UTHERNREGIO OOO 00 3 l" LIBRARY A i^^= Tl 1 ^^^ = ^ o 1 o I THE LIBRARY OF THE UNIVERSITY OF CALIFORNIA LOS ANGELES SCHOOL OF LAW A TREATISE ON THE FEDERAL ESTATE TAX CONTAINING THE STATUTES, REGULATIONS, COURT DECISIONS, TREASURY DECISIONS, OTHER DEPARTMENTAL RULINGS, AND FORMS RAYMOND D. THURBER OF THE NEW YORK CITY BAR Formerly Attorney in the Law Department, Bureau of Internal Revenue, Washington, D. C. Albany, N. Y. MATTHEW BENDER & COMPANY INCORPORATED 1921 Copyright, 1921 By RAYMOND D. THURBER PREFACE. The present Federal Estate Tax has now been in existence over four years. 1 In that time it has yielded in revenue approxi- mately $300,000,000. Present financial conditions indicate that a repeal of the tax in the near future is not to be expected. It is consequently a matter of serious concern to all estates of residents of the United States in excess of $50,000, and to the attor- neys representing them. It is also important to the estates of all non-residents, regardless of amount, any of the property of which was situated in this country at the time of the decedent's death. The present book is due to the belief that there is need for a treatise relating solely to the Federal Act — a subject more important, from a revenue standpoint, than the inheritance tax statutes of all of the States combined. The writer was connected for several years with the Law Department of the Bureau of Internal Revenue, and assisted in the preparation of the pres- ent Estate Tax Regulations. This book, in addition to giving the law and all constructions of it by the courts, also attempts to set out accurately the pres- ent working construction of the law by the Bureau of Internal Revenue, as indicated not only by the 1. The first Act went into effect on September 9, 1916 (39 Stat., Chap. 463, see. 902). [iii] 686151 iv PREFACE. Regulations and Treasury Decisions, but also by- other sources of information, not at present avail- able to the public in systematic form. The lawyer may thus not only form his own judgment as to the rights of his client, but learn what rulings he may reasonably expect to obtain from the Bureau. The book is dedicated to all executors and ad- ministrators and their attorneys, in the hope that it will be helpful to them. New York, N. Y., April 4, 1921. TABLE OF CONTENTS. References are to Pages. PAGE Preface iii List of Forms vii Table of Cases ix CHAPTER I. Introductory 1 CHAPTER II. Gross Estate 17 CHAPTER III. Valuation of Property 93 CHAPTER IV. Deductions 116 CHAPTER V. Sixtj'-day Notice 168 CHAPTER VI. Return 182 CHAPTER VII. Payment of Tax 196 CHAPTER VIII. Collection of Tax 214 CHAPTER IX. Power to Compromise or Remit 217 CHAPTER X. Miscellaneous 221 Table of Statutes 243 Treasury Decisions 244 Forms 353 Recent Changes in Regulations 391 Index 401 [v] LIST OF FORMS. References are to Pages. PAGE Affidavit of ownership of bonds taken in payment 378 Analysis of surplus of corporation 387, 388 Balance sheet of corporation, adjusted 385, 386 Balance sheet of corporation, comparative 383, 384 Comparative summaries of corporations 389, 390 Deposition for estate tax 380, 381 Military exemption, claim for 357, 358 Receipt for tax 382 Release of lien, application for 358 to 360 Release of lien, certificate of 381 Return of executor 360 to 373 Schedule of coupon bonds received in payment of tax 379 Schedule of registered bonds received in payment of tax 379, 380 Sixty-day notice — Estate of nonresident 373 to 375 Sixty-day notice — Estate of resident 353, 354 Sixty-day notice for insurance companies — Estate of resident 355, 356 Sixty-day notice for insurance companies — Estate of non- resident 356, 357 Sixty-day notice for transfer agents — Estate of nonresi- dent 375 to 377 Subpoena duces tecum for use of revenue agent 380 Summary of investigation 377, 378 [vii] TABLE OF CASES. References are to Pages. A PAGE Abstract & Title Guaranty Company v. State, 173 Cal. 691, 161 Pac. Rep. 264 46 Adye v. Smith, 44 Conn. 60 158 Altman's Estate, In re, 87 Misc. 255, 149 N. Y. Supp. 601. 158 Alvany v. Powell, 55 N. C. 51 89 Attorney General v. Clark, 222 Mass. 291, 110 N. E. Rep. 299 67 B Babcock, In re, 115 N. Y. 450, 22 N. E. Rep. 263 133 Bailey v. Clark, 21 Wall. 284 35 Baker, Matter of, 83 App. Div. 530, 82 N. Y. Supp. 390, aff'd 178 N. Y. 575 40, 45 Balls v. Dampman, 69 Md. 390 77 Barbey's Estate, In re, 114 N. Y. Supp. 725 31 Benton, In re Estate of, 234 111. 366, 84 N. E. Rep. 1026. . . 46 Bierstadt, Matter of, 178 App. Div. 836, 166 N. Y. Supp. 168 139, 140 Billings v. People, 189 111. 472, 59 N. E. Rep. 798, aff'd 188 U. S. 97 32 Birdsall, Matter of, 22 Misc. 180, 49 N. Y. Supp. 450 46 Blacklock v. United States, 208 U. S. 75 215 Blaekstone v. Miller, 188 U. S. 189 89 Blum v. Wardell, U. S. Dist. Court, N. D. Cal., Rudkin, J. . 61 Borden's Estate, In re, 159 N. Y. Supp. 346 56, 102 Bostwick, Matter of, 160 N. Y. 489, 55 N. E. Rep. 208. . .53, 54 Brady v. Anderson, 240 Fed. Rep. 665 134 Brandreth's Estate, In re, 169 N. Y. 437, 62 N. E. Rep. 563 49 [ix] X TABLE OF CASES. References are to Pages. PAGE Brushaber v. Union Pacific R. R. Co., 240 U. S. 1 38, 67 Bullard, Matter of, 76 App. Div. 207, 78 N. Y. Supp. 491. . 45 Bullen's Estate, In re, 47 Utah 96, 151 Pac. Rep. 533. . .27, 32 Burdick's Estate, In re, 112 Cal. 387, 44 Pac. Rep. 734 59 Burgheimer's Estate, In re, 154 N. Y. Supp. 943 103 c Cahen v. Brewster, 203 U. S. 543 38 Callahan v. Woodbridge, 171 Mass. 595, 51 N. E. Rep. 176. 89 Carpenter v. Commonwealth, 17 How. 456 38 Castner v. Farmers Mutual Fire Ins. Co., 50 Mich. 273, 15 N. W. Rep. 452 205 Chamberlain v. Stearns, 111 Mass. 267 158 Chanler v. Kelsey, 205 U. S. 466 72 Chase v. Inhabitants of Surry, 88 Me. 468, 34 Atl. Rep. 270 205 Cohen v. Samuels, 245 U. S. 50 84 Commonwealth v. Duffield, 12 Pa. St. 277 77 Commonwealth v. Herman, 16 Wkly. Notes of Cases (Pa.) 210 85 Commonwealth v. Williams, 13 Pa. St. 29 76, 77 Commonwealth 's Appeal, 34 Pa. St. 204 32 Conway's Estate v. State, 120 N. E. Rep. (App. Ct. of Ind.) 717 41, 42, 46 Cope v. Cope, 137 U. S. 682 35 Corbin v. Townshend, 92 Conn. 501, 103 Atl. Rep. 647. .. . 139 Cornell's Estate, In re, 170 N. Y. 423, 63 N. E. Rep. 445. . 49 Cory's Estate, In re, 177 App. Div. 871, 164 N. Y. Supp. 956, aff'd 221 N. Y. Memo. 612, 117 N. E. Rep. 1065. . 103 Crary, Matter of, 31 Misc. 72, 64 N. Y. Supp. 566 46 Crenshaw v. Moore, 124 Tenn. 528, 137 S. W. Rep. 924. .. . 32 Crocker v. Shaw, 174 Mass. 266, 54 N. E. Rep. 549 49 Cruger, In re, 54 App. Div. 405, 66 N. Y. Supp. 636 50 Cutting v. Cutting, 86 N. Y. 522 77 TABLE OF CASES. References are to Pages. J) PACK Dalsimer, Matter of, 167 App. Div. 365, 153 N. Y. Supp. 58, aff 'd 217 N. Y. 608, 111 N. E. Rep. 1085. . . .67, 68, 69 Daly's Estate, In re, 100 App. Div. (N. Y.) 373, 91 N. Y. Supp. 858, aff 'd 182 N. Y. 524, 74 N. E. Rep. 1116. ... 89 Dana Company, Matter of William B., 215 N. Y. 461, 109 N. E. Rep. 557 53, 54 Dee's Estate, In re, 210 N. Y. 625, 104 N. E. Rep. 1128, aff'g 148 N. Y. Supp. 423 46 DeGraaf 's Estate, In re, 24 Misc. 147, 53 N. Y. Supp. 591. . 31 De Vaughn v. Hutchinson, 165 U. S. 566 30 Dolbeer, Matter of, 226 N. Y. 623, 123 N. E. Rep. 381 70 Douglas County v. Kountze, 84 Neb. 506, 121 N. W. Rep. 593 49 Douglass's Estate, In re, 104 Misc. 359, 171 N. Y. Supp. 956 5 Dunglison's Estate, In re, 201 Pa. St. 592, 51 Atl. Rep. 356 77 Durfee, Matter of, 79 Misc. 655, 140 N. Y. Supp. 594. . .62, 69 E Ebersole v. McGrath, U. S. Dist. Court, Southern Dist. Ohio, Peck, J 78 Edgerton, Matter of, 35 App. Div. 125, 54 N. Y. Supp. 700, aff 'd 158 N. Y. 671, 52 N. E. Rep. 1124 45, 52 Emmons v. Shaw, 171 Mass. 410, 50 N. E. Rep. 1033 76 Evans-Snider-Buel Co. v. McFadden, 105 Fed. Rep. 293, aff 'd 185 U. S. 505 67 F Finn v. United States, 123 U. S. 227 242 Flint v. Stone Tracy Co., 220 U. S. 108 67 Freund's Estate, In re, 143 App. Div. 335, 128 N. Y. Supp. 48, aff'd, on opinion below, 202 N. Y. 556, 95 N. E. Rep. 1129 133 Fuller v. Gale, 103 Atl. Rep. (N. H.) 308 5 TABLE OF CASES. Keferences are to Pages. Q PAGE Gaither v. Miles, U. S. Dist. Court, Dist. of Md., Rose, D. J 84, 85 Garcia, Matter of, 183 App. Div. 712, 170 N. Y. Supp. 980. 223 German Corp. of Negaunee v. Negaunee German Aid So- ciety, 172 Mich. 650, 138 N. W. Rep. 343 158 Gihon, Matter of, 169 N. Y. 443, 62 N. E. Rep. 561 139 Gordon, Matter of, 186 N. Y. 471, 79 N. E. Rep. 722 92 Gould, Matter of, 19 App. Div. 352, 46 N. Y. Supp. 506, 156 N. Y. 423, 51 N. E. Rep. 287 96 Graves, Matter of, 52 Misc. 433, 103 N. Y. Supp. 571 69 Green's Estate, In re, 153 N. Y. 223, 47 N. E. Rep. 292. .. . 49 H Hagerty v. State, 55 Ohio St. 613, 45 N. E. Rep. 1046 56 Hamlin, In re, 226 N. Y. 407, 124 N. E. Rep. 1 5, 139 Harbeck, In re, 161 N. Y. 211, 55 N. E. Rep. 850 76 Hegeman's Executors v. Roome, 70 N. J. Eq. 562, 62 Atl. Rep. 392 158 Herold v. Blair, 158 Fed. Rep. 804 56 Hooper v. Shaw, 176 Mass. 190, 57 N. E. Rep. 361 140 Hopkins, Appeal of, 77 Conn. 644, 60 Atl. Rep. 657 223 Hornsby v. United States, 10 Wall. 224 21 Houdayer's Estate, In re, 150 N. Y. 37, 44 N. E. Rep. 718. . 89 Hunt v. Wicht, 174 Cal. 205, 162 Pac. Rep. 639 67 Hunter v. Husted, 45 N. C. 141 223 J Johnson v. Southern Pacific Co., 196 U. S. 1 35 K King's Estate, In re, 14 Wkly. Notes 77 77 Kingsbury v. Chapin, 196 Mass. 533, 82 N. E. Rep. 700. .. . 101 Kissam v. McElligott, U. S. Dist. Court, Southern Dist. N. Y., Mayer, J 65 Kitts v. Kitts, 135 Tenn. 314 30 TABLE OF CASKS. xiii References are to Pages. PAGE Klatzl, Matter of, 216 N. Y. 83, 110 N. E. Rep. 181 71 Kline, Matter of, 65 Misc. 446, 121 N. Y. Supp. 1090. . .62, 69 Knight's Estate, In re, 261 Pa. St. 537, 104 Atl. Rep. 765. . 139 Knowlton v. Moore, 178 U. S. 41 2, 56, 221 L Lederer v. Northern Trust Co., 262 Fed. Rep. 52 136, 137 Lederer v. Pearce, 266 Fed. Rep. 497, aff'g 262 Fed. Rep. 993 77, 78 Lines 's Estate, In re, 155 Pa. St. 378, 26 Atl. Rep. 728. . . 49 Liverpool & London & Globe Ins. Co. v. Board of Assessors, 221 U. S. 346 89 Lovitt v. Attorney General, 33 Can. Sup. Ct. 350 85 M Mahlstedt, Matter of, 67 App. Div. 176, 73 N. Y. Supp. 818 45 Masury, Matter of, 28 App. Div. 580, aff'd 159 N. Y. 532. . 53 Maxwell v. Bugbee, 250 U. S. 525 67 McDaniel v. Byrkett, 179 S. W. Rep. (Ark.) 491 32 McDougald v. Wulzen, 34 Cal. App. 21, 166 Pac. Rep. 1033 46 McKelway, Matter of, 221 N. Y. 15, 116 N. E. Rep. 348 .. . 66, 70 Merck v. Treat, 174 Fed. Rep. 388 241 Merrifield, Estate of v. People, 212 111. 400, 72 N. E. Rep. 446 46 Meyer, Matter of, 209 N. Y. 386, 103 N. E. Rep. 713 223 Mitchell v. Clark, 110 U. S. 633 67 Moffitt v. Kelly, 218 U. S. 400 59 Moffitt's Estate, In re, 153 Cal. 389, 95 Pac. Rep. 653, aff'd sub nom. Moffitt v. Kelly, 218 U. S. 400 59 Moir's Estate, In re, 207 111. 180, 69 N. E. Rep. 905. . . .49, 51 Murdock v. Bridges, 91 Me. 124, 39 Atl. Rep. 475 158 N New England Trust Co. v. Abbott, 205 Mass. 279, 91 N. E. Rep. 379 50 xiv TABLE OF CASES. References are to Pages. PAGE New York Trust Co. v. Eisner, 263 Fed. Rep. 620.. 5, 137, 138 Northern Trust Co. v. Lederer, 257 Fed. Rep. 812, aff M sub nom. Lederer v. Northern Trust Co., 262 Fed. Rep. 52 136, 138 Orr v. Gilman, 183 U. S. 278 72, 85 Orvis's Estate, In re, 223 N. Y. 1, 119 N. E. Rep. 88. . . .56, 103 P Palmer v. Mansfield, 222 Mass. 263, 110 N. E. Rep. 283. . . 71 Palmer, Matter of, 117 App. Div. 360, 102 N. Y. Supp. 236. 45 Patterson's Estate, In re, 127 N. Y. Supp. 284, aff'd 146 App. Div. 286, 130 N. Y. Supp. 970 50 Peiser v. Griffin, 125 Cal. 9, 57 Pac. Rep. 690 59 Pell, Matter of, 171 N. Y. 48, 63 N. E. Rep. 789 66, 67 People v. Burkhalter, 247 111. 600, 93 N. E. Rep. 379 46 People v. Carpenter, 264 111. 400, 106 N. E. Rep. 302 42 People v. Danks, 289 111. 542, 124 N. E. Rep. 625 42 People v. Field, 248 111. 147, 93 N. E. Rep. 721 32 People v. Griffith, 245 111. 532, 92 N. E. Rep. 313 89 People v. Kelley, 218 111. 509, 75 N. E. Rep. 1038. . .46, 49, 51 People v. Northern Trust Co., 289 111. 475, 124 N. E. Rep. 662 53, 139 People v. Pasfield, 284 111. 450, 120 N. E. Rep. 286 139 People v. Powers, 147 N. Y. 104, 41 N. E. Rep. 432 158 Plummer v. Coler, 178 U. S. 115 67, 85 Plunkett v. Old Colony Trust Co., 233 Mass. 471, 124 N. E. Rep. 265 5, 139 Polk v. Miles, 268 Fed. Rep. 175 47, 52 Prentiss v. Eisner, 267 Fed. Rep. 16 138 Price, Matter of, 62 Misc. 149, 116 N. Y. Supp. 283 46 Public Service Railway Co. v. Herold, 219 Fed. Rep. 301. . .241 R Ramsdill, Matter of, 190 N. Y. 492, 83 N. E. Rep. 584. .. . 101 Randolph v. Craig, 267 Fed. Rep. 993 29 TABLE OF CASES. xv References are to Pages. PAGE Reed, Matter of, 89 Misc. 632, 154 N. Y. Supp. 247 69 Reish v. Commonwealth, 106 Pa. St. 521 52 Reynolds, Estate of, 169 Cal. 600, 147 Pac. Rep. 268. . . .42, 46 Ridden v. Thrall, 125 N. Y. 572 41 Riemann's Estate, In re, 42 Misc. (N. Y.) 648, 87 N. Y. Supp. 731 31, 32 Roebling's Estate, In re, 104 Atl. Rep. 295 (N. J.) 139 Romaine's Estate, In re, 127 N. Y. 80, 27 N. E. Rep. 759. . 89 Rosenberg's Estate, In re, 114 N. Y. Supp. 726 62, 69 Rosenthal v. People, 211 111. 306, 71 N. E. Rep. 1121.. 41, 46 s Sammon, In re, 3 Mees. & W. 381 223 Sanford's Estate, In re, 91 Neb. 752, 137 N. W. Rep. 864 (on rehearing, overruling original decision, 90 Neb. 410, 133 N. W. Rep. 870) 31, 32 Sayre v. Brewster, U. S. Dist. Court, N. D. N. Y., Ray, J. 137 Schwarzchild & Sulzberger Co. v. Rucker, 143 Fed. Rep. 656 241 Sherman, Matter of, 179 App. Div. 497, 166 N. Y. Supp. 19, aff 'd 222 N. Y. 540, 118 N. E. Rep. 1078. . . .5, 139, 140 Shwab v. Doyle, Circuit Court of Appeals, 6th Circuit, Dec. 10, 1920 35,37, 43 Sinking Fund Cases, 99 U. S. 700 67 Slaughter House Cases, 16 Wall. 36 21 Snyder v. Bettman, 190 U. S. 249 67 Spaulding, Matter of, 49 App. Div. 541, 63 N. Y. Supp. 694 41, 45 Spreckels v. Spreckels, 116 Cal. 339, 48 Pac. Rep. 228 59 Spreckels v. State, 30 Cal. App. 363, 158 Pac. Rep. 549. . . 46 State v. Dalrymple, 70 Md. 294, 17 Atl. Rep. 82 89. 223 State v. Pabst, 139 Wis. 561, 121 N. W. Rep. 351 42, 46 State v. Probate Court, 130 Minn. 210, 166 N. W. Rep. 125. 139 State Line & Sullivan R. R. Co. v. Davis, 228 Fed. Rep. 246 241 State Street Trust Co. v. Stevens, 209 Mass. 373, 95 N. E. Rep. 851 50 xvi TABLE OF CASES. References are to Pages. PAGE Stebbins, Matter of, 52 Misc. 438, 103 N. Y. Supp. 563 69 Stockdale v. Insurance Companies, 20 Wall. 323 38 Strahan's Estate, In re, 93 Neb. 828, 142 N. W. Rep. 678 26, 27, 29, 32 Strode v. Commonwealth, 52 Pa. St. 181 85 Stuyvesant's Estate, In re, 72 Misc. 295, 131 N. Y. Supp. 197 31 Swaby 's Appeal, In re, 14 Wkly. Notes, 553 77 T Thompson, Matter of, 167 App. Div. 356, 153 N. Y. Supp. 164, aff 'd 217 N. Y. 609, 111 N. E. Rep. 1101 67, 68 Thorne, Matter of, 44 App. Div. 8, 60 N. Y. Supp. 419, aff'd 162 N. Y. 238, 56 N. E. Rep. 625 52 Tilley, Matter of, 166 App. Div. 240, 151 N. Y. Supp. 79, aff'd 215 N. Y. 702, 109 N. E. Rep. 1094 67, 68, 69 u Ullmann v. Smietanka, U. S. Dist. Ct., N. D. of 111 202 United States v. Coulby, 251 Fed. Rep. 982 35 United States v. Perkins, 163 U. S. 625 67 United States v. Utz, 80 Fed. Rep. 848 242 V Van Syckel v. Johnson, 80 N. J. Eq. 117, 70 Atl. Rep. 657. . 158 Von Bernuth's Estate, In re, 143 N. Y. Supp. 672 69 w Walker v. People, 192 111. 106, 61 N. E. Rep. 489 96 Weed's Estate, In re, 10 Misc. 628, 32 N. Y. Supp. 777. .. . 223 Weiler's Estate, In re, 122 N. Y. Supp. 608, aff'd 139 App. Div. 905, 124 N. Y. Supp. 1133 32 Wetmore v. Markoe, 196 U. S. 68 35 Whiting's Estate, In re, 150 N. Y. 27, 44 N. E. Rep. 715. . 89 Williams v. Osenton, 232 U. S. 619 8 Winn v. Schenck, 33 Ky. Law Rep. 615, 110 S. W. Rep. 827 76 Wright's Appeal, 38 Pa. St. 507 49 CHAPTER I. INTRODUCTORY. § 1. Inheritance taxes in general. Inheritance taxes are a familiar form of taxation, in use in the United States for many years. 1 In this country it has, until the passage of the re- cent estate tax legislation, been employed princi- pally by the various states; but the Federal Govern- ment has also used this means of raising money on a number of prior occasions. 2 The power of the Federal Government to adopt this means of taxation is now established. The 1. For complete exposition of the law as it exists in the various States today, see the Standard Work of Gleason & Otis on Inheritance Taxation, Second Edition. 2. See Act of July 6, 1797, Chap. XI; 1 Stat. 527 (tax on legacies and distributive shares of personal property, in the form of a stamp duty upon receipts therefor) ; Act of July 1, 1862, Chap. 119, Sees. Ill, 112; 12 Stat. 432, 485-6 (tax on legacies and distributive shares of personal property, to be paid by executor); Idem, Sec. 94; 12 Stat. 475, 483 (stamp duty on probate of will or letters of administration) ; Act of July 30, 1864, Chap. 173, Sees. 124, 125; 13 Stat. 223, 285-7 (tax on legacies and distributive shares of personal property, to be paid by executor) ; Idem, Sees. 127, 133; 13 Stat., pp. 287-9 (tax on "successions" to real property either by deed or will) ; Idem, Sec. 151; 13 Stat. 291-2, 300 (stamp duty on probate of wills or letters of administration) ; Act of July 13, 1866, Chap. 184, Sec. 9; 14 Stat. 98, 140 (amending Act of June 30, 1864) ; Act of August 27, 1894, Chap. 349, Sec. 28; 28 Stat. 509, 553 (tax on acquisition of property by inheritance through inclu- [1] FEDERAL ESTATE TAX. The present legislation. question was elaborately considered in Knowlton v. Moore, 3 which decided, in substance, that although it is within the exclusive jurisdiction of the various States to prescribe the manner in which property shall pass from the dead to the living, yet the occa- sion of the transmission under the State law may be taxed by the Federal Government under its general power to lay taxes. 4 § 2. The present legislation. The present Federal Estate Tax Law consists of four statutes, viz, the original Estate Tax Law, con- tained in Title II of the Act of September 8, 1916, known as the " Revenue Act of 1916" (39 Stat., Chap. 463, pp. 777-80) ; Title in of the Act of March 3, 1917 (39 Stat. Chap. 159, p. 1002) ; Title IX of the Act of October 3, 1917, known as the "Revenue Act of 1917" (40 Stat., Chap. 63, pp. 324-5); and the present Estate Tax Law, contained in Title IV sion of same in taxable income) ; Act of June 13, 1898, Chap. 448, Sees. 29, 30; 30 Stat. 448, 464-6 (tax on legacies and dis- tributive shares of personal property, to be paid by executor. It will be observed that all of these taxes were war taxes, subsequently repealed. Most of this federal legislation has its counterpart in similar statutes passed in England. (See 16 and 17 Viet., Chap. 51; 44 and 45 Vict., Chap 12, Sec. 38; 52 and 53 Vict., Chap. 7, Sec. II; 57 and 58 Vict., Chap. 30.) 3. 178 U. S. 41. 4. See 178 U. S., pp. 57-61. The court in this case was con- sidering the legacy tax act of June 13, 1898 (30 Stat. 448, 464-6). INTRODUCTORY. Scheme of the present statute. of the Act of February 24, 1919, known as the "Revenue Act of 1918" (40 Stat., Chap. 18, pp. 1096- 1101). The Act last mentioned supersedes Title IT of the Act of 1916; but it applies (Sec. 401) only to the estates of decedents dying after its passage (February 24, 1919), and contains the usual saving clause as to rights already accrued. (Sec. 1400 [b] ). 5 At the present time, therefore, constant reference to the earlier statutes is necessary. The two Acts of 1917 require but little attention. That of March 3, 1917, raises the rates of tax contained in the "Reve- nue Act of 1916. The Act of October 3, 1917, im- poses a further tax, in addition to that already laid, but provides that it shall not apply to the estates of persons dying while serving in the military or naval forces during the present war, or as the result of in- jury or disease contracted in such service. Title IV of the Revenue Act of 1918 is a complete re-enact- ment of the law, superseding Title II of the Revenue Act of 1916, and making many important changes. § 3. Scheme of the present statute. The tax is imposed "upon the transfer of the net estate of every decedent dying after the passage of 5. In what follows the reference, unless otherwise specified, is to the present statute (Title IV of the Revenue Act of 1918). References to the Regulations are, unless otherwise specified, to the present Estate Tax Regulations (Regulations 37, Revised January, 1921). Frequent reference is also made to the revi- sion of August, 1919. For convenience, a table is appended, giving the comparative sections of the various statutes contain- ing the present Estate Tax Law. FEDERAL ESTATE TAX. Not a property tax. this Act." (Sec. 401.) 6 In computing the tax the value of the "gross estate" is first determined. This "gross estate" consists of certain carefully enumer- ated property rights, not necessarily vested in the decedent at the time of his death. (Sec. 402.) From the value of this gross estate, determined as of the date of the decedent's death, certain deductions are made; and the balance represents the value of the "net estate" (Sec. 403), certain percentages of which constitute the tax. (Sec. 401.) The tax is graduated, running from one per cent of the first fifty thousand dollars of the net estate to twenty- five per cent of the amount in excess of ten million dollars. (Sec. 401.) § 4. Not a property tax. The tax is imposed, not upon the property con- stituting the estate, but upon its "transfer." 7 It is not a direct tax, and is consequently valid although 6. The Bureau has ruled that the statute went into operation at 6:55 P. M. on February 24, 1919, the hour of its approval. The word "passage" in Section 401 is thus construed as re- ferring to the time when the Act became a law through ap- proval, rather than the time when it went into actual opera- tion, which, in general, was on February 25, 1919 (Sec. 1409). The result of this ruling is, that the estates of decedents dying after 6:55 P. M. on February 24, 1919, are governed by the Revenue Act of 1918; but that, if the decedent died before this hour, the case is governed by the earlier statutes. 7. The Regulations provide: "The Federal estate tax is imposed upon the transfer of the net estate, determined in the manner prescribed, of every person dying after September 8, INTRODUCTORY. Not a legacy tax. not apportioned among the various States accord- ing to population, as required by the Federal Con- stitution in the case of direct taxes. (Art. 1, Sec. 9, cl. 4.) 8 § 5. Not a legacy tax. The tax is imposed upon the transfer of the entire net estate; must be paid by the executor, as directed; and is not to be apportioned among the various bene- ficiaries, in accordance with their respective inter- ests. 9 The Regulations provide: 1916. The tax is not laid upon the property, but upon its transfer from the decedent to others." (Art. 1.) 8. New York Trust Co. v. Eisner, 263 Fed. Rep. 620; In re Sherman's Estate, 179 App. Div. 497, 166 N. Y. Supp. 19, aff'd, 222 N. Y. 540. See also In re Hamlin, 226 N. Y. 407, 420; 124 N. E. Rep. 1. These cases construe the earlier Act (Title II of the Revenue Act of 1916) ; but the same decision would necessarily be made under the similar provisions of the pres- ent statute. It has been contended that the present tax, in spite of the language, is a direct tax, since it affects the estate as a whole, and is paid by the executor. This contention, however, has so far met with no success in the courts. 9. In re Hamlin, 226 N. Y. 407, 124 N. E. Rep. 4; Plunkett v. Old Colony Trust Co., 233 Mass. 471; 124 N. E. Rep. 265. The Hamlin case may be taken as overruling In re Douglass's Estate (104 Misc. 359; 171 N. Y. Supp. 956), although it is not cited. Apparently in conflict with the Hamlin and Plun- kett cases, see Fuller v. Gale (103 Atl. Rep. [N. H.] 308), holding that the tax should be apportioned among the various beneficiaries. The case is not clearly reasoned. The reason- ing of the other cases is exhaustive and satisfactory, contain- FEDERAL ESTATE TAX. Escheated property — Nature of the tax. ' ' The subject of tax is the transfer of the en- tire net estate, not any particular legacy, de- vise, or distributive share. It is not an indivi- dual inheritance tax. The value of the separate interests and the relationship of the beneficiary to the decedent have no bearing upon the ques- tion of liability or the extent thereof." (Art. 1.) § 6. Escheated property. The failure of the statute to take any account of the individual beneficiary is reflected in the rule that — ' ' The transfer of property is taxable, although it escheats to the State for lack of heirs." (Regula- tions, Art. 1.) § 7. Nature of the tax. The Regulations provide: 1 ' The statute embraces transfers by will or un- der the intestate laws, and also transfers made by the decedent in his lifetime, when made in contemplation of death or intended to take effect in possession or enjoyment at or after his death. The statute also enumerates certain special cases not strictly of either character just described. The practical test of the existence of a taxable transfer is whether the statute directs that the property in question be included in the gross es- tate." (Art. 2.) ing an analysis of the language of the statute, and a contrast of it with the earlier legacy tax of 1898 (30 Stat. 448, 464). INTRODUCTORY. Estates subject to tax — Definition of "resident." § 8. Estates subject to tax. The Regulations provide: "The tax is imposed in the case of the estate of 'every decedent,' although, by reason of an exemption, the net estate of a resident decedent, in order to be taxable, must exceed $50,000. (See Sec. 403 [a] 4.) The estate of a non- resident decedent, however, is taxable if any part of it is situated in the United States. The statute takes no account of the citizenship of the decedent, but prescribes different rules ac- cording to whether the decedent was a 'resi- dent' or a 'nonresident' of the United States. A person residing in Italy is a 'nonresident,' for the purpose of the tax, although a citizen of the United States; a person residing in the United States is a 'resident,' although a citizen of Italy. A 'resident' is one who at the time of his death resided in the States, the Terri- tories of Alaska or Hawaii, or the District of Columbia. All other persons are 'nonresidents.' Persons residing in Porto Rico or the Philip- pine Islands are 'nonresidents.' " (Art. 4.) § 9. Definition of "resident." The Regulations provide: "A person is a 'resident' of the United States, for the purposes of this tax, only in case he had a domicile therein at the time of his death. 10 10. This is the ordinary, probably universal, rule in the case FEDERAL ESTATE TAX. Definition of "resident" — Specific cases. A person acquires a domicile in a place by living there, for even a brief period of time, with no definite present intention of later re- moving therefrom. 11 Residence without the requisite intention to remain will not suffice to constitute domicile, nor will intention to change domicile effect such a change unless accompanied by actual removal. A decedent who died while abroad will be presumed to be a nonresident, and the burden of proving the contrary rests upon the executor." (Art. 5.) § 10. Same — Specific cases. In the following cases it has been ruled that the decedent had not changed his domicile from this country to another, and was consequently a "resi- dent" at the time of his death: An ambassador serving abroad at the time of his death; a person temporarily abroad on business and intending to return when it is finished; and a person going to another country for his health, and intending to return when able. Conversely, a foreign diplomat who dies in this country while on a diplomatic mission doe's not acquire a domicile here, and is a nonresident. On the other hand, a missionary of Inheritance Taxes. See Gleason & Otis on Inheritance Taxation, 2d Ed., p. 213. 11. The test of a change of domicile is "the absence of any present intention of not residing permanently or indefinitely in the new abode." Williams v. Osenton, 232 U. S. 619, 624. INTRODUCTORY. Military exemption. going to China and intending to stay there the rest of her working life, returning only in case of dis- ability, and actually dying while in such service, is held to have effected a change of domicile, and con- sequently to be a nonresident. § 11. Military exemption. The statute provides: "The taxes imposed by this title or by Title II of the Revenue Act of 1916 (as amended by the Act entitled 'An Act to provide increased revenue to defray the expenses of the increased appropriations for the Army and Navy and the extensions of fortifications, and for other pur- poses,' approved March 3, 1917) or by Title IX of the Revenue Act of 1917, shall not apply to the transfer of the net estate of any decedent who has died or may die while serving in the military or naval forces of the United States in the present war or from injuries received or disease contracted while in such service, and any such tax recollected upon such transfer shall be refunded to the executor." (Sec. 401.) The Regulations provide: "The estates of persons dying while actually serving in the military or naval forces of the United States in the present war with Germany are exempt from tax. The date of the termina- tion of the war, for the purpose of this tax, is that fixed by proclamation of the President. 10 FEDERAL ESTATE TAX. Scope of exemption — Red Cross worker — Rates of tax. An estate is also exempt if a person so serving- dies after leaving the service, provided his death is directly traceable to injuries received, or disease contracted, while in such service. The term * military or naval forces of the United States' includes, among other units, the Marine Corps, the Coast Guard, the Army Nurse Corps, Female, and the Navy Nurse Corps, Female. This exemption applies to any estate tax im- posed, whether by the Revenue Act of 1916 or subsequent statutes. If the tax has been col- lected, the executor should make claim for refund." (Art. 9.) § 12. Scope of exemption — Red Cross worker. The exemption provision is held to embrace only the actual military and naval forces of the United States, supported by the revenues of the Govern- ment. It is held not to embrace the members of affiliated war organizations, such as the Red Cross; and the estate of a Red Cross worker is consequently held to be subject to the tax. 12 § 13. Rates of tax. The statute provides: "That (in lieu of the tax imposed by Title II of the Revenue Act of 1916, as amended, and in lieu of the tax imposed by Title IX of the 12. This ruling would doubtless include members of the Y. M. C. A., the Salvation Army, the Knights of Columbus, etc. INTRODUCTORY. 11 Rates of tax. Revenue Act of 1917) a tax equal to the sum of the following percentages of the value of the net estate (determined as provided in section 403) is hereby imposed upon the transfer of the net estate of every decedent dying after the passage of this Act, whether a resident or non- resident of the United States: 1 per centum of the amount of the net estate not in excess of $50,000; 2 per centum of the amount by which the net estate exceeds $50,000 and does not exceed $150,000; 3 per centum of the amount by which the net estate exceeds $150,000 and does not exceed $250,000; 4 per centum of the amount by which the net estate exceeds $250,000 and does not exceed $450,000; 6 per centum of the amount by which the net estate exceeds $450,000 and does not exceed $750,000; 8 per centum of the amount by which the net estate exceeds $750,000 and does not exceed $1,000,000; 1 per centum of the amount by which the net estate exceeds $1,000,000 and does not exceed $1,500,000; 12 per centum of the amount by which the net estate exceeds $1,500,000 and does not exceed $2,000,000; 12 FEDERAL ESTATE TAX. Computation of tax. 14 per centum of the amount by which the net estate exceeds $2,000,000 and does not exceed $3,000,000; 16 per centum of the amount by which the net estate exceeds $3,000,000 and does not exceed $4,000,000; 18 per centum of the amount by which the net estate exceeds $4,000,000 and does not exceed $5,000,000; 20 per centum of the amount by which the net estate exceeds $5,000,000; and does not ex- ceed $8,000,000; 22 per centum of the amount by which the net estate exceeds $8,000,000 and does not exceed $10,000,000; and 25 per centum of the amount by which the net estate exceeds $10,000,000." (Sec. 401.) § 14. Computation of tax. The Regulations provide: "The first step in the determination of tax liability is to ascertain the value of the dece- dent's gross estate in the manner prescribed by law. (See Arts. 12 to 36.) The second step is to deduct from this value certain amounts specified by law in order to arrive at the value of the net estate. (See Arts. 37 to 64.) The third step is to obtain the sum of certain per- centages of the value of successive portions of the net estate, as provided by the applicable taxing act. (See Arts. 7, 8.)" (Art. 6.) INTRODUCTORY. 13 Computation of tax. "The amount of tax is obtained by finding the sum of certain percentages of the value of the net estate according to the provisions of the applicable taxing act. "There are four rates of tax imposed, respec- tively, by the Revenue Act of 1916, the amend- ment thereto of March 3, 1917, the Revenue Act of 1917, and the Revenue Act of 1918. In the case of each act the rates contained therein are applicable to the estates of decedents who died on or after the effective date of the act and prior to the effective date of the next succeed- ing act. A table of the four sets of rates is given below: Bates of Estate Tax. 1 2 3 4 Blocks of net estate. Amend- Act of ment of Act of Act of 1916 Mar. 3, 1917 1918 (effective 1917 (effective (effective Sept. 9, (effective Oct. 4, Feb. 25, Exceeding Not exceed- ing Amount of block. 1910). Mar. 3, 1917). 1917). 1919). Per cent. Per cent. Per cent. Per cent. $50,000 150,000 $50,000 100,000 1 2 n 3 2 4 1 $50,000 2 150,000 250,000 100,000 3 4J 6 3 250,000 450,000 200,000 4 6 8 4 450,000 750,000 300,000 5 7} 10 6 750,000 1,000,000 250,000 5 7J 10 8 1,000,000 1,500,000 500,000 6 9 12 10 1 , 500 , 000 2,000,000 500,000 6 9 12 12 2,000,000 3,000,000 1,000,000 7 10} 14 14 3,000,000 4,000,000 1,000,000 8 12 16 16 4,000,000 5,000,000 1,000,000 9 13J 18 18 5,000,000 6,000,000 1 ,000,000 10 15 20 20 0,000,000 7,000,000 1,000,000 10 15 20 20 7,000,000 8,000,000 1 ,000,000 10 15 20 20 8,000,000 9,000,000 1 ,000,001) 10 15 22 22 9,000,000 10,000,000 1,000,000 10 15 22 22 10,000,000 10 15 25 25 14 FEDERAL ESTATE TAX. Table for computation. "The rates given by the different acts, as set forth above, apply to the estates of decedents dying within the following dates: Column 1, Revenue Act of 1916, effective Sept. 9, 1916, to Mar. 2, 1917, inclusive. Column 2, amendment of Mar. 3, 1917, effective Mar. 3, 1917, to Oct. 3, 1917, inclusive. Column 3, Revenue Act of 1917, effective Oct. 4, 1917, to Feb. 24, 1919, inclusive. Column 4, Revenue Act of 1918, effective on and after Feb. 25, 1919." (Art. 7.) § 15. Same — Table for computation. The Regulations provide: "For the purpose of computing the tax, the net estate is divisible into blocks, each block being taxed at a different and increasing rate. The preceding table gives the amount of the various blocks and the applicable rate of tax under each of the taxing acts. For example, the tax upon the net estate of $1,240,000 of a decedent dying on or after February 25, 1919, would be computed as follows: Amount of first block.. $50,000 at 1 per cent $500 Amount of second block. 100,000 at 2 per cent 2,000 Amount of third block.. 100,000 at 3 per cent 3,000 Amount of fourth block. 200,000 at 4 per cent 8,000 Amount of fifth block.. 300,000 at 6 per cent 18,000 Amount of sixth block. 250,000 at 8 per cent 20,000 Remainder 240,000 at 10 per cent 24,000 Total net estate $1,240,000 Total tax... $75,500 INTRODUCTORY. 15 Table for computation. ''There is subjoined a table for ascertaining the tax without the detailed computation given above. An illustration of its use is as follows: The net estate of a decedent dying on or after February 25, 1919, amounts to $1,240,000. By reference to the table it will be seen that the last complete block prior to this amount is $1,000,000, and that the total tax on a million dollars under the rates in force amounts to $51,500. Upon the remainder of the estate, $240,000, the tax is computed at the rate con- tained in the following line, or at 10 per cent. The tax on this amount is consequently $24,000. The following result is thus obtained: Total tax on $1,000,000 $51,500 Tax on 240,000 24,000 Total $1,240,000 $75,500" (Art. 8.) The table referred to is the following: 16 FEDERAL ESTATE TAX. * J3 el V ~G -a o S) 09 Q os os >ooo 0) £° 0)* 5 * el 3 a «! a""" O "3 O oooooooooooooooo • oooooooooooooooo ■ OtO»C>C»00«OiO'0»00»n»0 0'00 • HPJiOOOOOffffOSO • MHMiHSOOOJl"»IO • M a] H oooooooooooooooo ■ o oo o 5 - o 3 o £ o ss 30 5 ■ SooSooSooooooooo ■ «© NMXX00000300 SOS • ■S ° a rtNntetcoMfStcooonN") el's OS w ■aid o_> o "3 o oooosoooooososso ■ OOOOOOOOOOOOOOO© ■ oooooooooooooooo ■ 6© rtCIOCOfO-tO»)''/)»CCON • e; oooooooooooooooo • oooooooooooooooo ■ oooooooooooooooo • — 1>-XJ«iO'OOOOOOOCOOO ■ 9» H!0ci33-riJ)33ONN ■gOJB Nf!0 00OOJ)NiiO«OOO0)Na! rtrtrHHrHrHrt«N«MINtM M o 51 OS g cojl "5 o o •o M 300000000000000 OOiCOOOOSOOOOOOO ^•NMNiOiOiniOifl^u'SOu'JiOiO —'-HOlM'OOCSOOS'-iC^ e! oooooooooooooooo •oooooooooooooooo (-OiOOiONOOOOOOOOOO MfflNomOOKIOiOOOOOO r^ J^: ss Hco-fto^NooowcO'O'noiOiflio M t~"o OS ^ »r< |n o as to s ~' S « OS_3to EX.H<-i a> «3 "3 o o iO M ooooooooooooooo OOOOOOOOOOOOOOO •OiOOOOOOOOOOOOOO oooooooooooooooo OOOOOOSS00333000 •OOOOOOOOOOOOOOOO NCOKHONOOOOOOpOOO HH«MN»aoOCOO HNMf ICOO'XIMIOCIOOOOOO 4) 1 i f < 3 1.3 3 c c o o m M OS0000030000003 OOOOOOSSOSOCSOO hhNMNKOOOOOOCOO It o o o o •o M ooooooooooooooo ooooooooooooooo ooooooooooooooo 0000000000003 so IOOOOO "OOOOSSOCO — ci-j-r^ooooooooooo -«MJ!-tir;N003O 1 u a ! i ooooooooooooocoo 033333 3 3 33330000 oooooooooooooooo cococooooooooos< •O io O O O 3 3 3 3 3 3 O O O O C «©— C-lft^O'OOOOOOOSOC 5 3 CHAPTER II. GROSS ESTATE. § 16. The statute. The statute provides: "That the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated." (Sec. 402.) There follow six subdivisions, each specifying a class of property the value of which is to be included in the gross estate. 1 (a) PROBATABLE ASSETS. § 17. The statute. Subdivision (a) of Section 402 of the statute pro- vides for the inclusion of property: "To the extent of the interest therein of the decedent at the time of his death which after his death is subject to the payment of the charges against his estate and the expenses of its administration and is subject to distribution as part of his estate." As to this subdivision the Regulations provide: "This provision is designed to include all property interests of the decedent, of what- 1. Sec. 402, pars, (a), (b), (c), (d), (e), (f). 2 [17] 18 FEDERAL ESTATE TAX. Real property — Cemetery lots — Personal property. ever character. It is the commonest form of taxable transfer." (Art. 12.) Certain interest have received special considera- tion. § 18. Real property. The Regulations provide: ' ' Real property owned by the decedent, when situated in the United States, should be in- cluded in the gross estate, whether the dece- dent was a resident or a nonresident, and whether the property came into the possession and control of the executor or administrator or passed directly to heirs or devisees. Real property not situated in the United States should not be included, whether the decedent was a resident or nonresident." (Art. 13.) § 19. Cemetery lots. The Regulations provide: "A cemetery lot owned by the decedent is part of his gross estate, but its value is limited to the salable value of such part of it as is not designed for the interment of the decedent or members of his family." (Art. 13.) § 20. Personal property. The Regulations provide: 1 'Where the decedent was a resident, all personal property owned by him should be in- GROSS ESTATE. 19 Notes and bonds — Bond interest — Rent. eluded, wherever situated. Where decedent was a nonresident, so much of his personal property as was actually situated in the United States at the time of his death should be in- cluded." (Art. 13.) § 21. Notes and bonds. The Regulations provide: ''The value of notes or other claims held by the decedent should be included, though they are canceled by his will or appear to be barred by the statute of limitations. All bonds, whether federal, state, or municipal, and whether or not containing a tax-free covenant, should not be included." (Art. 13.) § 22. Bond interest. The Regulations provide: "The amount of interest accrued upon bonds on the day of death, whether payable then or subsequently, should be included. All matured coupons, whether presented for payment or not, should be included." (Art, 13.) § 23. Rent. The Regulations provide: "Rent which had accrued upon real property at the time of the decedent's death, whether then payable or not, is included in the gross estate." (Art. 13.) L 20 FEDERAL ESTATE TAX. Dividends. § 24. Dividends. The Regulations provide: "Dividends, whether upon preferred or common stock, should not be included unless actually declared prior to the date of death. The amount of dividends upon stock which have been declared, but not paid, must be re- turned where the value of the stock at the time of the decedent 's death does not reflect the divi- dends; that is, where the death occurs after the closing of the books of the corporation and the stock consequently sells 'ex dividend.' Where the death occurs before the closing of the books, the value of the stock reflects the divi- dend, and it should not be included. ' ' Example : A 5 per cent dividend upon stock is declared March 1, payable on April 1 to stockholders of record on March 15. If the death occurred on March 10 and the market price on that day was 90, the value to be re- turned for both stock and dividend is 90, the dividend being reflected in the quoted price. If the death occurred on March 20, the books have been closed and the dividend is not re- flected in the selling price. Under these cir- cumstances the dividend must be returned in addition to the quoted price of the stock; and the proper return would be stock 90, dividend $5." (Art. 13.) GROSS ESTATE. 21 Contingent interests. § 25. Contingent interests. The statute provides for the inclusion "of all property, real or personal, tangible or intangible, wherever situated." (Sec. 402.) It has often been held that the word "property" is, unless qualified, nomen generalissimum, inclusive of any interest whatsoever. 2 The context here indicates the intent to give the term an unrestricted meaning; and it is so construed by the Bureau. The result is to hold that all interests of the decedent, whether vested or contingent at the time of his death, are a proper subject for inclusion in the gross estate. 3 It is consequently unnecessary to determine whether the particular interest in question is properly to be styled contingent, or rather as a vested interest subject, however, to be defeated in a subsequent contingency. This rule, however, does not warrant the inclusion of a contingent interest where the contingency determining the interest is the decedent's own death. In such a case the death defeats the interest, and it forms no part of the gross estate. 4 . 2. It has been said that "Property is everything which has an exchangeable value" (Slaughter-House Cases, 16 "Wall. 36, 127); that "By the term property • • • all titles are embraced, legal or equitable, perfect or imperfect." Hornsby v. United States, 10 Wall. 224, 242. 3. For the manner of valuing such interests, see p. 114. 4. See Regulations, Art. 12. 22 FEDERAL ESTATE TAX. Remainders — Life estate — Legal title. § 26. Remainders. The Regulations provide: "The value of a vested remainder should be included in the gross estate. Nothing should be included, however, on account of a con- tingent remainder where the contingency does not happen in the lifetime of the decedent, and the interest consequently lapses at his death." (Art. 12.) § 27. Life Estate — Annuities. The Regulations provide: "Nor should anything be included on account of a life estate in the decedent. There should be included, however, the value of an annuity payable to the decedent upon the life of a third person who survives him, and the value of an estate for the life of a person other than the decedent." (Art. 12.) An estate for the life of a person terminates at his death, and cannot, of course, be a subject for inclusion in his gross estate. This is not true, how- ever, where the estate is for the life of another. Such an interest whether in the form of an annuity or otherwise, is an asset of the estate, the value of which, at the time of the death, is included in the gross estate. § 28. Legal title without beneficial interest. The Regulations provide: "As a basis for tax, there must be an actual, GROSS ESTATE. 23 Legal title without beneficial interest. beneficial ownership in the decedent, not a bare legal title, or one held in trust. Thus, property actually devoted to religious or charitable pur- poses, and placed in the name of an individual solely for convenience in administration, is not included in his gross estate." (Art. 12.) Ananlogous cases, not specified in the Regula- tions, have come before the Bureau, and received similar treatment. Thus, it has been held that the entire value of land standing in the name of the decedent would not be included in the gross estate where it appeared that he made a verbal deed of an interest therein, and the land was held by the decedent in common with the purchasers of the interest, all of them contributing to pay the taxes, joining in the execution of leases and receiving each his share of moneys derived from the land. In this case there was included in the decedent's gross estate only the value of the actual beneficial interest which he retained. Similarly, it has been ruled that where the decedent agrees to transfer land in consideration of a substantial sum, and executes a deed in pursuance of the contract, and the grantees enter into immediate possession, and pay the full purchase price, the land should not be included in the decedent's gross estate, although the contract provides that the deed be placed in escrow, and delivered to the grantees only upon the death of the decedent and his wife. 24 FEDERAL ESTATE TAX. Right of action for causing death — Payments to children. § 29. Right of action for causing death. The Regulations provide: "The statute also includes only property- rights existing in the decedent in his lifetime and passing to his estate. 5 It consequently does not include a right which came into exist- ence only after the decedent's death, such as a cause of action by statute for causing the death. The proceeds of such a cause of action should not be included in the gross estate, whether payable generally to the estate or to some specified class of persons, such as the widow or children." (Art. 12.) § 30. Payments to children of the decedent. Loans to children of the decedent, as well as to other persons, are, of course, a proper subject for inclusion in the gross estate, since they constitute a debt due to the decedent. It is not always clear, however, whether the transaction in question con- stitutes a loan or an advancement — whether the paper executed was merely a memorandum of an advancement, 6 or was intended to evidence a bind- ing obligation of the person receiving the money. It has been ruled that where the decedent takes 5. The reference is here confined to subdivision (a) of Section 402. Several of the following subdivisions specify interests which do not answer this description. 6. As to whether an advancement is a transfer in con- templation of death, see p. 48. GROSS ESTATE. 25 Dower and courtesy. notes or bonds for the amounts paid, upon which payments are made in some cases, the transaction will be deemed to be what it purports to be, and the value of these obligations included in the gross estate, even though the decedent in his will directs that the amounts be deducted from the respective shares of the persons receiving the money. Such a direction, however, doubtless is to some extent in- dicative of an advancement; and where in such a case there is no evidence of indebtedness, but merely a record of the amounts, kept by the dece- dent, the transactions will be treated as advance- ments, and nothing included in the gross estate by reason thereof. And even the taking of notes will not result in treating the transaction as a loan where nothing was ever collected, and other circum- stances show plainly that the payments were in- tended as advancements. (b) DOWER AND COURTESY § 31. The statute. Subdivision (b) of Section 402 of the statute reads: "To the extent of any interest therein of the surviving spouse, existing at the time of the decedent's death as dower, courtesy, or by virtue of a statute creating an estate in lieu of dower or courtesy." Under this express provision there can be no doubt of the inclusion in the gross estate of the 26 FEDERAL ESTATE TAX. Estates in lieu of dower and courtesy. value of dower and courtesy interests where the decedent died after February 24, 1919, when the Revenue Act of 1918 went into operation. That is, the full value of the land should be included in such cases, without diminution by reason of these out- standing interests. § 32. Estates in lieu of dower and courtesy. The question what is a statutory " estate in lieu of dower or courtesy" has received but little con- sideration. The term would doubtless include any interest expressly declared by statute to be in lieu of dower or courtesy; also, it would seem, any in- terest of the same general character, though differ- ing in some particular. In In re Strahan's Estate 7 the court had under consideration a statute which abolished dower and courtesy, and gave to the wife a distributive share of one-fourth of the real and personal property of the husband. The court said that this share "is given to her in lieu of dower, ' ' that her interest was "an enlarged estate of the same kind as that of dower or courtesy. ' ' It was accordingly held, under the statute then under consideration, that the interest was not taxable, dower and courtesy in- terests not being included therein. The converse would, of course, be true under the present statute, which expressly taxes such interests. It was probably unnecessary in the Strahan case 7. 93 Neb. 828; 142 N. W. Rep. 678. GROSS ESTATE. 27 Estates in lieu of dower and courtesy. to determine whether the estate in question was one "in lieu of dower." The main ground of decision was, that the interest conferred upon the wife was an absolute one, of which the husband could not deprive her; that it did not pass from him to her at his death; and consequently that it was not embraced in a statute taxing interests passing from the decedent. 8 And this was the sole ground assigned in a Utah case for a similar ruling as to the taxability of a one-third interest of the wife in all estates, whether legal or equitable, in either real or personal property, possessed by the husband at any time during the marriage. 9 The Strahan case, however, contains an explicit dictum that estates of the kind under consideration are "in lieu of dower." This is probably a correct interpretation for purposes of the Federal Estate Tax, since otherwise we should have the peculiar result that dower proper is taxable, but that an absolute interest of a similar kind is not. The rule is consequently stated to be, that an absolute dis- tributive share in the husband's property, conferred upon the wife by a statute which abolishes dower, is taxable under Title IV of the Revenue Act of 1918. It is believed that the term "estate in lieu of dower or courtesy" would not include community property, the interests in which are different in 8. See 93 Neb., pp. 831-3. 9. In re Bullen 'a Estate, 47 Utah 90, 151 Pac. Rep. 533. 28 FEDERAL ESTATE TAX. Status of dower and courtesy under the Act of 1916. character, and have their origin in a system un- known to the common law, and fundamentally dif- ferent in its concepts. § 33. Status of dower and courtesy under the Act of 1916. The Regulations provide: "The effect of this provision 10 is to require the inclusion of the full value of the land, with- out deduction of the value of the interest of a surviving husband or wife. This rule applies to the estate of any decedent dying after Sep- tember 8, 1916." (Art. 21.) The rule of inclusion is thus applied to estates governed by the Revenue Act of 1916. The right to do this is at least doubtful. The earlier statute does not specifically mention such interests. If in- cluded at all, it seems that they must come under the general provision relating to property of the decedent which after his death "is subject to the payment of the charges against his estate and the expenses of its administration and is subject to distribution as part of his estate." 11 How the in- terest in question is embraced in this language is by no means clear. The Bureau has, however, asserted throughout the right to tax such interests. The original Estate Tax Regulations state: "There is no provision of 10. The reference is to subdivision (b) of Sec. 402. 11. Revenue Act of 1916, Sec. 202 (a). GROSS ESTATE. 29 Status of dower and courtesy under the Act of 1916. the taxing act under which the value of widow's dower or husband's courtesy, or any similar in- terest of a successor to decedent by whatever name designated in the local law, can be excluded or deducted from the gross estate." 12 The natural inquiry, however, appears to be whether the statute contains any affirmative provision for inclusion. If not, the absence of a deduction provision seems im- material. 13 The only decision so far on this point is adverse to the Government, the decision being that the dower interest of the wife under the Laws of Tennessee should not be included in the gross estate of the deceased husband. 14 12. Regulations No. 37, Revised May, 1917, Art. VII. 13. The Supreme Court of Nebraska has used the following: language as to an interest given to the widow by a statute abolishing dower: "Strictly speaking, the widow's share should be considered as immune, rather than exempt, from an inheritance tax. It is free, rather than freed, from such tax. It is not excepted from the taxable class because it never was in such class." In re Strahan's Estate, 93 Neb. 828; 142 N. W. Rep. 678. 