348 U.S. 187, 195]
This Court considered a somewhat comparable proposal in 1928. In Humes v. United States, 276 U.S. 487 , a taxpayer sought a charitable deduction based on a bequest to charity that was conditional upon the death of decedent's 15-year-old niece, without issue, before reaching the age of 40. To sustain the proposal, the taxpayer sought to establish actuarially a measure of the chance that charity would receive the bequest and to find authority in the Revenue Code for the deduction of the present value of a corresponding percentage of the bequest. Speaking through Mr. Justice Brandeis, this Court found the actuarial computation inadequate. It, however, did not drop the matter there. It made the following statement:
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. 8 [348 U.S. 187, 197]
On the basis of these tables, the Tax Court finds that the present value of the charitable remainder at the death of decedent is .18384 on the dollar if computed solely on the chances of his daughter's remarriage; .24094 on the dollar if computed on the chance that a legitimate descendant of his daughter will survive her; and .24058 on the dollar if computed on the chance that any legitimate or illegitimate descendant of his daughter will survive her. It is this last estimate that respondent seeks to apply here.
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 [348 U.S. 187, 198] decedent had here conditioned his bequest to charity solely on the death of his daughter before remarriage, the Remarriage Table would then fix the present value of the charitable remainder at .18384 on the dollar. The taxpayer would at once receive a substantial charitable deduction on that basis. The daughter, however, would have a $2,000,000 inducement to remarry. If she did so, her action would cancel the possibility that charity would receive anything from the bequest, but it would not cancel the tax seduction already allowed to the estate. To whatever extent any person can defeat the fulfillment of any condition upon which a benefit to charity depends, to that extent the actuarial estimate that such benefit will reach charity is less dependable. The allowance of such a tax reduction as is here sought would open a door to easy abuse. The result might well be not so much to encourage gifts inuring to the benefit of charity as to encourage the writing of conditions into bequests which would assure charitable tax deductions without assuring benefits to charity.
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 [348 U.S. 187, 200] was denied in the First Circuit where the court found that "it is not certain that the charity will takes 50% of the corpus; only that it has a 50-50 chance of getting all or nothing." Newton Trust Co. v. Commissioner, 160 F.2d 175, 181. See also, Graff v. Smith, 100 F. Supp. 42; Hoagland v. Kavanagh, 36 F. Supp. 875; Wood v. United States, 20 F. Supp. 197. The administrative practice, as evidenced here by the action of the Commissioner, has been to deny the deduction. See further, Paul, Federal Estate and Gift Taxation (1946 Supp.), 426-427.
The judgment of the Court of Appeals, accordingly, is reversed and the cause remanded for action in conformity with this opinion.
[ Footnote 2 ] Originally 403 (a) (3) of the Revenue Act of 1918, 49 Stat. 1098. See also, Griswold, Cases and Materials on Federal Taxation (3d ed.), 679 et seq., 1 Paul, Federal Estate and Gift Taxation, 638 et seq.
[ Footnote 3 ] Its latest reenactment is in 2055 (a) of the Internal Revenue Code of 1954, 68A Stat. 390. The purpose of the deduction is to encourage gifts to the named uses. Edwards v. Slocum, 264 U.S. 61, 63 ; 13 Geo. Wash. L. Rev. 198, 201; 28 Va. L. Rev. 387-388. Like other tax deductions, however, it must rest on more than a doubt or ambiguity. See United States v. Stewart, 311 U.S. 60, 71 , and also Commissioner v. Jacobson, 336 U.S. 28, 49 .
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.
[ Footnote 4 ] "ART. 53. Public, charitable, and similar bequest. - . . . It does not prevent seduction . . . that the property placed in trust is also subject to another trust for a private purpose. Thus, where money or property is placed in trust to pay the income to an individual during life, and then to pay or deliver the same to a charitable corporation, or apply the principal to a charitable purpose, the charitable [348 U.S. 187, 191] bequest or devise forms the basis for a deduction. The amount of the deduction, in such case, is the value, at the date of the decedent's death, of the remainder interest in the money or property which is devised or bequeathed to charity. For the manner of determining the value of such remainder interest, see Article 20." 21 T. D. 783-784.
Article 20 prescribed methods of determining the present worth of a remainder subject to a single life interest.
[ Footnote 5 ] Congressional insistence upon the actual use of the funds exclusively for charitable purposes appears in the following provisions describing the bequest that are deductible:
[ Footnote 6 ] "ART. 56. Conditional bequests. - Where the bequest, legacy, devise, or gift is dependent upon the performance of some act, or the happening of some event, in order to become effective it is necessary that the performance of the act or the occurrence of the event shall have taken place before the deduction can be allowed. Where, by the terms of the bequest devise or gift, it is subject to be defeated by a subsequent act or event, no deduction will be allowed." 21 T. D. 785.