14. Randolph v. Craig, 267 Fed. Rep. 993, Dist. Ct, M. D. Tenn., Sanford, J. The case involved also the inclusion of home- stead interests and property set apart for the widow. The material part of the opinion is as follows: "The estate tax thus imposed is clearly not a tax on the property of the decedent, but upon its transfer or transmission by will or descent from the decedent, being in effect a tax on the suc- cession from the decedent. * * * In other words, the underlying principle is that in the first instance the interest 30 FEDERAL ESTATE TAX. Election barring dower. § 34. Same — Election barring dower. If dower finally proves to be non-taxable under the Revenue Act of 1916, a question would still remain as to provisions made for the wife in lieu of dower and which she elects to accept, thus barring her dower right. In New York it is held that such a provision for the wife, being a legacy or devise, comes within the precise provision of the statute relating to such dispositions by will, and is tax- subject to the tax is only that which is subject to charges against the estate of the decedent and is transferred from him to others at his death by will or descent. The crucial question then is whether upon the husband's death the widow is entitled to homestead, dower and a year's support by transfer from her husband's estate and in succession to him, or whether her right to these interests is vested in her by operation of law independently of her husband and not trans- mitted to her through him. On this question the statutes and rules of decision in Tennessee and Arkansas where the dece- dent's property is located are controlling. De Vaughn v. Hutchinson, 165 U. S. 566, 570. "It is settled in Tennessee that a widow's right to dower is not a succession to the title of her husband upon his death; that she does not succeed in her dower to her husband's title, but derives it by the marriage and her right as wife, to be consummated in severalty to her upon her husband's death; and that she takes it adversely to the inheritance from the husband. Crenshaw v. Moore, 125 Tenn., supra, at pages 534, 535; Kitts v. Kitts, 135 Tenn. 314, 319. * * * It results that as the widow does not receive either her homestead, dower or year's support in succession to her husband or by transfer from him, but takes them under the statutory pro- visions vesting these rights in her independently of her GROSS ESTATE. 31 Dower under State inheritance tax statutes. able. 15 On the other hand, it has been held in Nebraska that the substituted provision is, to the extent of the dower interest, merely representative of dower; that it has the same taxable status; and that it is consequently exempt. 16 § 35. Dower under State inheritance tax statutes. The question whether dower is taxable under inheritance tax statutes has arisen in many of the States. The language considered, however, is different from that of the federal act, and the deci- sions are not decisive of the present question. The provision construed is usually one imposing a tax husband and adversely to his estate, the property assigned to her as dower, homestead and year's support, not being trans- ferred to her from her husband, is not a part of his estate upon which the tax is imposed by the Federal Estate Tax. "Furthermore, if her dower, homestead and year's support should be deemed part of the decedent's gross estate, within the meaning of the estate tax, it seems that they would be in any event charges against the estate allowed by the laws of the jurisdictions under which the estate is being administered, and hence, in any event to be deducted from the value of the gross estate under the express provisions of clause (a) (1) of Section 203 of the Act." (267 Fed. Rep., pp. 995-6.) 15. In re DeGraaf's Estate, 24 Misc. 147, 53 N. Y. Supp. 591; In re Riemann's Estate, 42 Misc. 648, 87 N. Y. Supp. 731; In re Barbey's Estate, 114 N. Y. Supp. 725; In re Stuyvesant's Estate, 72 Misc. 295, 131 N. Y. Supp. 197. 16. In re Sanford's Estate, 91 Neb. 752, 137 N. W. Rep. 864. On rehearing, overruling the original decision (90 Neb. 410, 133 N. W. Rep. 870). 32 FEDERAL ESTATE TAX. Dower under State inheritance tax statutes. upon the passage of property by will or under the intestate laws of the State. In Illinois it is held that the "intestate laws" referred to embrace all statutes affecting the passage of a decedent's property at his death, including any applicable rule of the common law; and consequently that dower rights are taxable. 17 This rule is extended to a provision for the wife in lieu of dower made by an ante-nuptial agreement. 18 The weight of authority, however, is the other way, the position taken being that the wife obtains her interest adversely to the husband; that it is not transferred from him to her; and that such an in- terest is not subject to tax. 19 And the same ruling is made as to an absolute distributive share conferred upon the wife in either real or personal property acquired by the husband during marriage, whether his estate was legal or equitable. 20 17. Billings v. People, 189 111. 472, 59 N. E. Rep. 798; arid. 188 U. S. 97. 18. People v. Field, 248 111. 147, 93 N. E. Rep. 721. 19. McDaniel v. Byrkett, 179 S. W. Rep. (Ark.) 491; In re Sanford's Estate, 91 Neb. 752, 137 N. W. Rep. 864; In re Riemann's Estate, 42 Misc. (N. Y.) 648, 87 N. Y. Supp. 731; In re Weiler's Estate, 122 N. Y. Supp. 608, affd. 139 App. Div. 905, 124 N. Y. Supp. 1133; Commonwealth's Appeal, 34 Pa. St. 204; Crenshaw v. Moore, 124 Tenn. 528, 137 S. W. Rep. 924. 20. In re Strahan's Estate, 93 Neb. 828, 142 N. W. Rep. 678; In re Bullen's Estate, 47 Utah 96, 151 Pac. Rep. 533. GROSS ESTATE. 33 Transfers — Transfers prior to September 8, 1916. (c) TRANSFERS BY THE DECEDENT IN HIS LIFE TIME. § 36. The statute. Subdivision (c) of Section 402 of the statute reads: "To the extent of any interest therein of which the decedent has at any time made a transfer, or with respect to which he has at any time created a trust, in contemplation of or intended to take effect in possession or enjoy- ment at or after his death (whether such trans- fer or trust is made or created before or after the passage of this Act), except in case of a bona fide sale for a fair consideration in money or money's worth. Any transfer of a material part of his property in the nature of a final dis- position or distribution thereof, made by the decedent within two years prior to his death without such a consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this title." This provision raises many questions of much importance. § 37. Transfers prior to September 8, 1916. It will be noticed that the language of the Revenue Act of 1918 is explicit. The statute embraces any transfer or trust of the character described, "whether such transfer or trust is made or created before or after the passage of this Act." The earlier 34 FEDERAL ESTATE TAX. Transfers prior to September 8, 1916. Act provided for the inclusion in the gross estate of property ' ' of which the decedent has at any time made a transfer," etc. 21 While not as explicit as the present statute, the natural construction of the language points to a transfer made by the decedent "at any time" during his life, without reference to the time of the passage of the statute. It is difficult, upon any other construction, to give force to the words "at any time;" and the Bureau has accord- ingly ruled that, "Such transfers are taxable whether made before or after September 8, 1916. " 22 This construction, however, has been disputed; and the question is now being litigated. The tax- payer lays much stress upon the necessity of avoid- ing the giving of retrospective effect to the language of a taxing act. The rule, however, against such a construction applies only where the language is reasonably susceptible of a construction making the statute prospective; and it is at least a serious ques- tion whether the language in question does not clearly embrace past transfers. The alternative construction leads to difficulties. Where the trans- fer is made within two years of the decedent's death, it is prima facie taxable. On this point the language of the statute is explicit; and the rule is applied in all cases in which the decedent died after 21. Revenue Act of 1916, Sec. 202 (b). 22. Regulations, Art. 22. This ruling was originally made in Treasury Decision 2385 (Oct. 21, 1916), and was carried into the Regulations of May, 1917 (Art. XIII). GROSS ESTATE. 35 The decision in Shwab v. Doyle. September 8, 1916. Obviously, however, if the decedent died on or prior to September 7, 1918, a transfer made within two years of his death might ante-date the passage of the Revenue Act of 1916. 23 The fact that the Revenue Act of 1918 amends and makes more explicit the description of the transfers in question has been used as an argument that Congress recognized that the earlier language was insufficient. This argument, however, is much weakened by the fact that in many cases the courts have held the more explicit language of an amenda- tory statute to be merely interpretative of an earlier and construed the two statutes as having the same meaning. 24 § 38. Same — The decision in Shwab v. Doyle. The position of the Bureau has thus far been supported by the courts. 25 23. It is noteworthy that there is long established precedent, for imposing a tax with reference to transfers already executed. See the Succession Tax Acts of England and this country, taxing "every past or future disposition" of property under which the decedent should become beneficially entitled thereto (16 & 17 Vict., Chap. 51, Sec. 2; 13 Stat., Chap. 173, Sec. 127) ; and the English Customs and Inland Revenue Act, taxing absolute gifts when made within a specified period of the decedent's death, 44 & 45 Vict., Chap. 12, Sec. 38, sub-sec. (2), par. (a.) ; 52 & 53 Vict., Chap. 7, Sec. 11, sub-sec. 1. 24. Bailey v. Clark, 21 Wall. 284, 288; Cope v. Cope, 137 U. S. 682, 688; Johnson v. Southern Pacific Co., 196 U. S. 1, 21; AVetmore v. Markoe, 196 U. S. 68, 77; United States v. Coulby, 251 Fed. Rep. 982, 985-986. 25. Shwab v. Doyle, Circuit Court of Appeals, Sixth Circuit ; 36 FEDERAL ESTATE TAX. The decision in Shwab v. Doyle. In the case cited the decedent made an executed gift inter vivos in the form of a trust over a year before the passage of the original Estate Tax Law of 1916. This trust took effect at once, and divested the decedent of all interest in the property. In holding that the property transferred should be in- cluded in the gross estate, the court said, inter alia: "In our opinion the statute evidences an intent on the part of Congress that the tax should apply to all transfers in contemplation of death, whether made before or after the passage of the act, provided the transferrer's death occur after the act took effect. This in- tent is, we think evidenced by a variety of con- siderations." The Court then refers to the words "every dece- dent" in Section 201, and "at any time," "any transfer" and "within two years" in Section 202, of the Revenue Act of 1916, 26 and continues: "The evident theory of the statute is that transfers intended to take effect after the death of the grantor, as well as those made in con- templation of death, are equally testamentary in character. * * * "While the interests derived by a grantee under an absolute and immediately effective Knappen, Denison and Donahue, Circuit Judges; Dec. 10, 1920; not yet reported. 26. The same language is contained in Sees. 401 and 402 of the present statute. GROSS ESTATE. 37 Constitutional questions. conveyance in contemplation of death are vested, the same is true of any irrevocable con- veyance which takes effect in possession or enjoyment only upon the death of the grantor, although in the latter case such vesting is merely in expectancy. If Congress had power, as we think it had, to tax both classes of con- veyances, even if made before the passage of the act, no good reason suggests itself why it should desire to discriminate between the two classes of transfers. It is not to our minds unnatural, nor is it necessarily unjust, that Con- gress should intend that one taking a convey- ance of a testamentary character, entirely without consideration, should do so at the risk of having the transfer taxed, directly or in- directly, as would be the case were the transfer by will or by conveyance taking effect at or after the grantor's death." § 39. Same — Constitutional questions. Passing the question of construction, it has been disputed that Congress has power to impose an estate tax upon, or measure it with reference to, transfers already executed. The decision in Shwab v. Doyle, however, upholds the power of Con- gress to measure the tax with reference to transfers executed before it went into operation. 27 In this case the court said: 27. Shwab v. Doyle, Circuit Court of Appeals, Sixth Circuit ; 38 FEDERAL ESTATE TAX. Constitutional questions. "Is the statute unconstitutional as applied to the trust deed? In our opinion the act, if so construed, is not void as denying due process of law or as violating the fifth amendment to the constitution. * * It (the statute) does not affect transfers made after the trans- ferrer's death. Being within the all-embracing power of Congress over the subject of excise and transfer taxation, it is not necessarily un- constitutional merely because retroactive. * * Decedent's death being the generating source of the taxation, and the statute validly classify- ing it as of testamentary character, it logically follows, in our opinion, that it is valid to im- pose at decedent's death a tax on the testa- mentary transfer occurring before the passage of the act, regardless of the fact that title had already passed to the transferees." The court cites and relies upon the cases uphold- ing an income tax measured with reference to in- come received before the passage of the statute, 28 and the decisions that a legacy tax may be imposed by a statute passed after the death of the decedent and the consequent vesting in title of the legacy. 29 Knappen, Denison and Donahue, Circuit Judges; Dec. 10, 1920; not yet reported. 23. Stockdale v. Insurance Companies, 20 Wall. 323; Brushaber v. Union Pacific R. R. Co., 240 U. S. 1. 29. Carpenter v. Commonwealth, 17 How. 456; Cahen v. Brewster, 203 U. S. 543. GROSS ESTATE. 39 Transfers in contemplation of death — Meaning of phrase. (1) TRANSFERS IN CONTEMPLATION OF DEATH. § 40. Distinguished from transfers intended to take effect after death. The provision in the statute as to transfers "in contemplation of death" should be carefully differ- entiated from that relating to transfers intended to take effect at or after death. Both provisions are found in State legislation, an examination of which shows that the latter provision has a much earlier origin than the former. 30 § 41. Meaning of the phrase. The Regulations provide: "The words 'in contemplation of death' do not refer to the general expectation of death which all persons entertain. A transfer, how- ever, is made in contemplation of death wherever the person making it is influenced to do so by such an expectation of death, arising from bodily or mental conditions, as prompts persons to dispose of their property to those whom they deem proper objects of their bounty. The cause which induces such bodily 30. The provision as to transfers intended to take effect after death found its way into State inheritance tax legislation at least as early as 1826, in the Pennsylvania Statute of that year (Laws, 1826, Chap. 72, p. 227, sec. 1). The provision as to transfers "in contemplation of death" seems to have appeared first in the New York Act of 1892 (Laws, 1892, Chap. 399, Sec. 1, subd. 3). 40 FEDERAL ESTATE TAX. State court definitions. or mental conditions is immaterial; and it is not necessary that the decedent be in the im- mediate expectation of death." (Art. 23.) § 42. Same — State court definitions. The phrase "in contemplation of death" has been often defined by the State courts, in contruing State statutes. The definitions are not uniform, and even indicate a possible difference in theory as to the scope of the language. The definitions fall roughly into two classes, namely, (a) those which stress sickness or peril; and (b) those which indicate merely an act essentially testamentary. The principal definition of the first character comes from New York, and is as follows: "This court has held that the words 'in con- templation of the death' do not refer to that general expectation which every mortal enter- tains, but rather the apprehension which arises from some existing condition of body or some impending peril." 31 It is not clear that this definition makes sickness or peril an absolute condition of taxability. It does, however, undoubtedly lay stress upon these features of the case. It is noteworthy that this definition was, in its origin, simply a definition of a gift causa mortis. 32 Thus, the definition in the Baker case was 31. Matter of Baker, 83 App. Div. 530, 533; affd. 178 N. Y. 575. 32. The Baker ease takes the definition from Matter of GROSS ESTATE. 41 State court definitions. evidently adopted upon the theory that a gift causa mortis and a gift "in contemplation of death" were one and the same. This theory, however, has been exploded. 33 Other definitions of the term "in contemplation of death" do not stress sickness or peril, but define it so as to embrace all acts which, though not testa- mentary in form, are testamentary in character. "The intention (in the use of the words 'in contemplation of death') clearly was to tax property passing by will or the intestate laws of the State, or by such gifts or transfers as are of like nature and can properly be classed there- with." 34 "The words 'in contemplation of death' as used in inheritance tax statutes, do not refer to that general expectation of death enter- tained by all persons, but they do not refer to that expectation of death which arises from such bodily or mental conditions, irrespective of the cause in any particular case, which prompts persons to dispose of their property to those they deem entitled to their bounty. 35 Spaulding (49 App. Div. 541) ; and the latter case (49 App. Div., p. 548) takes it from Ridden v. Thrall (125 N. Y. 572, 579). The language thus taken from Ridden v. Thrall is nothing but a definition of a gift causa mortis. 33. See pp. 45-6. 34. Rosenthal v. People, 211 111. 306, 309; 71 N. E. Rep. 1121. 35. Conway's Estate v. State, 120 N. E. Rep. (App. Ct. of Ind.) 717, 720. 42 FEDERAL ESTATE TAX. Decision in Shwab v. Doyle. The term is also said to designate "gifts in life substituted for gifts by will." 36 As between these possibly conflicting theories, the Bureau has adopted the broader construction of the statute, and taken the position that it embraces all transfers which, although not testamentary in form, are essentially testamentary in character. The defi- nition in the Kegulations corresponds very nearly with that given by the court in the Conway case. 37 § 43. Same — Decision in Shwab v. Doyle. The position taken by the Bureau concerning the meaning of the words "in contemplation of death" A similar definition will be found in State v. Pabst (139 Wis. 561, 590, 121 N. W. Rep. 351), with the omission, how- ever, of the phrase " irrespective of the cause in any par- ticular case." In People v. Carpenter (264 111. 400, 408; 106 N. E. Rep. 302) the court reverts to the definition in the Baker case. In People v. Danks (289 111. 542, 547-548; 124 N. E. Rep. 625) the term "in contemplation of death" is said to refer "to that apprehension of death which arises from some existing infirmity of such a character as would prompt an ordinarily prudent person to make a disposition of his prop- erty and bestow it upon those whom he regarded as most entitled to be the recipients of his bounty." This is a modified definition, involving some of the elements of the definition in the Rosenthal case and some of those in the Baker case. As will be seen, there is considerable variety of language in the various definitions. 36. Estate of Reynolds, 169 Cal. 600, 604; 147 Pac. Rep. 268. 37. 120 N. E. Rep., p. 720. GROSS ESTATE. 43 Decision in Shwab v. Doyle. appears to be fully supported by the recent decision in Shwab v. Doyle. 38 In that case the trial judge charged as follows : "By the term 'in contemplation of death' is not meant on the one hand the general ex- pectancy of death which is entertained by all persons, for every person knows that he must die. * * * On the other hand, the meaning of the term is not necessarily limited to an ex- pectancy of immediate death, or a dying condi- tion. * * * The term 'in contemplation of death' involves something between these two extremes. Nor it is necessary, in order to con- stitute a transfer in contemplation of death, that the conveyance or transfer be made while death is imminent, while it is immediately im- pending by reason of bodily condition, ill- health, disease or injury, or something of that kind. But a transfer may be said to be made in contemplation of death if the expectation or anticipation of death in either the immediate or reasonably distant future is the moving cause of the transfer." The court also refused to charge, in accordance with the language of certain of the New York cases, that "the words 'in contemplation of death' do not refer to that general expectation of death which 38. Shwab v. Doyle, Circuit Court of Appeals, Sixth Circuit; Knappen, Denison and Donahue, Circuit Judges; Dec. 10, 1920; not yet reported. 44 FEDERAL ESTATE TAX. Decision in Shwab v. Doyle. every mortal entertains, but rather the appre- hension which arises from some existing condition of body or some impending peril." The appellate court sustained these rulings, say- ing, among other things: "It may be conceded that plaintiff's requested instruction would have been proper as applied to a gift claimed to have been made causa mortis — when the grantor was in a dying condition. But the instant case presented no such issue or claim. The transfer in question was an abso- lute gift inter vivos, claimed by the government to have been testamentary in character. On principle, and without present reference to authority, the ultimate question concerns the motive which actuated the grantor, that is to say, whether or not a specific anticipation or expectation of her own death, immediate or near at hand (as distinguished from the general and universal expectation of death some time), was the immediately moving cause of the trans- fer. Both the element of 'existing condition of body,' as distinguished from the grantor's mental state on that subject, and the term 'impending,' are inconsistent with the prima facie provision of Sec. 202 (b). 39 39. The reference is to the provision of the original Estate Tax Law that certain specified transfers, made within two years of the decedent's death, are prima facie "deemed to have been made in contemplation of death." Revenue Act of 1916, Sec. 202 (b). GROSS ESTATE. 45 Gifts "in contemplation of death." Plaintiff's contention also overlooks the contribution which may be made to the grantor's state of mind and motive by a realiza- tion of the fact that she had already lived many years beyond the scriptural limit." The court refuses to hold that "the trial court's definition (is) in conflict with any settled and con- trolling rule of construction;" and states that, "In our opinion the decisions relied on by plaintiff do not completely or uniformly support his definition." Many State court decisions are reviewed; and par- ticular attention is given to the fact that the earlier New York decisions, and certain others, were affected by the original erroneous theory that gifts "in contemplation of death" and gifts causa mortis were one and the same. § 44. Gifts "in contemplation of death" and gifts causa mortis. The theory at one time obtained in New York that gifts "in contemplation of death" were' simply gifts causa mortis; 40 but other, and, it is believed, better reasoned New York cases give a broader construction to the term, so as to embrace certain sorts of gifts inter vivos;* 1 and the original rule 40. Matter of Edgerton, 35 App. Div. 125, 54 N. Y. Supp. 700; Matter of Spaulding, 49 App. Div. 541, 63 N. Y. Supp. 694; Matter of Mahlstedt, 67 App. Div. 176, 73 N. Y. Supp. 818; Matter of Bullard, 76 App. Div. 207, 78 N. Y. Supp. 491; Matter of Baker, 83 App. Div. 530, 82 N. Y. Supp. 390. 41. Matter of Palmer, 117 App. Div. 360, 102 N. Y. Supp. 46 FEDERAL ESTATE TAX. Treatment of specific cases. seems to have been finally repudiated in New York. 42 The original New York rule seems never to have obtained in any other jurisdiction. The general and well established doctrine appears to be, that the term "in contemplation of death" embraces executed gifts inter vivos, when induced by the con- templation of death, as well as gifts causa mortis.* 3 § 45. Same — Treatment of specific cases. The rule appears to be well established that the question whether a transfer is made ' ' in contempla- tion of death" is a question of fact. 44 236; Matter of Birdsall, 22 Misc. 180, 49 N. Y. Supp. 450; Matter of Crary, 31 Misc. 72, 64 N. Y. Supp. 566; Matter of Price, 62 Misc. 149, 116 N. Y. Supp. 283. 42. In re Dee's Estate, 210 N. Y. 625, 104 N. E. Rep. 1128, affg. 148 N. Y. Supp. 423. 43. Rosenthal v. People, 211 111. 306, 71 N. E. Rep. 1121 Estate of Merrifield v. People, 212 111. 400, 72 N. E. Rep. 446 In re Estate of Benton, 234 111. 366, 84 N. E. Rep. 1026 People v. Burkhalter, 247 111. 600, 93 N. E. Rep. 379; Conway's Estate v. State, 120 N. E. Rep. (App. Ct. of Ind.) 717, 720 State v. Pabst, 139 Wis. 561, 121 N. W. Rep. 351. 44. Estate of Reynolds, 169 Cal. 600, 603, 147 Pac. Rep. 268 Abstract and Title Guaranty Company v. State, 173 Cal. 691 694, 161 Pac. Rep. 264; Spreckels v. State, 30 Cal. App. 363 368, 158 Pac. Rep. 549; McDougald v. Wulzen, 34 Cal. App 21, 23, 166 Pac. Rep. 1033; People v. Kelley, 218 111. 509, 514 75 N. E. Rep. 1038; In re Estate of Benton, 234 111. 366, 370 84 N. E. Rep. 1026; Conway's Estate v. State, 120 N. E. Rep (App. Ct. of Ind.), 717, 719. GROSS ESTATE. 4? Treatment of specific cases. As has already appeared, the Bureau includes in the gross estate property transferred when the decedent was not ill or in the immediate appre- hension of death. In such cases, however, the dece- dent is ordinarily of advanced age, and the circum- stances indicate that he is executing part of his testamentary plan. The property is not included solely because the decedent is advanced in years. 443 The test applied is whether the act, while not testa- mentary in form, is essentially testamentary in character. It is thus important to ascertain whether there was a special occasion for the gift other than the mere handing on of the property to the objects of the decedent's bounty. The existence of such a special occasion and special motive tends to negative the testamentary character of the gift, and makes for the exclusion of the property from the gross estate. In this way, weight is attributed to the fact that the gift is a Christmas or birthday present; that it is in compensation for services rendered; that, although made at an advanced age, it is merely one of a long series of gifts made in pursuance of the decedent's policy to let his chil- dren have such property as should not be necessary for his own maintenance and the charities which he supported. Similar weight is given to the fact that a gift of stock, made near the date of the decedent's 44a. For a specific case in which a transfer by a person "well advanced in years" was held not to be taxable, see Polk v. Miles, 268 Fed. Rep. 175. 43 FEDERAL ESTATE TAX. Advancements — Transfers taking effect at death. death, is but the final step in a plan formed many years before for rendering his children independent. The ultimate question is, however, held to be in every case a question of fact, depending to a con- siderable extent upon its own particular circum- stances. § 46. Same — Advancements. The Regulations provide: "The fact that a gift was made as an ad- vancement, to be taken into account upon the final distribution of the decedent's estate, is not enough, standing alone, to establish tax- ability ; but it is a circumstance to be considered in determining whether the transfer was made in contemplation of death." (Art. 23. ) 45 (2) TRANSFERS INTENDED TO TAKE EFFECT AT OR AFTER DEATH. § 47. In general. A provision taxing transfers intended to take effect at or after the death of the grantor is now, it is believed, contained in the statutes of all of the States, and has existed in some of them for many years. The provision has come up frequently for construction; and certain points are practically settled, while others remain in more or less doubt. 45. As to whether payments made to relatives of the decedent constitute advancements or loans, see pp. 24-5. GROSS ESTATE. 49 Transfers with reservation of income. § 48. Same — Transfers with reservation of income. It is a familiar thing for the owner of property to make a transfer of it (generally in the form of a trust) in which he reserves to himself the income for life. It has been frequently held that such a transfer is, in its operation upon the principal of the fund, one intended to take effect at the death of the grantor, and consequently taxable. 46 The Bureau rulings follow these authorities. The Regulations provide: "A transfer is taxable where the grantor reserves to himself during life the income of the property transferred. In such a case the transfer of the principal takes effect in posses- sion and enjoyment after the death of the grantor, and the value of the entire property should be included in the gross estate." (Art. 24.) § 49. Reservation of income to a third person. The rule holding taxable a transfer in which there is a reservation of income has been extended 46. In re Moir's Estate, 207 III. 180, 69 N. E. Rep. 905; People v. Kelley, 218 111. 509, 75 N. E. Rep. 1038; Crocker t. Shaw, 174 Mass. 266, 54 N. E. Rep. 549; Douglas County ▼. Kountze, 84 Neb. 506, 121 N. W. Rep. 593; In re Green's Estate, 153 N. Y. 223, 47 N. E. Rep. 292; In re Brandeth's Estate, 169 N. Y. 437, 62 N. E. Rep. 563; In re Cornell's Estate, 170 N. Y. 423, 63 N. E. Rep. 445; Wright's Appeal, 38 Pa. St. 507; In re Lines 's Estate, 155 Pa. St. 378, 26 Atl. Rep. 728. 50 FEDERAL ESTATE TAX. Reservation of income to a third person. to transfers in which the income is reserved to someone other than the grantor during the grantor's life, the principal, at the grantor's death, to go to a third person. 47 In accordance with these authorities, the Regula- tions provide: "A gift of the principal of a trust fund which takes effect at or after the decedent's death is taxable, although the income during the dece- dent's life is payable to someone other than himself. Example: The decedent transfers property to his son, the latter agreeing to pay the income to his mother during the decedent's life. The transfer to the son is taxable." (Art. 24.) This rule, however, is not extended to a case where the gift of the principal does not, in terms, take effect at or after the death of the decedent. Thus, w-here there is a trust to pay the income to a relative of the decedent, and upon the death of the life tenant to pay the principal to others, the gift would not ordinarily be taxed, although it was possible, or even probable, that the life tenant would survive the decedent. 47. New England Trust Co. v. Abbott, 205 Mass. 279, 91 N. E. Rep. 379; State Street Trust Co. v. Stevens, 209 Mass. 373, 95 N. E. Rep. 851; In re Cruger, 54 App. Div. 405, 66 N. Y. Supp. 636; In re Patterson's Estate, 127 N. Y. Supp. 284, affd. 146 App. Div. 286, 130 N. Y. Supp. 970. GROSS ESTATE. 51 Reservation of part of income. § 50. Reservation of part of income. This question has also arisen under State statutes ; and it has been held that, where a portion of the income is reserved to the grantor, a corre- sponding portion of the property transferred is tax- able. 48 Similarly, when the grantor reserves an annuity, it has been held that so much of the prin- cipal transferred as is necessary to produce the annuity is taxable. 49 The Bureau rulings are to the same effect. The Regulations provide : ''Where the grantor reserves a proportionate part of the income, only a corresponding pro- portion of the property should be included in the gross estate, unless the transfer was made in contemplation of death. 50 If, for example, he reserves one-half of the income, the value of one-half of the property transferred should be included in the gross estate. If he reserves an annuity, so much of the property as is neces- sary to produce the annuity should be included in the gross estate. Where the property does not produce income, its value as of the date of the decedent's death should be ascertained, and so much of this sum as is necessary to produce the annuity should be included in the gross estate." (Art. 24.) 48. In re Moir's Estate, 207 111. 180, 69 N. E. Rep. 905. 49. People v. Kelley, 218 111. 509, 75 N. E. Rep. 1038. 50. In which case, of course, the entire transfer would bo taxable. 52 FEDERAL ESTATE TAX. Contract by grantee — Reservation of power of revocation. § 51. Contract by grantee. The principle that a transfer is taxable where the grantor reserves the income, or the right to an annuity, has been extended to cases in which, instead of an express reservation, the grantee, in consideration of the transfer, contracts to pay an annuity to the grantor. 51 The Bureau ruling is to the same effect. The Regulations provide: "A transfer is taxable in accordance with these principles whether the grantor makes a reservation of the annuity out of the property conveyed, or exacts from the grantee an agree- ment to pay the annuity." (Art. 24.) § 52. Reservation of power of revocation. The Regulations provide: "Property held in trust under any instru- ment in which the grantor has reserved a power of revocation, or any power which has that effect, constitutes a part of the gross estate of such grantor for the purpose of this tax. For example, where a father places property in trust for the present benefit of his son, but reserves power to revoke the trust at any time during his life, the entire property transferred 51. Reish v. Commonwealth, 106 Pa. St. 521. But, appar- ently contra, see Polk v. Miles, 268 Fed. Rep. 175; Matter of Edgerton, 35 App. Div. 125, 54 N. Y. Supp. 700, affd. 158 N. Y. 671, 52 N. E. Rep. 1124; Matter of Thorne, 44 App. Div. 8, 60 N. Y. Supp. 419, affd. 162 N. Y. 238, 56 N. E. Rep. 625. GROSS ESTATE. 53 Reservation of power of revocation. should be included in the gross estate." (Art. 25.) The State court decisions appear to be adverse to this ruling. That is, it has been held that the mere existence in a trust deed of a power of revocation does not render the transfer taxable as one intended to take effect at the death of the grantor. 52 52. Matter of Masury, 28 App. Div. 580, affd. 159 N. Y. 532; People v. Northern Trust Co., 289 111. 475, 124 N. E. Rep. 662. These decisions construe State statutes. The weight of the Masury case as an authority is somewhat impaired by a sub- sequent decision of the New York Court of Appeals in which it is intimated that the court "may have gone too far" in affirming the decision of the lower court, and that "certainly the limit was then reached, beyond which the courts could not go without emasculating the provisions of the statute." Matter of Bostwick, 160 N. Y. 489, 493; 55 N. E. Rep. 208. In Matter of William B. Dana Company (215 N. Y. 461, 463-464; 109 N. E. Rep. 557) the power of revocation was coupled with other powers tending to render the transfer tax- able; but the court lays stress upon the power of revocation, stating that the instrument "was just as capable of revoca- tion as a will would have been," and "must be regarded as speaking from the time when it became effective by reason of the death of the party who executed it." 215 N. Y., p. 464. If the power to control the administration of a trust renders the transfer taxable (see infra p. 54), it is not clear why the same result should not follow from the reservation of a power of revocation. The power to destroy would appear to be at least as incompatible with an outright gift as a power to regulate. The question may be affected in some of the States by statutes. Thus it is frequently provided (see, for instance. Revised Laws of Minnesota, 1905, Sec. 327!); Cons. Laws of New York, Chap. 50, Sec. 145) that, where the grantor reserves an absolute power of revocation for his own 54 FEDERAL ESTATE TAX. Reservation of power to control administration of trust. § 53. Reservation of power to control administra- tion of trust. 53 The Regulations of 1919 provide: "A transfer by way of trust is also taxable where the grantor reserves power to control the administration of the trust, as by reserving power to change the trustee, the trust period, the trust property, or the respective interests of the beneficiaries in such property." (Art. 25.) This rule seems to find support in certain State court decisions, construing State statutes, which hold that transfers with reservations of the char- acter described are taxable as transfers intended to take effect at death. 54 The above sentence, how- ever, is ommitted from the revision of 1921, the apparent intention being to include only cases where the reservation is tantamount to a reserved power of revocation. (See pp. 52, 394.) benefit, he shall be deemed the absolute owner of the estate as to creditors and purchasers. 53. See in this connection the treatment of insurance policies in which the decedent reserves the right to change the benefici- ary. Infra, p. 84. 54. Matter of Bostwick, 160 N. Y. 489, 55 N. E. Rep. 208; Matter of William B. Dana Company, 215 N. Y. 461; 109 N. E. Rep. 557. In the Bostwick case, power was reserved "to alter, or amend, the trust by notice to the trustee; to withdraw, or to exchange, any securities, and to control the acts of the trustee in selling, or disposing of, the securities, or with respect to investments." 160 N. Y. 493. There was "no reservation of power to direct the payment of the income of the trusts" GROSS ESTATE. 55 Reservation of right of occupation. § 54. Deposit in trust. A deposit by the decedent of money in bank as "Trustee" for another, the same to be paid to such other person at the death of the decedent, is held to constitute a transfer intended to take effect at the decedent's death and to be taxable, although the decedent reserves the right to withdraw any part of the money during his life. 55 § 55. Property placed in escrow. Where stock is placed in escrow, to be delivered only at the decedent's death, the transfer is held to be taxable as one intended to take effect only at the decedent's death. § 56. Reservation of power to vote stock. Similarly, a transfer of corporate stock is held to be taxable as one intended to take effect at the death of the grantor where he reserves the right to vote the stock and receive a salary coming to him in this way as an officer of the corporation. (p. 490). It is said that these provisions indicated "an inten- tion on the donor's part to retain a dominion over the prop- erties transferred, and do not consist with an existing pur- pose to vest the absolute right to present and future enjoyment in the beneficiaries;" that the decedent "retained practical control of the trust property and left the question of its beneficial enjoyment and eventual possession open until hi.s death" (p. 493). 55. Quaere, whether the same result might not be reached upon the theory that the account was a joint one, taxable under subd. (d) of Sec. 402. 56 FEDERAL ESTATE TAX. Sales — Illustration of sales. § 57. Reservation of right of occupation. Similarly, it has been held that, where the grantor of a residence reserves the right to live there, a proportion of the entire property equal to the extent of the use reserved should be included in the gross estate. § 58. Sales. After providing for the inclusion in the gross estate of property conveyed in contemplation of death, or by transfer intended to take effect at or after death, the statute contains this exception: "except in case of a bona fide sale for a fair con- sideration in money or money's worth." (Art. 402 [c].) 56 § 59. Same — Illustrations of sales. A contract between the owner of a business and the premises in which it is conducted to transfer the same at or after his death to his partners in consideration of the payment, during the lives of himself and his wife, of a share of the profits of the business, is held to be a sale for a fair considera- tion, and not taxable. The same has been held of a separation agreement, providing for the support of 56. It is the general tendency to confine inheritance taxes to transactions which are donative in character. See Gleason & Otis on Inheritance Taxation, 2d Ed., p. 104; Knowlton v. Moore, 178 U. S. 41, 65-66; Herold v. Blair, 158 Fed. Rep. 804, 806; In re Orvis's Estate, 223 N. Y. 1, 119 N. E. Rep. 88; In re Borden's Estate, 159 N. Y. Supp. 346, 351; Hagerty v. State, 55 Ohio St. 613, 45 N. E. Rep. 1046. Some of the statutes are not as explicit as the federal act. GROSS ESTATE. 57 Joint interests — Character of estate — Survivorship. the wife and children, in consideration of which the wife releases all interest in the decedent's property. And the same ruling has been made where the de- cedent transferred property for an interest in other property, larger in amount, but contingent upon his surviving his mother, and although the decedent's motive in making the transfer was to carry out the wishes of a third person, under whose will he had received the property which he conveyed. On the other hand, it is ruled that a transfer made in order to extinguish an existing claim by accord and satisfaction is not such a sale as the statute contemplates, the transfer being made to quiet the claim and not for a price. (d) JOINT INTERESTS § 60. The statute. Subdivision (d) of Section 402 reads: "To the extent of the interest therein held jointly or as tenants in the entirety by the decedent and any other person, or deposited in banks or other institutions in their joint names and payable to either or the survivor, except such part thereof as may be shown to have originally belonged to such other person and never to have belonged to the decedent." § 61. Character of estate — Survivorship. 57 The distinguishing feature of the interests here 57. The Regulations give the following illustrations of the interests embraced in the statute: 58 FEDERAL ESTATE TAX. Estates held in common — Community property. considered is the right of survivorship, the most important incident of the joint estate at common law, which is found also in estates by the entirety. The subdivision consequently does not embrace — § 62. Estates held in common. The Regulations so provide, holding that: "It (subdivision [d]) does not include interests held as tenants in common, where the interest of each tenant passes to his estate, free from any right of survivorship." (Art. 27.) § 63. Community property. 58 The interest of the husband and wife in com- munity property is, under the statutes of all the States in which the system exists, quite different "Real estate held jointly; real estate held by husband and wife (known as an estate in the entirety) ; money deposited in a bank or trust company in the joint names of the decedent and another and payable to either or the survivor; joint trading accounts with brokers; stocks and bonds held in the joint names of several owners." (Art. 27.) 58. The subject of community property is not expressly mentioned in either the statute or the present Regulations. The Regulations of May, 1917, however, provide that, "Where community property is held in partnership by husband and wife during the lives of both, one-half the whole value of the community property is to be included in the gross estate of the decedent husband or wife" (Regulations No. 37, Revised May, 1917, Art. XV). It is added that, where the wife's interest amounts to no more than a dower right, the entire property should be included in the gross estate of the husband; GROSS ESTATE. 59 Community property. from the right of a joint tenant at common law. The survivor does not take the entire property by right of survivorship, but ordinarily receives one- half of it, not by inheritance or survivorship, but in virtue of an interest existing during the marriage. The Bureau has consequently ruled, as a general proposition and in accordance with the local law, that one-half of the community property should be included in the gross estate of either husband or wife. An exception to this rule, however, obtained in the State of California. 59 The courts of this State hold that the interest of the wife is a bare expectancy, and that the husband is virtually the sole owner of the property. 00 In pursuance of this local rule the also that, "This is the rule, too, where the husband's interest in such property is equivalent merely to the curtesy right" (Id.). It is apparently meant that in the case last stated the entire property is included in the estate of the wife. It is by no means clear that under any State law the community interest is analogous to dower or courtesy. 59. This is apparently the only exception to the rule. 60. In re Burdick's Estate, 112 Cal. 387, 44 Pac. Rep. 734; Spreckels v. Spreckels, 116 Cal. 339, 48 Pac. Rep. 228; Peiser v. Griffin, 125 Cal. 9, 57 Pac. Rep. 690; In re Moffitt's Estate, 153 Cal. 389, 95 Pac. Rep. 653, affd. sub. nom. Moffitt v. Kelly, 218 U. S. 400. To call property of such a character "community property" is, of course, a misnomer. The statutes of California are not sufficiently different from those of other States to warrant such a radical distinction. The State courts manifest an apparent misconception of, or prejudice against, the community 60 FEDERAL ESTATE TAX. Community property. Bureau, in cases governed by the laws of California, includes the whole of the so-called "community property" in the gross estate of the husband, and none of it in the gross estate of the wife. The Bureau has applied this rule to the estates of all decedents dying after September 8, 1916. A re- cent court decision, however, will, unless reversed, prevent the inclusion in the gross estate of the de- ceased husband of more than one-half of the com- munity property in any case in which the death oc- curred after July 27, 1917. On this date two stat- utes took effect in California, one of them requiring the signature of the wife to deeds or mortgages of the community real property, or leases thereof for more than one year; 603 and another establishing an inheritance tax, and providing "that for the pur- pose of this act the one-half of the community prop- erty which goes to the surviving wife on the death of the husband * * * shall not be deemed to pass to her as heir to her husband, but shall, for the purpose of this act, be deemed to go, pass or be transferred to her for valuable and adequate con- sideration and her said one-half of the community shall not be subject to the provisions of this act." 60b property system. In this, as in many other cases, the Federal Government is bound to take the local law as it finds it, and make a corresponding rule. 60a. Statutes, 1917, Chap. 583, Sees. 1, 2; amending Sec. 172 of the Civil Code, and adding thereto Sec. 172a. 60b. Statutes, 1917, Chap. 587, Sec. 1, par. 2. GROSS ESTATE. 61 Taxable portion of property — Consideration furnished. It has been held that this legislation changed the character of the wife's interest in community prop- erty as previously determined; and that only one- half of the community personal property should be included in the gross estate of a husband dying after the amendatory legislation took effect. 61 § 64. Taxable portion of property — Consideration furnished. Subdivision (d) of Section 402 of the statute specfies, first, a subject matter for inclusion in the gross estate; second, a deduction therefrom. The inclusion is of the entire joint interest. The deduc- tion is of such part "thereof" (of the entire in- terest) as appears to have "belonged" originally to some one other than the decedent, and never to have "belonged" to him. The test here adopted is evidently the furnishing of the consideration for the 61. Blum v. Wardell, U. S. Dist. Court, N. D. Cal., Rudkin, J., not yet reported. The court said that if the amendatory act, "does not recognize in the wife a valid, subsisting, vested interest and estate in the community property during the life of the husband, language is without meaning and legislation without avail." This decision was made despite the fact "that there has been no change in the community property laws so far as concerns personal property. ' ' The court shows some dissatisfaction with the California decisions, and also their result in making California an exception to the ordinary rule that only one-half of the community property is included in the gross estate of the husband. The decision, however, is not authority in a case where the decedent died prior to July 27, 1917. 62 FEDERAL ESTATE TAX. Taxable portion of property — Consideration furnished. joint interest, thus avoiding difficulties which had previously troubled the courts. 62 It does not seem possible to give any other construction to the language used. It contemplates a case in which the property may always have "belonged" to the other joint tenant, and never have " belonged" to the decedent. If title were the test, this could never happen. The theory evidently is, that the property "belongs" to the respective tenants to the extent to which each furnishes a valuable consideration for his interest; and there are State court decisions applying this test in the case of bank deposits. 63 The Kegulations adopt this theory, providing as follows : "The value of such property to be returned for tax is the value of the entire property, unless it can be shown that part of it originally belonged to the other joint owner and never 62. See infra, pp. 66-70. 63. Matter of Kline, 65 Misc. 446, 121 N. Y. Supp. 1090; Matter of Durfee, 79 Misc. 655, 140 N. Y. Supp. 594; In re Rosenberg's Estate, 114 N. Y. Supp. 726. It is interesting to compare with the Federal Statute the language of the English Customs and Inland Revenue Act of 1881, which embraces, "Any property which a person * * * having been absolutely entitled thereto, has voluntarily caused or may voluntarily cause to be transferred to or vested in himself and any other person jointly, whether by disposition or otherwise, so that the beneficial interest therein, or in some part thereof, passes or accrues by survivorship on his death to such other person." 44 & 45 Vict., Chap. 12, Sec. 38 (2) (b). GROSS ESTATE. 63 Taxable portion of property — Consideration furnished. belonged to the decedent. In order to excludo any part of such property from the gross estate the executor must show an original contribu- tion of value by some person other than the decedent. If such a contribution can be estab- lished, the proportion thereof to the entire pur- chase price represents the interest in the prop- erty which should be excluded from the gross estate. Three cases may arise: (1) The dece- dent may have paid the entire purchase price, in which case the entire property should be in- cluded; (2) the decedent may have paid only a portion of the purchase price, in which case only a corresponding portion of the property should be included; (3) the decedent may have paid no part of the purchase price, in which case no part of the property should be included. In the case of bank deposits, the same rule applies; that is, the interest of the decedent in the account is determined by the amount of his contribution." (Art. 28.) The general purpose of the Estate Tax Law appears to have been the same, namely, to include voluntary transfers taking the form of the creation of a joint interest, the language used being broad enough to include cases in which the title was originally taken in the joint name of the decedent and another. It is noteworthy that the provision quoted from the English Act of 1881, when incorporated into the Finance Act of 1894, was modified so as to strike out the word "voluntarily.'' 57 & 58 Vict., Chap. 30, Sec. II (1) (c). 64 FEDERAL ESTATE TAX. Estates by the entirety — Time of creation of interest. § 65. Estates by the entirety. The Regulations provide: "Property owned by husband and wife as tenants in the entirety is governed by the rule given above. The whole value of the property must be included, in the absence of a showing as to the original contributions. An exception is made, however, where property is conveyed to husband and wife without valuable con- sideration, or where the property was pur- chased out of common funds, representing the savings of husband and wife, or w T as the fruit of joint labor, the proportion of the several contributions having been lost sight of. In such cases, one-half of the total value of the property should be returned." (Art. 29. ) 64 § 66. Time of creation of interest. Neither the Revenue Act of 1916, nor the Revenue Act of 1918, 65 refer to the time of the creation of the joint interest. The statute, in constituting the gross estate, refers to the date of the decedent's death. In terms, it directs the inclusion of all joint 64. There seems to be no reason why the rule here indicated should not apply to joint interests, as well as estates by the entirety. That is, where no consideration was paid, or where the evidence indicates the acquisition of the interest by an equal contribution of money or labor, one-half of the interest should be included in the gross estate of either joint tenant. 65. The two statutes contain identical language on this sub- 57 & 58 Vict., Chap. 30, Sec. II (1) (c). GROSS ESTATE. 65 Time of creation of interest. interests then existing, without reference to whether they were created before or after September 8, 1916. The Bureau has so ruled, and includes joint in- terests without reference to the time of their creation. This ruling is contrary to a recent de- cision, in which it is held that only one-half of prop- erty held jointly by husband and wife should be in- cluded in the gross estate of the husband, where the joint interest was created prior to September 8, 1916. 66 66. Kissam v. McElligott, U. S. District Court, Southern District of N. Y., Mayer, J.; not yet reported. The reason- ing is as follows : "It is true that section 201 provides that the tax is imposed upon the transfer of the net estate of 'every decedent dying after the passage of this Act;' but the assumption must be that this relates to estates thereafter created and not to then existing vested property. "If it be argued that in taxing the succession or transfer involved in the passing of the interest of Jonas to Cornelia, the measure of the tax was the extent of the interest of both, the result is the same. "At the time the statute was passed Cornelia Kissam 's in- terest belonged to her. "In other words, the time of the transfer of the interest which Cornelia Kissam got from Jonas Kissam, in his life time, had passed. From the structure of the Act, to say that the measure of the tax is the extent of the interest of both joint tenants is, in effect, to say that a tax will be laid on the interest of Cornelia in respect of which Jonas had in his life time no longer either title or control. "When viewed prospectively, Congress would have the power to tax the privilege of a survivor of acquiring the entire 5 66 FEDERAL ESTATE TAX. Decisions under state statutes — In general. DECISIONS UNDER STATE STATUTES Though the State statutes differ from the federal act, the decisions throw some light upon the con- struction of the latter. § 67. In general. The question of the taxability of joint interests usually arises in the States under statutes which do not make specific reference to such interests. One of the main questions presented is whether any property by the instrumentality of a joint tenancy. When viewed retroactively, it must be assumed that Congress would regard as the original owner of the 'part' the surviving joint tenant who prior to the passage of the Act was vested with or possessed of legal title, whether such ownership was the result of a gift or of a contribution of the 'part' of the prop- erty embraced within the joint tenancy." In this case the husband originally owned the property and transferred it to a third person, who re-conveyed it to husband and wife jointly. The decision assumes that the interest thus created was a joint one, rather than an estate by the entirety. It has been held in New York that a statute taxing the entire joint interest upon the death of a joint tenant can, as applied to an interest created before the passage of the taxing act, operate only upon the one-half interest of the decedent, as to which the title of the surviving tenant was insecure up to the moment of decedent's death. Matter of McKelway, 221 N. Y. 15; 116 N. E. Rep. 348. There is considerable doubt as to the extent of the relevancy of this decision, or similar decisions of the State courts, with reference to the Federal Act. The McKelway case is one of a line of State court decisions holding that an inheritance tax may not be so imposed as to impair vested rights. For other GROSS ESTATE. 67 Decisions under state statutes — In general. interest in the joint property passes under the in- testate laws upon the death of one of the joint tenants, so as to bring the case within a statute taxing interests so passing. The authorities appear to be unanimous that the interest of the surviving tenant comes to him under the instrument creating the tenancy, not under the intestate laws, and is consequently not subject to tax under a provision of this character. 67 decisions of the same sort see Matter of Pell, 171 N. Y. 48, 63 N. E. Rep. 789; Hunt v. Wicht, 174 Cal. 205, 162 Pac. Rep. 639. The only relevant limitation upon the power of Congress, however, is the "due process" clause of the Fifth Amend- ment, which does not, like many of the State Constitutions, forbid legislative action impairing the obligation of a contract. Sinking Fund Cases, 99 U. S. 700, 718; Mitchell v. Clark, 110 U. S. 633, 643; Evans-Snider-Buel Co. v. McFadden, 105 Fed. Rep. 293, 297, affd. 185 U. S. 505. It is also a question how far the tax upon the transfer of the decedent 's net estate may be measured with reference to property not itself the direct subject of tax. See United States v. Perkins, 163 U. S. 625, 629-630; Plummer v. Coler, 178 U. S. 115; Snyder v. Bettman, 190 U. S. 249, 253-254; Flint v. Stone Tracy Co., 220 U. S. 108, 162-163; Brushaber v. Union Pacific R. R. Co., 240 U. S. 1, 20; Maxwell v. Bugbee, 250 U. S. 525, 539. 67. Attorney General v. Clark, 222 Mass. 291, 110 N. E. Rep. 299; Matter of Tilley, 166 App. Div. (N. Y.) 240, 151 N. Y. Supp. 79, affd. 215 N. Y. 702, 109 N. E. Rep. 1094; Matter of Thompson, 167 App. Div. 356, 153 N. Y. Supp. 164, affd. 217 N. Y. 609, 111 N. Y. Supp. 1101; Matter of Dalsimer, 167 App. Div 365, 153 N. Y. Supp. 58, affd. 217 N. Y. 608, 111 N. E. Rep. 1085. 68 FEDERAL ESTATE TAX. Decisions under state statutes — In general. The question, however, remains whether, as an incident of the creation of the joint tenancy, the decedent made a transfer of the property, or an interest therein, intended to take effect at his death. 68 Here there appears to be a conflict in the decisions. The weight of authority seems to be that the creation by the decedent of a joint interest in the property in himself and another does not con- stitute a transfer intended to take effect at his death, and is consequently not taxable. 69 This rule apparently takes no account of whether or not a valuable consideration was paid to the decedent for 68. The statutes of all the States contain provisions taxing such transfers. 69. Matter of Tilley, 166 App. Div. (N. Y.) 240, 151 N. Y. Supp. 79, affd. 215 N. Y. 702, 109 N. E. Rep. 1094 (deposit of moneys by husband to joint account of himself and wife; not taxable at his death) ; Matter of Thompson, 167 App. Div. 356, 153 N. Y. Supp. 164, affd. 217 N. Y. 609, 111 N. E. Rep. 1101 (moneys deposited by husband to joint account of himself and wife, bonds and mortgages taken by husband in joint names of himself and wife, and mortgages transferred by him individually to himself and herself jointly; not taxable at his death); Mat- ter of Dalsimer, 167 App. Div. 365, 153 N. Y. Supp. 58, affd. 217 N. Y. 608, 111 N. E. Rep. 1085 (bonds owned by husband, re-registered in names of himself and wife as joint tenants; not taxable at his death). The reasoning upon which this conclusion is reached is as follows : "The right of survivorship vests in the creation of the joint tenancy, and the only question determined by death is which shall take the entire estate. Under such circumstances it is clear that there is no succession to be taxed, for it was not GROSS ESTATE. 69 Decisions under state statutes — In general. the creation of the joint tenancy; and it has been expressly held that this fact is immaterial. 70 There are other decisions, however, holding, in substance, that insofar as the decedent confers upon his co-tenant an interest in the property without a valuable consideration there is a transfer intended to take effect at the decedent's death, which is taxable when he dies. 71 'made in contemplation of the death of the grantor, vendor or donor, or intended to take effect in possession or enjoyment at or after such death.' The possession is given upon the creation of the estate; the rights are absolutely and conclusively fixed, and the only question which is contingent is which of two or more joint tenants shall eventually own the entire estate. But each is in full possession, each has full ownership as against all the world, with the exception of the equal rights of the others, and the transfer which becomes fully determined at the death of one of two joint owners, relates back to the creation of the estate. It was then that the rights vested, and the death only determines which shall be the gainer by the trans- action." Matter of Tilley, 166 App. Div. (N. Y.) 242-243. 70. Matter of Dalsimer, 167 App. Div. 365, 367, 153 N. Y. Supp. 58; affd. 217 N. Y. 608, 111 N. E. Rep. 1085; Matter of Graves, 52 Misc. 433, 103 N. Y. Supp. 571 ; Matter of Stebbins, 52 Misc. 438, 103 N. Y. Supp. 563. 71. Matter of Kline, 65 Misc. 446, 121 N. Y. Supp. 1090; Supp. 58, affd. 217 N. Y. 608, 111 N. E. Rep. 1085; Matter of Reed, 89 Misc. 632, 154 N. Y. Supp. 247; In re Von Bernuth's Estate, 143 N. Y. Supp. 672. Where the property is money in bank, only so much of it as the decedent contributed is taxed at his death. Matter of Kline, supra; Matter of Durfee, supra; In re Rosenberg's Estate, 114 N. Y. Supp. 726. 70 FEDERAL ESTATE TAX. Decisions under state statutes — In general. These decisions leave it at least doubtful whether the controlling feature of taxability is the cash contribution of the decedent, or the extent of his technical legal title. The federal statute apparently adopts the former test, and the Bureau has so ruled. Where the statute contains specific reference to joint interests, questions like the foregoing would not arise. In New York it is now provided in the case of joint estates or deposits, or estates by the entirety, that the right of the surviving tenant "shall be deemed a transfer taxable * * * in the same manner as though the whole property to which such transfer relates belonged absolutely to the deceased tenant by the entirety, joint tenant or joint depositor and had been bequeathed to the sur- viving tenant by the entirety, joint tenant or joint tenants, person or persons, by such deceased tenant," etc. 72 72. Tax Law, Cons. Laws, Chap. 60, See. 220, sub-div. 7; added by Laws of 1915, Chap. 664. For an application of this statute to a joint interest created prior to its passage, see Matter of McKelway (221 N. Y. 15, 116 N. E. Rep. 348). In this case it was held that only one-half of the property was taxable. This result, however, was reached not upon a con- struction of the statute, but upon the ground of a constitutional limitation upon the right to tax the interest vested throughout in the other joint-tenant. (See 221 N. Y., p. 19.) Where the interest was created after the passage of the statute, the entire joint interest is taxable. Matter of Dolbeer, 226 N. Y. 623; 123 N. E. Rep. 381. GROSS ESTATE. 71 Tenancies by the entirety — Appointed property. § 68. Tenancies by the entirety. It has been held that the surviving tenant by the entirety does not take any interest under the intes- tate laws, and is consequently not taxable under a statutory provision relating to interests passing thereunder. 73 (e) APPOINTED PROPERTY. § 69. The statute. Subdivision (e) of Sec. 402 reads: "To the extent of any property passing under a general power of appointment exer- cised by the decedent (1) by will, or (2) by deed executed in contemplation of, or intended to take effect in possession or enjoyment at or after, his death, except in case of a bona fide sale for a fair consideration in money or money's worth." There is here an express provision requiring the inclusion of appointed property in the gross estate where the power of appointment is general, and is exercised by will, or by deed of the character 73. Palmer v. Mansfield, 222 Mass. 263, 110 N. E. Rep. 283. See also Matter of Klatzl, 216 N. Y. 83, 110 N. E. 181. In the latter case three judges expressed the opinion that the interest of the surviving tenant by the entirety is not taxable. This view was apparently shared by three other judges, who ex- pressed an opinion in favor of the tax upon the sole ground that the estate under consideration was an estate in common, not by the entirety. A single judge expressed the opinion that the interest of a surviving tenant by the entirety is taxable. 72 FEDERAL ESTATE TAX. Appointed property. described. These provisions are applicable wherever the decedent died after February 24, 1919. The Regulations provide: "As a general rule, property passing under a general power of appointment must be in- cluded in the gross estate of the person exer- cising the power (known as the donee, or appointor) where the power is exercised by will, or by deed executed in contemplation of death, or intended to take effect at or after death. This general rule applies wherever the decedent died after September 8, 1916, although the power was created prior to that date." (Art. 30.) A tax imposed at the death of the donee of a power of appointment upon the passage of prop- erty effected through the operation of the power is a familiar feature in the inheritance tax statutes of the States. Its constitutionality has been upheld although the instrument creating the power was executed before the passage of the statute imposing a tax upon the transfer effected through the opera- tion of the power. 74 74. Orr v. Gilman, 183 U. S. 278; Chanler v. Kelsey, 205 U. S. 466. This is the established rule in spite of the doctrine, expressly recognized in the decisions, that the property is deemed to pass under the instrument creating the power, in the same manner as though the instrument exercising the power had been incorporated therein. GROSS ESTATE. 73 Power must be general. § 70. Power must be general. On this point the language of the statute is clear. The Regulations provide: "Only property passing under a general power should be included. A general power is one to appoint to any person or persons in the discretion of the donee. Where the donee is required to appoint to a specified person or class of persons, the property should not be included in his gross estate. Property ap- pointed under a general power should be in- cluded in the estate of the appointor, although the persons to whom the appointment was made would have taken the property had the power not been exercised. A copy of the instrument granting the power should be filed with Form 706 in all cases in order that the Bureau may determine whether the power is general or special." (Art. 30.) § 71. Powers exercised prior to February 24, 1919. Where the power is exercised prior to February 24, 1919, and the case is consequently governed by the Revenue Act of 1916, the question of taxability is a serious one, since the provision as to appointed property in the Revenue Act of 1918 is not found in the earlier statute. The history of the Bureau rulings upon this subject is as follows: On April 7, 1917, Treasury Decision 2477 was promulgated. It reads as follows: 74 FEDERAL ESTATE TAX. Powers exercised prior to February 24, 1919. "It is held that where a decedent exercises a general power of appointment as donee under the will of a prior decedent the property so passing is a portion of the gross estate of the decedent appointor. See Brandies v. Cochrane, 112 U. S. 344, 352; Olney v. Balch, 154 Mass. 318 ; Clapp v. Ingraham, 126 Mass. 200 ; Rogers v. Hinton, 62 N. C. 101; Tompson v. Towne, 2 Vern. 319; Bainton v. Ward, 2 Atk. 172. "When property is transferred by a special or limited powder of appointment, the question of taxability will depend upon the terms of the instrument by wilich the donee of the power — the appointor — acts. The facts in every such case should be reported fully to the commis- sioner in order that decision as to tax liability may be made. ' ' The cases here cited lay down the rule, originat- ing in the Chancery Courts of England, and obtain- ing in certain of the States, that the creditors of the donee of a general power of appointment have rights superior to those of the persons who would otherwise take under the exercise of the power. Treasury Decision 2477 does not refer to the statute; but the only applicable portion of the Revenue Act of 1916 is Section 202 (a), relating to an interest of the decedent at the time of his death "which after his death is subject to the payment of the charges against his estate and the expenses of its administration and is subject to distribution as GROSS ESTATE. 75 Later rulings. part of his estate." The theory of the Treasury Decision evidently is, that the fact that the creditors of an appointor may resort to the appointed prop- erty, is, of itself, sufficient to bring the case within the statute, whether or not the property is subject to the payment of administration expenses, or to distribution as part of the estate of the appointor. That is, the word "and" in the statute receives a disjunctive, rather than a conjunctive, construc- tion. 75 The ruling is carried into the Regulations of May, 1917, which provide that "Property passing under a general power of appointment is to be in- cluded as a portion of the gross estate of a decedent appointor." 76 § 72. Same — Later rulings. Even, however, if the language of Section 202 (a) of the Revenue Act of 1916 be construed disjunc- tively, the statute would not embrace a case in which, under the local law, the creditors of the donee of the power do not possess rights superior to those of the appointees; to a case, that is, in which the rule laid down by the authorities cited in Treasury Decision 2477 does not obtain in the local jurisdiction. In such a case the property would not be subject to the payment of the charges against 75. While the word may doubtless be construed disjunctively, in order to effectuate the plain meaning, that is not the natural construction. 76. Regulations No. 37, Revised May, 1917, Art. XI. 76 FEDERAL ESTATE TAX. Later rulings. the estate of the appointor, or the expense of admin- istering his estate; nor would it be subject to dis- tribution as part of his estate. 77 These principles are recognized in the Regula- tions, which provide: 1 ' Where the decedent died between September 8, 1916, and February 25, 1919, the taxability of the transfer depends upon whether the prop- erty was subject to the claims of the creditors of the appointor, in preference to the person or persons in whose favor the power was exer- cised. The general rule is, that the property is so subject; and it should consequently be in- cluded in the gross estate unless this rule has been abrogated in the State whose laws deter- mine the nature and effect of the transfer. All such transfers should be disclosed to the Bureau in order that it may pass upon the question of taxability." (Art. 31.) 77. There is certainly no principle upon which the property could be subject to the administration expenses of the estate of the appointor; nor would it be "subject to distribution" as part of his estate. It is a familiar rule that the appointed property is deemed to pass under the instrument creating the power, not under that by which it is exercised. This rule has been applied to questions arising under inheritance tax statutes. See Emmons v. Shaw, 171 Mass. 410, 50 N. E. Rep. 1033; In re Harbeck, 161 N. Y. 211, 55 N. E. Rep. 850 ; Commonwealth v. Williams, 13 Pa. St. 29; Winn v. Schenck, 33 Ky. Law. Rep. 615, 110 S. W. Rep. 827. GROSS ESTATE. 77 Specific cases — Court decisions. § 73. Same — Specific cases. In accordance with these principles, appointed property is excluded from the gross estate, in cases arising under the Revenue Act of 1916, in New York and Maryland, under the laws of which the rights of the appointee are superior to those of the creditors of the appointor. 78 § 74. Same — Court decisions — Rule in Pennsyl- vania. The Circuit Court of Appeals for the Third Circuit has held that under the laws of Pennsyl- vania the donee of the power has no interest in the appointed property which is subject to his debts or to distribution as part of his estate, and conse- quently that such property should not be included in the gross estate of the donee — appointor in cases arising under the Revenue Act of 1916. 79 The Bureau has yielded to the authority of this decision, stating that "it is accepted by the Treas- 78. See Cutting v. Cutting, 86 N. Y. 522; Balls v. Dampman, 69 Md. 390. As to the rule in Pennsylvania and Illinois, see infra, pp. 77-9. 79. Lederer v. Pearce, 266 Fed. Rep. 497, affg. 262 Fed. Rep. 993. There can be little doubt that under the laws of Pennsyl- vania the appointees have rights superior to those of the creditors of the appointor. Commonwealth v. Duffield, 12 Pa. St. 277; Commonwealth v. Williams, 13 Pa. St. 29; In re Dunglison's Estate, 201 Pa. St. 592, 51 Atl. Rep. 356; In re King's Estate, 14 Wkly. Notes 77; In re Swaby's Appeal, 14 Wkly. Notes 553. 78 FEDERAL ESTATE TAX. Decisions in Illinois and Ohio. ury Department as to all cases arising under Title II of the revenue act of 1916 in which the construc- tion and effect of the power of appointment and the rights of the purposes thereunder are governed by the laws of Pennsylvania;" and that "in such cases the appointed property will not be included in the gross estate of the decedent exercising the power." 793 § 75. Same — Decisions in Illinois and Ohio. The Court of Claims has held, as a general propo- sition, in a case arising in Illinois, that appointed property is not taxable under the Revenue Act of 1916. 80 A similar decision has been made in Ohio, holding that property passing under a general power of appointment exercised by a resident of that State should not be included in his gross estate. 803 79a. Treasury Decision 3088 (Oct. 3, 1920), amending Treas- ury Decision 2477. See pp. 351-2. 80. Field v. United States; Court of Claims, June 7, 1920. The gist of the reasoning is as follows : "It is a cardinal rule that statutes imposing taxes upon the citizen must be construed in favor of the taxpayer. The intent of Congress to impose a tax upon any specific property or estate should be expressed in clear and unambiguous language. * * * In the Act of 1916 there is no provision for taxing property passing under a general power of appointment exer- cised by a decedent by will, nor is it possible by a fair or reasonable construction to include appointed property in the property mentioned in paragraph (a) of Section 202 of the Act." 80a. Ebersole v. McGrath, U. S. Dist. Court, Southern Dist. GROSS ESTATE. 79 Insurance. If the Bureau yields to the authority of these de- cisions, there will be no further effort to tax ap- pointed property where the decedent died prior to February 25, 1919. Upon the reasoning of these de- cisions, it is immaterial whether the State law which governs the case does or does not recognize rights of the creditors of the donee of the power superior to those of the appointee. (f) INSURANCE. § 76. The statute. Subdivision (f) of Section 402 reads: "To the extent of the amount receivable by the executor as insurance under policies taken out by the decedent upon his own life; and to the extent of the excess over $40,000 of the amount receivable by all other beneficiaries as insurance under policies taken out by the dece- dent upon his own life." The Regulations provide: "The statute provides for the inclusion in of Ohio, Peek, J.; not yet reported. The elaborate opinion in this case holds, in substance, that, although such property is assets of the decedent for certain purposes, it will not be held to be a ''part" of his estate within the meaning of a taxing statute which does not expressly so specify. It is also held that there is no "transfer" of the property, within the mean- ing of the provision as to transfers in the decedent's lifetime. The court refers to the decision in Lederer v. Pearce (supra), but holds that it is not directly in point, since the laws of Ohio do not, like those of Pennsylvania, repudiate the rights of the creditors of the appointor. 80 FEDERAL ESTATE TAX. Payment of premiums. the gross estate of certain forms of insurance taken out by the decedent upon his own life. Two kinds of insurance are taxable: (a) all insurance payable to the estate; (b) insurance payable to individual beneficiaries to the extent that it exceeds $40,000. The term 'insurance' refers to life insurance of every description, including death benefits paid by fraternal beneficial societies, operating under the lodge system." (Art. 32. ) 81 § 77. Payment of premiums. The Regulations provide: " Insurance is deemed to be taken out by the decedent in all cases where he pays the premiums, either directly or indirectly, whether or not he makes the application. On the other hand, the insurance should not be included in the gross estate, even though the application is made by the decedent, where the premiums are actually paid by some other person or corpora- tion, and not out of funds belonging to, or advanced by, the decedent. Where the decedent takes out insurance in favor of another person or corporation, as collateral security for a loan or other accommodation, and the decedent, either directly or indirectly, pays the premiums 81. The provision as to insurance is not contained in the earlier statutes. Insurance payable to the estate, however, was included in the gross estate under the Revenue Act of 1916. The Regulations of May, 1917, provide: "Insurance GROSS ESTATE. 81 Insurance in favor of the estate. thereon,- the insurance must be considered in determining whether there is an excess over $40,000. Where the decedent assigns a policy, and retains no interest therein, and thereafter pays no part of the premiums, the insurance will not be considered in determining whether there is such a taxable excess." (Art. 32.) § 78. Insurance in favor of the estate. The Regulations provide: "The provision requiring the inclusion in the gross estate of all insurance receivable by the executor, without any deduction, applies to policies made payable to the decedent's estate or his executor or administrator, and all in- surance, regardless of the manner of execution, which is in fact receivable by the estate, or which must be used to pay charges against the estate or the expenses of administration. This provision includes insurance taken out to pro- vide funds to meet the estate tax, state inheri- tance taxes, or any other legal charge upon the estate. The manner in which the policy is passing to the estate is to be returned on Form 706. If the contract of insurance has named a definite beneficiary and the insurance is paid directly to such beneficiary it is not a part of the gross estate." Regulations No. 37, Revised, May, 1917, Art. X. The ruling including insurance payable to the estate was even applied where, under the local law, the insurance was not subject to the payment of the decedent's debt9. 6 82 FEDERAL ESTATE TAX. Rule under Revenue Act of 1916. drawn is immaterial so long as there is an obligation, legally binding upon the beneficiary, to use the proceeds in payment of the charge." (Art. 33.) § 79. Same — Rule under Revenue Act of 1916. The Eevenue Act of 1916 did not, like the present statute, contain an express provision for the inclu- sion of insurance payable to the estate. But it was nevertheless ruled that, "Insurance passing to the estate is to be returned on Form 706. " 82 It was further provided, however, that, "If the contract of insurance has named a definite beneficiary and the insurance is paid directly to such beneficiary it is not a part of the gross estate." 83 It was held, however, that individual insurance would be taxable if the transfer to the beneficiary was made in contemplation of death. The former Regulations provided: "If insurance which by the terms of the con- tract is payable to the executor, is transferred to another beneficiary or trustees for another beneficiary, and the transfer is made in con- templation of death, the value of such insur- ance is taxable under the provisions of para- graph (b), Section 202. " 84 82. Regulations No. 37, Revised, May, 1917, Art. X. 83. Regulations No. 37, Revised, May, 1917, Art. X. 84. Regulations No. 37, Revised, May, 1917, Art. X. GROSS ESTATE. 83 Individual insurance — What is individual insurance? § 80. Individual insurance. The Regulations provide: "The estate is entitled to only one exemption of $40,000 upon insurance payable to bene- ficiaries other than the executor. For example, if the decedent left life insurance payable to three persons in amounts of $10,000, $40,000, and $50,000 (total, $100,000), the amount of $60,000 should be returned for taxation, which is the excess of the sum of the three policies over the exempted amount. The word 'bene- ficiary,' as used in reference to the $40,000 exemption, means a person entitled to the actual enjoyment of the insurance money." (Art. 34.) § 81. What is individual insurance? Certain policies considered have presented un- usual features. In one case the decedent deposited $100,000 with an insurance company, under a con- tract to pay him an annuity of $10,000, and, in ease he should die before the annuity payments amounted to $100,000, to pay the excess to a designated per- son. It was ruled that the payment thus made to such beneficiary constituted individual insurance; and that, if in excess of $40,000, such excess should be included in the gross estate. 85 In another case the decedent took out a policy for $100,000, under an agreement that at his death the 85. The case, of course, arose under the Revenue Act of 1918, wherein individual insurance is taxable in certain cases. 84 FEDERAL ESTATE TAX. Reservation by insured of right to change beneficiary. income should be paid to his widow, and at her death to his son, the principal, at the death of the son, to be paid to his estate. It was ruled that the whole policy constituted individual insurance, as much as though the entire sum had been payable to a specified individual at the decedent's death; and consequently that $60,000, the excess over $40,000, should be included in the gross estate. 88 Where a policy is payable to the decedent's executors, administrators or assigns, or to such beneficiary as he may designate, and contempor- aneously with the execution of the policy the insurer appoints the insurance company as trustee to re- ceive the proceeds and apply them to the use of designated persons, and the company accepts the trust and agrees to apply the money in the manner specified, the insurance is held to be individual in- surance, not insurance payable to the estate, and consequently not taxable under the Revenue Act of 1916. § 82. Reservation by insured of right to change beneficiary. Where the insured reserves the absolute right to change the beneficiary, it has been held that the policy constitutes part of his estate, and should con- sequently be included in the gross estate. 87 86. The case arose under the Revenue Act of 1918. 87. Gaither v. Miles, U. S. Dist. Ct., Dist. of Md., Rose, D. J. For this proposition the court cites Cohen v. Samuels (245 U. S. 50), holding that a policy of this character comes within the GROSS ESTATE. 85 War risk insurance — Effective date of insurance provisions. § 83. War risk insurance — No exemption of. The question has arisen as to whether policies issued by the Bureau of War Risk Insurance should be included in the gross estate, in view of the statu- tory provision that such insurance "shall be exempt from all taxation." 88 It is ruled, however, that the exemption is merely from property taxes, and does not include a tax upon the transfer of the net estate at death, measured with reference to such prop- erty. 89 § 84. Effective date of insurance provisions. The Regulations provide: "Insurance receivable by the executor must be included in the gross estate of all decedents who died after September 8, 1916. Insurance payable to beneficiaries other than the executor, however, need not be included in the gross estate of decedents who died before February 25, 1919, the effective date of the Revenue Act of 1918, unless the insurance was originally terms of Sec. 70-a of the Bankruptcy Act. The latter contains special references to powers which the bankrupt may exercise for his own benefit, and to insurance policies having a cash surrender value. The decision in Gaither v. Miles is not based upon the express provisions relating to insurance in the present statute. The case was decided under the Revenue Act of 1916. 88. U. S. Compiled Statutes, Supplement, 1919, Vol. 1, Sec. 514nnn%. 89. As to which see Plummer v. Coler, 178 U. S. 115; Orr v. Gilman, 183 U. S. 278; Strode v. Commonwealth, 52 Pa. St. 181; Commonwealth v. Herman, 16 Weekly Notes of Cases (Pa.) 210; Lovitt v. Attorney General, 33 Can. Sup. Ct. 350. 83 FEDERAL ESTATE TAX. Nonresident estates — Right to transfer stock. payable to the estate, and was transferred by the decedent to specific beneficiaries in con- templation of death." (Art. 35.) NONRESIDENT ESTATES § 85. Local situs of property — Stock and insurance. In the case of the estates of nonresidents it is necessary, in order that property be included in the gross estate, that it be "situated in the United States." (Sec. 403. ) 90 Thus, in addition to the other specified requirements, the situs of the prop- erty must be kept in mind. The principal questions arise with reference to personal property and choses in action. The Regulations provide : ' ' The situs of property, both real and personal, for the purpose of the tax is its actual situs." (Art. 60.) The statute contains the following express pro- vision with reference to domestic stock and insur- ance: "For the purpose of this title stock in a domestic corporation owned and held by a non- resident decedent, and the amount receivable as insurance upon the life of a nonresident dece- dent where the insurer is a domestic corpora- tion, shall be deemed property within the United States." (Section 403.) § 86. Right of transfer agent to transfer stock. The subject of the transfer of stock belonging to the estate of a nonresident decedent has caused con- 90. The statute provides that where the decedent has made in his lifetime a taxable transfer of property, such property GROSS ESTATE. 87 Right of transfer agent to transfer stock. siderable trouble. The present Regulations contain nothing on the point; but it has been the subject of previous rulings. Treasury Decision 2421 (Dec. 22, 1916) provides that "tax payment will be required of the repre- sentatives 01 out of the property in their charge if payment has not been made before the due date by the executor or administrator." Treasury Decision 2454 (Feb. 28, 1917) provides: "The transfer shall not be effected or the stock or bonds released to the foreign administrator or executor or the succeeding beneficiary until the transfer agent shall have been fully assured either that the tax due has been paid or that ancillary letters have been taken out in this country or provision otherwise made for the satis- faction of the tax lien against the estate." These rulings, however, were subsequently modi- fied. Treasury Decision 2490 (May 14, 1917) pro- vides that the transfer agent shall give the 30-day notice 92 in all cases where the decedent is a non- resident, and a local executor has not been ap- pointed; but adds: "If this notice be filed as required either within 30 days from death or imme- diately upon receipt of the order for transfer or "shall be deemed to be situated in the United States, if so situated either at the time of the transfer or the creation of the trust, or at the time of the decedent's death." (Sec. 403.) 91. Previous language shows that this term was intended to include transfer agents. 92. Now a 60-day notice. The ruling was made under the Revenue Act of 1916. 88 FEDERAL ESTATE TAX. Specific cases of personal property. payment, the transfer or payment need not be post- poned." 93 It is added, however, that, if the tax is not paid when due, proceedings will be brought 94 "for the sale of the property and the satisfaction of the tax." The revision of 1921, however, renews the orig- inal policy of forbidding the transfer of stock until the tax has been either paid or secured, and con- tains detailed provisions for the ascertainment of the tax, and the payment thereof or the giving of security therefor. 95 § 87. Same — Specific cases of personal property. The Regulations provide: "Bonds actually situated in the United States, moneys on deposit with domestic banks and moneys due on open accounts by domestic debtors constitute property subject to tax." (Art. 60. ) 96 93. A subsequent Treasury Decision (2708, April 25, 1918), provides another method with reference to the transfer of stock. It is somewhat complicated and has been used very little. 94. Under Sec. 208 of the Revenue Act of 1916; Sec. 408 of the present statute. 95. See Article 75- A (infra, p. ). Similar problems have arisen with reference to the payment of insurance; and this subject also is covered by a new provi- sion, preventing payment to anyone other than a domestic executor without a bond or deposit to secure the tax (see infra, p. )• 96. There are numerous authorities in both the federal and GROSS ESTATE. 89 Property used in British War Loan. § 88. Same — Property used in British War Loan. During the late war the British Government adopted a policy of requesting its citizens to make a deposit of securities, which it then used as col- lateral for loans. In this way much property, formerly owned by British citizens, was sent to this country, and was found here at the death of the owner. The Bureau has ruled that the ownership of this property continued in the depositor, and that the estate is consequently subject to tax with refer- ence to such property when situated in this country at the time of the death. This ruling subjects to tax the transfer of stock of domestic corporations owned by British citizens, deposited w y ith the British Treasury, transferred to this country to be hypothecated, and found here at the death of the owner. 97 A different ruling, however, has been made with reference to bonds. Their situs in this country is state courts supporting these rulings. See Blaekstone v. Miller, 188 U. S. 189; Liverpool & London & Globe Ins. Co. v. Board of Assessors, 221 U. S. 346; People v. Griffith, 245 111. 532, 92 N. E. Rep. 313; State v. Dalrymple, 70 Md. 294, 17 Atl. Rep. 82; Callahan v. Woodbridge, 171 Mass. 595, 51 N. E. Rep. 176; In re Romaine's Estate, 127 N. Y. 80, 27 N. E. Rep. 759; In re Whiting's Estate, 150 N. Y. 27, 44 N. E. Rep. 715; In re Houdayer's Estate, 150 N. Y. 37, 44 N. E. Rep. 718; In re Daly's Estate, 100 App. Div. (N. Y.) 373, 91 N. Y. Supp. 858, affd. 182 N. Y. 524, 74 N. E. Rep. 1116; Alvany v. Powell, 55 N. C. 51. 97. Treasury Decision 2772, Nov. 8, 1918. The securities in such cases are ordinarily included at their full value, although 90 FEDERAL ESTATE TAX. Property used in British War Loan. not fixed, like that of stock in domestic corporations, but depends upon the actual presence of the prop- erty. While bonds sent to this country by the British Government under the circumstances speci- fied, and remaining here, have an actual location in the United States at the date of the death, it is nevertheless ruled that they have not such a situs as to subject them to the estate tax. The British Government does not act as the agent of the owner, but in its governmental capacity. The owner never placed the property within the jurisdiction of this country, or sought the protection of its laws. A location obtained in this way, with the bare consent of the owner, but through no action of his or any agent of his, is held not to satisfy the requirements of the statute; and it is accordingly ruled that bonds, whether of domestic or foreign corporations, deposited with the British Government and sent here to be hypothecated, form no part of the gross estate of the nonresident owner. And this ruling has been extended to cases in which securities were originally sent to this country by the owner to par- ticipate in a reorganization, and the substituted securities were detained in this country by the British Government and here hypothecated, for which reason alone they were found in the United States at the death of the owner. the British Government, in pursuance of powers granted to it, pledged them for loans — the reason being that the Government agrees to restore the securities at the termination of the loan, and that its agreement gives full value to the property. GROSS ESTATE. 91 Foreign checks — Insurance. § 89. Foreign checks. The case has been presented of checks purchased by a nonresident decedent, drawn by foreign banks upon banks in this country, but not presented for certification or payment until after the death of the decedent. Since the mere drawing of a check, prior to certification or payment, does not result in an equitable assignment of the money to the holder, it is ruled that the money represented by the checks in such a case has no situs in this country at the time of the death, and that nothing should be in- cluded in the gross estate by reason thereof. § 90. Insurance. The statute requires the inclusion in the gross estate of ' ' the amount receivable as insurance upon the life of a nonresident decedent where the insurer is a domestic corporation." (Sec. 403.) The Regu- lations provide: ''Where insurance is payable to the estate, all insurance in demestic companies should be included in the gross estate. Where insurance is payable to individuals other than the execu- tor, there should be included in the gross estate only the excess of domestic insurance over the sum of $40,000. Foreign insurance is not con- sidered. "Example: The testator leaves $30,000 of in- surance in domestic companies and $30,000 of insurance in foreign companies, payable in each 92 FEDERAL ESTATE TAX. Policies issued in foreign country. case to individual beneficiaries. As the domes- tic insurance does not exceed $40,000, there is nothing to be included in the gross estate. " Example: The testator leaves $50,000 of in- surance in domestic companies and $50,000 of insurance in foreign companies, payable in each case to individual beneficiaries. There should be included in the gross estate $10,000 being the excess of the domestic insurance over $40,000." (Art. 60.) § 91. Policies issued in foreign country. The statute provides for the inclusion, without ex- ception, of all insurance taken out with domestic companies. It is accordingly ruled that such insur- ance must be included in the gross estate, although the policy was issued in a foreign country to a non- resident, and provision was made for its payment out of funds kept on deposit in such foreign country, as required by its laws. 98 98. The constitutional power of Congress to tax the transfer of such insurance may, perhaps, be a serious question. It has, however, plainly attempted to do so; and the Bureau seldom, if ever, permits its enforcement of the statute to be affected by constitutional questions prior to the decision thereof by the courts. In the absence of explicit language in the statute, it seems clear that insurance of this character would be held not sub- ject to tax in the jurisdiction in which the company was chartered. See Matter of Gordon, 186 N. Y. 471; 79 N. E. Rep. 722. CHAPTER III. VALUATION OF PROPERTY. § 92. Time for determining- value. The statute provides explicitly that the value of the property included in the gross estate is its 1 'value at the time of his (the decedent's) death." (Sec. 402.) This is the general rule. The Regula- tions provide: "The value at which property included in the gross estate is to be returned for tax purposes is the value at the time of the decedent's death. Neither depreciation nor appreciation in value subsequent to the date of death is considered." (Art.14.) 1 § 93. Market or sale value. The Regulations provide: "The value to be ascertained is the market, or sale, value of the property. The highest price obtainable for the property within a rea- sonable period of the decedent's death is the value to be included." (Art. 14.) 1. This ruling was anticipated in Treasury Decision 2406 (Dec. 2, 1916), which provided that "the gross estate of a decedent must be based upon the value of the property at the time of decedent's death, and income earned after death and appreciation in values during administration shall not be re- turned for estate tax." [93] 94 FEDERAL ESTATE TAX. Tests of sales — Real estate. § 94. Tests of sales. The. Regulations provide : "A sale of the property, however, in order to be accepted as the criterion of value, must be made in such manner as to insure the best price obtainable under existing circumstances. This requires (a) that the sale be made as a matter of business, and not merely in order to estab- lish value; (b) that it be made in absolute good faith, with a view to realizing as high a price as possible; and (c) that reasonable care and skill be exercised to obtain such price. If one method brings better results than another, the better method must be employed. "For example, if individual sales of property are better adapted to procure a good price than auction sales, the price obtained at an auction sale will be accepted only after reasonable effort to find individual purchasers has been made." (Art. 14.) § 95. Real estate. The Regulations provide: "Where real property has been sold, the amount received will be taken as its value pro- vided the sale was made within a reasonable period of the decedent's death, and in such man- ner as to insure the highest possible price. Where no sale has been made, the criterion of value is the best price which could have been ob- tained within a reasonable period of the deced- ent's death." (Art. 15, par. [1]). VALUATION OF PROPERTY. 95 Auction sales — Assessed valuation — Stocks and bonds. § 96. Same — Auction sales. The Regulations provide: "The amount brought at an auction sale should be considered, but will be accepted only if it appears that there was no available method of obtaining a higher price." (Art. 15, par. [1]). § 97. Same — Assessed valuation. The Regulations provide: "The assessed valuation of the property should be considered, but is not conclusive." (Art. 15, par. [1]). § 98. Stocks and bonds — When listed. The Regulations provide: "The value of stocks and bonds listed upon a stock exchange should be obtained by taking the mean between the highest and the lowest sale price upon the day of death, 2 provided the sales were made in the regular course of busi- ness, and not for the special purpose of estab- lishing value. If there were no sales upon the date of death, the price nearest to that date, and within a reasonable period thereof, either before 2. Before the promulgation of the present Regulations (August 8, 1919) the rule obtained of including listed stocks at the highest market quotation on the date of the death. It would be difficult to assign a reason why the highest figure should be taken rather than the lowest. The present rule seems the most equitable. 96 FEDERAL ESTATE TAX. Unlisted securities — Stock of close corporations. or after death, should be taken. Such sale price obtains irrespective of the number of shares held by the estate. 3 If the security was listed upon more than one exchange, the records of the exchange where the security is principally dealt in should be employed. If the decedent died on Sunday or a legal holiday, the business of the previous day will govern." (Art. 15, par. [2]). § 99. Same — Unlisted securities. The Regulations provide: "If the stock is not listed upon an exchange, but is dealt in actively by brokers or has other active market, the latest sale price prior to the day of death will govern." (Art. 15, par [2]). § 100. Same — Stock of close corporations. The Regulations provide: 1 ' If there is no active market for the stock and no sales of it have been within a reasonable period of the decedent 's death, and in particular where it is closely held (stock of a ' close cor- poration'), return should be made upon the basis of the value of the stock, as evidenced by the clear value of the excess of the assets of the corporation over its liabilities, and its earning 3. As tending to support this rule, see Walker v. People, 192 111. 106, 61 N. E. Rep. 489 ; Matter of Gould, 19 App. Div. 352, 46 N. Y. Supp. 506, 156 N. Y. 423, 51 N. E. Rep. 287. VALUATION OF PROPERTY. 97 Pledged securities. capacity for the five years preceding the death of the decedent. Where the earnings of the corporation have been greater than a fair return on its invested capital, computed according to the nature of the business, and where the busi- ness is a going business, there should be added to the net value of the other assets of the busi- ness the value of the good will, computed in ac- cordance with sound accounting principles. Where the earnings of the corporation have been less than a fair return on the invested capital, if the difference is material and the decreased earnings affect value, the net worth of the cor- poration as disclosed by its balance sheet may be adjusted on a reasonable basis to allow for this decreased value. In all cases where stock of this character forms a principal asset, there should be submitted with the return, Form 706, a copy of the balance sheets for the five preced- ing years, and of the balance sheet on the day of death or the nearest date thereto, together with a statement of the net earnings of the in- vested capital for the preceding five years." (Art. 15, par. [2]). § 101. Pledged securities. The Regulations provide: "The full value of securities pledged to secure a loan should be included in the gross estate. If the decedent had a trading account with a broker, all securities belonging to the decedent 7 98 FEDERAL ESTATE TAX. Promissory notes — Computation of interest. held by the broker at the date of death must be included at their market value on that date. Securities purchased on margin for the deced- ent's account and held by the broker should also be returned at their market value on the day of death. The amount of the decedent's in- debtedness to the broker will be allowed as a deduction from the gross estate." (Art. 15, par. [2]). § 102. Promissory notes. The Regulations provide: "Notes, whether secured or unsecured, will be presumed to be worth their full face value, plus accrued interest to the date of decedent's death, unless the executor establishes the right to return them at a lower valuation. * * * In the case of an unsecured note it must be shown by satisfactory evidence, in order to justify failure to include it, that the note is un- collectible, either in whole or in part, from the maker or other parties to the note, on account of the insolvency of the parties thereto, or other cause. Where the note is secured it must also be shown that the security is insufficient to satisfy it." (Art. 15, par. [3]). § 103. Same — Computation of interest. The Regulations provide: "Interest should be computed upon the basis of 365 days to the year." (Art. 15, par. [3]). VALUATION OF PROPERTY. 99 Computation of bond interest — Outlawed notes. This rule, however, is not of unvarying applica- tion, but may be affected by the local law. Where, for instance, a State statute provides 4 that in the computation of interest for a period of less than one year the computation should be made upon the basis of 360 days to the year, this rule is adopted by the Bureau, since, as a practical matter, the value of the notes is affected by the rule of the statute. 5 § 104. Same — Computation of bond interest. The Regulations do not contain an express provi- sion as to computing the interest on bonds; but probably the same rule would ordinarily apply as in the case of notes. That is, interest would be com- puted upon the basis of 365 days to the year. Where it appears, however, that the custom obtaining in the sale of bonds is to add to the quotation value of the bond interest computed upon the basis of 360 days to the year, this method is adopted by the Bureau for the reason that the market value of the bond is determined in the manner specified. § 105. Notes apparently barred by statute of limita- tions. The Regulations provide: "Where a note appears to be barred by the statute of limitations its value must be included in the gross estate in the absence of proof that 4. As in California, see Civil Code of Cal., Sec. 1917. 5. For a similar rule as to bonds, see infra, Sec. 104. 100 FEDERAL ESTATE TAX. Cash on deposit. the liability has not revived by promise to pay or part payment, and also that the parties liable refuse to pay the debt and intend to assert the defense." (Art. 15, par. [3]). This ruling is evidently based upon the generally established doctrine that the running of the statute does not affect the existence of the liability, but is merely a defence which may be waived, and which, if waived, does not stand in the way of enforcement. § 106. Cash on deposit. The Regulations provide: "Bank deposits should be returned at the amount for which the bank would be liable if the deposit were withdrawn upon the date of the decedents' death. Interest which the bank agreed to pay upon condition that the money remain on deposit after the death should not be included." (Art. 15, par. [4]). There will be included in the gross estate of the decedent not only money standing in his name, but his interest in a bank balance standing in the name of another nonresident who predeceased him, and this although no administration has been taken out upon the estate of the latter decedent. 6 6. See Gleason & Otis on Inheritance Taxation, 2d Ed., p. 20: "The right of the State to the tax is coincident with the devolution of title or interest, and the right of the State to exact a tax, as well as the obligation of the transferee to pay it, depend not upon a formal, complete and immediate change of title or possession, but upon the instant right to a bene- VALUATION OF PROPERTY. 101 Interest in business — Good will. § 107. Interest in business — Original and present rule. The Regulations of 1919 provide: "Care should be taken to arrive at an accurate valuation of any business in which the decedent was interested, whether as partner or proprie- tor. The executor should not return the interest at its book value unless he is satisfied that the accounts of the business are kept upon a scien- tific basis. A fair appraisal as of the date of death should be made of all the assets of the business, tangible and intangible. * * * The business should be given a net worth equal to the amount a financially competent buyer, whether an invididual or corporation, might be expected to pay at a normal sale in view of the net value of the assets and the demonstrated earning capacity." (Art. 15, par. [5]). § 108. Same — Good will — Original contract limiting right of partner. The Regulations of 1919 further provide: "Special attention should be given to fixing an adequate figure for the value of the good will of the business in all eases in which the decedent had an interest in the good will which passed to his estate. Where the original copartnership articles, or a renewal thereof, provide that the ficial share or interest subject only to the due administration of the estate." Citing Matter of Ramsdill, 190 N. Y. 492, 83 N. E. Rep. 584; Kingsbury v. Chapin, 196 Mass. 533, 82 N. E. Rep. 700. 