[ Footnote 8 ] Despite the conclusion of the Tax Court and the Court of Appeals to the contrary, the Government contends here that the proposed actuarial value of the conditional remainder to charity does not support the deduction. We do not reach that issue, but the facts material to are so follows: The Remarriage Table is based on a study of American experience conducted by a Committee of the Casualty Actuarial Society, 19 Proceedings of the Casualty Actuarial Society (1933), 279-349. The table is based solely upon the remarriage experience of windows who, through the deaths of their husbands, become beneficiaries under workmen's compensation laws in states [348 U.S. 187, 197] where they lose compensation benefits upon remarriage. The reports relied upon cover experience for policy years 1921 to 1929, inclusive. See id., at 286-288, 298. See also, Myers further Remarriage Experience 36 Proceedings of the Casualty Actuarial Society (1949), 73 et seq. The specially devised table as to the probability of issue is based upon statistics, for white women in 47 states and the District of Columbia, indicating the degree of probability that such women, after they are 27 years old, will marry and have first-born children. See the following Bureau of the Census publications for 1940; Vital Statistics of the United States, Pt. II, 89; Nativity and Parentage of the White Population - General Characteristics 110; Types of Families 9. The instant computation assumes that such a child will survive its mother. 18 T. C. 836, 837-838.
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:
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. 2 If we read the quoted portion of 812 alone, could there be any doubt that the Sternberger bequest is deductible? We think not. It says "all bequests" - whatever the charity takes under the will. There is not a word that limits the deduction of bequests to what assuredly goes to the institution. It is the "amount" of the bequest that is deductible - its presently ascertainable value. The statute plainly allows deferred charitable bequests. It does not require assured enjoyment.
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 [348 U.S. 187, 202] estates would secure tax advantages under our interpretation, in the aggregate the charitable deductions should substantially equal the amount received by the tax-recognized institutions. This would surely fairly carry out the congressional purpose. To view respondent's contention as urging a possible over-all tax windfall for estates is to deny the mathematical law of averages. 3
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 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. 5 None of them held that bequests are not deductible although the ultimate taking by the charitable beneficiary was uncertain.
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 [348 U.S. 187, 204] life beneficiary, there was no uncertainty sufficient to justify a refusal of the deduction for the charitable remainder. The latter is, on its face, a decision that would decide the issue, simplicity, of the deducibility of contingent bequests. Neither is here controlling, however, since in both the charity was held to be assured of taking. The Provident Trust case is worth a moment's examination. Property was left by will in trust for the deceased's daughter for life; upon her death the corpus was to pass to her lawful issue; but should she die without issue, the estate was to be distributed among various charitable organizations. Prior to the death of the testator, an operation had rendered the daughter incapable of childbearing, assuring the vesting of the charitable remainder. This Court did not apply the then existing regulations (the predecessor to 81.46 (d)) 6 which would have denied a deduction. It ignored the regulation, apparently believing it in conflict with the purpose of the statute, and allows the deduction, thus requiring the amendment of the regulation to its present form. The Court stated the relevant inquiry to be follows:
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, 7 the deduction section and the regulations are to be interpreted in the light of the congressional purpose. Whether may be the varying views as to the desirability of testamentary gifts of moneys or business [348 U.S. 187, 206] to public or private charitable foundations, congress has sanctioned such provisions, vested or with certain degrees of contingency, by the deduction section of the Estate Tax. 8 The policy has brought munificent gifts to the chosen institutions.
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.
[ Footnote 1 ] See note 3 of the Court's opinion.
[ Footnote 2 ] See note 2 of the Court's opinion.
[ Footnote 3 ] As the Court states the actuarial method and assumes by not reaching it, note 8 of the opinion, the correctness of the computation of the value of the conditional remainder to charity, we will merely add that this position accords with the conclusion of the Tax Court, 18 T. C. 836, and the Court of Appeals, 207 F.2d 600, through its reliance on Meierhof v. Higgins, 129 F.2d 1002, 1003, a case also involving the multiple-decrement theory. See Jordan, Life Contingencies, 251.
[ Footnote 4 ] See Meierhof v. Higgins, 129 F.2d 1002, holding that the predecessors to 81.44 and 81.46 are to be read together.
[ Footnote 6 ] "Conditional bequests - Where the bequest, legacy, devise, or gift is dependant upon the performance of some act, or the happening of some event, in order to become effective it is necessary that the performance of the act or the occurrence of the event shall have taken place before the deduction can be allowed. Where, by the terms of the bequest, devise or gift, it is subject to be defeated by a subsequent act or event, no deduction will be allowed." Treas. Reg. 37, Art. 56.
[ Footnote 8 ] Griswold, Cases and Materials on Federal Taxation (3d ed.), 679, setting out the legislative history of the section with brief reference to the differing views on the merit of the charitable deduction; Paul, Federal Estate and Gift Taxation, Vol. I, c. 12. [348 U.S. 187, 207]