102 FEDERAL ESTATE TAX. Good will — Original contract limiting right of partner. value of the interest of a deceased partner shall be determined without reference to good will, but that the surviving partners shall take the en- tire good will, nothing is to be included in the estate of the deceased partner on account of good will. Where, however, the deceased partner makes a gift of his interest in the good will to the surviving partners, to take effect upon his death, the value of such interest should be in- cluded in the decedent's gross estate. Such a gift exists where the only consideration for the surrender of the good will at death consists of similar promises by the other partners." (Art. 15, par. [5]). Where the copartnership articles provide for the acquisition of the interest of a deceased partner, without allowance for good will, the substance of the arrangement is, that the deceased partner acquired only a life estate in the good will; and such an in- terest, terminating upon the life of the decedent, fur- nishes nothing that can be included in his gross estate. 7 There is State authority that under these circumstances the good will is not subject to in- heritance tax. 8 Where, on the other hand, a partner is vested with his share in the good will, and surrenders it to the surviving partners, there is a gift intended to take effect at death ; and there is authority that the dona- tive character of the transaction is not changed by 7. See supra, p. 22. 8. In re Borden's Estate, 159 N. Y. Supp. 346, 348. VALUATION OF PROPERTY. 103 Patents, etc. — Accounts receivable, etc. the fact that the other partners make similar en- gagements. 9 The revision of 1921, however, makes material changes ; and it is not clear to what extent the above rules are still in force. (See infra, p. 395.) § 109. Patents, trade marks and copyrights. The Regulations provide: "The basis for valuation of intangible assets of this character is the present worth of the estimated future earnings of the exclusive right during the rest of its existence. The return re- ceived by the decedent should be considered in estimating future earnings." (Art. 15, par. [6]). § 110. Accounts receivable, claims, judgments, etc. The Regulations provide: "A fair valuation for assets of this character at the time of death should be fixed by the execu- tor according to the best information available to him at the time of making return. A right 9. In re Orvis's Estate, 223 N. Y. 1, 119 N. E. Rep. 88; In re Cory's Estate, 177 App. Div. 871, 164 N. Y. Supp. 956,— affd. 221 N. Y. Memo. 612, 117 N. E. Rep. 1065; In re Burgheimer 's Estate, 154 N. Y. Supp. 943. The provisions of the Regulations seem to find support in these authorities. The rule last stated has been extended to the case of a close corporation in which the directors, being the same as the stockholders, pass a resolution empowering the corporation to acquire the stock of a deceased shareholder at a price less than its true value. 104 FEDERAL ESTATE TAX. Tangible property — Crops. of action which died with the decedent should not be included in the gross estate." (Art. 15, par. [7]). 10 § 111. Tangible property. As to tangible personalty other than household furniture and personal effects, the Regulations pro- vide: "With respect to all other tangible property the executor should endeavor to arrive at the sound and actual value at the day of death. Where such property is subsequently sold the sale price must be returned if the sale was a bona fide sale and for the best price obtainable.' ' (Art. 15, par. [8]). § 112. Crops. The Regulations provide: "In the case of growing crops the executor should ascertain from expert opinion what the value of the growing crop was on the day of death, as evidenced ,"by subsequent yield and crop prices. Where the crop is matured the value is the value of the crop unit on the day of death for the entire yield, less the cost of har- vesting and marketing. Where the crop is not matured these factors should be considered ; and the opinion of those expert in such matters should be ascertained as to what the crop was 10. See supra, p. 24. VALUATION OF PROPERTY. 105 Personal and household effects — Value less than $2,000. reasonably worth as a growing crop on the day of death." (Art. 15, par. [8]). 113. Personal and household effects to be ap- praised. The Regulations provide: "Executors and administrators are required to have careful appraisal made of all household and personal effects of the decedent, and to fur- nish in duplicate detailed lists and affidavits in the manner directed below. No distribution of such effects may be made until the lists and affidavits have been filed with the collector, and, if deemed necessary, sufficient time afforded the Bureau to have personal inspection made by an official appraiser. Where it is desired to dis- tribute or sell all the property in advance of the filing of the return, the lists and affidavits should be filed with the collector, together with a let- ter stating when it is desired to effect distribu- tion. If personal inspection by an internal- revenue officer is not deemed necessary, a waiver of such examination will be sent to the executor, who may thereupon proceed with distribution." (Art. 16.) 114. Same— When value is less than $2,000. The Regulations provide: "When the value of the personalty involved is less than $2,000, the detailed lists may be pre- pared by the executor personally. A room by 106 FEDERAL ESTATE TAX. When value is less than $2,000. room appraisal is desirable; and all the articles should be named specifically, except those of small value, such as common bric-a-brac or cheap books. A separate value should be given for each article named, except that the values of a number of articles contained in the same room may be grouped. The value of an article worth more than $50 should be stated separ- ately. Such an entry as the following would be acceptable: "Dining room: Table, six chairs, three pic- tures (common prints), value $75; sideboard $60; total $135. 4 'If there should be included in the lot, how- ever, jewelry or silverware of more than ordin- ary value, or articles having a marked artistic value, the executor must furnish an appraisal by persons thoroughly qualified by training and experience to judge of the value of such articles. "In the case of effects having a total value of less than $2,000, the executor may furnish as an alternative requirement a sworn estimate in duplicate of the approximate total value of the property by a professional appraiser of recog- nized standing and ability, or by a dealer in the class of personalty involved. "In addition to the lists or estimates described above, the executor must furnish in duplicate his affidavit as to the completeness of the lists and the qualifications of the appraiser." (Art. 17.) VALUATION OF PROPERTY. 107 When value is more than $2,000. § 115. Same — When value is more than $2,000. The Regulations provide: ' 'When the value of the effects is more than $2,000, detailed lists must be furnished, pre- pared by professional appraisers of recognized competence, or by dealers in the particular classes of personalty involved. The lists must be prepared in the same detail as that indicated above for the executor's list. Where the per- sonalty includes jewelry, silverware, or like ar- ticles, except in cases where the value of these items is insignificant, the appraisal of a reput- able dealer or appraiser of jewelry must be fur- nished. ''In the case of articles having marked artistic value, such as paintings, engravings, etchings, statuary, vases, oriental rugs, or antiques, the appraisals of experts will be required. The de- scription of such articles should be fully given. Where paintings having artistic value are listed, the size, subject, and artist should be named. In the case of oriental rugs, the size, make, age, etc., should be given. The weight in ounces of each article of silverware should be stated. With the duplicate lists there must be filed the executor's affidavit as to the completeness of the list and the qualifications of the appraisers." (Art. 18.) 108 FEDERAL ESTATE TAX. Appraisers — Limitation of provisions. § 116. Same — Appraisers and basis of appraisals. The Regulations provide: " Where expert appraisers are to be employed, care should be taken to see that they are men of recognized competence with respect to the par- ticular class of property involved. In order to facilitate the acceptance of the appraisal, ap- praisers should be employed whose competence is well established. "The basis to be employed in appraising ar- ticles of this character is what they would bring at a bona fide sale to individual purchasers, to dealers, or upon a well-advertised auction sale. If there has been an actual bona fide sale, the amount received may be returned as the value of the property. Where property is valued by legatees for purposes of distribution, such value will not necessarily be accepted. The original cost of the articles is not necessarily a proper basis, on account of depreciation or apprecia- tion in value." (Art. 19.) § 117. Limitation of foregoing provisions. As the language quoted shows, the provisions of the Regulations are limited to household and per- sonal effects of the decedent. An appraisal is not re- quired of other property than that specified; as, for example, farm property, such as grain or live stock, or securities, such as bonds or mortgages. Where the property is perishable a provision for its ap- praisal might, it would seem, be a wise one. It is, VALUATION OF PROPERTY. 109 Annuities for the life of another person. of course, the duty of the executor in all cases to re- port the true value of the property at the time of the death as nearly as he can ascertain it. § 118. Annuities for the life of another person. The Regulations provide: "Where the decedent was entitled to receive an annuity of a definite amount during the life- time of another person, and the right constitutes an asset of his estate, the present worth of the annuity at the time of the decedent's death must be computed upon the basis of the expectancy of life of the other person. The table marked "A" upon page 19 should be used for this com- putation. The amount of annual income should be multiplied by the figure in column 3 of the table opposite the number of years in column 1 nearest to the actual age of the other person. "Example: The decedent received under the terms of his father's will an annuity of $10,000 for the life of his elder brother. The brother at the decedent's death was 40 years 8 months old. By reference to the table the figure in column 3 opposite 41 years, the number nearest to the brother's age, is found to be 14.86102. The pres- ent worth of the annuity is therefore $148,- 610.20." (Art. 20.) The table referred to is the following: 110 FEDERAL ESTATE TAX. Annuities for the life of another person. Table "A.' : Table, single life, 4 per cent, showing the present worth of an an- nuity, or life interest, and of a reversionary interest 1 2 3 4 1 2 3 4 Annuity, or Reversion, or Annuity, or Reversion, or present value present value present value present value of $1 due at of $1 due at of $1 due at of $1 due at Expect- the end of the end of Expect- the end of the end of Age. ancy of each year the year of Age. ancy of each year the year of life. during the death of a life. during the death of a life of a person of life of a person of person of specified age. person of specified age specified age. specified age. Annuity. Reversion. Annuity. Reversion. 23.179 $14.72829 $0.39507 51 17.527 $12.17919 $0.49311 1 30 . 552 17.30771 .29586 52 16.947 11.88408 . 50446 2 35.626 18.69578 .24247 53 16.372 11.58531 .51595 3 37.572 19.15901 .22465 54 15.804 11.28325 . 52757 4 38.702 19.41226 .21491 55 15.243 10.99789 .53931 5 39.352 19 . 55301 . 20950 56 14.689 10.66982 .55116 6 39.654 19.61731 .20703 57 14.143 10.35931 .56310 7 39.691 19.62502 . 20673 58 13.603 10.04630 .57514 8 39.625 19.61097 . 20727 59 13.072 9.73131 .58726 9 39 . 264 19.53413 .21022 60 12.549 9.41474 . 59943 10 38.891 19.45359 .21332 61 12.029 9.09765 .61163 11 3S . 507 19.36943 .21656 62 11.532 8.78052 .62382 12 38.113 19.28184 .21993 63 11.039 8.46412 .63600 13 37.710 19.19065 .22344 64 10 . 557 8 . 14888 .64812 14 37.298 19.09590 .22708 65 10.088 7.83552 66017 15 36.877 18.99764 . 23086 66 9.630 7.52476 .67212 16 36.447 18.89569 .23478 67 9 . 185 7.21699 .68396 17 36.010 18.79010 .23884 68 8.753 6.91298 .69565 18 35.565 18.68070 .24305 69 8.333 6.61301 .70719 19 35.113 18.56751 .24740 70 7.926 6.31716 .71857 20 34 . 652 18.45038 .25191 71 7.532 6.02612 .72976 21 34.186 18.32932 . 25656 72 7.151 5 . 74003 . 74077 22 33.711 18.20416 .26138 73 6.782 5.45928 .75157 23 33.230 18.07471 .26636 74 6.425 5.18402 .76215 24 32.742 17.94097 .27150 75 6.081 4.91463 .77251 25 32.248 17.80274 .27682 76 5.749 4.65125 .78264 26 31.747 17.65984 .28231 77 5.428 4 . 39383 .79254 27 31.239 17.51224 . 28799 78 5.119 4 . 14286 . 80220 28 30.725 17.35968 . 29386 79 4.823 3.89858 .81159 29 30.205 17.20225 .29991 80 4 . 537 3.66071 . 82074 30 29.678 17.03961 .30617 81 4.262 3.42900 .82965 31 29.147 16.87176 .31262 82 3.995 3.20258 . 83836 32 28.608 16.69846 .31929 83 3.737 2 . 98024 .84691 33 28.067 16.51964 .32617 84 3.484 2.76106 .85534 34 27.516 16.33503 .33327 85 3.236 2.54366 .86371 35 26.961 16.14437 .34060 86 2.992 2.32795 . 87200 36 26.401 15.94755 .34817 87 2.752 2.11384 .88024 37 25 . 834 15.74427 . 35599 88 2.517 1.90115 .88842 38 25 . 263 15.53421 .36407 89 2.286 1.69107 .89650 39 24.685 15.31722 .37241 90 2 . 0^2 1.48540 .90441 40 24.101 15.09295 .38104 91 1.845 1.28432 .91214 41 23.511 14.86102 .38996 92 1.637 1.09024 .91961 42 22.915 14.62122 .39918 93 1.442 .90647 .92667 43 22.313 14.37356 .40871 94 1.263 . 73687 .93320 44 21.708 14.11860 .41852 95 1.103 . 58435 .93906 45 21.103 13.85713 .42857 96 .975 .46182 .94378 46 20.499 13.58958 .43886 97 .877 . 36608 .94742 47 19 . 896 13.31698 .44935 98 .746 .24038 .95229 48 19.298 13.03942 .46002 99 .500 . 00000 .66154 49 18.703 12.75716 .47088 1 50 18.113 12.47032 .48191 VALUATION OF PROPERTY. Ill Annuities for a term of years. § 119. Annuities for a term of years. The Regulations provide: "Where the decedent was entitled to receive the annuity during a specified number of years, the table marked "B" upon page 20 should be used. "Example: The decedent received under the terms of his father's will an annuity of $10,000 for a period of 20 years, 15 of which had expired at the decedent's death. By reference to the table it is found that the figure in column 2 op- posite 5 years, the unexpired portion of the 20- year period, is 4.45182. The present worth of the annuity is, therefore, $44,518.20 (4.45182 multiplied by 10,000)." (Art. 20.) The table referred to is the following: Table "B." 1 2 Present worth 3 1 2 Present worth 3 of an annuity Present worth of an annuity Present worth Num- of SI ■ payable of $1, payable Num- of $1, payable of SI, payable ber o( at the end of at the end of a ber of at the end of at the end of a years. each year for a certain number years. each vear for a certain number certain number of years. certain number of years. of years. of years. Annuity Reversion Annuity Retention 1 SO. 96154 SO. 96 1538 16 SI 165229 SO. 533908 2 1.88609 .924556 17 12.16567 .513373 3 2 . 77509 . S88996 18 12.65929 .493628 4 3.62989 .854804 19 13.13394 .474642 5 4.45182 .821927 20 13.59032 456387 6 5.24214 .790314 21 14.02916 .438834 7 6.00205 .759918 22 11 45111 421955 8 6.73274 .730690 23 14.85684 405726 7.43533 .702587 24 15.24696 .390121 10 8.11089 .675564 25 15 62208 375117 11 8.76047 .649581 26 15.98277 360689 12 9.38507 .624597 27 16 32958 346816 13 9.98565 .600574 28 16.66306 .333477 14 10.56312 577475 29 16.98371 .320651 16 11.11839 .55526.', 30 17.29203 .308319 112 FEDERAL ESTATE TAX. Computation where rate of income is fixed or determinable. § 120. Computation where rate of income is fixed or determinable. The Regulations provide: "Where the decedent was entitled to receive the entire income of certain property during the life of another or for a term of years, and where the rate of income is fixed by the instrument creating the trust or is definitely determinable at the time of the decedent's death, the average annual income which the property actually yields should be determined, and its present worth computed, as explained above in the case of annuities. "Example: The decedent's father placed $100,000 in trust, with directions that it be in- vested in state and municipal bonds and the en- tire income paid to the decedent during the life of his elder brother, who was 41 years old at the decedent's death. Before the decedent's death the money was invested in state and municipal bonds, and actually yielded a net return of $5,000 per annum. In this case the rate of in- come is definitely determinable. By reference to the table it is found that the present worth of an income of $5,000 dependent upon the life of a person 41 years of age, is $74,305.10 (14.86102 multiplied by 5,000)." (Art. 20.) VALUATION OF PROPERTY. 113 Rate of income not determinable — Valuation remainder interest. § 121. Computation where rate of income is not de- terminable. The Regulations provide: "Where the rate of annual income is not de- terminable, or where the decedent was entitled merely to the personal use of nonincom-bearing property, a hypothetical annuity at a rate of 4 per cent of the value of the property should be made the basis of the calculation. "Example: The decedent died before a fund of $100,000, of which he was entitled to receive the income during the life of a person 41 years old, had been invested by the trustees. The value of a hypothetical annuity of $4,000, de- pendent upon the life of such a person, is in- dicated by the table to be $59,444.08." (Art. 20.) § 122. Valuation of remainder interest. The Regulations provide: "Where the decedent possessed a remainder interest in property subject to the life estate of another, and such interest constituted an asset of his estate, the present worth of the remainder interest at the time of death should be obtained by multiplying the value of the property at the time of death by the figure in column 4 of Table A opposite the number of years nearest to the age of the life tenant. Where the remainder in- terest is subject to an estate for a term of years Table B should be used. 8 114 FEDERAL ESTATE TAX. Valuation of contingent interests. "Example: The decedent was entitled to re- ceive property worth $50,000 upon the death of his elder brother, to whom the income for life had been bequeathed. The brother at the time of the decedent's death was 31 years old. By reference to the table it is found that the figure in column 4 opposite 31 years is 0.31262. The present worth of the remainder interest is, there- fore, $15,631." (Art. 20.) § 123. Valuation of contingent interests. As already seen, interests, whether properly styled vested or contingent, are proper subjects for inclu- sion in the gross estate, even though there is a pos- sibility that they will be wholly defeated by events occurring after the decedent's death. 11 A reason- able valuation, however, is placed upon such inter- ests; and where they are purely speculative — as where they depend upon the discretionary action of individuals — the tendency is to value them at a nomi- nal sum, unless there are special circumstances in- dicating a probability that the interest will be rea- lized by the estate. The ordinary test of market, or sale, value would apply to such interests. Nor, it is held, is it permissible to make a revaluation of the interest at a subsequent date when the contingency has happened, since the valuation is required to be made as of the death of the decedent, and such a course would obviously substitute a valuation of the interest at a later date. 11. See supra, p. 21. VALUATION OF PROPERTY. 115 Valuation of intoxicating liquors — Valuation of German mark. § 124. Valuation of intoxicating- liquors. Full effect is 'given by the Bureau to the recent legislation restraining or prohibiting the use of in- toxicating liquors, and correspondingly diminishing their value. Thus, where the decedent died while war time prohibition was in force, 12 the value of the liquor for beverage purposes is not included in the gross estate, but merely their value for legal uses, namely, for non-beverage purposes and for export. 1 '" § 125. Valuation of German mark. Where the decedent died during the late war, leav- ing German marks, their value is determined by the Bureau by reducing the mark to the currency of some neutral country at the rate of exchange prevailing at the decedent's death, and then ascertaining the value of such substituted currency according to the rate of exchange between such country and the United States. 12. The period from June 30, 1919, to the date when the Eighteenth Amendment went into operation. See Act of November 21, 1918 (40 Stat. 1045). 13. See Act of November 21, 1918; 40 Stat. 1045, Chap. 212, par. fourth. CHAPTER IV. DEDUCTIONS. RESIDENT ESTATES. § 126. The present statute. The statute provides as follows: "That for the purpose of the tax the value of the net estate shall be determined — (a) In the case of a resident, by deducting from the value of the gross estate — (1) Such amounts for funeral expenses, ad- ministration expenses, claims against the estate, unpaid mortgages, losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualty, or from theft, when such losses are not compensated for by insurance or otherwise, and such amounts reasonably required and actually expended for the support during the settlement of the estate of those dependent upon the decedent, as are allowed by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered, but not including any income taxes upon income re- ceived after the death of the decedent, or any estate, succession, legacy, or inheritance taxes." (Sec. 403 [a] [1]). § 127. The former statute. The language of the Revenue Act of 1916 is identi- cal with that of the present act up to and including the provision relating to the support of dependents. [116] DEDUCTIONS. 117 The former statute. The remainder of the section reads: "and such other charges against the estate of the decedent as are al- lowed by the laws of the jurisdiction * * ' under which it is being administered. 1 The present statute differs (a) in omitting the ref- erence to "such other charges;" and (b) in provid- ing expressly that inheritance taxes are not deducti- ble. The Regulations provide: "In the case of the estates of residents, the deductions are made from the value of the en- tire gross estate, wherever situated. The deduc- tions specified in the above provisions, contained in the Revenue Act of 1918, are proper in all cases where the decedent died on or after Febru- ary 25, 1919. Where the decedent died prior to February 25, 1919, the case is governed by the provisions of the Revenue Act of 1916, which permits the following deductions: (1) Funeral expenses. (2) Administration expenses. (3) Claims against the estate. (4) Unpaid mortgages. (5) Losses from casualty or theft. (6) Support of decedent's dependents. (7) Other charges against the estate. (8) Specific exemption of $50,000. (9) In the case of decedents dying after De- cember 31, 1917, public, religious, charitable, scientific, literary, and educational bequests. 1. Revenue Act of 1916, Sec, 203 (a) (1). 118 FEDERAL ESTATE TAX. General requirements for deduction. "The provision in the Revenue Act of 1916 for the deduction of 'such other charges' than those previously specified as may be allowed by the laws of the jurisdiction is omitted in the Revenue Act of 1918. Consequently, in the case of es- tates of all persons dying after February 24, 1919, the executor, in order to obtain a deduc- tion, must bring the item within one of the classes specifically described." (Art. 37.) § 128. General requirements for deduction. The Regulations provide: "In order to be deductible, the item must be of the character described in the statute ; and it must also be one the payment of which out of the estate is allowed by the law of the jurisdic- tion administering it. Where the item is not one of those described, it is not deductible merely because payment is allowed by the local law. On the other hand, no item is deductible unless its payment is so allowed. It must ap- pear in every case either that payment of the item has been made, or that such payment is clearly contemplated. Where the amount which may be expended for the particular purpose is limited by the local law, no deduction in excess of such limitation is permissible. Where the local courts have approved the expenditure it will ordinarily be allowed for deduction. (See Art. 39.) Where the disbursement has not been made, the item may be entered for deduction DEDUCTIONS. 119 Decision of local court. where the amount is certain, and it appears sat- isfactorily that it will be paid. No deduction may be taken upon the basis of a vague or un- certain estimate. Where an uncertain or con- tingent liability, not allowed as a deduction, be- comes fixed, and payment is made, the remedy is a claim for a refund of the excess tax." (Art. 38. ) 2 § 129. Decision of local court. A question which must continually arise is the effect to be given to the decree of a local probate court. The .Regulations treat the subject as follows: "The decision of a local court as to the amount of a claim or administration expense will ordinarily be acceptd where the court passes upon the fact upon which deductibility depends. Where the court does not pass upon 2. The ruling that all deductions must, in order to be deduct- ible, be allowed by the local law was first laid down, with reference to the Revenue Act of 1916 in Treasury Decision 2453 (promulgated March 7, 1917), which provides: "While the punctuation and construction of the paragraph may not be absolutely conclusive upon this point, it is the opinion of this office that the limitation set up in the con- cluding part of the paragraph applies to all the items enumer- ated in the paragraph; that is, there could not be deducted from the gross estate in determining the net estate liable to tax any funeral or other expenses or any losses and charges which were in excess of the amounts allowable under the laws of the local jurisdiction as credits to administrators or executors in their accounts in the probate courts." 120 FEDERAL ESTATE TAX. Decision of local court. such fact its decree will, of course, not be fol- lowed. 3 For example, where the question be- fore the court is whether a claim should be al- lowed, the decree allowing it will ordinarily be accepted as establishing that the claim is valid and the amount of it. Where, however, a legacy- is left to an executor in lieu of commissions, the allowance of the legacy does not establish that the executors claim for commissions is equal to the amount bequeathed, and that this amount is consequently deductible. (See Art. 42.) Nor will the decree necessarily be accepted even where it purports to decide the fact upon which deductibility depends. It must appear that the court actually passed upon the merits of the case. This will be presumed in all cases where there is an active and genuine contest. Where the result reached appears to be unreasonable, this is some evidence that there was not such a contest, but it may be rebutted by proof to the contrary. Where the decree was rendered by consent, it will be accepted, provided the con- sent was a bona fide recognition of the validity of the claim — not a mere cloak for a gift — and was accepted by the court as satisfactory evi- 3. Where, for instance, a local court grants support during the settlement of the estate to relatives of the decedent with- out reference to the actual needs of the applicant, it is ruled that the decree is of no importance in determining whether to allow a deduction for support, since the Bureau considers financial necessity to be a condition of deduction. DEDUCTIONS. 121 Funeral expenses — Burial plot, monument, etc. dence upon the merits. It will be presumed that the consent was of this character, and was so accepted, where it is made by all parties having an interest adverse to the claim, when all as- pects of the matter, including its effect upon taxation, are considered. The decree will not be accepted where it appears to be at variance with the law of the State; as, for example, if an allowance is made to an executor in excess of the rate prescribed by statute." (Art. 39.) § 130. Funeral expenses. The Regulations provide: "An executor may deduct such amounts for funeral expenses as are actually expended by him, provided expenditures of this nature are a liability of the estate under the laws of the local jurisdiction. A reasonable expenditure by the executor for a tombstone, monument or mausoleum, or for a burial lot, either for him- self or his family, may be deducted under this heading, provided such an expenditure is made a charge upon the estate by the local law. In- cluded in funeral expenses is the transportation of the person bringing the body to the place of burial." (Art. 40.) § 131. Same — Burial plot, monument, etc. The cost of a burial plot, designed for the inter- ment not only of the decedent but of the members 122 FEDERAL ESTATE TAX. Repair of graves — Special rules. of his family, is allowed as a deduction, provided the expense is chargeable to the estate of the dece- dent under the local law. The same is true of a family monument or mausoleum. § 132. Same — Repair of graves. Deduction is also permitted of a reasonable amount left by the decedent in trust for the repair and upkeep of land in a cemetery, although the direction extends to the graves of the decedent's parents as well as his own. § 133. Same — Special rules in Maryland and Dis- trict of Columbia. It has been ruled that the special provisions of the Maryland Code do not absolutely restrict the allowance for funeral expenses to the sum of $300, but merely limit the preference of the debt to this amount; 4 and consequently that a reasonable dis- bursement may be deducted, although it is in excess of $300. In the District of Columbia, on the other hand, it is ruled that the statute forbids the allowance under any circumstances, of a sum in excess of $600 for funeral expenses, 5 and consequently that the deduc- tion may never exceed this sum. Up to this amount, however, a reasonable disbursement will be allowed, 4. See Annotated Code of Maryland, Art. 93, Sees. 1, 4, 5; Art. 16, Sec. 218. 5. Code of District of Columbia, Sees. 356, 364. DEDUCTIONS. 123 Administration expenses — In general. although the estate is being administered by the residuary legatee under a special bond for the pay- ment of debts and legacies, and it is consequently unnecessary to file an account. § 134. Administration expenses — In general. The Regulations provide: "The amounts deductible from the gross estate as 'administration expenses' are such expenses as are actually and necessarily in- curred in the administration of the estate; that is, in the collection of assets, payment of debts, and distribution among the persons entitled. The expenses contemplated in the law are such only as attend the settlement of an estate by the legal representative preliminary to the transfer of the property to individual bene- ficiaries or to a trustee, whether such trustee is the executor or some other person. Expendi- tures not essential to the proper settlement of the estate, but incurred for the individual benefit of the heirs, legatees, or devisees, may not be taken as deductions. Administration expenses include (1) executor's commissions; (2) attorney's fees; (3) miscellaneous ex- penses." (Art. 41.) 6. See Code of District of Columbia, Sec. 264. 324 FEDERAL ESTATE TAX. Commissions of executor. § 135. Same — Commissions of executor. The Regulations provide: "No amount may be deducted as executor's commissions in excess of that actually paid or to be paid, and in no case in excess of the amount allowable by the law of the jurisdiction wherein the estate is being administered. If at the time of filing the return the commissions of the executor have not been allowed or awarded by the court or tribunal having juris- diction in the premises, the commissions may nevertheless be entered on the return and claimed as a deduction, subject to future allow- ance or disallowance by the Commissioner, pro- vided: (1) That the amount entered and claimed is within the amount allowable by the laws of the jurisdiction wherein the estate is being administered; (2) that such amount is in accordance with the usually accepted practice in such cases within said jurisdiction; and (3) that it may reasonably be expected that the said amount will be paid within one year and 180 days after the decedent's death. Except in those cases in which the commissions have been both awarded and paid, the Commissioner may at any time require the executor to furnish satisfactory evidence of his right to take or claim the deduction. Whenever it shall appear to the Commissioner that the commissions claimed but not awarded, whether paid or un- DEDUCTIONS. 125 Bequest in lieu of commission. paid, exceed the amount allowed by law or ex- ceed the amount usually allowed within the commonly accepted practice of the jurisdiction wherein the estate is being administered, or where in any case the Commissioner finds after the lapse of 1 year and 180 days after the dece- dent's death that the commissions have not been paid, the deduction will be disallowed, subject to the right of the executor thereafter in a proper case to file a claim for abatement or refund as he may be advised, when the com- missions shall have been actually awarded and paid. Where the executor does not intend to make any charge upon the estate for his ser- vices, no deduction may be claimed." (Art. 42.) § 136. Same — Bequest in lieu of commission. The Regulations provide : "Where a bequest is made to an executor in lieu of commissions, it may be deducted as an administration expense only to an amount thereof not in excess of the amount allowable as commissions by the law of the jurisdiction wherein the estate is being administered. If the legacy is in excess of such allowable com- missions, the excess may not be deducted." (Art. 42.) 8 8. Express provision to this effect may be found in the statutes of some of the states. See, for instance, Massachusetts (Acts, 1909, Chap. 490, Part IV, Sec. 8). 126 FEDERAL ESTATE TAX. Trustee's commission. In order that the bequest may furnish the basis for a deduction it must result in an actual payment to the executor, as compensation for services. It is not enough that he received an incidental benefit under the will, as through a bequest to his wife, or payment for services other than those pertaining to the duties of an executor. Should the legacy be less than the legal compensation, the deduction cannot exceed the amount of the legacy. § 137. Same — Trustee's commission. This is held not to constitute an "administration expense," and consequently to be non-deductible. The Regulations provide: "No deduction may be made for trustees' commissions, and an executor who acts as trus- tee is not entitled to deduct the commission he receives for his services in the latter capacity. The executor's duties are complete when he has turned over the estate or the proceeds to the persons entitled thereto. Such persons may be beneficiaries entitled to receive the property in their own right, or trustees entitled to receive it in the right of their cestuis que trust. The services of the trustees are distinct from, and additional to, the ordinary duties of an executor in the settlement of estates; and commissions for such trustees' services do not constitute an expense of administration." (Art. 42.) DEDUCTIONS. 12- Miscellaneous rules — Attorney's fees. § 138. Same — Miscellaneous rules. The Regulations provide : " Where commissions not actually allowed are deducted upon the basis of reasonable com- pensation, attention should be given to the size of the estate, the character of the property, the amount of work performed by the executor, and the commissions allowed in the case of similar estates. The value of the real estate should not be taken into account in estimating the com- mission unless it has actually passed through the executor's hands, or there is a mandatory provision in the will, or a court decree, direct- ing its sale, and commissions are allowed by the local law. "Where the allowance of a commission is based upon services in relation to income of the estate, as well as principal, the entire com- mission is deductible." (Art. 42.) § 139. Attorneys' fees. The Regulations provide : "No amount may be deducted in any case as attorney's fees in excess of that actually paid or to be paid. If at the time of filing the return the attorney's fees have not been allowed or awarded by the court or tribunal having juris- diction in the premises, they may neverthelcss be entered on the return and claimed as a deduc- tion, subject to future allowance or disallow- 128 FEDERAL ESTATE TAX. Attorney's fees. ance by the Commissioner, provided: (1) That the amount so entered and claimed is reason- able in consideration of the services performed and the value of the estate; and (2) that it may reasonably be expected that such amount will be paid within 1 year and 180 days after the decedent's death. Except in those cases in which the attorney's fees have been both awarded and paid, the Commissioner may at any time require the executor to furnish satis- factory evidence of his right to take or claim this deduction. Whenever it shall appear to the Commissioner that the fees claimed were not awarded, and whether paid or unpaid, ex- ceed a reasonable amount in the discretion of the Commissioner, or where in any case the Commissioner finds after the lapse of 1 year and 180 days after the decedent's death that the fees have not been paid, the deduction will be disallowed, subject to the right of the execu- tor thereafter, in a proper case to file a claim for abatement or refund as he may be advised, when the fees have actually been awarded and paid. The cost of litigation instituted by the beneficiaries as to the amount of their respec- tive interests may not be deducted, since ex- penses of this character are properly charges against the beneficiaries personally, rather than against the general estate." (Art. 43.) DEDUCTIONS. 129 Brokerage fees — Miscellaneous expenses. This provision conforms the practice with respect to the deduction of attorney's fees to that applied to executors' commissions. The revision of 1919 drew a distinction between the two cases, in that executors' commissions were permitted to be de- ducted only upon proof that an account had been, or would be, filed in the probate court, — a condition not made in the case of attorneys' fees . (See infra, pp. 395-6.) § 140. Brokerage fees. The Regulations provide: "A brokerage fee for selling property of the estate is deductible where the sale is neces- sary in order to pay the decedent's debts, or the expenses of administration, or to effect distribution." (Art. 44.) This rule is applied to cases in which the testator makes a specific bequest of the proceeds of the sale of real property. Where, however, the sale is made by the heirs or devisees after the decedent's death, and is thus not a part of the administration of the estate, the expense is held not to be deductible. § 141. Miscellaneous expenses. The Regulations provide: "This item includes expenses incident to court proceedings, or the administration of the estate, such as court costs, surrogates' fees, accountants' fees, appraisers' fees, clerk hire, etc. Expenses necessarily incurred in dis- 9 130 FEDERAL ESTATE TAX. Claims against the estate — Special local requirements. tributing the estate are deductible. This in- cludes the cost of storing or maintaining prop- erty of the estate, where it is impossible to effect immediate distribution to the bene- ficiaries. Expenses for preserving and caring for the property may be deducted, but do not include additions or improvements; nor will such expenses be allowed for a longer period than the executor is required to retain the prop- erty. * * * Other expenses attending the sale are deductible, such as the fees of an auctioneer, where it is reasonably necessary to employ one. ' ' ( Art. 44. ) The expense of preserving and caring for prop- erty does not include the expense of keeping open and maintaining the decedent's house as a place in which to live, although the will provides for this and such condition is to continue only until the prop- erty can be sold. The expense of a caretaker would, however, be deductible in such a case. § 142. Claims against the estate — Special local re- quirements. The Kegulations provide: "The amounts that may be deducted under this heading are such only as represent per- sonal obligations of the decedent existing at the time of his death, whether then matured or not. Obligations contracted by the executor are not deductible. Only such claims as are DEDUCTIONS. 131 Taxes upon property. actually enforcible against the estate may be deducted.". (Art. 45.) Where satisfactory proof is made of the exist- ence of the claim, it may be deducted although cer- tain special provisions of the local law have not been complied with. Thus, where the local statutes provide, 9 that the claim of an executor or admin- istrator against the estate shall not be paid until there has been a special allowance thereof by the probate court, upon notice to all interested parties, the claim of the executor, if clearly established, may be deducted, although he has failed to take the steps specified, by reason of the fact that he is the sole beneficiary of the estate, and consequently not in- terested in establishing the status of a creditor. § 143. Taxes upon property. The Regulations provide : ''Taxes upon real property should be accrued to the date of death. This is done by ascertaining the time between the first day of the taxable period wherein the death occurs and the date of death, and computing the propor- tion of the entire tax which this period bears to the entire taxable period. Such proportion of the tax has accrued upon the date of death, and is deductible. ''Taxes upon personal property are either 9. As in Ohio: Annotated General Code of Ohio, Sees. 10,727, 10,728. 132 FEDERAL ESTATE TAX. Taxes upon property. wholly deductible, or are not deductible at all, depending upon whether the tax did, or did not, become the personal obligation of the taxpayer in his lifetime. If the tax became his personal obligation during his life, the whole amount is deductible as a claim against his estate. If it did not become such personal obligation in his lifetime, no part of it is deductible. The ques- tion when the tax became the personal obliga- tion of the taxpayer depends upon the law of the jurisdiction where the decedent was domi- ciled at the time of his death. Prima facie, the date when the tax became the personal obliga- tion of the taxpayer is the date when the assess- ment was laid." (Art. 46.) This regulation marks a departure from the earlier rule, 10 which treats taxes upon real and per- sonal property in the same way, permitting the deduction of the entire tax if the tax liability ac- crued in the lifetime of the decedent, and refusing any deduction if it accrued after his death. The application of these rules, particularly in the case of real property, is difficult. The language of the various State statutes differs materially; and it is often doubtful when the tax becomes a lien upon the land, or a personal obligation on the part of the tax- payer. 11 10. Laid down in Treasury Decision 2771 ; Nov. 8, 1918. 11. See, for instance, the statutory provisions relating to the City of New York, and contrast the decision in In re DEDUCTIONS. 133 Income taxes. The present rule, apportioning the tax upon real property, presents the question whether it runs counter to the provision in the statute requiring a deduction of a "claim" or a "charge" against the estate. 12 That is, it might be urged that the statute, in a given case, required the deduction of the entire amount, without reference to the expiration of the period for which the tax was laid. The nuV adopted, however, is probably defensible when taken in connection with the valuation of the prop- erty. The question presented in each case is the market or sale value of the property at the time of the decedent's death, and this is ordinarily deter- mined between buyer and seller upon the basis of the amount of tax which had accrued at the date of the sale. The land is valued, and the accrued tax is charged to the seller and deducted from the price. In this way, the rule laid down in the Regu- lations is actually applied. The deduction of the entire tax would be reflected in a corresponding in- crease in the valuation of the property. § 144. Income taxes. The statute is explicit in refusing deduction of the tax upon income received after the decedent's Babcock (115 N. Y. 450; 22 N. E. Rep. 263) with that in In re Freund's Estate (143 A. D. 335, 128 N. Y. Supp. 48; affd. on opinion below, 202 N. Y. 556, 95 N. E. Rep. 1129. 12. As already stated, the word "charge" is omitted from the Revenue Act of 1918. 134 FEDERAL ESTATE TAX. Death duties. death. This prohibition does not extend to the tax upon income received during the life time of the decedent. On the contrary, the plain implication is, that the tax upon such income is deductible; and the Bureau so rules, holding that, "In the case of federal taxes upon income, the tax upon income received or accrued during the decedent's life con- stitutes the personal obligation of the decedent, and is deductible. 13 § 145. Death duties. The statute is explicit in refusing the deduction of "any estate, succession, legacy or inheritance taxes." This provision sets at rest, as to the estates of persons dying after February 24, 1919, a much vexed question. Where the decedent died before that date, and the case is consequently governed by the Revenue Act of 1916, the question is in a con- fused and unsatisfactory state. The history of the various rulings is as follows: The Bureau first ruled that State inheritance taxes should be deducted as a "charge against the 13. Regulations, Art. 46. That the ordinary income tax constitutes a personal obligation of the taxpayer, and is con- sequently a claim against the estate, see Brady v. Anderson, 240 Fed. Rep. 665, 667-8. A ruling has been made under the Massachusetts Income Tax Act (Gen. Acts, 1916, Chap. 269, Sec. 1) permitting the deduction of the tax paid on income received during the decedent's life in 1917 and subsequent years. DEDUCTIONS. 135 Probate duties. estate." 14 This ruling was subsequently revoked, and such taxes were held not to be deductible. 15 § 146. Same — Probate duties. As the language used in Treasury Decision 2524 indicates, the refusal to deduct inheritance taxes extends only to the case of the ordinary legacy or inheritance tax, imposed upon individual legacies from the decedent or distributive shares in his estate. The ruling has never been extended to pro- bate duties, levied against the estate as a whole. On the contrary, the Bureau has ruled consistently that such duties are deductible under the Revenue Act of 1916. It has been so ruled with reference to 14. Treasury Decision 2395; Nov. 17, 1916. The following language was used : "Since it does not appear open to question that State inherit- ance taxes are a primary charge against an estate and allowable as credits to executors and administrators in every State im- posing such taxes, they are clearly deductible from the gross estate." 15. Treasury Decision 2524; Sept. 10, 1917. This Treasury Decision contains little or nothing in the way of argument. It is said : "An exhaustive study of the nature of State inheritance taxes has led this office to the conclusion that amounts paid to States on account of inheritance, succession, or legacy taxes are not 'such other charges against the estate as are allowed by the laws of the jurisdiction,' and accordingly are not deduct- ible in arriving at the amount of Federal estate tax.' " Treasury Decision 2395 is revoked. 136 FEDERAL ESTATE TAX. Succession taxes — Court decisions. the British Estate Duty, 16 a duty imposed by the laws of the New South Wales for the privilege of administering personal property of the decedent situated in Australia, 17 and a duty imposed by the laws of British India as a condition of the transfer of stock in corporations organized under the laws of that country upon the death of the owner. 18 § 147. Succession taxes — Court decisions. As to the ordinary legacy or succession tax, how- ever, the policy of the Bureau, ever since the pro- mulgation of Treasury Decision 2524, 19 has been to refuse deduction. A decision adverse to this posi- tion, however, has been rendered with reference to the collateral inheritance tax of Pennsylvania, hold- ing it to be deductible as a charge against the estate under the Revenue Act of 1916. 20 The Bureau has accepted this decision as conclusive, both with ref- 16. Imposed by the Finance Act of 1894 (57 and 58 Vict., Chap. 30), upon the passage of the estate as a whole, at graduated rates. This tax is of the same general character as the Federal Estate Tax. 17. Statutes of New South Wales, 1899, No. 27. 18. Act No. VII, passed by the Governor-General of India in Council, known as the "Succession Certificate Act, 1889." 19. On Sep. 10, 1917. 20. Northern Trust Co. v. Lederer, 257 Fed. Rep. 812; affd. sub nom. Lederer v. Northern Trust Co., 262 Fed. Rep. 52. The latter decision (of the Circuit Court of Appeals for the Third Circuit) was rendered on January 7, 1920; and on March 3, ]920, the Supreme Court denied an application for a writ of certiorari. DEDUCTIONS. 137 Succession taxes — Court decisions. erence to t ho collateral inheritance tax directly in- volved in the decision, 21 and the tax subsequently imposed in Pennsylvania upon lineal descendants of the decedent. 22 The decision in Lederer v. Northern Trust Com- pany, however, has application only to the Pennsyl- vania inheritance tax; and the Bureau has refused to accept it as a precedent in other States. This refusal is evidently based upon the theory that the Pennsylvania tax is not the ordinary legacy or suc- cession tax, but rather an estate tax or probate duty, or at least that the Pennsylvania courts have so decided. And the reasoning of the court in the case cited supports this theory. 23 Thus, in general, the ruling of the Bureau con- tinues at the present time to be what it was before, namely, that the ordinary legacy or succession tax is not deductible, either under the Revenue Act of 1916 or under the Revenue Act of 1918. And this ruling, has, in reference to the inheritance tax of New York, received judicial sanction. 24 21. Act of May 6, 1887; 1 Purdon's Digest, p. 603 et seq. 22. Act of July 11, 1917, Laws 1917, No. 318, p. 832. 23. See 262 Fed. Rep., pp. 54-5, where the court cites expres- sions of the Pennsylvania courts indicating that the tax is im- posed upon the estate as a whole. 24. New York Trust Co. v. Eisner, 263 Fed. Rep. 620; Dis- trict Court, S. D. N. Y., Mack, J., Jan. 19, 1920. On the other hand, there is a decision to the contrary, holding that the New York tax is deductible in ascertaining the net estate under the federal estate tax law. See Sayre v. Brewster; U. S. Dist. Ct., 138 FEDERAL ESTATE TAX. Deduction by the States of the federal tax. § 148. Deduction by the States of the federal tax. The question of the deductibility of the federal tax in computing inheritance taxes under the laws of the various States does not come strictly within the scope of this work. The practice of the States, however, is interesting as indicating the general policy in such matters. Each State court, of course, N. D. of N. Y.; Ray, J. See War Tax Service, Corporation Trust Co., 1921, pars. 309-10. See, as possibly tending to support the refusal to deduct State inheritance taxes, Prentiss v. Eisner (267 Fed. Rep. 16), holding that the New York tax is not deductible by a legatee for income tax purposes, under a statute permitting the deduction of "taxes" (Act of Oct. 3, 1913; 38 Stat. 166, Chap. 16, par. D.). That is, the individual legatee does not pay the ' ' tax. ' ' Quaere, whether it follows that the estate does not pay it. In New York Trust Company v. Eisner, Judge Mack refers to the decision in Northern Trust Company v. Lederer, and distinguishes it upon the ground that the Pennsylvania tax was, or was held to be, an estate tax or a probate duty, rather than the ordinary legacy or succession tax (263 Fed. Rep. 622). As an original proposition, it is not easy to see such a radical difference in the New York and Pennsylvania statutes as would warrant a difference in treatment. The Pennsylvania statute does, it is true, provide that "All estates • * • passing • * * shall be subject to a tax * * *"; but it is provided that this tax shall be apportioned among the individual legatees or distributees, and that the executor or administrator shall deduct from each legacy or distributive share the tax with respect thereto. Act of May 6, 1887, Sec. 5; 1 Purdon's Digest, p. 606. There is, however, at least one state, Rhode Island, which has a true estate tax analogous to the English and Federal Taxes. See Public Laws, 1916, Chap. 1339, Sees. 1, 2, 3, 4. DEDUCTIONS. 139 Deduction by the States of the federal tax. has its individual question to consider, depending upon the language of the particular statute. The general tendency is to permit the deduction of the federal tax, either as an administration expense, 25 or upon the ground that the "clear value" or "clear market value" of the property transferred (made by the statute the basis of tax) can be ascertained only after the federal tax is paid. 26 In New York, on the other hand, the deduction is refused. 27 Both of the New York decisions cited are based largely upon Matter of Gihon, 28 which holds that the tax imposed by the Federal War Revenue Act of June 13, 1898, 29 is not deductible in computing the State inheritance tax. The Act of 1898, however, imposes the ordinary tax upon individual legacies or distributive shares. In this respect it is wholly dif- ferent from the estate tax of 1916. 30 The reasoning 25. Corbin v. Townshend, 92 Conn. 501, 103 Atl. Rep. 647; People v. Pasfield, 284 111. 450, 120 N. E. Rep. 286; People v. Northern Trust Co., 289 111. 475, 124 N. E. Rep. 662. 26. State ex rel. Smith v. Probate Court, 130 Minn. 210, 166 N. W. Rep. 125; People v. Pasfield, supra; In re Knight's Estate, 261 Pa. St. 537, 104 Atl. Rep. 765; In re Roebling's Estate, 104 Atl. Rep. 295 (N. J.). 27. Matter of Bierstadt, 178 App. Div. 836, 166 N. Y. Supp. 168; Matter of Sherman, 179 App. Div. 497, 166 N. Y. Supp. 19; affd. 222 N. Y. 540, 118 N. E. Rep. 1078. 28. Matter of Gihon, 169 N. Y. 443, 62 N. E. Rep. 561. 29. 30 Stat. 464. 30. See In re Hamlin, 226 N. Y. 407, 124 N. E. Rep. 4; Plunkett v. Old Colony Trust Co., 233 Mass. 471, 124 N. E. Rep. 265. 140 FEDERAL ESTATE TAX. Deduction by the States of the federal tax. in the Bierstadt case is to the effect that either the two acts are similar for deduction purposes, or the latter act is a direct property tax, unapportioned and consequently unconstitutional. 31 This seems to be a non sequitur. The tax might be an indirect tax, 32 and yet differ radically from a tax upon individual legacies or distributive shares. Quaere, how far the fact that the basis of tax under the Federal Act of 1916 is the transfer of the entire net estate ought logically to affect deductibility under the inheritance tax laws of New York. The Sherman case does not use the argument advanced in the Bierstadt case; and the substituted reasoning is far from clear. 33 Massachusetts takes issue with New York even as to the deductibility of the Federal Tax of 1898, hold- ing that it is deductible under the Massachusetts inheritance tax statute, 34 which does not seem to differ from the New York statute sufficiently to warrant a different rule. According to the decided weight of authority, the federal tax imposed by the Revenue Act of 1916 is deductible in determining inheritance taxes in the various States. The most satisfactory rule would probably be for the States to permit the deduction of the federal tax, and Congress the deduction of 31. 178 App. Div. 837. 32. As to which see supra. 33. See 179 App. Div. 502-4. 34. Hooper v. Shaw, 176 Mass. 190, 57 N. E. Rep. 361. DEDUCTIONS. 141 Unpaid mortgages. the various State taxes. To a considerable extent this rule did obtain under the Revenue Act of 1916. It did not wholly obtain, however; and in the Revenue Act of 1918 Congress explicitly refuses to permit the various State taxes to be deducted. § 149. Unpaid mortgages. The Regulations provide: "The full amount of unpaid mortgages on property included in the gross estate should be deducted under this heading, including in- terest which had accrued at the time of death, whether payable at that time or not. Interest should be computed upon the basis of 365 days to the year. The full value of the real estate, without any deduction for mortgages, must be returned as part of the gross estate. As real property situated outside of the United States is not part of the gross estate, the amount of mortgages upon such property should be deducted only where the decedent was per- sonally liable for the mortgage debt." (Art. 47.) The statute provides for the deduction of "un- paid mortgages," without reference to the character of the mortgaged property. Inasmuch, however, as it is ruled that real property not situated in the United States forms no part of the gross estate, 35 it is clearly a reasonable rule to restrict the deduc- 35. Regulations, Art. 13. 142 FEDERAL ESTATE TAX. Losses from casualty or theft. tion to mortgages upon real property in this country, unless the mortgage debt is a personal obligation of the decedent, payable out of his estate. 36 § 150. Losses from casualty or theft. The Regulations provide: "There may be deducted under this heading losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualty, or from theft, when such losses are not compensated by insurance or otherwise. If the loss is partly compensated, the excess of the loss over such compensation may be deducted. Losses not of the nature described are not deductible. Losses sustained by reason of depreciation in the value of the assets of the estate subsequent to the decedent's death are not deductible. The term 'casualty' includes only losses of a fortuitous and unusual char- acter, such as result from violence, or from a disaster which could not be foreseen or pre- 36. If the refusal to deduct mortgages on real property situated outside of this country (in the absence of a personal liability on the part of the decedent) reads into the statute something not expressly stated, the same is probably true of the Regulation excluding from the gross estate real property owned by a resident, but situated in other countries. The latter rule was adopted in deference to an ancient and deep- rooted theory that such property is subect to tax, directly or indirectly, only by the jurisdiction in which it is situated. DEDUCTIONS. 143 Support of dependents — Authorization by local law. vented by the exercise of reasonable care. Losses due to the death of animals from disease are deductible. In order to be deductible a loss must occur during the settlement of the estate. Where property has been delivered to the bene- ficiary, settlement has been effected, and no deduction may be had for loss of the property." (Art. 48.) In accordance with these provisions it has been ruled that loss resulting from the fall of a silo, due to insufficient reinforcing material, is deductible. § 151. Support of dependents — Original rules — Authorization by local law. The Regulations of 1919 lay down four conditions with reference to the allowance of a deduction for support, the first of which is that: 1 'In order to be deductible, the allowance must be authorized by the laws of the jurisdic- tion in which the estate is being administered; and no sum is deductible in excess of the amount so authorized, whether actually ex- pended or not." (Art. 49, par. [1].) Provision by the local law for support during the settlement of the estate is a condition precedent to deduction. Thus, where the local law 37 provides for support only where the husband leaves no will or the widow dissents from the provisions of the will, 37. As in Tennessee: See Thompson's Shannon's Code, Sec. 4020. 144 FEDERAL ESTATE TAX. Support must be money. a deduction will not be allowed where the husband leaves a will and the widow takes under it. Where, however, the local law provides for sup- port, it is ruled that it is not an obstacle to deduc- tion that the will provides for the payment of the income of the estate to the widow, and the local court adopts this provision, and directs such pay- ment during the settlement of the estate, instead of making some other provision. Similarly, it is ruled that where the will directs the payment of a certain sum to the wife during the settlement of the estate, and this payment is made and allowed to the execu- tor in his final account, the amount is deductible, although there was no special application for an allowance or special order with respect thereto. § 152. Same — Support must be money. The Regulations provide: "The only subject for deduction is money thus allowed and paid. The turning over of furniture or other personal property, although under the authority of a statute, is not a proper subject for deduction." (Art. 49, par. [2].) This ruling accords with the natural meaning of the language used, namely, "such amounts," etc. 38 38. The question is treated more fully in an earlier Treasury Decision, promulgated under the Revenue Act of 1916. (Treasury Decision 2531; Oct. 4, 1917.) This decision uses the following language: "In view of the language of the taxing act, there must be an actual expenditure of money — DEDUCTIONS. 14.3 Persons supported must be actually dependent. § 153. Same — Persons supported must be actually dependent. The Regulations provide: "The amount sought to be deducted must be reasonably required for support. This means that the alleged dependent shall actually re- quire the allowance for his support. Mere re- lationship to the decedent is not enough. A person is not dependent where he has means of his own sufficient to support him according to his station in life. This implies, however, the possession of income, either from property or earnings, sufficient to support him according to his scale of living at the time of the decedent's death. A person is not removed from the de- pendent class by the possession of property, which he might sell or mortgage. Where a per- son is thus dependent at the time of the allow- ance, it does not affect the deduction that he subsequently comes into the possession of money or property, through the distrubution of not a mere delivery to the dependent by the executor of house- hold goods or other miscellaneous personalty of that character. It is obvious that the turning over of furniture and such per- sonalty to the dependent does not contribute to that depend- ent's support unless the furniture is sold and the proceeds are so used. Therefore, provisions in the statutes of the various States to the effect that the widow is entitled to family pictures, wearing apparel, etc., and to certain household goods in lieu of an award, has reference to the widow's ex- emption and has no application in determining the deduct- ibility of an amount paid for the support of dependents." 10 146 FEDERAL ESTATE TAX. What necessary to negative dependence. the estate or otherwise. The whole amount of the allowance is deductible, whether paid in one sum or in installments." (Art. 49, par. [3]). Whether the words ' ' those dependent upon the de- cedent" contained in the statute, in connection with the reference to the local law, indicate actual need of money, as distinguished from relationship to the decedent, is probably a serious question. Provisions for temporary support during the settlement of the estate are common in the various States, and the al- lowance is often made without reference to the finan- cial condition of the applicant. This was the system with reference to which Congress was legislating; and the intention, at least in the Revenue Act of 1916, was probably to permit the deduction where- ever the State law granted the allowance. The Bureau rulings have, however, throughout been to the contrary, insisting upon actual financial neces- sity. 39 This position, taken under the Revenue Act of 1916, is, however, much strengthened by the lan- guage of the Revenue Act of 1918, which provides that the amount sought to be deducted must be "rea- sonably required and actually expended" for the support of the dependents. These words are new. § 154. Same — What necessary to negative depend- ence. Although the Regulations speak of "income" as a factor determining whether the person is depend - 39. See Treasury Decision 2531, par. second; Oct. 4, 1917 DEDUCTIONS. 147 Time for determining dependency. ent or not, the character of money in hand, as con- stituting "income" or "capital," is treated as im- material. The distinction taken is between money in hand, which is actually available for support, and which it is deemed reasonable that the person shall apply to this purpose, and property, which it would be necessary to sell or mortgage, and which is con- sequently not deemed applicable to the support of the otherwise dependent person. § 155. Same — Time for determining dependency. This is fixed as being the time of the making of the allowance. On this point the statute is not ex- plicit. The alternative theory would apparently be to take the date of the death as the time for determ- ining dependency. The statute does not say this, and many of the other deductions are determined by occurrences after the death. The possibility of discrimination, due to the precise time of the receipt of money, is one which would exist whatever date were taken for determining the question. The prin- cipal contingency after death is probably the receipt of insurance money on policies taken out by the de- cedent. Such claims, if valid, are usually paid at once. If payment were deliberately postponed in order to secure a deduction not otherwise obtain- able, the deduction might perhaps be refused. Ap- parently no such case has arisen. 148 FEDERAL ESTATE TAX. Expenditure of the money — Present rules. § 156. Same — Expenditure of the money. The Regulations provide: "The money must be actually expended for support. This means that the executor or ad- ministrator must pay it to the persons entitled. After the payment has been made, the deduction of the sum is proper, and is not affected by the fact that the dependents do not use the whole of it during the period of administration." (Art. 49, par. [4]). § 156-a. Present rules. The Regulations now provide : "The support during the settlement of the estate of dependents of the decedent should be deducted, but pursuant to the following rules: (1) In order to be deductible, the allowance must be authorized by the laws of the jurisdic- tion in which the estate is being administered, and not in excess of what is reasonably re- quired. (2) The allowance for which deduction may be made is limited to support during the settle- ment of the estate. Any allowance for a more extended period is not deductible. DEDUCTIONS. 148a Present rules. (3) There must be an actual disbursement from the estate to the dependents, hut after payment has been made, the right of deduction is not affected by the fact that the dependents did not expend the entire amount for their sup- port during the settlement of the estate." (Art. 49.) The effect of the amendment upon the four rules previously set out appears to be as follows: (1) Necessity of authorization by local lair. — This rule is in no way affected. (2) Support must be money. — There is nothing specific on this point; and apparently the allow- ance of anything actually tending to support, such as flour or other supplies, might suffice. Quaere. as to furniture or similar personalty. There is a prior adverse ruling with reference to such articles. (See T. D. 2531, p. 288.) (3) Actual dependence necessary. — This rule is not stated as explicitly as in the earlier revision. It is merely required that the amount shall be "not in excess of what is reasonably required." This may possibly have the same result; but the ten- dency to curtail the former explicit, and somewhat doubtful, ruling is noteworthy. 148b FEDERAL ESTATE TAX. Present rules — Property previously taxed. (4) Actual disbursement by estate. — The neces- sity of this is expressly provided ; also that it is not necessary that the dependents expend the money during the settlement of the estate. § 157. Property previously taxed. The statute provides for the deduction from the estate of a resident of: "An amount equal to the value at the time of the decedent's death of any property, real, per- sonal, or mixed, which can be identified as hav- ing been received by the decedent as a share in the estate of any person who died within five years prior to the death of the decedent, or which can be identified as having been acquired by the decedent in exchange for property so re- ceived, if an estate tax under the Revenue Act of 1917 or under this Act was collected from such estate, and if such property is included in the decedent's gross estate." (Sec. 403 [a] [2]). The Regulations provide: "There may be deducted from the gross es- tate under this heading an amount equal to the value at the time of the decedent's death of any property which can be identified as having been received by him as a share in the estate of any person who died within five years prior to the DEDUCTIONS. 149 Property previously taxed. decedent's death, if an estate tax under the Revenue Act of 1917 or the Revenue Act of 1918 was collected from such estate. There may also be deducted an amount equal to the value of property which can be identified as having been acquired by the decedent in exchange for prop- erty received as a share in the estate of such a prior decedent. In order to establish the right of this deduction it must be shown — (1) That the two deaths occurred within five years of each other; (2) That the first decedent died after October 3, 1917, the date of the passage of the Revenue Act of 1917, and that the second decedent died after February 24, 1919, the date of the passage of the Revenue Act of 1918; (3) That an estate tax has actually been col- lected from the estate of the prior decedent (the mere filing of a return for such an estate not be- ing sufficient) ; and (4) That the property received from the prior estate was returned as part of the gross estate of the prior decedent, and the property the value of which is sought to be deducted, or property taken in exchange therefor, has been included in the gross estate of the second decedent. The statute limits the deduction to the value of property which can be identified by the execu- 150 FEDERAL ESTATE TAX. Property originally received — Taken in exchange. tor as having been received or acquired in the manner described. The burden rests upon the executor of proving that the estate is entitled to this deduction." (Art. 50.) § 158. Same — Where property originally received is part of the gross estate. The Regulations provide: "If the property originally received from the prior estate is included in the decedent's gross estate, the executor must describe it fully, and prove its identity with the property received from the prior estate. The value to be deducted is the value at the time of the second decedent's death." (Art. 51.) § 159. Same — Where the gross estate contains prop- erty taken in exchange for that previously taxed. The Regulations provide: "The deduction for substituted property is limited to property acquired in exchange for the identical property received from the estate of the prior decedent. Where there is a subse- quent exchange, the right to deduction is lost. Where, however, property is sold, and the pro- ceeds immediately invested in other property, the property purchased is deemed to be taken in exchange, and its value is deductible." (Art. 52.) DEDUCTIONS. 151 Proof required — Deduction proportioned. § 160. Same — Proof required. The Regulations provide: "In the case of an exchange the executor must describe and identify fully both the property originally received from the prior estate and the property acquired in exchange therefor. He must also state the date and nature of the trans- action by which the exchange was effected, the name and address of the transferee, and the con- sideration, if any, given or received by the de- cedent in addition to the property received from the prior estate. If the exchange was made by written instrument of public record, a precise reference must be made to the record contain- ing the instrument, and if by instrument not of record a copy of the instrument must be sup- plied. If there was no written instrument, an affidavit as to the facts of the exchange by one or more persons having personal knowledge of the matter must be furnished." (Art. 52.) § 161. Same — Deduction proportioned to value of original property. The Regulations provide: "If at the time of exchange the decedent gave a consideration in addition to the property re- ceived from the prior estate, and acquired prop- erty of greater value than the property so re- ceived, there may be deducted the proportion of the value of the property received in exchange which the value of the original property bears thereto." (Art. 52.) 152 FEDERAL ESTATE TAX. Charitable bequests — Estates entitled to deduction. § 162. Charitable and similar bequests. The statute provides for the deduction from the estate of a resident: "The amount of all bequests, legacies, de- vises, or gifts, to or for the use of the United States, any State, Territory, any political sub- division 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 trus- tee or trustees exclusively for such religious, charitable, scientific, literary, or educational purposes." (Sec. 403 [a] [3]). § 163. Same — What estates entitled to the deduc- tion. The statute provides that: "This deduction shall be made in the case of the estates of all decedents who have died since December 31, 1917." (Sec. 403 [a] [3]). The Regulations provide: "The deduction may be claimed by the estates of all decedents dying after December 31, 1917. Where the tax has been paid without taking the deduction a claim for refund may be made, as provided by Article 110." (Art. 57.) DEDUCTIONS. 153 Bequests — Gifts in decedent's life time. § 164. Same — Bequests for religious, charitable, scientific, literary or educational purposes — General rules for deduction — Remainder interests. The Regulations provide: " Bequests to religious, charitable, scientific, literary, or educational corporations are deduct- ible only if the corporation is organized or oper- ated exclusively for one of the purposes speci- fied (see Art. 54). Similarly in the case of a trust, the trust must be exclusively for such pur- poses. It does not prevent deduction, however, 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 charit- able purpose, the charitable 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 de- vised or bequeathed to charity." (Art. 53.) § 165. Same — Gifts in decedent's life time. The Regulations provide: "Gifts made in the decedent's lifetime are deductible only if made in contemplation of death, or intended to take effect at or after 154 FEDERAL ESTATE TAX. Foreign bequest — Exempt character — Charitable corporations. death, and the property is consequently included in the gross estate. Gifts made in satisfaction of a legacy are also deductible." (Art. 53.) § 166. Same — Foreign bequest. The Regulations provide: "The deduction is not limited in the case of the estates of residents to bequests to domestic corporations or to trustees for use within the United States." (Art. 53.) § 167. Same — Tests of exempt character of bequest. The Regulations provide: "In order to be exempt the corporation or as- sociation must meet three tests: (1) it must be organized and operated for one or more of the specified purposes; (2) it must be organized and operated exclusively for such purposes; and (3) no part of its income must inure to the benefit of private stockholders or individuals." (Art. 54.) § 168. Same — Charitable corporations. The Regulations provide: "Charitable corporations include an associa- tion for the relief of the families of clergymen, even though the latter make a contribution to the fund established for this purpose; or for furnishing the services of trained nurses to per- sons unable to pay for them; or for aiding the general body of litigants by improving the effi- DEDUCTIONS. 153 Religious corporations conducting business enterprise. cient administration of justice. Educational corporations include an association whose sole purpose is the instruction of the public, even if it merely disseminates propaganda on a single question. Thus an association inculcating pro- hibition or protectionist principles is exempt. The same is true of an association to promote acquaintance with the Spanish language and literature, although it has incidental amusement features; of an association to increase knowledge of the civilization of another country; and of a Chautauqua association whose primary purpose is to give lectures on subjects useful to the indi- vidual and beneficial to the community, and whose amusement features are incidental to this purpose. Societies designed to encourage the performance of first-class orchestral music are not exempt, the purpose being merely to pro- vide a high grade of entertainment. Scientific corporations include an association for the sci- entific study of law, to the end of improvement in its administration." (Art. 54, par. [1]). § 169. Religious corporations conducting business enterprise. The Regulations provide: "Where a religious corporation owns a large quantity of farm land and works it, and also manufactures and sells clothing and other ar- ticles for profit, it is not operated exclusively for religious purposes and is not exempt, even 156 FEDERAL ESTATE TAX. Who are private stockholders — Proof of exemption. though its property is held in common and its profits do not inure to the benefit of individual members of the society." (Art. 54, par. [2]). § 170. Who are private stockholders or individuals. The Regulations provide: "It does not prevent exemption that private individuals, for whose benefit a charity is organ- ized, receive the income of the corporation or association. The statute refers to individuals having a personal and private interest in the ac- tivities of the corporation, such as stockholders. If, however, a corporation issues 'voting shares,' which entitle the holders upon the dis- solution of the corporation to receive the pro- ceeds of its property, including accumulated in- come, the right to exemption does not exist, even though the by-laws provide that the sharehold- ers shall not receive any dividend or other re- turn upon their shares." (Art. 54, par. [3] ). § 171. Proof of exemption. The Regulations provide: "In order to prove his right to this deduction the executor must submit: (1) Certified copy of the will of the decedent, or the instrument of gift in the case of a trans- fer of property in contemplation of death. (2) A receipt, statement, or other documen- tary evidence to show the beneficiary^s receipt DEDUCTIONS. 157 Conditional bequests. of, or intention to accept, the legacy, devise, or gift. (3) Affidavit of the executor stating whether any action has been instituted to contest the will, or whether, according to his information and belief, any such action is contemplated. (4) Such other document or evidence as may be specified by the Bureau." (Art. 55.) § 172. Conditional bequests. The Regulations provide: " Where the bequest, legacy, devise, or gift is dependent upon the performance of some act, or the happening of some event, in order to be- come effective it is necessary that the perform- ance 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." (Art. 56.) The ruling as to gifts upon condition precedent seems readily sustainable, since sucli gifts do not actually become effective until the performance of the condition. The ruling as to gifts upon condition subsequent is more vulnerable. Such gifts become operative at once, being merely subject to be defeated upon the happening of the subsequent condition. For this reason it is by no means clear that such cases do not 158 FEDERAL ESTATE TAX. Specific alleged charitable bequests. come within the provisions of the statute. The rul- ing, however, has apparently not yet been chal- lenged. § 173. Same — Specific alleged charitable bequests. A bequest to the Youngstown Foundation is held to be deductible. 40 A trust to apply the income to such poor and deserving persons in or near a speci- fied town as the trustees may select is held to con- stitute a deductible bequest, the relief of the poor being a charitable purpose, and the charitable na- ture of the gift not being affected by its localization or the discretionary powers of the trustees. A trust, however, to apply the income to the "beneficial usage" of the citizens of a town, "without any re- gard to what may be deemed legal or public chari- ties under the laws of the State" is held not to con- stitute a deductible gift, the word "beneficial" be- ing equivalent to "benevolent," a term embracing non-charitable purposes. 41 40. This is a trust instituted and executed by a trust com- pany in the City of Youngstown, Ohio, for charitable and educational purposes. 41. A point frequently passed upon by the courts. See Adye v. Smith, 44 Conn. 60; Murdock v. Bridges, 91 Me. 124, 39 Atl. Rep. 475; Chamberlain v. Stearns, 111 Mass. 267; German Corporation of Negaunee v. Negaunee German Aid Society, 172 Mich. 650, 138 N. W. R«p. 343; Hegeman's Executors v. Roome, 70 N. J. Eq. 562, 62 Atl. Rep. 392; Van Syckel v. Johnson, 80 N. J. Eq. 117, 70 Atl. Rep. 657; People v. Powers, 147 N. Y. 104, 41 N. E. Rep. 432; In re Altman's Estate, 87 Misc. 255, 149 N. Y. Supp. 601. DEDUCTIONS. 159 Amount of deduction. Similarly, a bequest to trustees for the erection of an auditorium, to.be used for the enjoyment, enter- tainment and education of persons residing in a city and its vicinity, is held not to be deductible, not be- ing for charitable or other specified purposes. A bequest to trustees of a church or of a cemetery of a fund, with directions to apply the income to the upkeep of a private cemetery lot, is not for a religi- ous or charitable purpose, and is not deductible. The same is true of a trust created for the care of an animal owned by the decedent. § 174. Same — Amount of deduction. As already seen, where the exempt bequest is of a remainder interest the amount of the deduction is the value of this interest at the time of the deced- ent's death. It is held not to be necessary that the gift be of an outright, present interest. It is, how- ever, held to be essential to deduction that the value of the exempt gift at the time of the decedent 's death shall be determinable with reasonable certainty. Thus, where the exempt gift is preceded by a com- plicated series of trusts for private individuals, with reference to one of which the trustee has absolute discretion to apply the principal of the fund to the use of the beneficiary, thus diverting the property from the exempt purpose, no deduction will be al- lowed. 42 Where, however, the gift takes effect at 42. But it is ruled in this connection that a claim for refund may be made later when the amount of the charitable gift is determinable. 11 160 FEDERAL ESTATE TAX. Amount of deduction. the death of the decedent, the application of the in- come in perpetuity to a charitable purpose amounts to a charitable gift of the principal of the trust fund, and the entire amount thereof is deductible. The amount of the deduction is that actually re- ceived by the legatee having the specified exempt character. Thus, where the legacy is subject to an inheritance tax, so that the legatee obtains only what remains after deduction of the tax, this remaining sum represents the amount of the deduction. The same rule is applied where the decedent bequeaths his residuary estate to one of the specified exempt institutions. As the federal tax must be deducted before payment of the legacy, the deductible bequest is only what remains after payment of the tax. 43 43. There is a difficulty in such a case, due to the fact that the amount of the tax and of the deductible bequest are both unknown, and that each amount is dependent upon the other. An algebraical formula can, however, be obtained in any such case for determining each of these factors. This formula has been determined in the case of a taxable estate between $250,000 and $450,000, where the decedent dies between Octo- ber 4, 1917, and February 24, 1919. X (unknown) representing the amount of the tax, and T (known) the amount of all tax- able bequests, the formula is as follows : .08 T — $13000 X = .92 The amount of the tax being thus found, the amount of the deductible residuary bequest is readily ascertained. DEDUCTIONS. 161 Specific exemption— Nonresident estates. § 175. Specific exemption. The statute provides, finally, for the deduction of "An exemption of $50,000." (Sec. 403 [a] [4]). The Regulations provide: "There may be deducted from the gross es- tate of all resident decedents a specific exemp- tion of $50,000. No part of this exemption is allowed in the case of nonresident decedents. (See Art. 59.) If more than one return is made for purposes of the tax, the exemption may be taken only once." (Art. 58.) NONRESIDENT ESTATES § 176. In general. The statute provides that the net estate shall be determined: "(b) In the case of a nonresident, by deduct- ing from the value of that part of his gross es- tate which at the time of his death is situated in the United States — " (1) That proportion of the deductions speci- fied in paragraph (1) of subdivision (a) of this section which the value of such part bears to the value of his entire gross estate, wherever situated, but in no case shall the amount so de- ducted exceed 10 per centum of the value of that part of his gross estate which at the time of his death is situated in the United States." (Sec. 403 [h] [1]). 162 FEDERAL ESTATE TAX. Manner of making deduction — Claims, expenses, etc. § 177. Manner of making deduction. The Regulations provide: ' ' The gross estate of a resident and of a non- resident are made up in the same way. In ascer- taining the net estate, however, which is subject to tax, there is a radical difference between the two cases. Whereas the net estate in the case of a resident is determined by making the speci- fied deductions from the entire gross estate, the net estate in the case of a nonresident is deter- mined by making the deductions from the value of so much of the gross estate as is situated in the United States. Thus, in substance, the stat- ute attempts to tax only the transfer of so much of the estate of a nonresident as is situated in the United States. On the other hand, nonresi- dent estates are not entitled to the specific ex- emption of $50,000." (Art. 59.) § 178. Claims, administration expenses, etc. These are the deduction items specified in para- graph (1) of subdivision (a) of Section 403. They may be deducted only to the extent specified in the provisions of the statute concerning nonresident es- tates. The Regulations provide: "The character of the deduction is the same as in the case of resident estates. (See Arts. 37 to 49.) It is immaterial whether the expendi- tures are incurred or paid in this country or else- where. The deduction, however, is subject to limitations which do not apply in the case of a DEDUCTIONS. 163 Property previously taxed. resident estate. Only that proportion of the claims and . expenses is deductible which the value of the property situated in the United States bears to the value of the entire gross es- tate, wherever situated; and in no event may a sum be deducted in excess of 10 per cent of the value of the property situated in the United States." (Art. 61.) § 179. Property previously taxed. The statute provides for the deduction from the gross estate of a nonresident of: "An amount equal to the value at the time of the decedent's death of any property, real, per- sonal, or mixed, which can be identified as Hav- ing been received by the decedent as a share in the estate of any person who died within five years prior to the death of the decedent, or which can be identified as having been acquired by the decedent in exchange for property so re- ceived, if an estate tax under the Revenue Act of 1917 or under this Act w r as collected from such estate, and if such property is included in that part of the decedent's gross estate which at the time of his death is situated in the United States." (Sec. 403 [b] [2]). It will be observed that the limitation of the de- duction to 10 per cent of the value of the gross estate situated in the United States, applied to the items specified in paragraph (1) of subdivision (a), is not imposed with reference to property previously taxed. 164 FEDERAL ESTATE TAX. Property previously taxed. The Regulations provide: "The value of property owned by a nonresi- dent person dying after October 3, 1917, or form- ing part of the gross estate of the decedent, may be deducted within the limitations prescribed with reference to resident estates (see Art. 50), and subject to the further condition that the property shall have been situated in the United States at the time of the death of the second de- cedent. The detailed rules for deductions in the case of nonresident estates are consequently as follows: (1) That the two deaths occurred within five years of each other. (2) That the first decedent died after October 3, 1917, and that the second decedent died after February 24, 1919. (3) That an estate tax has actually been col- lected from the estate of the first decedent (the mere filing of a return not being sufficient). (4) That the property originally received from the prior estate has been returned as part of the gross estate of the prior decedent, and that the property sought to be deducted is either the identical property so returned or was taken in exchange for such property; and (5) That the property sought to be deducted shall have been situated in the United States at the time of the death of the present decedent." (Art. 62.) DEDUCTIONS. 165 Public, charitable and similar gifts — Deduction limited. The same rules for determining when property is acquired in exchange apply to the case of the estate of a nonresident as to the estate of a resident. 44 § 180. Public, charitable and similar gifts. The statute provides for the deduction from the estate of a nonresident of: "The amount of all bequests, legacies, de- vises, or gifts, to or for the use of the United States, any State, Territory, any political sub- division thereof, or the District of Columbia, for exclusively public purposes, or to or for the use of any domestic corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, in- cluding the encouragement of art and the pre- vention 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 exclusively for such religious, charitable, scientific, literary, or edu- cational purposes within the United States." (Sec. 403 [b] [3]). As in the case of property previously taxed, the deduction is not limited to 10 per cent of the value of the gross estate situated in the United States. § 181. Deduction limited to domestic gifts. It will be observed that the statute limits the de- duction to gifts to a "domestic corporation" or to 44. See Regulations, Art. 62. 166 FEDERAL ESTATE TAX. Estates entitled to the deduction. trusts for the specified purposes "within the United States." A distinction is here drawn between the estates of residents and nonresidents. Gifts of this character, when made by a resident, are deductible without reference to whether the donee is a domestic or a foreign corporation, or where the trust is to be executed. The Regulations provide: ''Where the bequest is to a corporation, it is limited to a domestic corporation; that is, one created or organized in the United States. Where the bequest is to a trustee, it must be for use exclusively within the United States. The requirements are different and should not be confused. The first relates to the character of the donee ; the second to the character of the use of the gift. With these exceptions the rules for deduction are the same as in the case of resident estates (see Arts. 53, 54)." (Art. 63.) § 182. Estates entitled to the deduction. The statute provides that — "This deduction shall be made in case of the estates of all decedents who have died since De- cember 31, 1917." (Sec. 403 [b] [3]). This provision is the same as in the case of the es- tates of residents. DEDUCTIONS. 167 Information as to foreign property — Claims for refund. § 183. Information as to foreign property. The statute provides: "No deduction shall be allowed in the case of a nonresident unless the executor includes in the return required to be filed under section 404 the value at the time of his death of that part of the gross estate of the nonresident not situated in the United States." (Sec. 403.) 45 § 184. Claims for refund. The statute provides: ' ' In the case of any estate in respect to which the tax under existing law has been paid, if necessary to allow the benefit of the deduction under paragraph (3) of subdivision (a) or (b) the tax shall be redetermined and any excess of tax paid shall be refunded to the executor." (Sec. 403.) 45. See in this connection the rule (infra, pp. 193-5) requir- ing information from nonresident estates, whether or not the executor seeks deductions. CHAPTER V. SIXTY-DAY NOTICE. RESIDENT ESTATES. § 185. The statute. The statute provides: "That the executor, within sixty days after qualifying as such, or after coming into posses- sion of any property of the decedent, whichever event first occurs, shall give written notice there- of to the collector. ' ' ( Sec. 404. ) a It will be observed that the statutory requirement is general. It is not, as in the case of the return, conditioned upon the size of the estate. 2 There would, however, be no reason for requiring the notice in the case of estates obviously too small to be sub- ject to tax. The Regulations recognize this, and re- quire the notice only in the case of taxable estates. They provide: "A preliminary notice, called the 60-day no- tice, is required to be filed in the case of every resident decedent who died on or after February 25, 1919, the gross amount of whose estate ex- ceeds $50,000. This notice must be filed in duplicate with the collector in whose district the decedent had his domicile at the time of his 1. Under the Revenue Act of 1916 (See. 205) the notice was required within thirty days of qualification or receipt of prop- erty. 2. See pp. 182, 183. [168] SIXTY-DAY NOTICE. 169 Prior rule — Notice by executor. death. Where there is doubt as to whether the gross estate exceeds $50,000, the notice should be filed, as matter of precaution, in order to avoid penalties." (Art. 66.) These provisions conform the requirements as to notice with those with reference to the return. 3 § 186. Notice under Revenue Act of 1916. The Regulations provide: ''Prior to February 25, 1919, the notice was required if the gross estate exceeded $60,000, or if there was any net estate after the deduc- tions allowed by law, including the $50,000 ex- emption, had been taken. These provisions are not now in effect except to determine delin- quency under previous acts." (Art. 66.) That is, the requirements as to notice under the previous Act conformed to the somewhat different requirements then existing with reference to the re- turn. 4 § 187. Notice by executor or administrator. The Regulations provide: "The executor or administrator of an estate is required to file notice on Form 704 within 60 days of his appointment by the court, or of com- ing into possession of any property of the estate, whichever event occurs first. The primary pur- 3. See pp. 182, 183. 4. See Revenue Act of 1916, Sec. 205. 170 FEDERAL ESTATE TAX. Notice by other than executor or administrator. pose of the notice is to advise the Government of the existence of taxable estates, and filing should not be delayed beyond the 60-day period because of uncertainty as to the exact value of the assets. Since the filing of the notice with- in the prescribed period is mandatory, the esti- mate of the gross estate called for by the notice is merely the best approximation of value which can be made within the time allowed. The in- structions upon the back of the form should be read carefully before executing the notice. The signature of one executor or administrator upon Form 704 is sufficient." (Art. 67.) § 188. Notice by other than executor or adminis- trator. The statute provides: "The term 'executor' means the executor or administrator of the decedent, or, if there is no executor or administrator, any person who takes possession of any property of the decedent." (Sec. 400.) The obvious purpose of this provision is to secure information with reference to taxable estates, whether or not they are administered in the ordinary way. A liberal construction is given to the language, in accordance with this policy. The Regulations provide : "The notice upon Form 704 must be filed by others than the executor or administrator if either of the following situations exists: SIXTY-DAY NOTICE. 171 Where no executor appointed. (1) No executor or administrator has been appointed. J2) There is property included in the gross estate, as defined by statute, which has not, and will not, come into the custody and control of the executor. In these cases, the persons in possession of the property included in the gross estate are execu- tors, within the meaning of the statute, for the purpose of filing the notice." (Art. 68. ) 5 § 189. Where no executor appointed. The Regulations provide: "Where no executor or administrator has been appointed, the person taking possession of property at the time of death is required to file notice within 60 days of the date of death. The notice must be filed whether possession of the property was held at the date of death, or was acquired thereafter. The notice on Form 704 must be filed by such persons in any case where an executor or administrator has not been ap- pointed within 60 days of the decedent's death, although one is appointed subsequently. Where an executor or administrator is appointed with- 5. It may perhaps be a question whether the substitionary provision of the statute applies to a ease in which an executor or administrator has been appointed. The Regulations con- strue the language liberally, so as to make the words "ex- ecutor" or "administrator" apply only to a person holding and administering the particular property in question. 172 FEDERAL ESTATE TAX. When property not within executor's control. in the 60-day period, the duty of filing the notice devolves upon him; and all other persons are relieved from liability to file with respect to property coming into the custody and control of the executor or administrator." (Art. 69.) § 190. When property not within executor's control. The Regulations provide: "Where there is property that will not come into the custody and control of the executor, but which is included in the gross estate as defined by the statute, the notice on Form 704 must be filed within 60 days of the date of death by the person in possession or control of the property at the time of death. The persons required to file Form 704, in com- pliance with this requirement, includes the fol- lowing : (1) The surviving husband or wife in the case of property owned as tenants in the en- tirety. (2) Donees who have received within two years prior to the decedent's death any gift of material value from the decedent, or who have received at any time whatever gifts made by the decedent in contemplation of death or intended to take effect at or after death. (3) Trustees holding property conveyed dur- ing lifetime by decedent in contemplation of death, or with intent to provide for others at or after the decedent 's death, regardless of the date SIXTY-DAY NOTICE. 173 Notice by succeeding beneficiary. of execution of the instrument making the con- veyance. (4) Fiduciaries holding property of any kind jointly for the decedent and another or others. Example: A savings bank holding a joint ac- count in the name of the decedent and another, payable to either or to the survivor, must file Form 704 for the full amount of the account. (5) Trustees having in charge property over which the decedent exercised a general power of appointment, and which will not come into the possession and control of the executor or ad- ministrator. (6) Beneficiaries other than the executor who receive insurance upon the decedent's life, pro- vided the total amount of the insurance receiv- able by all such beneficiaries exceeds $40,000." (Art. 70.) In analogy to these cases specified in the Regula- tions, it is ruled that where money standing in the joint names of two persons is payable to the sur- vivor, who receives it, such survivor is liable to give the 60-day notice with respect to the money so received. § 191. Same — Notice by succeeding beneficiary. The Regulations provide: "The primary duty of filing notice with re- spect to property which will not come into the executor's control rests upon the person actually in possession at the time of death. It is the 174 FEDERAL ESTATE TAX. Notice by insurance companies. duty of the succeeding owner, however, where property of this character is held at the time of death by an agent or fiduciary, to give notice within 60 days of the date of taking possession, unless he finds that notice has already been filed. For example, the appointee of property, under a general power of appointment exercised by the decedent, should file notice within 60 days of receiving possession, unless the notice has already been filed. " ( Art. 70. ) The illustration here given is not exclusive. The ruling would doubtless apply to the case, for in- stance, of a person receiving the proceeds of a joint bank account upon the death of the decedent. 6 § 192. Notice by insurance companies. The Regulations provide: "Sixty-day notice upon Form 787 must be filed by every insurance company which pays insurance upon the life of a resident decedent to beneficiaries other than the executor or admin- istrator in amounts aggregating more than $40,000, or which has knowledge of insurance payable to such beneficiaries by other insurance companies, aggregating, with amounts payable by the company itself, more than $40,000. * * * Notice should be filed with the collector of the district in which the decedent had his domicile within 60 days of receipt by the company of no- tification of death. If the insurance company 6. See pp. 173, 184-5. SIXTY-DAY NOTICE. 175 Annuity policies. is in doubt as to its liability to give notice, the notice should be filed." (Art. 71.) This ruling involves the proposition that the com- pany "takes possession" of property of the deced- ent, and is consequently an executor within the meaning of the statute. In this respect the company appears to be in substantially the same position as one in possession of property during the life of the decedent, and continuing such possession after his death. 7 There is the further question whether the posses- sion so taken is "of any property of the decedent." Technically, that might be doubtful. The purpose of the statute, however, is evidently to secure com- plete notice of all property constituting part of the gross estate; and a broad construction of the word "property of the decedent" is in furtherance of the statutory intent. § 193. Annuity policies. The Regulations provide: "If the proceeds of any policy are payable in the form of an annuity, the present worth of such annuity, for the purpose of deducting the $40,000 exemption, should be computed in ac- cordance with the provision of Article 20." (Art. 71. ) 8 7. As to which see Treasury Decision 2421; Dec. 22, 191b\ The Bureau has always taken the position that such a ease comes within the statutory definition. 8. Relating 1 to the "Valuation of annuities, life, and re- mainder interests." 12 176 FEDERAL ESTATE TAX. Insurance — Military exemption — Local executor. § 194. Insurance taken out with foreign branch. The Regulations provide: 1 ' Where insurance is taken out with a foreign branch of a domestic insurance company, the notice should be given by the home office of the company within 60 days of the receipt by the foreign branch of information of the decedent's death." (Art. 71.) § 195. Where military exemption claimed. The Regulations provide: 1 ' The executors of estates exempted from the tax (see Art. 9) are required to file the 60-day notice with the proper collector in the same manner as the executors of taxable estates. The executor should, in addition, write across the face of the form the words 'Military exemption claimed.' " (Art. 72.) ESTATES OF NONRESIDENTS § 196. Local executor — When to file notice. The Regulations provide : "A 60-day notice on Form 705 should be filed with the Commissioner of Internal Revenue, Washington, D. C, by every executor or admin- istrator appointed in the United States. The notice is necessary if any part of the decedent 's gross estate was situated in the United States at the time of death, regardless of the value of that part or of the entire gross estate." (Art. 73.) SIXTY-DAY NOTICE. 177 Notice by person in possession. 197. Notice by person in possession. The .Regulations provide: ' ' If no executor or administrator has been ap- pointed in this country, notice must be filed within GO days of the date of death by every per- son in possession of any part of the gross estate in the United States. If such person has no knowledge of the decedent's death within 60 days of its occurrence, he should file this notice immediately upon obtaining such knowledge. The filing of notice by a foreign executor or ad- ministrator does not relieve persons in posses- sion from the duty of filing notice. If there is a delay in the appointment of a local executor or administrator of more than 60 days after the death, persons in possession should file notice. The term 'person in possession of property of the decedent' includes the decedent's agents or representatives; donees and transferees or trus- tees of property transferred in contemplation of death; the surviving owner of property held jointly; safe-deposit companies, warehouse com- panies, and similar custodians of property in this country of a nonresident decedent; brokers holding as collateral securities belonging to the decedent or investment funds owned by the de- cedent; banking institutions holding money on deposit or for any specific purpose, such as pur- chase of goods, if the title rests in the decedent; and debtors of the decedent in this country." (Art. 73.) 178 FEDERAL ESTATE TAX. Resident estates — Notice by transfer agent. § 198. Comparison with rule in case of resident es- tates. Analysis of the respective rules indicates that in one respect the rule laid down for the estates of resi- dents is more sweeping than that applied to the es- tates of nonresidents. In the latter case persons in possession are required to file notice only where no local executor has been appointed; and this rule ap- pears to be extended to property which would never come into the possession of the personal representa- tive, such as property received from the decedent in his life time or obtained by survivorship after his death. In the case of resident estates, however, the right is expressly reserved to require notice from the beneficiary, whether or not an executor has been ap- pointed, with reference to property not coming into the possession of the executor. 9 § 199. Notice by transfer agent. The Regulations provide: "A 60-day notice upon Form 714 is required to be filed whenever a corporation, its transfer agent, register, or paying agent, is called upon to make a transfer of stocks or bonds, or to pay interest or dividends, to any successor in inter- est of any nonresident stockholder or bond- holder who died after September 8, 1916, unless the transfer is made upon the order of an execu- tor or administrator appointed in the United 9. See pp. 172-3. SIXTY-DAY NOTICE. 179 Notice by transfer agent. States. The notice is required for dividends de- clared prior to the day of death, and for interest which had accrued on bonds prior to the death of the decedent although payable thereafter. Notice should be filed with the Commissioner of Internal Revenue at Washington, D. C, within 60 days of the date of death, or immediately upon receipt of the order of transfer or pay- ment. A transfer agent should be vigilant to report all cases in which the fact of the death of a nonresident appears. Where the securities are received without the personal assignment of the decedent, but with the transfer order of the foreign executor, it is clear that the case should be reported. Where the securities bear the per- sonal assignment of the decedent, the transfer should be reported if made upon the order of a foreign executor, or if information is received in any other manner that the record owner has died a nonresident of the United States." (Art. 74.) The justification for this requirement appears to be substantially the same as for that relating to in- surance companies. 10 It will be observed that there is no similar requirement for resident estates, in which case it is evidently considered safe to rely upon information from the executor or the trans- feree of the stock. 10. See pp. 174-5. 180 FEDERAL ESTATE TAX. Explanation of rule — Insurance companies. § 200. Explanation of rule. The Regulations provide: 1 ' In order to prevent loss of the tax upon non- resident estates, it is essential that transfer agents should exercise great care in reporting all transfers of the kind described. Their rec- ords will be examined from time to time by in- ternal revenue officers to determine whether this regulation is being strictly complied with. Fail- rue to file notice in the manner prescribed will render the transfer agent liable to a fine." (Art. 75.) § 201. Insurance companies. The Regulations provide: "The 60-day notice upon Form 788 must be filed by every domestic insurance company which pays insurance upon the life of the non- resident decedent in any amount either to a for- eign executor or administrator, or to indidvidual beneficiaries. The notice should be filed with the Commissioner of Internal Revenue, Wash- ington, D. C, within 60 days of receipt of proof of claim. No notice is required to be filed, if the only insurance paid is receivable by an execu- tor appointed in the United States. If, however, the company is liable to give notice, it is re- quired to report insurance of all classes in order that its statement may be complete." (Art. 76.) This ruling requires notice where the company has a policy payable to a beneficiary other than the SIXTY-DAY NOTICE. 181 Foreign policies. executor, although for less than $40,000; and where notice is thus necessary it is required to give notice also of insurance payable to the local executor, al- though this of itself would not be a subject for no- tice. The requirement for notice of individual in- surance less than $40,000 might seem unnecessary. Lt is of practical importance, however, since the de- cedent may have taken out similar insurance with other companies, and the aggregate amount might exceed $40,000. The requirement is not limited, as in the case of resident estates, to cases in which the company has knowledge of other insurance sufficient to make the total amount more than $40,000. " § 202. Same — Foreign policies. Since the statute provides for the inclusion in the gross estate of insurance taken with ' 'a domestic cor- poration" regardless of other circumstances, 12 the company is required to give the 60-day notice with reference to insurance taken out by a nonresident with a local branch of the company in a foreign country, and paid out of funds kept on deposit in that country, as required by the local law. 11. See p. 174. 12. See Sec. 403. CHAPTER VI. RETURN. RESIDENT ESTATES. § 203. The statute. The statute provides: ' ' The executor shall also, at such times and in such manner as may be required by regulations made pursuant to law, file with the collector a return under oath in duplicate, setting forth (a) the value of the gross estate of the decedent at the time of his death, or, in case of a nonresi- dent, of that part of his gross estate situated in the United States; (b) the deductions allowed under section 403; (c) the value of the net estate of the decedent as defined in section 403; and (d) the tax paid or payable thereon; or such part of such information as may at the time be ascertainable and such supplemental data as may be necessary to establish the correct tax. ''Return shall be made in all cases where the gross estate at the death of the decedent exceeds $50,000, and in the case of the estate of every nonresident any part of whose gross estate is situated in the United States. If the executor is unable to make a complete return as to any part of the gross estate of the decedent, he shall include in his return a description of such part and the name of every person holding a legal or beneficial interest therein, and upon notice from the collector such person shall in like manner [182] THE RETURN. 183 Return by executor. make a return as to such part of the gross es- tate. The Commissioner shall make all assess- ments of the tax under the authority of exist- ing administrative special and general provi- sions of law relating to the assessment and col- lection of taxes." (Sec. 404. ) ! The Regulations provide: "A return on Form 706 is required in the case of every resident decedent who died on or after February 25, 1919, leaving a gross estate exceed- ing $50,000 in value. * * In the case of dece- dents who died before February 25, 1919, the effective date of the Revenue Act of 1918, the return is required if the gross estate exceeds $60,000, or if there is any net estate after the legal deductions, including the $50,000 exemp- tion, have been taken. In the case of estates of nonresidents return is required if the decedent owned any property in the United States re- gardless of value. (See Art. 88.)" (Art. 77.) § 204. Return by executor. The Regulations provide: "The statute provides that the executor or administrator shall file the return. If there is more than one executor or administrator, the 1. Under the Revenue Act of 1916, the return was required "in all cases of estates subject to the tax or where the gross estate at the death of the decedent exceeds $60,000." (Sec. 205.) The present requirement is more sweeping, and may in certain cases require a return where the estate is not liable to tax. 184 FEDERAL ESTATE TAX. Insufficient knowledge — Return by beneficiary. return must be made jointly by all. * * * The executor or administrator is required to make a return of the entire gross estate of the decedent, including property which will not come into his possession, such as property trans- ferred by the decedent before death, and prop- erty owned by tenants in the entirety." (Art. 80.) § 205. Same — Insufficient knowledge — Return by beneficiary. The statute provides: "If the executor is unable to make a complete return as to any part of the gross estate of the decedent, he shall include in his return a de- scription of such part and the name of every person holding a legal or beneficial interest therein, and upon notice from the collector such person shall in like manner make a return as to such part of the gross estate." (Sec. 404.) The Regulations provide: "If the executor is unable to make a complete return as to any part of the gross estate, he is required to give all the information he has as to such property, including a full description, and the name of every person holding a legal or bene- ficial interest in the property. Where the ex- ecutor is unable to make a return as to any property, the statute requires every person holding a legal or beneficial interest therein, upon notice from the collector, to make return THE RETURN. 185 Where no executor appointed. as to such part of the gross estate." (Art. 80. )- In accordance with this rule, it is ruled that a return may be required from the survivor of the two joint owners of a bank account, to whom the money is paid upon the decedent's death. § 206. Where no executor appointed. The statute provides: "The term 'executor' means the executor or administrator of the decedent, or, if there is no executor or administrator, any person who takes possession of any property of the decedent." (Sec. 400.) The Regulations provide: "Where no executor or administrator has been appointed, every person in possession of 2. The Revenue Act of 1916 contained the same provision (Sec. 205) as Sec. 404. Although the statutory provisions are the same, the rulings under the former act handled the matter of the return in a somewhat different way from the present Regulations^ Returns were divided into "tentative" and "final." (Treasury Decision 2415, Dec. 14, 1916; Treasury Decision 2756, Sept. 5, 1918.) There was an absolute require- ment that the "tentative" return should be filed a year from the death, and should set forth the condition of the estate as accurately as possible. The collector might then grant an extension of ninety days to file the "final" return, at the expiration of which period the executor was required to file the "final" return or a detailed statement of his reasons why he could not do so. (Treasury Decision 2756, pp. 304-5.) The present Regulations provide for a single return, the character of which is not specified. 186 FEDERAL ESTATE TAX. Return to be accepted — Return by collector or Commissioner. any part of the gross estate is considered to be an executor for the purposes of the tax, and is liable for a return as to the property in his pos- session." (Art. 80.) § 207. Return in proper form to be accepted. The statute provides for the filing of a return in a specified form, and certain penalties for failure to file and for the filing of a false return; 3 also for the filing by the collector or the Commissioner of a re- turn in place of one containing incorrect or false statements. 4 Under these circumstances, it is ruled that a return in the prescribed form will be accepted, even though it shows on its face that it is not cor- rect — the executor being entitled in this way to avoid the penalty for failure to file, and the remedy of the Government being the enforcement of the penalties and the filing of a correct return by the collector or the Commissioner. § 208. Return by collector or Commissioner. The statute provides: "That if no administration is gTanted upon the estate of a decedent, or if no return is filed as provided in section 404, or if a return con- tains a false or incorrect statement of a ma- terial fact, the collector or deputy collector shall make a return and the Commissioner shall as- sess the tax thereon." (Sec. 405.) 3. Revenue Act of 1918, Sec. 410; R. S., Sec. 3176 (Comp. Sts., 1916, Sec. 5899). 4. Revenue Act of 1918, Sec. 405. THE RETURN. 18. Return by collector or commissioner. The Revised Statutes provide: "If any person, corporation, company, or as- sociation fails to make and file a return or list at the time prescribed by law or by regulation made under authority of law, or makes, will- fully or otherwise, a false or fraudulent return or list, the collector or deputy collector shall make the return or list from his own knowledge and from such information as he can obtain through testimony or otherwise. In any such case the Commissioner may, from his own knowledge and from such information as he can obtain through testimony or otherwise, make a return or amend any return made by a collector or deputy collector. Any return or list so made and subscribed by the Commissioner, or by a col- lector or deputy collector, and approved by the Commissioner, shall be prima facie good and sufficient for all legal purposes." (R. S., Sec. 3176; Comp. Sts. 1916, Sec. 5899.) The Regulations provide: "The statute provides that if no return is filed for the estate of a decedent, or if a return contains a false or incorrect statement of a ma- terial fact, the collector or deputy collector shall make a return. The Commissioner may amend this return from such knowledge or information as he can obtain, through testimony or other- wise. A return so made by the Commissioner, or made by the collector and approved by the Commissioner, is a sufficient basis for assessing the tax. Where a tax is found to be due upon 188 FEDERAL ESTATE TAX. Time of filing — Place to file — Investigation of returns. such a return, the estate will be liable for penal- ties as well as for the tax." (Art. 78. ) 5 § 209. Time of filing. The statute does not specify this. The Regula- tions provide: "It (the return) must be filed within one year after the date of death, unless an extension is granted." (Art. 77.) 6 § 210. Place to file. The Regulations provide: "This return must be filed with the collector in whose district the decedent resided." (Art. 77.) This accords with the provision of the statute that, "The term 'collector' means the collector of internal revenue of the district in which was the domicile of the decedent at the time of his death." (Sec. 400.) § 211. Investigation of returns. , The Regulations provide: "An investigation of every return for estate tax will be conducted to verify the accuracy of 5. There are similar provisions in Art. 89. 6. This one year period was first fixed by the original Estate Tax Regulations. (Treasury Decision 2378; Oct. 10, 1916.) Treasury Decision 2415 (Dec. 14, 1916) states: "It is obvious that the proper time for return to be made is a time coincident, as nearly as possible, with the final settle- ment of the estate and the date upon which the estate tax is due. Since in many States more than a year from the decedent's death is allowed for administration, the time set by the Regu- lations for the filing of the return was made coincident with the due date of the tax — that is, one year after the decedent's death." THE RETURN. 189 Conduct of investigation — Notification. the return. The investigation will be made by special officers of the Bureau. The fact that an investigation is made does not reflect upon the competence or good faith of the executor, since investigations are required in all cases as a mat- ter of administrative procedure. The executor should co-operate with the examining officer in order that the full tax liability may be definitely determined and the case closed. During the course of the investigation the examining officer will inspect the books and records of the estate, interview the executor and other persons having knowledge of the decedent's affairs, verify the value of the assets and the amounts of debts and administration expenses, and take such other steps as may be necessary to determine the correct tax." (Art. 79.) § 212. Time and manner of conducting investiga- tion — Notification of result. The Regulations provide: "It is the purpose of the Bureau to make these investigations as soon as practicable after the filing of the return. Whenever there are special and urgent reasons for an early investi- gation, the collector should be notified in order that the case may be given special attention. Upon completion of the investigation the execu- tor will be apprised by the examining officer of his findings,, and will be given an opportunity to discuss the case and present such data as he may desire, to be considered by the Bureau in 190 FEDERAL ESTATE TAX. Extension of time to file return. connection with the examining officer's report. Upon the completion of the review and audit by the Bureau of the return and the examining of- ficer's report, the executor will be informed by letter from the Commissioner of the result of the audit." (Art. 79.) § 213. Extension of time to file return. The Regulations provide: "If it is impossible for the executor to file a complete return within a year from the date of death, he may make application to the collector for an extension of time for filing the return, stating in detail in his application the circum- stances which prevent the filing of the return by the due date and setting forth briefly but fully a statement of what the gross estate con- sists, together with a statement of the amount of deductions claimed, provided that in the first instance the application be made at least 30 days prior to the due date of the return. If the col- lector is satisfied that a complete return can- not be made he may grant extensions of time not to exceed 180 days from the due date, no single extension exceeding 60 days. At the expiration of the last extension period granted a return must be filed. If at that time it is still impossible to file a complete and accurate re- turn, on account of the unsettled condition of the affairs of the estate, the return filed by the executor must be as complete as possible, and must set forth all the facts in his possession as THE RETURN. 191 Manner of executing return. to the gross and net estate. Such a return will be accepted by the collector; but the executor must file an amended return as soon as the con- dition of the estate permits. The granting of an extension of time for filing a return does not operate to extend the time for the payment of the tax, which is due one year after decedent's death unless the time for payment thereof be ex- tended by the Commissioner, as provided in Article 93. Where application has been made for an extension of time to file a return, but no extension of time for the payment of the tax has been granted, the executor will be required to pay on the due date a sum of money sufficient, in the opinion of the collector, to discharge the tax, even though an extension of time to file the return has been or may be granted. The state- ments accompanying the application will be subject to investigation and verification in act- ing upon the application for extension and in fixing the amount which the executor will be required to pay on the due date of the tax as sufficient in the opinion of the collector to dis- charge the tax." (Art. 81.) § 214. Manner of executing return. The Regulations provide: "The return must be made on Form 706, copies of which will be supplied by the collector. It must contain an itemized inventory, by schedule, of the property constituting the gross estate, together with a full statement of deduc- 13 192 FEDERAL ESTATE TAX. Supplemental data. tions claimed, as therein provided. The instruc- tions printed on the form should be carefully followed. All documents and vouchers used in preparing the return should be retained by the executor, so as to be available for inspection whenever required. Certified copies of the will, if any, must be submitted with the return, to- gether with duplicate copies of the other docu- ments required by the instructions printed on the form, or any documents which the executor may desire to submit with the return in expla- nation thereof. ' ' (Art. 82.) § 215. Supplemental data. The statute requires the executor to file, in addi- tion to the other matters specified, "such supple- mental data as may be necessary to establish the correct tax." (Sec. 404.) The Regulations provide : "It is therefore the duty of the executor to furnish upon request copies of any documents in his possession relating to the estate, or on file in any court having jurisdiction over the estate, appraisal lists of any items included in the gross estate, copies of balance sheets or other finan- cial statements relating to the value of stock, and any other information obtainable by him that may be found necessary in the determina- tion of the tax." (Art. 83.) NONRESIDENT ESTATES. § 216. In general. The statute provides that "Return shall be made THE RETURN. l'J.i Nonresident estates — In general. * * * in the case of the estate of every nonresi- dent any part of whose gross estate is situated in the United States." (Sec. 404.) The size of the estate is in this case immaterial, since the $50,000 exemp- tion does not apply to the estate of a nonresident, (Sec. 403 [b] ). The Regulations provide: "A return on Form 706 must be filed in du- plicate with the Commissioner of Internal Reve- nue, Washington, D. C, or with such collector of internal revenue as the Commissioner may designate, within a year from the date of death of every nonresident decedent, if any part of the gross estate of such decedent was situated in the United States at the time of his death. It is the duty of any executor or administrator appointed in the United States to file a return for the whole of that part of the gross estate situated in the United States, whatever its value. If there is no such executor or administrator, every person in possession of any part of the gross estate in the United States may be required to file a re- turn for such part. Except as otherwise speci- fically provided by these Regulations, notice will be given to such persons, however, where a return is required; and they are relieved of the duty of filing returns by the appointment of an executor or administrator in the United States, but not, however, by the appointment of a foreign executor or administrator. If, however, a complete return is actually filed by the foreign executors of property in the United States, the 194 FEDERAL ESTATE TAX. Place to file — Supplemental data. person in possession need not file a return, ex- cept as otherwise specifically required by these Regulations." (See Arts. 75-A and 76-A.) (Art. 88.) § 217. Place to file. It is not entirely clear that the provision in the Regulations for filing the return with the Commis- sioner accords with the statute. The latter contains a general provision for filing returns "with the col- lector;" and it defines "collector" to mean, in the case of nonresidents, "the collector of the district in which is situated the part of the gross estate of the decedent in the United States, or, if such part of the gross estate is situated in more than one district, then the collector of internal revenue of such dis- trict as may be designated by the Commissioner." (Sec. 400.) This would indicate a filing with the col- lector in all cases, the Commissioner merely desig- nating the collector in the particular case specified. § 218. Supplemental data. The statute requires, in the case of the estate of a nonresident as well as a resident, that the executor shall file "such supplemental data as may be neces- sary to establish the correct tax." (Sec. 404.) The Regulations provide: "Pursuant to this provision the executor of a nonresident decedent is required to file with the return : (1) Certified copy of will, or, if the decedent left several wills, to govern in different jurisdic- tions, certified copy of each will. THE RETURN. 195 Supplemental data. (2) Certified copy of inventory of foreign property filed under a foreign estate, succession or death-duty act; or, if no such inventory was filed, copy of inventory filed with the foreign court of probate jurisdiction. (3) Certified copy of schedule of claims filed under a foreign taxing act in cases where such claims are presented for deduction. If any item of deduction is not included in the schedule, the affidavit of the foreign executor or administrator with reference thereto should be submitted. The specified information is required whether or not the executor wishes to claim de- duction, and is subject to the provision of the statute (see Sec. 403) requiring him to include in his return the value of the gross estate situ- ated in the United States." (Art. 84.) This requirement is, in substance, that the estate of a nonresident must file a complete statement of all property, wherever situated, and whether or not deductions are claimed, so that the statutory provi- sion comes into play. (See Sec. 403.) As foreign property is not subject to tax, the point arises whether a statement concerning it may be required. If it were not required, questions would certainly arise. The executor, for instance, might consider that the stock of a domestic corporation was not situated in this country if the certificates were held abroad, or that bonds, although situated in the United States, had the situs of the domicile of the nonresident owner. The regulation seems to be a reasonable one, and not to have met with serious opposition. CHAPTER VII. PAYMENT OF TAX. § 219. Due date of tax. The statute provides: "That the tax shall be due one year after the de- cedent's death." (See 406.) The Regulations pro- vide: "The tax is due and payable one year from the date of death." (Art. 90.) There is, however, no liability for interest if payment is made one year and 180 days from the date of death. (Sec. 406.) The Bureau, however, reserves, in general, the right to collect the tax at any time after the expira- tion of a year from the death. 1 § 220. When payment effected. The Regulations have nothing specific on this head. It is ruled, however, that payment is not 1. See communication of Deputy Commissioner Hagerman to the Corporation Trust Company of June 24, 1920. This letter states: "There is nothing contained in Section 408 of the Revenue Act of 1918 which fixes a different date for the pay- ment of the tax than that specifically set forth in Section 406 thereof, nor is there anything contained therein which prohibits the collection of the tax at any time after it is due. * * * Payment of estate taxes, therefore, may not be withheld for a period of one year and one hundred and eighty days after de- cedent's death by those liable therefor." Sec. 408 provides that "if the tax * * * is not paid within 180 days after it is due, the collector shall * * * proceed to collect," etc. This provision is treated as being merely a limitation of the time that the collector may wait. [196] PAYMENT OF TAX. 197 Collectible from executor — From others. effected until the receipt of the money by the col- lector. The date of mailing is not the date of pay- ment. 1 " This ruling is applied even though the fail- ure to get the money to the collector in time was due to incorrect advice given by him to the executor. 2 § 221. Collectible from executor. The statute provides: "That the executor shall pay the tax to the collector or deputy collector." (Sec. 407.) The Bureau construes the words "the tax" to mean the whole tax. The Regulations provide : "The statute provides that the executor shall pay the tax. This duty applies to the tax upon the transfer of the entire estate, including prop- erty which will not come into the possession of the executor or administrator." (Art. 92.) § 222. Remedy against transferee or insurance bene- ficiary. The statute provides: "If (a) the decedent makes a transfer of, or creates a trust with respect to, any property in contemplation of or intended to take effect in la. There is a specific ruling to this effect with reference to the income tax. Regulations No. 45, Art. 1007. 2. This accords with the general rule that the Government is not responsible for the laches of its agents. In the case referred to it was ruled that there had been default in pay- ment, and that a consequent interest liability had been incurred; but that the case was a proper one for compromise. 198 FEDERAL ESTATE TAX. Right of beneficiaries to reimbursement. possession or enjoyment at or after his death (except in the case of a bona fide sale for a fair consideration in money or money's worth) or (b) if insurance passes under a contract exe- cuted by the decedent in favor of a specific bene- ficiary, and if in either case the tax in respect thereto is not paid when due, then the trans- feree, trustee, or beneficiary shall be personally liable for such tax, and such property, to the ex- tent of the decedent's interest therein at the time of such transfer, or to the extent of such bene- ficiary's interest under such contract of insur- ance, shall be subject to a like lien equal to the amount of such tax." (Sec. 409. ) 3 The Regulations provide: "The amounts of the lien and of the personal liability of the transferee, trustee, or insurance beneficiary are limited to the amount of the tax upon the transfer of the particular property in the possession of the person liable." (Art. 101.) The above statutory provisions do not limit the right of the Government to look to the executor for payment. If the tax with reference to this particu- lar property remains unpaid, additional remedies are given for its collection. § 223. Right of beneficiaries to reimbursement. The statute provides: "If the tax or any part thereof is paid by, or collected out of that part of the estate passing to 3. See further as to lien, pp. 226-7. PAYMENT OF TAX. 19!* Right of beneficiaries to reimbursement. or in the possession of, any person other than the executor in his capacity as such, such per- son shall be entitled to reimbursement out of any part of the estate still undistributed or by a just and equitable contribution by the persons whose interest in the estate of the decedent would have been reduced if the tax had been paid before the distribution of the estate or whose interest is subject to equal or prior lia- bility for the payment of taxes, debts, or other charges against the estate, it being the purpose and intent of this title that so far as is practic- able and unless otherwise directed by the will of the decedent the tax shall be paid out of the estate before its distribution." (Sec. 408.) These provisions differ in character from those considered in the preceding section, in that they do not merely give an additional remedy to the Gov- ernment, but indicate the manner in which it was intended that the tax should ultimately be paid. Two purposes appear: (a) the general purpose that the tax shall be paid before the distribution of the estate (in which case, if there was a will, the burden falls upon the residuary legatee) ; and (b) that, if not so paid, no particular beneficiary or class of beneficiaries shall pay more than his or their propor- tion of the tax. The Regulations provide: "Two rights are here given. Persons in pos- session of property, and paying the tax, are en- titled to reimbursement, either out of the un- 200 FEDERAL ESTATE TAX. Insurance beneficiaries. distributed estate or by contribution from other beneficiaries, of any excess of the amount paid over the amount of the tax upon the particular property in their possession. " (Art. 98.) § 224. Same — Insurance beneficiaries. The statute provides: "If any part of the gross estate consists of proceeds of policies of insurance upon the life of the decedent receivable by a beneficiary other than the executor, the executor shall be entitled to recover from such beneficiary such portion of the total tax paid as the proceeds, in excess of $40,000, of such policies bear to the net es- tate. If there is more than one such beneficiary the executor shall be entitled to recover from such beneficiaries in the same ratio." (Sec. 408.) The Regulations provide: "The executor is also entitled to require beneficiaries under insurance poli- cies to bear their proportion of the tax." (Art. 98.) These provisions are different from those con- sidered in the preceding section. The policy there disclosed was to require payment of the tax out of the general estate in the hands of the executor be- fore its distribution. The provisions last quoted are in aid of such general estate. The taxable in- surance is treated as a part of it. Where there is a will, the residuary legatee would not pay the entire tax. The executor would recover part of it from the insurance beneficiaries for his benefit. PAYMENT OF TAX. 201 Right to reimbursement not enforcible — No discount. § 225. Same — Right to reimbursement not enforci- ble by Bureau. While outlining certain rights on the part of bene- ficiaries of the estate, who have paid more than their share of the tax, the statute does not require the Bureau to enforce these rights. On the contrary, such rights are predicated upon a tax payment, no part of which is required to be refunded. The remedy is not against the Government, but against other persons or property, specifically described. The Regulations provide: " These provisions, however, are not designed to curtail the right of the Bureau to collect the tax from any person, or out of any property, liable therefor. The Bureau may not be required to apportion the tax among the persons liable. For example, where a transfer has been made in contemplation of death, the Bureau may hold both the executor and the transferee liable with respect to the tax upon the property trans- ferred. In such case, if the tax is paid by the executor, he may not look to the Bureau for relief by refund of part of the tax." (Art. 98.) § 226. No discount. The present statute does not contain the former provision for discount. 4 4. Revenue Act of 1916 (Sec. 204), providing that, "If the tax is paid before it is due a discount at the rate of five per centum per annum, calculated from the time payment is made to the date when the tax is due, shall be deducted." 202 FEDERAL ESTATE TAX. Necessity of return — Payment by bonds, etc. The Regulations provide : "No discount will be allowed for payment in advance of the due date." (Art. 90.) § 227. Necessity of return. The Regulations provide : "Payment will not be accepted before a re- turn in proper form has been filed. ' ' ( Art. 90. ) 4 * § 228. Payment by bonds or uncertified check. The Regulations provide: "Payment of the estate tax may be made by the delivery of Liberty Bonds or other bonds of the United States bearing interest at a higher rate than 4 per cent per annum, provided they were owned by the decedent for at least six months prior to the date of his death. Such bonds are received in payment to the amount of par and interest accrued at the time of the pay- ment." (Art. 91. ) 5 4a. Except where the time to file return has been extended. See Article 90 in full (infra, p. 398). 5. See in this connection Treasury Decisions 2802 and 2905 (pp. 312-39, 342-50), giving full details as to payment of the estate tax with Liberty Bonds. See, in this connection, Ullmann v. Smietauka (U. S. Dist. Ct., N. D. of 111.; not yet reported), holding that, where Liberty Bonds are converted into bonds of a later issue, the date of ac- quisition of the earlier securities determines the length of the decedent's holding, — the later bonds merely evidencing the same debt. PAYMENT OF TAX. 203 Interest — The statute. § 229. Interest— The statute. The statute provides: "If the tax is not paid within one year and 180 days after the decedent's death, interest at the rate of 6 per centum per annum from the expiration of one year after the decedent's death shall be added as part of the tax." (Sec. 406.) It also provides: "If the amount of the tax can not be deter- mined, the payment of a sum of money sufficient, in the opinion of the collector, to discharge the tax shall be deemed payment in full of the tax, except as in this section otherwise provided. * * * If the amount of the tax as finally de- termined exceeds the amount so paid, the col- lector shall notify the executor of the amount of such excess and demand payment thereof. If such excess part of the tax is not paid within thirty days after such notification, interest shall be added thereto at the rate of 10 per centum per annum from the expiration of such thirty days' period until paid." (Sec. 407. ) 5a 5a. The tax is sometimes described as "original," or "excess" or "additional" tax, according to whether it is set out in the return, or disclosed by investigation and notified to the execu- tor. The statute, however, uses the words "the tax," meaning the entire tax. It refers, however, to the "excess" of such entire tax over the amount originally paid by the executor; also to "such excess part of the tax." Under the Revenue Act of 1916, this excess tax bore interest "from the time of such notification" (Sec. 207), instead of 30 days from notification, as provided by the present statute. 204 FEDERAL ESTATE TAX. What constitutes notification? § 230. Same — Interest on original part of the tax. The Regulations provide: "The statute provides that, if the tax is not paid within one year and 180 days after the de- cedent's death, interest at six per centum per annum from the expiration of one year after the decedent's death shall be added as part of the tax. This provision applies to the original amount of tax shown to be due by the return ac- cepted by the collector. It applies in all cases in which penalties have not accrued under the Revenue Act of 1916." (Art. 94.) § 231. Interest on excess part of the tax. The Regulations provide: "If an unpaid balance of tax is found to be due by the Commissioner after investigation, the statute provides that interest shall be added to the amount of such excess part of the tax at the rate of ten per centum from the expiration of 30 days after notification to the executor, pro- vided the tax is not paid within such 30-day period. This interest will not begin to accrue, however, until the expiration of one year and 180 days after the decedent's death." (Art. 96.) § 232. What constitutes notification? It has been ruled that the time of the notification of the excess part of the tax "is the date on which notice of the amount * * * is received bv the PAYMENT OF TAX. 205 Interest where amount shown by return is paid in good faith. executor, whether such notice is given by mail or otherwise." 6 § 233. Interest where amount shown by return is paid in good faith. The words "the tax," as used in both Sections 406 and 407 of the statute, can only mean "the whole tax," "the entire tax." Consequently, under the provisions of Section 406, considered alone, nothing except payment of the entire amount finally found to be due would prevent the accrual of interest upon such amount at the rate of six per cent, commencing one year from the death. Such a result, however, would seem to be inequitable, since the exact amount of the tax depends upon an accurate valuation of the property constituting the gross estate, and an accur- ate estimate of the deductions ; and as to these mat- 6. Treasury Decision 2770; Nov. 6, 1918. This ruling was made with reference to the provision of Sec. 207 of the Revenue Act of 1916 that interest upon the excess tax runs "from the time of such notification." There is authority in support of the ruling, holding that where notification is given by mailing, the date thereof is the date of receipt of the notice, not the date of mailing. Chase v. Inhabitants of Surry, 88 Me. 408, 34 Atl. Rep. 270; Castner v. Farmers Mutual Fire Ins. Co., 50 Mich. 273, 15 N. W. Rep. 452. The same ruling would naturally be expected under Sec. 407 of the present statute, providing for interest to run at the expiration of thirty days from notification. Treasury Decision 2770 does not appear to be "inconsistent" with anything con- tained in the present Regulations, and is consequently not revoked. (See Art. 121.) 206 FEDERAL ESTATE TAX. Interest where amount shown by return is paid in good faith. ters the executor and the Bureau might not agree, even though both were acting in entire good faith. The danger of injustice in this respect is obviated by a somewhat liberal construction of Section 407 of the statute, and the treatment of such cases as cases in which "the amount of the tax can not be determined." The Regulations provide: "Payment of the amount of tax shown to be due by a return accepted by the collector, exe- cuted in good faith and accurate so far as the knowledge of the executor extends, will be con- sidered payment of the tax in full except as ad- justment of the tax results from investigation. If at the time payment is made the exact amount of the tax can not be determined, the payment of a sum of money sufficient, in the opinion of the collector, to discharge the tax will be con- sidered payment in full except as the tax is ad- justed after investigation. (See Arts. 78, 95.) The amount sufficient, in the opinion of the col- lector, to discharge the tax is such sum as the collector may specify after having received a return in proper form containing an accurate statement of all the information in the execu- tor's possession." (Art. 90.) Where the collector makes no such specification, he is deemed to accept as sufficient the amount paid by the executoi. PAYMENT OF TAX. 207 Errors in computation — Collector's decision. § 234. Same — Good faith essential. The Regulations provide: "If the return filed contains a gross or fraudu- lent misstatement of fact, the payment of the amount of tax shown to be due thereby will not be deemed to be payment in full of the tax, since the collector's decision is based upon the assumption that the return is made in good faith." (Art. 90.) § 235. Errors in computation — Payments slightly overdue. Similarly, where an honest return is filed, and the executor, acting in good faith, attempts to pay the tax, but by reason of an error in computation pays too little, and the collector fails to discover the error and accepts the payment, it is ruled that additional tax bears interest only after notification. And the same ruling is made where, by obvious inadvertence, payment is made a few days after the expiration of the time fixed by the statute, and the collector ac- cepts it without protest. § 236. Same — Opinion of the collector — Return denying tax liability. In cases, however, in which the executor fails to pay the true amount of the tax the interest liability specified in Section 406 is incurred unless the case falls within the provisions of Section 407. And one of the requirements of the latter is, that the collector 14 208 FEDERAL ESTATE TAX. Necessity of payment. shall form an " opinion' ' as to what is a sum of money sufficient to discharge the tax. This appears to be a question of fact ; and it would seem that each case depends, to a certain extent, upon its own par- ticular circumstances. Where the executor files a return denying liability, and the investigation of the Bureau discloses a small tax, due to the revision of valuations, or the disallowance of deductions, none of the matters reflecting upon the good faith of the executor, the case seems reasonably to fall within the ruling applied where the return shows a tax liability and the amount is paid; and it is accordingly ruled in such cases that interest runs only after noti- fication. On the other hand, where the return dis- closes a manifest error on the part of the executor, such as the omission of taxable property the exist- ence of which is disclosed, in consequence of which the return asserts an absence of liability, it is not reasonable to infer that the collector shares the mis- take and concurs in the opinion of the executor; and in such a case interest runs as provided in Section 406, without notification. § 237. Same — Necessity of payment. Another of the requirements of Section 407 is pay- ment of the sum which, in the opinion of the collec- tor, is sufficient to discharge the tax. Consequently where a return is filed showing a tax liability, and the amount is not paid, the case is governed by Sec- tion 406; and interest begins to run one year from the death, both upon the amount shown to be due PAYMENT OF TAX. 209 Extension of time to pay tax. by the return and upon any additional tax disclosed by investigation. § 238. Extension of time to pay tax — Conditions. The statute provides, that "in any case where the Commissioner finds that payment of the tax within one year after the decedent's death would impose undue hardship upon the estate, he may grant an extension of time for the payment of the tax for a period not to exceed three years from the due date." (Sec. 406.) The Regulations provide: "In any case where the Commissioner finds that payment of the tax within one year after the decedent's death would impose undue hard- ship upon the estate, extensions of time will be granted for the payment of the tax for a period not to exceed in all three years from the due date. Extensions of time for tax payment will be granted only in exceptional cases, where it is evident that the payment of the tax within the statutory period would cause the estate seri- ous financial loss. No extension shall be for more than one year, and a substantial payment shall be made before each extension. Applica- tion for extension of time for payment should be filed with the collector, and should contain a full statement of the facts upon which the ap- plication is based. The collector will refer the application to the Commissioner, with suitable recommendations." (Art. 93.) 210 FEDERAL ESTATE TAX. "Undue hardship" — Interest. § 239. "Undue hardship." The statute does not define of what "undue hard- ship" consists; and it is plain that a large amount of discretion is vested in the Commissioner. Its exercise is a rather delicate matter, requiring an ad- justment of the conflicting claims of the Govern- ment for money, and of the executor for a reasonable chance to administer the estate without sacrificing the assets. The only absolutely safe course for the executor is to be prepared to pay the tax when due. § 240. Same — Interest. The Regulations provide: "An extension of time for tax payment will not operate to prevent the accrual of interest upon the tax." (Art. 93.) § 241. Same — Does not affect time to file return. The Regulations provide: "The extension of time for the payment of the tax should not be confused with extension of time for filing the return. An extension of time to pay the tax does not relieve from the duty of filing the return within one year from the date of death." (Art. 93.) § 242. Interest under Revenue Act of 1916 — Default incurred. Where the decedent died prior to February 25, 1919, it is often necessary to consider the provisions of Title II of the Revenue Act of 1916, since the pres- ent statute provides that said Title "shall remain PAYMENT OF TAX. 211 Interest under Revenue Act of 1916. in force for the assessment and collection of all taxes which have accrued thereunder, and for the imposi- tion and collection of all penalties or forfeitures which have accrued and may accrue in relation to any such taxes." (Sec. 1400 [b]). The Revenue Act of 1916 provides that if the tax is not paid within a year and ninety days from the death, interest at 10 per cent, computed from the date of death, " shall be added as part of the tax." 7 Where prior to February 25, 1919, this period of one year and ninety days had elapsed without payment of the tax, the prescribed interest liability attached, and was reserved by the repealing act, either as a "tax" or a "penalty" which had "accrued" under the earlier Act. The Regulations provide: "Where the specified period had elapsed prior to February 25, 1919, this penalty has been incurred, and is not affected by the passage of the Revenue Act of 1918. * * * Example: The year and 90 days, in a given case, expired on February 15, 1919, or ten days before the effective date of the Revenue Act of 1918. In this case interest at the rate of ten per centum per annum should be computed for the period of one year and 100 days from the date of death, or until the Revenue Act of 1918 took effect. If the tax is thereafter paid within the time pre- scribed by the new act (which allows an addi- 7. Revenue Act of 1916, Sec. 204. 212 FEDERAL ESTATE TAX. Default not incurred — Revenue Act of 1918. tional 80 days), no further interest accrues. If it is not paid within that period, additional in- terest accrues at the rate of six per cent from February 25, 1919, when the Revenue Act of 1918 took effect." (Art. 120.) § 243. Same — Default not incurred. The Regulations provide: "Where, however, the period of one year and 90 days had not elapsed prior to February 25, 1919, the Revenue Act of 1918 extends the time of payment to one year and 180 days from the date of death. * * * Example: On Febru- ary 25, 1919, in a given case, only one year and 80 days from the date of the decedent's death had elapsed. No penalty having been incurred, the estate has 100 additional days in which to make payment, viz, the year and 180 days pre- scribed by the Revenue Act of 1918. If, how- ever, the tax is not paid within this period, in- terest accrues at the rate of six per cent from the expiration of one year from the decedent's death, as provided by the Revenue Act of 1918." (Art. 120.) § 244. Same — Operative effect of Revenue Act of 1918. It will be observed from the foregoing example that, even where a default has occurred under the Revenue Act of 1916, full effect is given to the pro- visions of the present statute from the time when it PAYMENT OF TAX. 213 Operative effect of Revenue Act of 1918. became operative. That is, the "tax" or "penalty" preserved is only what had accrued before the pres- ent statute went into operation. The Revenue Act of 1918 does not preserve, in addition, a method whereby such tax or penalty may be increased. 8 This construction is enforced by the following pro- vision of the present statute: "That the assessment and collection of all es- tate taxes, and the imposition and collection of all penalties or forfeitures, which have accrued under Title II of the Revenue Act of 1916 as amended by the Act entitled 'An Act to provide increased revenue to defray the expenses of the increased appropriations for the Army and Navy and the extensions of fortifications, and for other purposes,' approved March 3, 1917, or Title IX of the Revenue Act of 1917, shall be according to the provisions of Title IV of this Act." (Sec. 1400 [b]). 9 8. It is probably more accurate to treat the case in question as one of an accrued "tax" rather than an accrued "penalty." If it were the latter, there might be justification for continuing the interest provisions of the former statute, since the present statute saves not only penalties which have accrued, but also such as "may accrue." The latter words are not used with reference to accrued "taxes." 9. The statute also provides: "In the case of any tax imposed by any part of an Act herein repealed, if there is a tax imposed by this Act in lieu thereof, the provision imposing such tax shall remain in force until the corresponding tax under this Act takes effect under the provisions of this Act." (Sec. 1400 [b].) CHAPTER VIII. COLLECTION OF TAX. § 245. The statutory remedy — Not exclusive. The statute provides: "That if the tax herein imposed is not paid within 180 days after it is due, the collector shall, unless there is reasonable cause for fur- ther delay, proceed to collect the tax under the provisions of general law, or commence appro- priate proceedings in any court of the United States, in the name of the United States, to sub- ject the property of the decedent to be sold un- der the judgment or decree of the court." (Sec. 408.) " The Regulations provide: "The Collector may commence in any court of the United States appropriate proceedings, in the name of the United States, to subject the property of the decedent to sale under the judg- ment or decree of the court." (Art. 116, par. [2]). The statute gives an option either to collect the tax "under the provisions of general law" or to bring 1. The statute contains the further provision: "From the proceeds of such sale the amount of the tax, together with the costs and expenses of every description to be allowed by the court, shall be first paid, and the balance shall be deposited according to the order of the court, to be paid under its direction to the person entitled thereto" (Sec. 408). [214] COLLECTION OF TAX. 215 Distraint. the specified action. This is a plain intimation that the remedy by action is not exclusive; and such a holding accords with the rule that a remedy speci- fically prescribed is ordinarily deemed to be cumu- lative, rather than exclusive. 2 The Regulations so provide, holding that — "The remedy by action, here provided for, is not exclusive." (Art. 97. ) 3 § 246. Distraint. The Regulations provide: "(1) Collection by distraint. The collector may issue warrant of distraint authorizing the seizure and sale of any or all of the assets of the estate." (Art. 116, par. [I]). 4 2. Blacklock v. United States, 208 U. S. 75. In this ease the provisions of the Act of July 20, 1868 (15 Stat. 125, 167) for the enforcement of a tax lien by suit in equity were held not to exclude the existing remedy by distraint. 3. The question whether the remedy by action was exclusive under the Revenue Act of 1916 seems a closer one. The earlier statute contained a simple direction that, if payment of the tax should not be made within sixty days after due, "the collector shall, unless there is reasonable cause for further delay, commence appropriate proceedings," etc. (Revenue Act of 1916, Sec. 208.) The present reference to the "provisions of general law ' ' is omitted. The Bureau has, however, asserted throughout the right to distrain for the estate tax, and has actually used the remedy on at least one occasion; and this position was supported, even under the Act of 1916, by the rule that a prescribed remedy should be deemed to be cumula- tive. 4. For provisions as to distraint, see R. S., Sees. 3187 et seq. ; Comp. Sts., 1916, Sees. 5909 et seq. 216 FEDERAL ESTATE TAX. Personal liability of executor or benficiary. § 247. Personal liability of executor or beneficiary. The Regulations provide : "(3) Collection by suit for personal liability. The personal liability of the executor, of the transferee or trustee of property transferred in contemplation of death, and of the beneficiary of taxable life insurance (see Art. 101) may be enforced by any appropriate action." (Art. 116, par. [3]). 5 5. As to the personal liability of the persons specified, see pp. 222-6. CHAPTER IX. POWER TO COMPROMISE OR REMIT. § 248. Power to compromise. The Revised Statutes provide: "The Commissioner of Internal Revenue, with the advice and consent of the Secretary of the Treasury, may compromise any civil or criminal case arising under the internal-revenue laws in- stead of commencing suit thereon; and, with the advice and consent of the said Secretary and the recommendation of the Attorney-General, he may compromise any such case after a suit thereon has been commenced. Whenever a com- promise is made in any case there shall be placed on file in the office of the Commissioner the opin- ion of the Solicitor of Internal Revenue, or of the officer acting as such, with his reasons there- for, with a statement of the amount of tax as- sessed, the amount of additional tax or penalty imposed by law in consequence of the neglect or delinquency of the person against whom the tax is assessed, and the amount actually paid in accordance with the terms of the compromise. " (R. S., Sec. 3229; Comp. Sts., 1916, Sec. 5952.) The Regulations provide: "The Commissioner, with the advice and con- sent of the Secretary of the Treasury, may com- promise any civil or criminal case arising under the internal-revenue laws instead of commenc- [217] 218 FEDERAL ESTATE TAX. Power to remit penalties. ing suit thereon, and with the advice and con- sent of the Secretary, and upon the recommend- ation of the Attorney General, may compromise any such case after suit thereon has been com- menced by the United States. Accordingly, the power to compromise extends to (a) both civil and criminal cases; (b) cases whether before or after suit; and (c) both taxes and penalties." (Art. 112.) § 249. No refund of money received in compromise. The Regulations provide: ''Refunds can not be made of accepted offers in compromise in cases where it is subsequently ascertained that no violation of law was in- volved." (Art. 112.) § 250. Limitation of power to compromise. The Regulations provide: "No power exists, however, to compromise a tax where its existence and amount are not dis- puted in good faith, and the taxpayer is sol- vent." (Art. 112.) § 251. Power to remit penalties. The Revised Statutes provide: "Whenever any person who shall have in- curred any fine, penalty, or forfeiture, or dis- ability * * * shall prefer his petition to the judge of the district in which such fine, penalty, or forfeiture, or disability has accrued, truly and particularly setting forth the circum- POWER TO COMPROMISE OR REMIT. 219 Power to remit penalties. stances of his case, and shall pray that the same may be mitigated or remitted, the judge shall inquire, in a summary manner, into the circum- stances of the case; first causing reasonable no- tice to be given to the person claiming such fine, penalty, or forfeiture, and to the attorney of the United States for such district, that each may have an opportunity of showing cause against the mitigation or remission thereof; and shall cause the facts appearing upon such inquiry to be stated and annexed to the petition, and direct their transmission to the Secretary of the Treas- ury. The Secretary shall thereupon have power to mitigate or remit such fine, forfeiture, or penalty, or remove such disability, or any part thereof, if, in his opinion, the same was incurred without willful negligence, or any intention of fraud in the person incurring the same; and to direct the prosecution, if any has been insti- tuted for the recovery thereof, to cease and be discontinued, upon such terms or conditions as he may deem reasonable and just." (R. S., Sec. 5292; Comp. Sts., 1916, Sec. 10,130.) 4 ' The Secretary of the Treasury is authorized to prescribe such rules and modes of proceed- ing to ascertain the facts upon which an applica- tion for remission of a fine, penalty, or forfei- ture is founded, as he deems proper, and, upon ascertaining them, to remit the fine, penalty, or forfeiture, if in his opinion it was incurred with- 220 FEDERAL ESTATE TAX. Power to remit penalties. out willful negligence or fraud, in either of the following cases: First. If the fine, penalty, or forfeiture was imposed under authority of any revenue law, and the amount does not exceed $1,000." (R. S., Sec. 5293; Comp. Sts., 1916, Sec. 10,131.) The Regulations provide : ''Where a fine, penalty, or forfeiture, not ex- ceeding $1,000, is incurred without willful negli- gence or fraud, it may be remitted by the Secre- tary of the Treasury; and he may remit other fines, penalties, forfeitures, and disabilities where the court has inquired into the matter and made findings. ' ' (Art. 112.) CHAPTER X. ' MISCELLANEOUS. § 252. Effect given to State law. The statute imposes a tax "upon the transfer of the net estate" of decedents (Sec. 401). It does not, however, and could not, attempt to determine of what this "net estate' ' consists, since that would be to regulate the devolution of estates, the power to do which resides wholly in the various States. 1 The Bureau fully recognizes this situation, and looks to the laws of the various States to ascertain the char- acter of the subject matter which may be taxed. Thus, such questions as where the decedent was domiciled, and what property is community prop- erty, are determined according to the laws of the State having jurisdiction of the case. Where the State decisions conflict, the Bureau follows any de- cision which the State has power to put into actual operation. Thus, where one State decides that the decedent was domiciled therein at the time of his death and proceeds to administer upon property within the jurisdiction, the Bureau accepts this re- sult, although the courts of another State determine that the decedent was domiciled in the latter. On the other hand, the proper construction of the taxing acts is held to be a federal question, the final decision of which rests with the Supreme Court of 1. See the elaborate discussion of this question in Knowllon v. Moore, 178 U. S. 41, 57-61. [221] 222 FEDERAL ESTATE TAX. Personal liability of executor. the United States. On this question the decisions of the State courts, while they may be important as evidence of the true construction of the various acts of Congress, are not necessarily accepted as conclu- sive. Nor would a rule adopted by the State for use in their own proceedings be binding upon the Bureau in proceedings under the federal statutes. Thus, a State statute providing a rule for the valuation of annuities, different from that contained in the Regu- lations, 2 will not be followed by the Bureau. 3 § 253. Personal liability of executor. The statute provides that i ' the executor shall pay the tax" (Sec. 407). The Revised Statutes contain the following provision: "Every executor, administrator, or assignee, or other person, wiio pays any debt due by the person or estate from whom or for which he acts, before he satisfies and pays the debts due to the United States from such person or estate, shall become answerable in his own person and estate for the debts so due to the United States, or for so much thereof as may remain due and un- paid." (R. S., Sec. 3467; Comp. Sts., 1916, Sec C373.) 2. See, for instance, the Louisiana statute providing for the use of the American Experience Table of Mortality at 6% compound interest. (Marr's Ann. Rev. Sts. of La., Sec. 6435.) 3. But see the use made of a State statute or an existing custom where it enters into the question of value. MISCELLANEOUS. 223 Authorities — Distribution of estate. The Regulations provide: "The executor is personally liable for the payment of the estate tax to the amount of the full value of the assets of the estate which have at any time come into his hands." (Art. 113.) § 254. Same — Authorities. The statutory provisions seem to afford support for the provisions of the Regulations just cited. Thus, it is held that a statutory direction to the exe- cutor to pay a tax renders him personally liable for the same insofar as he has in his possession assets sufficient to make the payment. 4 § 255. Same — Distribution of estate. The further question arises whether the executor may divest himself of liability by distributing the estate in accordance with local law and procedure. It would hardly be contended that he might do this without any regard to the tax. It is, however, urged with some force that, where he has filed a return in good faith and paid what he believes to be due, he should be permitted to distribute the estate in the 4. In re Saramon, 3 Mees. & W. 381; Appeal of Hopkins, 77 Conn. 644, 60 Atl. Rep. 657; State v. Dalrymple, 70 Md. 294, 17 Atl. Rep. 82; In re Weed's Estate, 10 Misc. (N. Y.) 628, 32 N. Y. Supp. 777; Hunter v. Husted, 45 N. C. 141. There is, of course, no personal liability on the part of the executor aside from property coming into his possession for purposes of administration. See Matter of Meyer, 209 N. Y. 386, 103 N. E. Rep. 713; Matter of Garcia, 183 App. Div. 712, 170 N. Y. Supp. 980. 15 224 FEDERAL ESTATE TAX. Distribution of estate. ordinary way, and that the Government should be required to give notification of additional tax within the time prescribed by the local law for the closing of the estate. This argument, however, will hardly stand analysis. The tax due is the entire tax, which can be determined only by the investigation of the return; and the obligation of the executor extends to this entire tax. Since the tax is imposed by com- petent authority, the State cannot exempt the execu- tor from any part of the liability imposed. In dis- tributing the estate before the final ascertainment of the tax, the executor would be taking a deliberate risk of depriving the Government of part of its due. 5 The Bureau has accordingly ruled that the execu- tor is personally liable for the payment of any addi- tional tax found to be due by the investigation of the return, although, after paying the amount shown to be due by the return, he has distributed the estate. The Regulations provide: "If the amount of tax as finally determined exceeds the amount of tax already paid, the col- lector will notify the executor of the amount of the unpaid balance of the tax and will demand payment thereof. * * Where the investi- gation of the return shows that no further tax is due, the executor will be notified to this effect. 5. As to the liability of legatees and distributers for inherit- ance taxes where the estate has been distributed, see Schouler on Wills, Executors and Administrators, 5th Ed., Sec. 1508b. MISCELLANEOUS. 225 Liability of beneficiary. Until the receipt of such notification, he should reserve a sufficient portion of the estate to satisfy any excess tax." (Art. 95.)° § 256. Liability of beneficiary. The Regulations provide: ''Where no executor or administrator has been appointed, every person in possession of any part of the gross estate is liable for the tax as an executor." (Art. 113.) As has been seen, the provision of the statute mak- ing a person in possession of property an "execu- tor," where no regular executor has been appointed, has been applied so as to require such person to give the 60-day notice and file the return. 7 There is no logical reason for stopping at this point. If the per- son in possession is an "executor," he is liable to all the duties of an executor, one of which is pay- ment of the tax (Sec. 407); and the statutory pro- vision has been extended to cases where there is a regular executor if the property in question never came into his possession for purposes of administra- tion. 8 Consequently a person receiving the pro- 6. The importance of a prompt auditing of returns is, of course, manifest. If, however, the executor might distribute the estate immediately upon filing the return and paying the amount shown to be due, no diligence on the part of the Government could prevent substantial trouble and danger of loss. 7. See pp. 170-2, 184-5. 8. See pp. 172-3, 184-5. 226 FEDERAL ESTATE TAX. Lien. ceeds of a joint bank account after the decedent's death is held liable to pay the tax, even though an administrator has been appointed. 9 § 257. Lien. The statute provides: "That unless the tax is sooner paid in full, it shall be a lien for ten years upon the gross es- tate of the decedent, except that such part of the gross estate as is used for the payment of charges against the estate and expenses of its administration, allowed by any court having jurisdiction thereof, shall be divested of such lien." (Sec. 409.) The Regulations provide: "This lien attaches to every part of the gross estate, whether or not the property comes into the custody or control of the executor. The only property divested of the lien is such part as is used to pay charges against the estate and ad- ministration expenses allowed by the court which administers the estate. "With this excep- tion, the lien can only be divested by payment. It attaches to the extent both of the original tax shown to be due by the return and of any addi- tional tax found to be due upon investigation. Payment of the entire tax is necessary in order to destroy the lien." (Art. 99.) 9. The same rule would doubtless apply to the transferee of property where the transfer is taxable. MISCELLANEOUS. 227 Sale by transferee or trustee. § 258. Lien upon transferred property or insurance. The statute provides that where the decedent makes a transfer which is taxable under the law, or insurance passes to a specific beneficiary under cir- cumstances imposing a tax liability, and the tax with reference to such property is not paid, "such prop- erty, to the extent of the decedent's interest therein at the time of such transfer, or to the extent of such beneficiary's interest under such contract of insur- ance, shall be subject to a like lien equal to the amount of such tax." (Sec. 409.) § 259. Same — Sale by transferee or trustee. The statute provides: "Any part of such property sold by such transferee or trustee to a bona fide purchaser for a fair consideration in money or money's worth shall be divested of the lien and a like lien shall then attach to all the property of such transferee or trustee, except any part sold to a bona fide purchaser for a fair consideration for money or money's worth." (Sec. 409.) The Regulations provide: "Where the transferee or trustee sells the property to a bona fide purchaser for a fair con- sideration in money or money's worth, the lien upon such property is divested ; but there is sub- stituted a lien upon all of the property of the transferee or trustee, except such part as may be sold to a bona fide purchaser for a valuable consideration." (Art. 101.) 228 FEDERAL ESTATE TAX. Release of lien — Release after discharge by payment. § 260. Release of lien. The statute provides: "If the Commissioner is satisfied that the tax liability of an estate has been fully discharged or provided for, he may, under regulations pre- scribed b}^ him with the approval of the Secre- tary, issue his certificate releasing any or all property of such estate from the lien herein im- posed." (Sec. 409.) The Regulations state: "The statute provides that, if the Commis- sioner is satisfied that the tax liability of an es- tate has been fully discharged or provided for, he may issue his certificate releasing any or all property of the estate from the lien. The issu- ance of certificates is a matter resting within the discretion of the Commissioner, and certi- ficates will be issued only in case there is actual need therefor. In most cases the receipts issued by the collector constitute sufficient acquit- tance." (Art. 100.) § 261. Same — Release after discharge by payment. The Regulations provide: "The tax will be considered fully discharged for the purpose of the issuance of a certificate only when investigation has been completed, and payment of the excess tax determined to be due, if any, has been made. A certificate of release of lien may be issued by the Commissioner un- der these circumstances upon any or all prop- MISCELLANEOUS. 229 Release before discharge by payment — Examination of records. city of the estate, upon the filing by the execu- tor of an application in duplicate on Form 791. The form must contain all the information called for." (Art. 100.) § 262. Same — Release before discharge by payment — Security required. The Regulations provide: "Where the tax liability has not been fully discharged, as provided above, no general certi- ficate of release will be granted, but releases of lien upon particular items of property will be issued upon the filing with the Commissioner of such security, if any, as he may require. Where security is required, a corporate indemnity bond must be furnished, or Liberty Bonds, or other bonds of the United States, must be deposited with the collector. In lieu of such security, the Commissioner may in any case issue the release upon payment of the estimated tax upon the transfer of the property released, computed at the highest rate applicable to the estate. If, upon consideration of the application, the Com- missioner finds the issuance of the certificate to be warranted, the collector will notify the execu- tor of the amount of the bond, as fixed by the Commissioner." (Art. 100.) § 263. Examination of records. The statute provides: "The Commissioner, for tin' purpose of as- certaining the correctness of any return or for 230 FEDERAL ESTATE TAX. Taking of testimony. the purpose of making a return where none has been made, is hereby authorized, by any reve- nue agent or inspector designated by him for that purpose, to examine any books, papers, rec- ords or memoranda bearing upon the matters required to be included in the return," etc. (Sec. 1305.) 10 The Regulations provide: "It is the duty of the executor to keep such records as the Commissioner may require. Exe- cutors are required to keep complete and de- tailed records of the affairs of the estate, suffi- cient to enable the Bureau to determine accur- ately the amount of the tax liabilitv." (Art. 117.) § 264. Taking of testimony. The statute also provides that the Commissioner "may require the attendance of the person render- ing the return or of any officer or employee of such person, or the attendance of any other person hav- ing knowledge in the premises, and may take his testimony with reference to the matter required by law to be included in such return, with power to ad- minister oaths to such person or persons." (Sec. 1305.) 10. This provision and the other provisions quoted from Sec. 1305 are not contained in the Estate Tax Law (Title IV), but are applicable to estate tax proceedings. MISCELLANEOUS. 231 Executor's duty to render statement. The Regulations provide: ' ' In order to ascertain the correctness of a re- turn, or to make a return where none has been made, the Commissioner has power to require the attendance, and to take the testimony, of the person rendering the return, or any officer or em- ployee of such person, or any other person hav- ing knowledge in the premises. Such person may be required to produce any relevant book, paper or other record. This power may be exer- cised by any revenue agent or inspector desig- nated for the purpose." (Art. 114.) § 265. Executor's duty to render statement. The statute provides that, "every person liable to any tax imposed by this Act, or for the collection thereof, shall keep such records and render, under oath, such statements and returns, and shall comply with such regu- lations as the Commissioner, with the approval of the Secretary, may from time to time pre- scribe." (Sec. 1305.) The Regulations provide: "It is also the duty of the executor not only to make the formal return, but also to render any other sworn statement which the Commis- sioner may require for the purpose of determin- ing whether a tax liability exists." (Art. 118.) 232 FEDERAL ESTATE TAX. Compelling testimony. § 266. Compelling testimony. The statute provides: "That if any person is summoned under this Act to appear, to testify, or to produce books, papers or other data, the district court of the United States for the district in which such per- son resides shall have jurisdiction by appro- priate process to compel such attendance, testi- mony, or production of books, papers, or other data. ' ' The district courts of the United States at the instance of the United States are hereby invested with such jurisdiction to make and issue, both in actions at law and suits in equity, writs and orders of injunction, and of ne exeat republics, orders appointing receivers, and such other or- ders and process, and to render such judgments and decrees, granting in proper cases both legal and equitable relief together, as may be neces- sary or appropriate for the enforcement of the provisions of this Act. The remedies hereby provided are in addition to and not exclusive of any and all other remedies of the United States in such courts or otherwise to enforce such pro- visions." (Sec. 1318.) The Regulations provide: "Where any person is summoned to appear and testify, or to produce books, papers, or other data, the District Court of the United States for the district in which such person resides has power to compel the giving of the testimony, or the production of the books, papers, or data, and to issue any appropriate process, writ, or or- der." (Art. 115.) MISCELLANEOUS. 233 Penalties — Failure to file notice or return. § 267. Penalties — Failure to file notice or return. The statute provides: "That whoever fails to comply with any duty imposed upon him under section 404 1X shall be liable to a penalty of not exceeding $500, to be recovered, with costs of suit, in a civil ac- tion in the name of the United States." (Sec. 410.) The Revised Statutes provide: "In case of any failure to make and file a re- turn or list within the time prescribed by law, or prescribed by the Commissioner of Internal Revenue or the collector in pursuance of law, the Commissioner of Internal Revenue shall add to the tax 25 per centum of its amount, except that when a return is filed after such time and it is shown that the failure to file it was due to a reasonable cause and not to willful neglect, no such addition shall be made to the tax." (R. S., Sec. 3176; Comp. Sts., 1916, Sec. 5899. ) 12 The Regulations provide: "For failure to file the 60-day notice or the return within the time prescribed, the person in default is subject to a penalty not to exceed 11. Providing for the filing of the 60-day notice and the return. 12. This section was formerly more severe, providing for a 507< penalty, which was waived only "when a return is voluntarily and without notice from the collector" filed after the default. (R. S., Sec. 3176, as amended by Revenue Act of 1916, Sec. 16.) 234 FEDERAL ESTATE TAX. Filing of false or fraudulent notice or return. $500; and, for the failure to file the return, 25 per cent may be added to the amount of the tax. Where it appears, however, that the failure to file the return was due to a reasonable cause and not to willful neglect, no addition is made to the tax." (Art. 104.) § 268. Same — Filing of false or fraudulent notice or return. The statute provides: "That whoever knowingly makes any false statement in any notice or return required to be filed under this title shall be liable to a penalty of not exceeding $5,000, or imprisonment not exceeding one year, or both." (Sec. 410.) The Revised Statutes provide: "In case a false or fraudulent return or list is willfully made, the Commissioner of Internal Revenue shall add to the tax 50 per centum of its amount." (R. S., Sec. 3176; Comp. Sts., 1916, Sec. 5899.) 13 The Regulations provide: "Where statements in the 60-day notice or in the return are knowingly and willfully false, the person making them is subject to a penalty of $5,000, or imprisonment for one year, or both ; and, for the false return, 50 per cent may 13. This penalty was formerly 100%. (R. S., Sec. 3176, as amended by Revenue Act of 1916, Sec. 16.) MISCELLANEOUS. 235 Exemption — General nature of penalties. be added to the amount of the tax." (Art. 103.) 14 § 269. Exemption of nonresident estate with refer- ence to United States bonds. Liberty bonds and other bonds of the United States are not included in the gross estate of a nonresident alien. This is due to a special exemption provision, which, it is ruled, is broad enough to embrace the estate tax. 15 § 270. General nature of penalties. The Regulations provide: "Two kinds of penalties are provided for de- linquency with respect to the duties imposed by the estate tax law : (1) A specific penalty, to be recovered by suit, unless adjusted by an offer in compromise; and (2) A penalty of a certain percentage of the tax, to be added to the tax and collected in the same manner as the tax. 14. It will be observed that in both of the cases just con- sidered the specific penalty applies to both the 60-day notice and the return, while the ad valorem penalty applies to the return only. 15. See Victory Liberty Loan Act; Act of March 3, 1919, Sec. 4 (40 Stat. 1309, 1311) ; amending Fourth Liberty Bond Act; Act of July 9, 1918, Sec. 3 (40 Stat. 844, 845). See rulings of Aug. 6 and Aug. 21, 1920, contained in War Tax Service, Corporation Trust Company, 1920, pars. 322-3, overruling previous ruling at par. 173. T36 FEDERAL ESTATE TAX. Failure to exhibit records or property. In any case of delinquency for which more than one penalty is provided the Government may impose either or both penalties." (Art. 102.) § 271. Same — Failure to exhibit records or prop- erty. The statute provides: "Whoever * having in his possession or control any record, file, or paper, containing or supposed to contain any information con- cerning the estate of the decedent, or, having in his possession or control any property comprised in the gross estate of the decedent, fails to ex- hibit the same upon request to the Commissioner or any collector or law officer of the United States, or his duly authorized deputy or agent, who desires to examine the same in the perform- ance of his duties under this title, shall be lia- ble to a penalty of not exceeding $500, to be re- covered, with costs of suit, in a civil action in the name of the United States." (Sec. 410.) The Regulations provide: "Where a person in possession or control of any record, file, or paper, supposed to contain information relating to the estate, fails to ex- hibit the same, upon the request of the Com- missioner or any collector, he is liable to a pen- alty not to exceed $500, to be recovered by civil action. He must comply with such a request whether or not he believes that the documents MISCELLANEOUS. 237 Claims for abatement and refund — In general. contain information relating to the estate. A person in possession of property forming pari of the gross estate, and refusing to exhibit the same upon the request of the Commissioner or a collector, is subject to a similar penalty." (Art. 105.) § 272. Claims for abatement and refund — In general. The Revised Statutes provide: ' ' The Commissioner of Internal Revenue, sub- ject to regulations prescribed by the Secretary of the Treasury, is authorized to remit, refund, and pay back all taxes erroneously or illegally assessed or collected, all penalties collected without authority, and all taxes that appear to be unjustly assessed or excessive in amount, or in any manner wrongfully collected; also to re- pay to any collector or deputy collector the full amount of such sums of money as may be re- covered against him in any court, for any in- ternal revenue taxes collected by him, with the cost and expenses of suit; also all damages and costs recovered against any assessor, assistant assessor, collector, deputy collector, agent, or in- spector, in any suit brought against him by rea- son of anything done in the due performance of his official duty, and shall make report to Con- gress at the beginning of each regular session of Congress of all transactions under this sec- tion.'' (R, S., Sec. 3220; Comp. Sts., 1916, Sec. 5944.) 238 FEDERAL ESTATE TAX. Claims for abatement — Papers to be filed. The Regulations provide: 1 ' Under these provisions of law two forms of relief are afforded the executor in cases where he believes that an excessive amount of tax has been assessed against or paid by him, either upon the basis of the return or of the investiga- tion conducted by the Bureau. The two forms of relief are: (1) Claim for abatement on Form 47 where the tax has been assessed but not paid. (2) Claim for refund on Form 46 where the tax has been paid." (Art. 106.) § 273. Same — Claims for abatement — Papers to be filed. The Regulations provide: ''Claims for abatement of taxes or penalties illegally assessed must be made upon Form 47, and must be sustained by the affidavits of the parties against whom the taxes were assessed or of other parties cognizant of the facts. When a tax has been assessed, the presumption is that the assessment is correct; and the burden of showing that it was improperly or illegally as- sessed rests upon the applicant for abatement. The affidavit must therefore contain a full and explicit statement of all the material facts re- lating to the claim in support of which they are offered and which are essential to proper con- sideration. Nothing should be left to inference, but all the facts relied upon should appear upon the papers themselves." (Art. 107.) MISCELLANEOUS. 239 Limitation for filing claim to abate excess tax. § 274. Same — Claim does not bar collection. The Regulations provide: ''The filing of a claim for the abatement of a tax alleged to have been erroneously assessed does not necessarily operate as a suspension of the collection of the tax. The collector may col- lect the tax if he thinks it necessary, and leave the taxpayer to his remedy of a claim for re- fund.'' (Art. 107.) § 275. Same — Interest. The Regulations provide: "Where a claim for abatement is rejected, the making of the application does not affect the running of interest. The allowance of the claim, however, in whole or part, discharges all inter- est obligations upon the portion of the claim al- lowed. The same rules apply where, upon the request of the executor, a reinvestigation is made of the amount of an additional tax." (Art. 108.) § 276. Same — Limitation for filing claim to abate excess tax. The Regulations provide: "If it is desired to file claim for abatement of the excess amount of tax disclosed upon inves- tigation, such claim should be filed with the col- lector within 30 days of receipt of the Commis- sioner's letter of notification. After that period the claim will not be considered, but the tax 16 240 FEDERAL ESTATE TAX. Claims for refund — Papers to be filed. must be paid, and adjustment made by claim for refund." (Art. 109.) § 277. Claims for refund ! "—Papers to be filed. The Eegulations provide: "Claims for refund of assessed taxes and penalties must be made on Form 46. In this case, as in the case of claims for abatement, the burden of proof rests upon the claimant. All the facts relied upon in support of the claim should be clearly set forth under oath. With the claim should be presented, in addition to the evidence: (1) Collector's receipt evidencing payment of tax. (2) Where the claim is made by the executor or administrator, a certified copy of the letters testamentary or of administration, and a certi- ficate that the appointment remains in full force and effect. (3) Where the executor or administrator has been discharged, a certified copy of the decree discharging him, and evidence as to the persons entitled to receive the refund, setting forth their names. Where the claim is made on behalf of a number of persons, there should be furnished a power of attorney duly executed by all the bene- 16. For special provisions for refund where there has been no allowance of the deduction of charitable and similar be- quests, see supra, p. 152. MISCELLANEOUS. 241 Time to file — Payment in installments. ficiaries showing the claimant's authority to act in their behalf." (Art. 110.) § 278. Same— Time to file. The Revised Statutes provide that claims for the refunding of money illegally collected by the Bureau "must be presented to the Commissioner of Internal Revenue within two years next after the cause of ac- tion accrued." 17 § 279. Same — Payment in installments. Where the tax is paid in installments, and part of the money is due, a question arises as to the date when the two-year limitation period begins to run. It is held, under such circumstances, that the cause of action does not accrue until the executor has liqui- dated the amount of tax which is due, and paid a sum which is not due. Thus, where the executor pays the tax shown to be due by the return, all of 17. R. S., Sec. 3228; Comp. Sts., 1916, Sec. 5951. The cause of action accrues at the time the illegal payment is made. (Pub- lic Service Railway Co. v. Herold, 219 Fed. Rep. 301, 309.) The Revised Statutes also provide that suit upon the claim must be brought "within two years next after the cause of action accrued." (Sec. 3227; Comp. Sts., 1916, Sec. 5950). The refer- ence here is to the time when the Commissioner rejects the claim or, at the option of the taxpayer, the expiration of the six months period within which (see Sec. 3226) it is contemplated that the Commissioner will make his decision. Merck v. Trent. 174 Rep. 388; State Line & Sullivan R. R. Co. v. Davis, 22S Fed. Rep. 246. But compare Schwarzchild & Sulzberger Co. v. Rucker, 143 Fed. Rep. 656. 242 FEDERAL ESTATE TAX. Undervaluation of property — Payment of claims. which is due, and is then directed to pay, and pays, an excessive amount of additional tax, the period of limitation begins to run at the date of the second payment; and a claim filed within two years of that date is in time. 18 § 280. Undervaluation of property. It has been ruled that a deliberate undervaluation of property in the return, made by the executor in bad faith, is a violation of the statutory provision, and subjects him to the penalty for making a false return. § 281. Payment of claims. The Regulations provide: "Warrants in payment of claims allowed will be drawn in the names of the parties entitled to the money, and will, unless otherwise directed, be sent by the Treasurer of the United States directly to the proper parties, or their duly au- thorized attorneys or agents; but if the claim- ants are indebted to the United States for taxes such taxes must be paid before the warrants are delivered." (Art. 111.) 18. The presumption is thus indulged, as long as possible, that the executor is paying what is actually due. If the claim is not filed within the time specified in the statute, it is ruled that the Commissioner has no authority to receive it, even though there are circumstances of hardship attending the illegal exaction. This accords with the general rule that Government agents have no authority to waive the bar of the Statute of Limitations. Finn v. United States, 123 U. S. 227; United States v. Utz, 80 Fed. Rep. 848. ADDENDA ADDENDA I. COMPARATIVE TABLE OF STATUTES CONTAINING PRESENT ESTATE TAX LAW. Revenue Act of 1918 U. 9. Compiled St;it Carries' Federal Code, (40 Stat., Chap. 18, utes, Annotated, 1910. \'.)>] Supplement, pp. 1096-1101) Supplement 1919, Vol. I. Sec. 400 Sec. 633634a Sec. 5884 Sec. 401 Sec. 63363,4b Sec. 5885 Sec. 402 Sec. 633634c Sec. 5886 Sec. 403 See. 63363^d Sec. 5887 Sec. 404 Sec. 633634e Sec. 5888 Sec. 405 Sec. 6336%f Sec. 5889 Sec. 406 Sec. 63363^ Sec. 5890 Sec. 407 Sec. 633634b Sec. 5891 Sec. 408 Sec. 633634i Sec. 5892 Sec. 409 Sec. 63363^ Sec. 5893 Sec. 410 Sec. 633634k Sec. 5894 [243] II. TREASURY DECISIONS RELATING TO THE ESTATE TAX. (T. D. 2372) Estate Tax. Beneficiaries coming into possession of any property of a de- eedent where no executor or administrator of the decedent 's prop- erty is acting, and beneficiaries coming into possession of any property of a decedent prior to the appointment of executors or ad- ministrators, are required, where the estate would be subject to tax- ation, to file the 30-day notice and the return provided by section 205, Title II, of the revenue act of September 8, 1916. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C, September 25, 1916. To collectors of internal revenue: The subjoined extract from an opinion of the Soli- citor of Internal Revenue, dated September 23, 1916, is published for the information of those concerned. The said law, the revenue act of September 8, 1916, section 200, defines the term "executor" as meaning "the executor or administrator of the de- cedent, or, if there is no executor or administrator, any person who takes possession of any property of the decedent." Section 205 requires "that the executor, within 30 days after qualifying as such, or after coming into possession of any property of the decedent, which- ever event first occurs, shall give written notice thereof to the collector;" and that "the executor [244] TREASURY DECISIONS. 245 T. D. 2372. shall also, at such times and in such manner as may be required by the regulations made under this title, file with the collector a return under oath in dupli- cate, setting forth the value of the gross estate," etc. Manifestly, the purpose of the law is to secure such information and returns as will enable the Gov- ernment to properly execute the law and collect such taxes as may be thereby imposed. In view of this uniform interpretation as to the requirement of notice and returns in all matters of revenue taxation, as well as the specific language of the law, I am of the opinion that you are justified in the preparation of regulations requiring persons who come into possession of the property of a de- cedent, or any part thereof, prior to the appointment of executors or administrators, to give due and proper notice to the collector of that fact. When executors or administrators are appointed they, of course, supersede all other persons in the control of the property whether such persons are in possession or not, and the duty of giving notice and making re- turns for the entire estate immediately devolves upon such executors or administrators. W. H. Osborn, Commissioner of Internal Revenue. Approved : Wm. P. Malburn, Acting Secretary of the Treasury. 246 FEDERAL ESTATE TAX. T. D. 2378, 2385. (T. D. 2378) This Treasury Decision contained the original Estate Tax Regulations. They were promulgated on October 10, 1916, and revised in May, 1917, and again in August, 1919, and January, 1921. The last revision constitutes the present estate tax regula- tions. The original regulations are not now of enough value to warrant inclusion. (T. D. 2385) Estate Tax — Taxable Transfers. Transfers of property made prior to September 8, 1916, or by instrument dated prior thereto, but made in contemplation of death, are taxable where the transferor died after September 8, 191C, leaving a total estate exceeding the specific exemption, if any. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C, October 21, 1916. Mr. Sir : Replying to the inquiry in your letter of the 10th instant, you are informed that paragraph B of section 202, Title II, of the act of September 8, 1916, provides for the inclusion in the gross estate of a decedent dying on or after September 9, 1916, of any interest of which the decedent "has, at any time, made a transfer" in contemplation of, or in- tended to take effect at or after, decedent's death. This language is so specific that it hardly would seem open to question that Congress intended to TREASURY DECISIONS. 247 T. D. 2395. include in the gross estate not only such transfers, including gifts and sales not bona fide made by in- strument dated after September 8, 1916, or where the actual transfer took place after that date, but transfers of any kind made in contemplation of death at any time whatsoever prior to September 8, 1916. It is believed also that there is no ques- tion of the power of Congress to enact such revenue legislation. The test of the tax liability is not in such cases the date of the instrument making the transfer or the date of the actual transfer, but the date of the death of the decedent. Respectfully, W. H. Osborn, Commissioner of Internal Revenue. Approved : Wm. P. Malburn, Acting Secretary of the Treasury. (T. D. 2395) Inheritance Taxes. State inheritance taxes deductible from the gross estate in de- termining tax due under Title II of the act of September 8, 1916. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C, November 17. 1916. Collector Internal Revenue, Pittsburgh, Pa. Sir: Replying to your letter of the 14th instant inquiring whether State inheritance taxes are 248 FEDERAL ESTATE TAX. T. D. 2395. deductible from the gross estate of a decedent in determining the Federal tax due under Title II of the revenue act of September 8, 1916, you are in- formed that among the deductions from the gross estate specified in section 203, paragraph a, sub- paragraph 1, of the above-mentioned act is the item "such other charges against the estate as are allowed by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered." Since it does not appear open to question that State inheritance taxes are a primary charge against an estate and allowable as credits to execu- tors and administrators in every State imposing such taxes, they are clearly deductible from the gross estate of the decedent whose property and interests are liable to the Federal tax imposed in Title II of the act of September 8, 1916. Respectfully, W. H. Osborn, Commissioner of Internal Revenue. Approved : Byron R. Newton, Acting Secretary of the Treasury. (Note: This Treasury Decision was revoked by Treasury Decision 2524.) TREASURY DECISIONS. 249 T. D. 2406. (T. D. 2406) Estate Tax. Income earned after decedent's death and appreciation in values during administration are not to be returned as a portion of the gross estate. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C, December 2, 1916. Mr. Sir: Replying further to your letter of October 26, 1916, you are informed that Article VII of regu- lations 37 has been reconsidered, and in view of an opinion of the Solicitor of Internal Revenue, dated November 9, sustained in an opinion of the Attorney General of November 29, it is held that, for the pur- pose of tax under Title II of the revenue act of September 8, 1916, the gross estate of a decedent must be based upon the value of the property at the time of decedent's death, and income earned after death and appreciation in values during administra- tion shall not be returned for estate tax. Respectfully, W. H. OSBORN, Commissioner of Internal Revenue. Approved : Wm. P. Malburn, Acting Secretary of the Treasury. 250 FEDERAL ESTATE TAX. T. D. 2415. (T. D. 2415) Estate Tax. Conditions under which tentative return may be filed and ad- vance tax payment accepted. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C, December 14, 1916. Sir: Receipt is acknowledged of your report of the 7th instant with regard to the liability to estate tax of the estate of . You make specific inquiry with regard to the allowance of certain estimated deductions from the gross estate which were shown by the executor upon his preliminary return. Section 204 of the taxing act, in which provision is made for the allowance of a discount of 5 per cent for payment of tax before the expiration of one year from the death of the decedent, does not, of course, contemplate that, in order to take advantage of this discount, executors shall be permitted to make vague and inaccurate estimates of the value of the gross estate, or the extent of the legal deduc- tions therefrom. If executors were permitted to make returns which were mere estimates it is obvious that they might oftentimes estimate the gross estate conservatively and estimate the deduc- tions generously, or, at least, it could not be assumed that this had not been done, and it would, therefore, be necessary that in every case, after the final accounting of the executors, the Government TREASURY DECISIONS. 251 T. D. 2415. should make a supplementary investigation to de- termine the true facts, since in the majority of the cases it would be probable that the tax had been underpaid in the first instance. Section 205 provides for the filing of the return at such times and in such manner as may be required under the regulations promulgated by the Commis- sioner of Internal Revenue, with the approval of the Secretary of the Treasury, and it is obvious that the proper time for return to be made is a time coincident, as nearly as possible, with the final settlement of the estate and the date upon which the estate tax is due. Since in many States more than a year from the decedent's death is allowed for administration, the time set by the regulations for the filing of the return was made coincident with the due date of the tax — that is, one year after decedent's death. Section 207 of the act relates primarily to the payment of the tax and not to the filing of the return, and it contemplates that, if at the time the tax is due it is impossible, because of delay in administration, for an exactly accurate return to be made, a tentative return may be filed and tax shown thereon to be due may be tentatively accepted by the collector. Neither section 205 nor section 207 con- templates that at any time return may be filed and lax paid without a reasonably approximate deter- mination of the facts relating to the gross estate and the separate legal deductions. Therefore, when application is made to collectors 252 FEDERAL ESTATE TAX. T. D. 2421. for authority to file returns within one year from the death of the decedent whose estate is being re- turned, collectors will require that such tentative return be based upon determined or accurately determinable values of gross estate and items of deductions, and if the estate in question has not reached such a state of settlement that a reason- ably accurate return can be made, advance payment of tax will not be accepted. Respectfully, W. H. Osborn, Commissioner of Internal Revenue. Internal Revenue Agent, Richmond, Va. (T. D. 2421) Estate Tax. Thirty-day notice, return, and tax payment required of repre- sentatives in this country of nonresidents where no executor acts within the required time; also a similar requirement in the case of fiduciaries holding property of a resident where no executor acts. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C, December 22, 1916. To collectors of internal revenue and revenue agents: Inquiry has been made of this office as to the liability under section 205 of the revenue act of September 8, 1916, of representatives in this country of a nonresident decedent leaving property in the hands of the representatives, and where, so TREASURY DECISIONS. 253 T. D. 2421. far as the representatives know, no executor has been appointed. Section 205 of the act requires that the "execu- tor" within 30 days after qualifying as such, or after taking possession of any property of dece- dent, whichever event first occurs, shall give notice to the proper collector, and that later the "execu- tor" shall file return of the estate. Section 207 requires that the "executor" shall pay the tax to the proper collector or his deputy. In section 200 the term "executor" as used throughout Title II is denned as meaning either the executor or admin- istrator, or if there is none, "any person who takes possession of any property of the decedent." In the instance cited to this office for ruling, it is argued that the representatives in this country of the nonresident decedent do not "take possession" of decedent's property, and that, since the repre- sentatives are neither administrators nor benefi- ciaries, they can not be required to file the 30-day notice, or return, or make payment of the tax. From this view the Government must dissent, for although there is no change of agent or representa- tive, there is, immediately upon the nonresident's death, a complete change in the character of the agency. Prior to the death, the local representatives held the property in charge for the nonresident, but immediately the death has occurred they hold sub- ject to the order of executors or administrators, and for the beneficiaries legally entitled thereto. At the moment of death there is, on the part of the local 17 254 FEDERAL ESTATE TAX. T. D. 2421. representatives, an actual legal taking of possession for succeeding owners — a change in the conditions of possession so complete that no actuality would be added by the substitution of other agents. It is clear, therefore, that, under the provisions of Title II, such representatives are responsible for the filing of the 30-day notice and can be saved from this responsibility only if, prior to the expiration of 30 days from the death of the nonresident, the re- quired notice has been filed by the executor or ad- ministrator. Further weight is given to this ruling by a con- sideration of the very evident intent of Congress in its definition in section 200 of the term " executor. ' ' This definition was given with the sole purpose of providing effective means for the ascertainment and collection of the tax due in every case where the complete facts might not be known to the executor or where the executor might be in a position suc- cessfully to evade his responsibilities under the tax- ing act. Obviously, the object on the part of Con- gress in causing "any person who takes possession of any property of the decedent" to share equally with executors and administrators the liability to render notice and return and pay the tax was that there should not be, under any circumstances of transmission, a failure of the administrative power to secure a full disclosure of the facts and a com- plete satisfaction of the tax. Congress must have foreseen, in enacting the final paragraph of section 202, that without such an administrative require- TREASURY DECISIONS. 255 T. D. 2421. inent as this the tax due because of stock owned by a nonresident in domestic corporations could be suc- cessfully evaded. The definition of "executor" in section 200 was made intentionally so broad that no property subject to the tax could escape taxation through any uncertainty as to the person liable for giving accurate information with regard thereto. The 30-day notice will therefore be required in every case of such representatives in the United States of nonresident decedents, unless the repre- sentatives know that within 30 days after the death of the decedent the executor or administrator has filed the notice. Similarly, the return for the por- tion of the estate within their charge will be re- quired of the local representatives within one year from the death of the decedent, unless the local representatives, prior to that time, have ascertained that the executor or administrator has filed the re- turn. Similarly, tax payment will be required of the representatives out of the property in their charge if payment has not been made before the due date by the executor or administrator. The penalty imposed in section 210 for failure to fulfill these requirements is $500, to be recovered with costs of suit in a civil action. This ruling applies also with regard to certain property of residents, such as the decedent's interest in joint bank accounts or any other property owned jointly, or as tenants in entirety, and property con- veyed by deed of trust. In such cases the fiduciary 256 FEDERAL ESTATE TAX. T. D. 2449. holding for the succeeding beneficiary the dece- dent's share of the joint account, or other property jointly owned, or acting as trustee of property con- veyed to beneficiaries by a deed of trust, is required to file the 30-day notice and the return and make tax payment, unless, within the required periods, the requirements of the law have been otherwise fully satisfied. W. H. Osborn, Commissioner of Internal Revenue. Approved : W. G. McAdoo, Secretary of the Treasury. (T. D. 2449) Estate Tax. The value of United States bonds can not be excluded from the gross or net estate in determining estate tax due. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C, February 13, 1917. The following opinion of the Solicitor of Internal Revenue, rendered February 13, 1917, is published for the information of all concerned. W. H. Osborn, Commissioner of Internal Revenue. Approved : W. G. McAdoo, Secretary of the Treasury. TREASURY DECISIONS. 267 T. D. 2449. Sir : Answering the question presented by under date of the 10th instant, relative to the lia- bility of estates to taxation under the recent Federal estate tax, it is manifest from the following deci- sions of the United States Supreme Court that United States Government bonds must be added to the value of estates for the purpose of taxation under said act. The United States Supreme Court in Plummer v. Coler (178 U. S. 134), considering the question whether, under the inheritance-tax laws of a State, a tax might be validly imposed upon a legacy con- sisting of United States bonds issued under a statute declaring them exempt from State taxation in any form, said: "We think the conclusion, fairly to be drawn from the State and Federal cases, is, that the right to take property by w y ill or descent is derived from and regulated by municipal law; that, in assessing a tax upon such right or privilege, the State may law- fully measure or fix the amount of the tax by refer- ring to the value of the property passing; and that the incidental fact that such property is composed wholly or in part of Federal securities does not invalidate the tax or the law under which it is im- posed. And dealing directly with the power of the Federal Government under the inheritance-tax act of 1898 to impose legacy taxes upon the transmis- sion of an estate consisting of " free-tax" Govern- 258 FEDERAL ESTATE TAX. T. D. 2449. ment bonds, the court, in Murdock v. Ward (178 U. S. 147), referring to the discussion and decision in the Plummer case, held: If a State inheritance law can validly impose a tax measured by the amount or value of the legacy, even if that amount includes United States bonds, the reasoning that justifies such a conclusion must, when applied to the case of a Federal inheritance law taxing the very same legacy, bring us to the same conclusion. We must, therefore, hold that if, as held in Knowlton v. Moore, the tax imposed under the act of June 13, 1898, is not invalid as a direct, unapportioned tax, nor for want of uni- formity, nor as an infringement upon the laws of the States regulating wills and descents, then the tax upon legacies or bequests, descendible under and regulated by State laws, is valid, even if such legacies incidentally are composed of Federal bonds. And, further, in Sherman v. United States (178 U. S. 151), the court said: The proposition that bonds of the United States and the income therefrom are not lawfully taxable under an inheritance tax law of the United States, because exempted by contract from such tax, has just been decided not to be well founded. This is clearly conclusive of the whole question. TREASURY DECISIONS. 259 T. D. 2450. (T. D. 2450) Estate Tax. Method of determining share in community property or property owned jointly or in entirety. To bo returned as a portion of the gross estate of a decedent tenant. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C., February 14, 1917. Sir: Receipt is acknowledged of your letter of the 6th instant, calling attention to the report of the revenue agent, dated the 3d instant, with regard to the liability to estate tax of the estate of . You state that, under the Texas law, all prop- erty earned by a husband or wife during the period of their marriage is community property and owned jointly. The death of either does not affect the interest owned by the survivor ; that is, this interest does not pass by inheritance. The public records in such cases may, however, be misleading because any conveyance, legally made to both, is apt to be re- corded in the name of one, usually the husband. As a matter of fact, however, there is a legal pre- sumption that the whole property conveyed to either is community, without reference to the manner of its acquisition. However, if property were pur- chased by the separate means or property of either, or were received by either as an inheritance, such property would not be community but would be in- dividual property, without reference to the manner in which the deed of conveyance is stated. Not- 260 FEDERAL ESTATE TAX. T. D. 2450. withstanding this, however, under the presumption of the Texas law, it would have to be considered community property until facts otherwise were developed. In the case of the estate the revenue agent reported as belonging to the estate of the de- ceased husband the entire property, which the public records showed as in his name. The widow, who is also administratrix, stated to the agent that the entire property so treated by the agent as the gross estate of the deceased husband was, in fact, com- munity property, but up to this time she has sub- mitted no evidence substantiating this contention. While for the purposes of local administration a presumption would be created by the local law in favor of the widow's contention in this case, such a presumption does not rest in her favor so far as any responsibility or duty that may be imposed upon her by Federal law is concerned. No State statute of this character has any modifying effect whatever upon the explicit terms of a Federal tax- ing act. The act of Congress of September 8, 1916, creates its own presumptions and defines explicitly the terms under which exemption from tax may be claimed. You will note that, under section 202, paragraph C, there is required to be included in the gross estate of a decedent all the interest held jointly or as tenants in the entirety by the decedent and another person, " except such part thereof as may TREASURY DECISIONS. 261 T. D. 2450. he shown to have originally belonged to such other person and never to have belonged to the decedent." Under this paragraph of the taxing act, wherever the public records show property in the name of the decedent, the presumption is that it w T as the sole property of the decedent, and the burden of proving that another person owned, prior to the decedent's death, any interest therein is not upon the Govern- ment but is upon the estate. You will note the extremely limiting terms of the paragraph quoted above, and that it must be shown that any part of the property to be excluded from the gross estate must have actually belonged in the first instance to a person other than the decedent and that it has never been owned by the decedent. If, under the Texas law, property conveyed to a husband or wife during their marriage is taken by each in entirety and in such a manner that it could not be contended that any specific part belonged to either, but that each was the owner of all, and upon the death of either no new interest or title vested in the survivor, as is the case in some States, the Government, under a strict and technical interpre- tation of paragraph C of section 202, would perhaps be justified in demanding that the whole of the property thus owned be included as a portion of the gross estate of the decedent. This, however, does not seem to have been the intent of Congress, and it has heretofore been ruled in a similar case that one-half of the property thus jointly ow'iied 262 FEDERAL ESTATE TAX. T. D. 2453. should be returned as a portion of the gross estate of the decedent husband or wife, as the case might be. In the case of the estate, therefore, you should require of the administratrix in due time the return on Form 706, and therewith may be submitted any evidence available to the administratrix to establish that any part of the property included in the gross estate was actually community property of the decedent and his wife and that, therefore, but one-half thereof is to be treated as the estate of the decedent. Eespectfully, W. H. Osborn, Commissioner of Internal Revenue. Approved : W. G. McAdoo, Secretary of the Treasury. (T. D. 2453) Estate Tax. The deductions from the gross estate provided in section 203, paragraph 1, are limited to amounts allowed under the laws of the local jurisdiction. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C, March 7, 1917. Sir: Receipt is acknowledged of your letter of the 3d instant, quoting section 203, paragraph 1, of TREASURY DECISIONS. 263 T. D. 2453. the estate-taxing act and inquiring whether the phrase "such other charges against the estate as are allowed by the laws of the jurisdiction" is inter- preted by the bureau as limiting all the preceding clauses of the paragraph; that is, whether any amounts could be deducted from the gross estate because of funeral expenses, claims against the estate, losses, etc., which were in excess of the amounts allowable under the laws of the local juris- diction. While the punctuation and construction of the paragraph may not be absolutely conclusive upon this point, it is the opinion of this office that the limitation set up in the concluding part of the para- graph applies to all the items enumerated in the paragraph; that is, there could not be deducted from the gross estate in determining the net estate liable to tax any funeral or other expenses or any losses and charges which were in excess of the amounts allowable under the laws of the local juris- diction as credits to administrators or executors in their accounts in the probate courts. It is so ruled. Respectfully, W. H. Osborn, Commissioner of Internal Revenue. Mr. . 264 FEDERAL ESTATE TAX. T. D. 2454. (T. D. 2454) Estate Tax. Duties of heirs, donees, trustees, fiduciaries, transfer agents, and others having or coming into possession of property of a decedent whose estate is liable for estate tax. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C, February 28, 1917. To collectors of internal revenue: Section 200 of the revenue act of September 8, 1916, in denning the term "executor" as including, "if there is no executor or administrator, any per- son who takes possession of any property of the decedent," clearly intended to provide that wherever circumstances are such that the Government could not proceed against an administrator or executor for satisfaction of the requirements of the taxing act there shall be no failure, because of inability to hold others in possession responsible, to collect the whole tax due. Careful consideration has been given in the light of this intent of Congress to the problem of deter- mining how far the duties of filing 30-day notice and return and making tax payment may be left solely to duly appointed executors or administrators, and to what extent, in order to insure the collection of tax due, others in possession must be required to assume these responsibilities. As a result of this consideration the following supplemental regula- tions are promulgated, under authority of section 212 of the act. TREASURY DECISIONS. 2G5 T. D. 2454. Estates of resident decedents. Thirty-day notice (Form 705) must be filed, within 30 days after death of the decedent whose estate is taxable, by others than executors or administrators, as follows: (1) By the surviving husband or wife, as the case may be, for one-half the value at the decedent's death, of community property owned by the dece- dent and the survivor. (2) By the first taker after the decedent of any of decedent's real property where this passes, in accordance with the local law, directly to the heirs of decedent. (3) By donees who have received within two years prior to the decedent's death any gift of material value from the decedent, or who have re- ceived at any time whatever gifts made by decedent in contemplation of, or intended to take legal effect at, death. (4) By trustees holding property conveyed during lifetime by the decedent in contemplation of death or with intent to provide for others than decedent at or after decedent's death, regardless of the date of the instrument making the conveyance, or the date of possession by the trustee, or the date of vesting of the right of survivors to possession or enjoyment at or after decedent's death. (5) By fiduciaries holding property of any kind jointly or in entirety for the decedent and another or others. 2GG FEDERAL ESTATE TAX. T. D. 2454. (6) By any other person, persons, joint-stock companies, corporations, or associations holding at, or taking immediately upon, decedent's death any property inclusive in the gross estate under the definition of section 202 of the taxing act, which property may not be taken in charge by decedent's executors or administrators, if any. When the collector of internal revenue shall re- ceive Form 705, filed as above required, he shall proceed as indicated in Article XII of regulations No. 37. If, at the expiration of one year from de- cedent's death, it has not been ascertained that an administrator or executor has been appointed for the decedent's estate, the collector will proceed to secure return and tax payment from the beneficiary or beneficiaries, in accordance with Articles XVI and XVII of regulations No. 37. Estates of nonresident decedents. The 30-day notice (Form 705) is required to be filed for all property of every kind, located or legally situate in this country (including Hawaii and Alaska), by those agents or representatives, donees, transferees, trustees, or fiduciaries of a de- cedent dying domiciled abroad, whether alien or citizen of the United States. The notice must be filed within 30 days from decedent's death with the collector of internal revenue in whose district the property within this country is situate, unless the local agent, etc., having the property in charge knows that there is other property of decedent lo- TREASURY DECISIONS. 267 T. D. 2454. cated in another collection district, in which case the notice is to be filed with the collector of internal revenue, Baltimore, Md. If it be not possible for the local agent, representa- tive, etc., to file the notice within 30 days from death of the nonresident, the penalty denounced in section 210 will not be asserted if the notice is filed within 30 days from the day upon which the local agent, representative, etc., receives information of the nonresident decedent's death. Each collector receiving Form 705 showing prop- erty of a nonresident will immediately inform the commissioner of the fact. A record will be kept in the commissioner's office from which it can be de- termined whether Forms 705 for a given estate have been filed in more than one collection district, in which case the several collectors will be instructed to forward the Forms 705 to the collector at Balti- more, Md. In due time, if the administrator or executor of the nonresident decedent has failed to file return as provided in section 203, paragraph (b), and pay the tax due, the collector shall require such return and tax payment from the local agent, representa- tive, etc. No deductions whatever from the gross • state will be allowed in such a case unless all the property of the nonresident decedent is shown to bo located in this country and it is established that all has been returned for estate tax. Where there is more than one holder in this country of decedent 's 268 FEDERAL ESTATE TAX. T. D. 2454. property, the collector will aggregate the separate returns, proceeding in accordance with Article XVII of regulations No. 37. Under no circumstances may the local agent, rep- resentative, etc., release to a foreign administrator or executor or a foreign beneficiary of the decedent any property within this country at the time of decedent's death until either (1) the tax due be- cause thereof has been paid or (2) ancillary letters have been taken out in this country or otherwise provision has been made by the estate for the sat- isfaction of the tax lien resting upon the decedent's property in this country. When such ancillary let- ters have been taken out or such provision has been made, the local agent, representative, etc., shall im- mediately inform the collector fully as to the facts. An administrator or executor acting in a foreign country will not be recognized as relieving others in charge or possession of a decedent's property from responsibility for satisfying the requirements of the taxing act unless and until he has made return and tendered payment of all tax due. The penalty de- nounced in section 210 of the act will be asserted against every agent, representative, etc., in this country releasing to a foreign administrator or ex- ecutor or beneficiary of the decedent the property within this country, except where the requirements of this regulation have been complied with. The above regulation fully applies to transfer agents of corporate stock or bonds, receiving into TREASURY DECISIONS. 269 T. D. 2454. possession for transfer purposes such personalty of a nonresident decedent. The transfer shall not be effected or the stock or bonds released to the for- eign administrator or executor or the succeeding beneficiary until the transfer agent shall have been fully assured either that the tax due has been paid or that ancillary letters have been taken out in this country or provision otherwise made for the satis- faction of the tax lien against the estate. This ruling applies also to safe-deposit com- panies, warehouses, and similar custodians of prop- erty in this country of a nonresident decedent, to brokers holding as collateral securities belonging to a nonresident decedent, to banking institutions holding money of nonresident decedents on deposit or for any specific purpose, such as the purchase of goods, so long as the title rests in the nonresi- dent decedent, his estate or his heirs, and to debtors in this country of nonresident decedents. It does not apply to carriers of property of a non- resident decedent while such property is in their charge for the purpose of transit. W. H. Osborn, Commissioner of Internal Revenue. Approved : W. G. McAdoo, Secretary of the Treasury. 18 270 FEDERAL ESTATE TAX. T. D. 2477. (T. D. 2477) Estate Tax. Property passing under general power of appointment is tax- able as a portion of the gross estate of the decedent appointor. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C, April 7, 1917. To collectors of internal revenue: It is held that where a decedent exercises a gen- eral power of appointment as donee under the will of a prior decedent the property so passing is a portion of the gross estate of the decedent ap- pointor. See Brandies v. Cochrane (112 U. S. 344, 352); Olney v. Balch (154 Mass. 318); Clapp v. Ingraham (126 Mass. 200); Rogers v. Hinton (62 N. C. 101) ; Tompson v. Towne (2 Vera. 319) ; Bain- ton v. Ward (2 Atk. 172). When property is transferred by a special or limited power of appointment, the question of tax- ability will depend upon the terms of the instru- ment by which the donee of the power — the appoin- tor — acts. The facts in every such case should be reported fully to the commissioner in order that de- cision as to tax liability may be made. David A. Gates, Acting Commissioner of Internal Revenue. (Note: This Treasury Decision was modified by Treasury Decision 3088.) TREASURY DECISIONS. 271 T. D. 2483, 2490. (T. D. 2483) Estate Tax. Computation of dividends upon stock and interest upon bonds owned by decedent whose estate is taxable. Treasury Department, Office of Commissioner of Internal Revenue, Washington, 1). C, April 20, 1917. Sir: Receipt is acknowledged of your letter of the 16th instant with regard to accrued income on stock in corporations owned by a decedent at the time of death, and in reply you are informed that there should be included in the gross estate the en- tire dividend declared prior to the day of death, whether received before or after that day. No part of a dividend declared after death should be in- cluded in the gross estate. With regard to bonds, obviously a different rule applies and the actual interest accrued to the day of death must be returned as a portion of the gross estate. Respectfully, David A. Gates, Acting Commissioner of Interned Revenue. Mr. — . (T. D. 2490) Estate Tax. Duties of corporations and their transfer agents, registers of bonds, and paying agents. 272 FEDERAL ESTATE TAX. T. D. 2490. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C, May 14, 1917. To collectors of internal revenue and others con- cerned: The duties under Title II of the revenue act of September 8, 1916, of corporate transfer agents, registers of bonds, and paying agents and of cor- porations performing for themselves the duties cus- tomarily performed by such agents are denned as follows : (1) Where the transfer of stock or bonds or pay- ment of dividends or interest theretofore the legal property of a decedent, whether a resident or a non- resident, is made to or upon the order of an execu- tor or administrator acting under letters granted in the United State, Hawaii, or Alaska, the corpo- rate agent or officer will not be required to file the 30-day notice, make return, or pay tax. (2) The 30-day notice is required to be filed when- ever a corporation, its transfer agent, register, or paying agent is called upon to make a transfer of stock or bonds, or to pay interest or dividends to any person succeeding in right thereto a stockholder or bondholder who, since September 8, 1916, has died domiciled outside the United States, Hawaii or Alaska, unless such successor in interest is an ex- ecutor or administrator of the nonresident decedent acting under letters granted within the United States, Hawaii, or Alaska. TREASURY DECISIONS. 273 T. D. 2490. (3) The 30-day notice will show the name and ad- dress at the time of death of the nonresident de- cedent, a description and valuation of the property to be transferred or paid, and the name, designation (executor or other), and address of the person to whom transfer or payment is made and wall be signed by the proper officer or agent of the corpo- ration. A form of notice to be known as Form 714 is in preparation and will be furnished collectors for distribution. In the meantime informal notice giving all the above required data must be filed. (4) This notice must be filed for dividends de- clared prior to the day of death and for interest payable after death to the extent of the portion ac- crued to the day of death. (5) If this notice be filed as required either within 30 days from death or immediately upon re- ceipt of the order for transfer or payment, the transfer or payment need not be postponed. The collector, immediately upon receipt of the notice, will communicate with the foreign executor or suc- ceeding party in interest, advising of the require- ments of the estate taxing act and furnishing blank Forms 706 for the making of the return. If, within the legal period, the tax is not paid, proceedings will lie instituted under section 208 of the taxing act for the sale of the property and the satisfaction of the tax. (6) In every case, immediately upon receipt of the 30-day notice herein referred to, the collector 274 FEDERAL ESTATE TAX. T. D. 2490. will notify the commissioner of the facts, so that from a record kept in the commissioner's office it may be determined whether property of the non- resident is located in more than one collection dis- trict, in which case the proper information and in- structions will be communicated by the commis- sioner to the collector at Baltimore. It is essential that collectors compty promptly with this require- ment, so that in every case the total estate within the United States and the true tax may be ac- curately determined. (7) This regulation is promulgated in view of present international conditions, and is subject to revocation should it be demonstrated that the ac- commodation herein made to corporations and their agents results in insecurity of the revenue. This regulation is not to be construed in any degree as modifying the interpretation hitherto given by the department of the term "executor" as used in sec- tion 200 of the act of September 8, 1916. (8) This regulation supplants former regulations affecting corporate transfer and paying agents and registers of corporate bonds only in so far as the specific terms of such former regulations are in- consistent herewith. David A. Gates, Acting Commissioner of Interna] Revenue. Approved: Byron R. Newton, Acting Secretary of the Treasury. TREASURY DECISIONS. 275 T. D. 2497. (T. D. 2497) Estate Tax. Instruction*, witli tables, relating to the computation of the 5 per cent discount to be allowed on estate tax when paid before one year after the death of decedent. Treasury Department, Office of Commissioner of Internal Revenue, Washington, I). C, June 4, 1917. To collectors of internal revenue: (1) Numerous inquiries have been addressed to the bureau relative to the method of computing the 5 per cent discount allowable on estate taxes where said taxes are paid in less than one year after the death of the decedent, as to accepting partial pay- ments of estate taxes based on tentative returns, and as to the proper manner of reporting said taxes on Form 22. (2) Tables showing the discount on $1 from 1 to 364 days have, therefore, been prepared and arc hereto appended. Collectors and others concerned in computing the discount should use these tables exclusively. Care should be taken to determine the number of days remaining in the month during which payment is made and count forward actual days until due date. For example: Date of death, March 4, 1917, payment made September 13, 1**17 : there would be 17 days remaining in September, October 31, November 30, December 31, Januarj 31, February 28, and four days in March, the due 276 FEDERAL ESTATE TAX. T. D. 2497. date, making a total of 172 days for which discount is allowable. (3) Now, in computing the discount, find in the table the discount on $1 for 172 days and multiply the gross tax by this. The result will be the dis- count allowable, which, deducted from the full gross tax, will give the amount of tax on the date payment is made. Executors in computing discount will use as the date of payment the date when said payment will actually be placed in the collector's hands, as the statute fixes that as the date of payment regardless of the date of remittance or mailing. (4) In reporting estate taxes on the assessment list, the collector should in every case append a foot- note on Form 23 as follows: Gross tax, $ ; paid (give date); discount for days, $ . (5) Frequently, executors will file a return and request the collector to advise them of the amount of tax due, less discount. In such cases, the collec- tor should compute the discount to some future date, advising the executor of the amount necessary to satisfy the tax on the date named, making it clear that the computation is based on the presumption that the money will be in his (the collector's) hands on that date. (6) Again, executors file a tentative return and ask permission to make a partial payment of the tax due, usually specifying a certain amount, pro- vided the discount on this amount is allowed. TREASURY DECISIONS. 277 T. D. 2497. (7) The department sees no objection to collec- tors accepting such partial payments and reporting the same on their assessment list as advance pay- ments. Care should be taken, however, to compute the present worth of such payments in order to determine how much of the tax is discharged. The computations in such case should be filed with the tentative return in order that when a complete or fiscal return is filed the balance of the tax due can readily be determined. The present worth may readily be found by use of the table as follows: From $1 deduct the amount of discount on $1 from date of payment to due date. Divide the amount of tax paid by this remainder, and the quotient will be the present worth of the amount of tax liability discharged. (8) For example, a partial payment of $300,000 is tendered 278 days before due date. By the table 5 per cent discount on $1 for 278 days is found to be $0.0380821; $1 less $0.0380821 leaves $0.9619179; $300,000 divided by $0.9G19179 equals $311,876.82, the present worth or the amount of tax liability dis- charged by the partial payment. (9) Hereafter in reporting estate tax on Form 22 it will only be necessary to report the total amount collected under each act. The discount al- lowed will likewise be reported for statistical pur- poses on Form 22 in totals only. In cases like that described in paragraph 8 the difference between 278 FEDERAL ESTATE TAX. T. D. 2513. the money paid and the present worth would be re- garded as discount in reporting on said form. David A. Gates, Acting Commissioner of Internal Revenue. (There follows a table for computing the amount of discount. The right to discount is now abolished, and the table is no longer in use.) (T. D. 2513) Estate Tax. Instructions for executing Form 706, revised July, 1917. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C, July 16, 1917. To collectors of internal revenue and others con- cerned: The following instructions for executing Form 706, revised July, 1917, are issued. An allotment of this decision (No. 2513) will be furnished each col- lector, and a copy should be transmitted with Form 706 to every executor or other representative of an estate required to make return. A copy of Regula- tions No. 37, revised May, 1917, should also be fur- nished in every such case. 1. If decedent maintained more than one resi- dence, his principal residence (actual domicile) de- termines the internal-revenue district in which re- turn must be filed and tax paid. TREASURY DECISIONS. 279 T. D. 2513. 2. rf decedent was a nonresident and his sole property within the United States, Hawaii, or Alaska was stock or bonds of an American corpora- tion, his return should be filed with the collector in whose district the head office of the corporation is located, unless the estate has a representative in this country having the stocks or bonds in charge, in which case the return may be filed with the col- lector in whose district the representative has his office. 3. In describing realty it may not be necessary to recite the whole description on the deed, but suf- ficient data should be given in each case to permit an immediate and exact location by a Government of- ficer. For example: W. V2, sec. 2, tp. 20, Madison, 111.; or House and lot, 125, So. Main St., Auburn, N. Y. 4. If accrued income has been reduced to cash prior to death and is included in "cash in bank" or otherwise accounted for on the return, it should not be set up in the income column. 5. Under item 2 there must be shown every gift or transfer of material value made or effected by de- cedent within two years prior to day of death. With the return may be submitted such evidence as the estate elects to submit showing whether the gift or transfer was made in contemplation of death, and the question of taxability will be ruled upon by the Commissioner before the assessment against the estate is confirmed. Every gift or transfer made 280 FEDERAL ESTATE TAX. T. D. 2513. in contemplation of or intended to take effect at death must be returned, regardless of the date when made or effected. 6. The highest selling price of stocks and bonds on the day of death fixes the value to be returned; or if no sale, then the highest bid price. If the stocks or bonds are not listed on the market, the executor may set up, from the best evidence he pos- sesses, a value that he deems the true value as of the day of decedent's death. 7. If the bulk of the estate is community property held in legal partnership by decedent and spouse, its value should not be shown under item 4, but de- cedent's legal share should be returned under the several items, realty, stocks and bonds, etc.; other- wise the jointly owned property should be exactly described under item 4. 8. No item of deductions can be taken in excess of an amount actually expended, or if expended, in excess of the limit, if any, set upon such expendi- ture by the local law. 9. Mortgages resting on decedent's property should be shown under "Deductions" and the full value of the mortgaged realty should be shown un- der item 1 of "Gross estate." A similar rule must be applied with regard to hypothecated personalty. 10. It should be noted that deductible losses are strictly limited to those arising from fires, storms, shipwreck, or other casualty, and theft, when not compensated for, by insurance or otherwise. TREASURY DECISIONS. 281 T. D. 2513. 11. If discount is taken in paying State inherit- ance or transfer tax, only the net amount of the payment can be deducted. 12. A nonresident's estate will show under items of the "Gross estate" only the gross estate within the United States, but will show under "Deductions" the entire legal deductions wherever incurred. It will then show in the space subjoined to "Recapitu- lation" the whole gross estate wherever situated and compute in accordance with Article XXIII of Regulations No. 37, revised May, 1917, the allow- able share of total deductions. 13. The initial rates of tax apply if the decedent died between September 9, 1916, and March 2, 1917, inclusive. The rates 50 per cent higher apply if the decedent died on or after March 3, 1917. 14. In computing discount, follow carefully T. D. No. 2497 of June 4, 1917. 15. In the jurat, cross out the inapplicable word, so that the return will certainly show whether it is submitted as tentative or final. 16. Further instructions are set forth fully in Regulations No. 37, revised, copy of which may be secured from the collector. 17. Remember that return and tax payment must be in the collector's hands before the year from the day of death has expired. David A. Gates, Acting Commissioner of Internal Revenue. 282 FEDERAL ESTATE TAX. T. D. 2524, 2529. (T. D. 2524) Estate Tax — Inheritance Taxes. State inheritance taxes not deductible under Title II, act of September 8, 1916.— T. D. 2395 of November 17, 1916, revoked. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C, September 10, 1917. To collectors of internal revenue: An exhaustive study of the nature of State in- heritance taxes has led this office to the conclusion that amounts paid to States on account of inherit- ance, succession, or legacy taxes are not "such other- charges against the estate as are allowed by the laws of the jurisdiction," and accordingly are not deductible in arriving at the amount of Federal estate tax. T. D. 2395 of November 19, 1916, is hereby revoked. David A. Gates, Acting Commissioner of Internal Revenue. Approved : Byron R. Newton, Acting Secretary of the Treasury. (T. D. 2529) Estate Tax. Household effects and like personalty used by husband and wife in the marriage relation are presumed to be the property of the husband, and, in the absence of sufficient evidence to rebut this presumption, must be returned as a portion of his groBS estate. TREASURY DECISIONS. 283 T. D. 2529. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C, October 4, 1917. To collectors of internal revenue and interrud-revt nue agents: In reviewing returns on Form 706 in this office, it is found that oftentimes there are reported no household goods or other miscellaneous personalty of that character. This fact is brought to the at- tention of the examining officer, and in most cases results in the discovery of the existence of such property belonging to the estate of the decedent. In other cases the examining officers have been re- porting the substance of the following: "Widow of deceased claims the household effects, etc., as her own separate property." Statements to the above effect, unexplained, are not sufficient to relieve the estate from returning and paying tax upon the household furniture used by the decedent in the household occupied by him- self and wife. Upon the decease of a husband the household goods and other chattels used by hus- band and wife in the marriage relation are pre- sumed to be the property of the husband. If the wife claims the same as her separate property, she has the burden of establishing that claim. There are certain situations where the widow's claim will not be questioned, and will consequently relieve the estate from returning the household goods as part of the gross estate of the deceased 284 FEDERAL ESTATE TAX. T. D. 2529. husband. All that is required in such cases is suf- ficient evidence of the existence of the facts in ques- tion. Such situations are as follows: (1) Where the articles of household furniture were owned by the wife prior to marriage; (2) where the wife has purchased the household effects during coverture with her separate funds; (3) where the household effects represent gifts from a third person to the wife individually during coverture. It is not at all uncommon, however, that the house- hold effects have been purchased by the husband since the marriage and at his death the wife claims that the decedent made her a gift of the various articles during the marriage, although the articles have never left the possession of the husband — i. e., they remain in the household occupied by the hus- band and wife and are used by them jointly. Such property is presumed to be owned by the husband, and if the wife, or any other person for that matter, claims the household effects as a gift from the de- ceased the burden of proving the gift rests upon the person asserting it. A gift from husband to wife must be clearly established. There must be clear and incontrovertible evidence of the delivery of the property by the husband with the intention of divesting himself of all dominion and control and of vesting title in the wife. The requirements neces- sary to a valid executed gift must be present. If the gift be in contemplation of death, of course another question would arise. TREASURY DECISIONS. 285 T. D. 2530. The following proposition has been announced by the courts and is believed by this office to be sound: To constitute a valid gift there must be an absolute transfer of the property from donor to the donee, taking effect immediately, and fully executed by a delivery of the property by the donor, and the acceptance thereof by the donee. It is essential that the transaction should be fully executed by the delivery of the property to the donee, or to some person for him. In several States statutes have been enacted providing that no gift, except by deed or will, shall be valid unless actual possessesion shall come to and remain with the donee or his agent, and if the donor and donee reside together at the time of the gift, possession by the donee at their place of residence is not a sufficient possession within the meaning of the statute. The foregoing should be carefully considered when examining officers are investigating the com- pleteness and accuracy of estate-tax returns. Daniel C. Roper, Commissioner of Internal Revenue. (T. D. 2530) Estate Tax. Bonds of domestic corporations owned by nonresident decedents, such bonds being physically situate outside of the United States, are not returnable as a portion of the gross estate of said decedent. 19 286 FEDERAL ESTATE TAX. T. D. 2530. Treasury Department, Office of Commissioner of Internal Kevenue, Washington, D. C, October 4, 1917. To collectors of internal revenue and internal-reve- nue agents: Section 202 of the revenue act of September 8, 1916, in defining the gross estate, provides that stock in a domestic corporation owned and held by a non- resident decedent shall be deemed property within the United States. The holding of this office has been that bonds of a domestic corporation owned and held by a nonresident decedent were likewise deemed property within the United States and tax- able as a portion of the gross estate of the decedent. This question has had careful reconsideration, and it is the opinion of this office that the language of the section of the act above referred to does not evidence the intention of Congress to impose a tax upon bonds of a domestic corporation owned and held by a nonresident decedent when such bonds are physically situate outside of the United States, Hawaii, or Alaska at the time of the death of the nonresident owner. It is clear, however, that Congress has the power and evidenced an intention in the act above referred to to impose a tax upon bonds, both foreign and domestic, owned by a nonresident decedent, which bonds are physically situate in the United States, Hawaii, or Alaska at the time of the owner's death, TREASURY DECISIONS. 287 T. D. 2531. and such bonds must be returned as a portion of his gross estate. It is, of course, clear that bonds, both foreign and domestic, owned by a resident are taxable, re- gardless of where such bonds are situate at the time of the owner's death. Rulings of this office announced in regulations and Treasury decisions inconsistent with and con- trary to the above are hereby revoked. Daniel C. Roper, Commissioner of Internal Revenue. (T. D. 2531) Estate Tax. Interpretation of the provision of section 203 (a) (1) of the act of September 8, 1916, relating to the deductibility of amounta expended for support of dependents. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C, October 4, 1917. To collectors of internal revenue, revenue agents, and others concerned: The act of September 8, 1916, section 203 (a) (1), provides that there may be deducted from gross estate amounts which have been expended for "sup- port during the settlement of the estate of those de- pendent upon the decedent." It is plain that Congress, in enacting this provision, intended that there should be allowed as a deduction from gross 288 FEDERAL ESTATE TAli T. D. 2531. estate only the amount actually expended by the estate for the support of actual dependents of the decedent. The regulation made in pursuance of this provision requires the existence of three things be- fore the amount claimed as a deduction under this item is allowable: (1) A bona fide disbursement by the executor, (2) for the support of those actually dependent upon the decedent, and (3) in an amount authorized by the local law for that specific purpose. First. In view of the language of the taxing act, there must be an actual expenditure of money — not a mere delivery to the dependent by the executor of household goods or other miscellaneous personalty of that character. It is obvious that the turning over of furniture and such personalty to the dependent does not contribute to that dependent's support unless the furniture is sold and the proceeds are so used. Therefore, provisions in the statutes of the various States to the effect that the widow is entitled to family pictures, wearing apparel, etc., and to certain household goods in lieu of an award, has reference to the widow's exemption and has no application in determining the deductibility of an amount paid for the support of dependents. Second. The persons for whose support the money is expended must be actually dependent upon the deceased, otherwise the amount (even though actually expended for the support of the widow or children) is not an allowable deduction. If the per- sons for whose support money is expended have TREASURY DECISIONS. 289 T. D. 2531. means ample for their support, obviously they are not dependents, and any amounts paid for their support are not deductible. If the alleged de pendents are beneficiaries of the estate, it is clear from the wording of the act that the phrase "sup- port during the settlement of the estate" refers to the period elapsing between the date of decedent's death, at which time his contribution to the support of dependent ceases, and the date of the actual de- livery of devised property to the beneficiary by the personal representative of deceased. It follows as a natural consequence that when the dependent bene- ficiaries come into possession of property sufficient for their support and maintenance they cease to be dependents and money expended for their support after such date is not deductible. Third. In order to be deductible, the amount ac- tually expended for the support of actual dependents must not exceed the amount which is allowed for the specific purpose by the laws of the State having jurisdiction over the administration of decedent's estate. The amount in all cases will not necessarily equal the amount allowed under the local law. It is not uncommon in the various States that a maxi- mum amount is specified in the statutes to be al- lowed dependents for their support. In certain States appraisers are appointed by the court to fix an award and judgment is rendered against the ex- ecutor for the amount arrived at by them. These amounts may exceed what is actually expended for 290 FEDERAL ESTATE TAX. T. D. 2535. the support of dependents. In that case the excess over actual expenditures for support is not an al- lowable deduction in determining estate tax. The following query or its substance is often made to this office: "Will it not be allowable, in making reports of investigations of Form 706, where a deduction is claimed for 'support of decedent's de- pendents,' to merely establish the fact that ap- praiser's fixed award which was approved and judgment rendered therefor?" In view of the de- tailed interpretation of the provision in the act re- lating to deduction for support of dependents given above, this question is necessarily answered in the negative. Daniel C. Roper, Commissioner of Internal Revenue. (T. D. 2535) Estate Tax. Increase in rates of taxation upon estates of decedents dying on and after October 4, 1917. This increase does not apply to estates of decedents dying while serving in the military or naval forces of the United States under certain conditions. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C, October 9, 1917. To collectors of internal revenue and internal reve- nue agents: The revenue act of October 3, 1917, by amend- ment to the original act of September 8, 1916, as TREASURY DECISIONS. 291 T. D. 2535. amended by the act of March 3, 1917, increases the graduated rates of taxation upon the taxable estates of decedents dying after the passage thereof. In view of the fact that this is the second amendment providing increased rates over those contained i:i the original act, it is deemed advisable, in order to secure uniformity in results and avoid confusion, that the following tabulation be brought specially to the attention of those officers whose duties in- clude the computation of taxes upon the net estates of decedents. Rates of taxation upon net estates. Date of Death. Net estate not exceeding $50,000 Net estate $50,000 to $150,000... Net estate $150,000 to $250,000.. Net estate $250,000 to $450,000.. Net estate $450,000 to $1,000,000. Net estate $1,000,000 to $2,000,000 Net estate $2,000,000 to $3,000,000 Net estate $3,000,000 to $4,000,000 Net estate $4,000,000 to $5,000,000 Net estate $5,000,000 to $8,000,000 Net estate $8,000,000 to $10,000,000 Net estate exceeding $10,000,000. . . Sept. 9, 1916, to Mar. 2, 1917, in- clusive. Per cent. 1 2 3 4 5 6 7 8 9 10 10 10 Mar. 3, 1917, to Oct. 3, 1917, in- clusive. Per cent. iy 2 3 41/2 6 " ! _> 9 IOV2 12 13i 2 15 15 15 On and after Oct. 4, 1917. Per cont. 2 4 6 8 10 12 14 16 18 20 22 25 292 FEDERAL ESTATE TAX. T. D. 2535. It will be noted that the rates provided in the original act are computed upon the net estate of every decedent dying on and after September 9, 1916, to and including March 2, 1917 ; the rates pro- vided in the amendment of March 3, 1917, apply to the net estate of every decedent dying on and after March 3, 1917, to and including October 3, 1917 ; the rates provided in the amendment of October 3, 1917, apply to the net estate of every decedent dying on and after October 4, 1917. The amendment of October 3, 1917, exempts from the additional tax imposed by Title IX of this act the transfer of the net estate of any decedent dying while serving in the military or naval forces of the United States during the continuance of the war in which the United States is now engaged or if death results from injuries received or disease contracted in such service within one year after the termina- tion of such war. It will be noted, however, that this exemption does not affect the operation of the original act and the amendment thereto of March 3, 1917, in its application to the net estates of the de- cedents above mentioned. Therefore the net estates of the military and naval decedents specified above are taxable at the rates imposed in the March 3, 1917, act. Daniel C. Roper, Commissioner of Internal Revenue. TREASURY DECISIONS. 293 T. D. 2570, 2626. (T. D. 2570) Decisions Under War-Revenoe Act. Synopsis of decisions on questions relating to the war-revenue act of October 3, 1917. Treasury Department, Office of Commissioner of Internal Revenue, Washington, I). ( !., November 6, 1917. To collectors of internal revenue and others con- cerned: The following synopsis of decisions of the Com- missioner of Internal Revenue on questions relating to the war-revenue act of October 3, 1917, is pub- lished for the information of revenue officers and others concerned. Daniel C. Roper, Commissioner of Internal Revenue Estate Tax. Discount allowed on original payment of tax not allowed on payment of additional assessment. (T. D. 2626) Estate Tax — Act of September 8, 1916. Table to be used in determining the value of one's life interest in an estate vested in another. 294 FEDERAL ESTATE TAX. T. D. 2637. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C, December 6, 1917. To collectors of internal revenue and others con- cerned : Title II of the act of September 8, 1916, imposes a tax upon the transfer of the net estates of de- cedents. In determining the present net worth of a vested estate of a decedent which is subject to the usufruct or life interest of another the value of the life interest is deductible. In arriving at the value of the life interest the following table should be used. Daniel C. Roper, Commissioner of Internal Revenue. Approved : W. G. McAdoo, Secretary of the Treasury. (There follows a table for computing the value of a life interest. It is similar to table A (p. ), except that it does not contain column 4, for deter- mining the value of the reversion.) (T. D. 2637) Estate Tax. Condition under which time for filing estate-tax returns may be extended beyond 90 days from the day a year after the death of the decedent. TREASURY DECISIONS. 295 T. D. 2637. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C, January 24, 1918. To collectors of internal revenue: It has been found in numerous cases that, at the expiration of the 90-day extension granted by col- lectors for the filing of estate-tax return, the con- dition of the estate is such as to preclude the filing of final return upon which the exact tax due can be determined. Accordingly, Article XXIX of regula- tions 37 is amended to the following extent: Where the executor has requested and has been granted an extension of not to exceed 90 days for the filing of estate-tax return, and represents to the collector that complete return can not then be filed the collector upon investigation, and if he is satis- fied that the cause for further delay is unavoidable, may extend the time for filing until in his judgment the reasonable ground for delay has been removed. In every such case it should be pointed out to the ex- ecutor, that, regardless of the further extension, in- terest attaches from the close of the original 90-day extension upon all the unpaid tax. This interest is required to be computed from the day of the de- cedent's death and is at the rate of 6 per cent per annum. Collectors should note that in every case of over- due estate tax, where the additional extension of time herein provided for has not been granted, the interest rate is 10 per cent instead of 6 per cent per 296 FEDERAL ESTATE TAX. T. D. 2691. annum, and such interest is also computed from the day of the decedent's death. Where either an original 90-day extension or the additional extension herein provided for is granted the collector should promptly report all facts to this office. Collectors must also promptly notify this office whenever in their judgment the unavoidable cause for delay in filing return in any case has been removed. Previous rulings inconsistent with the above are modified accordingly. Daniel C. Roper, Commissioner of Internal Revenue. Approved : W. G. McAdoo, Secretary of the Treasury. (T. D. 2691) Estate Tax. Returns on Form 706 for the estates of nonresident decedents to be forwarded direct to the Commissioner of Internal Revenue for transmittal to the collector. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C. To collectors of internal revenue and others con- cerned: Hereafter returns on Form 706 for the estates of nonresident decedents shall be forwarded (in TREASURY DECISIONS. 297 T. D. 2705. duplicate) by the executor direct to the Com- missioner of Internal Revenue, Treasury Depart- ment, Washington, D. C, who will, after reviewing the returns, transmit them to the proper collector. The date on which the return is received by the Commissioner of Internal Revenue will be consid- ered the date of original filing with the collector for the purpose of determining whether the return is filed within the period prescribed by law. Daniel C. Roper, Commissioner of Internal Revenue. Approved April 8, 1918: L. S. Rowe, Aeting Secretary of the Treasury. (T. D. 2705) Estate Tax. United States bonds bearing interest at a higher rate than 4 per cent to be accepted at par and accrued interest in payment of estate tax. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C. To internal-revenue officers and others concerned: Section 6 of the act of April 4, 1918 (Public No. 120, 65th Cong.), provided in part: Sec. 14. That any bonds of the United States bear- ing interest at a higher rate than four per centum 298 FEDERAL ESTATE TAX. T. D. 2705. (whether issued under section one of this act, or upon conversion of bonds issued under this act or under said act approved April twenty-fourth, nine- teen hundred and seventeen), which have been owned by any person continuously for at least six months prior to the date of his death, and which upon such date constitute part of his estate, shall, under rules and regulations prescribed by the Sec- retary of the Treasury, be receivable by the United States at par and accrued interest in payment of any estate or inheritance taxes imposed by the United States, under or by virtue of any present or future law upon such estate or the inheritance thereof. Bonds of the United States falling within the classification specified will be accepted in payment of estate tax at par and accrued interest. Bonds so receivable must (1) bear a higher rate of interest than 4 per cent per annum, and (2) have been owned by the decedent continuously for at least six months prior to the date of his death, and upon such date constitute a part of the estate of the decedent. The reckoning of the required period of ownership may begin on the date when the decedent acquired bonds bearing interest at a higher rate than 4 per cent, by purchase, by conversion of other bonds, or other- wise. The entire estate tax may be paid in bonds, or the tax may be paid partially in bonds and partially by cash or check. Collectors may not, however, ac- TREASURY DECISIONS. 29 I T. D. 2708. cept bonds the par value and accrued Interest on which aggregates a greater amount than the tax. Daniel C. Roper, Commissioner of Internal Revenue. Approved April 23, 1918 : L. S. Rowe, Acting Secretary of the Treasury. (T. D. 2708) Estate Tax. Estates of nonresidents — Payment of tax and transfer of se- curities. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C. To collectors of internal revenue and others con- cerned: T. D. 2490 prescribes a method to be followed by transfer agents who have orders for the transfer of stock standing in the name of a nonresident de- cedent. The following alternative procedure is established for observance by transfer agents who prefer this method to that prescribed in T. D. 2490 : A supply of Form 706 will be furnished by the commissioner or any collector of internal revenue to any transfer agent. The transfer agent will for- ward forms to its foreign offices or to its represen- tatives in foreign countries, with instructions that whenever an order is received for the transfer of 300 FEDERAL ESTATE TAX. T. D. 2708. securities belonging to a nonresident decedent the foreign executor, administrator, or beneficiary of the estate will be required to execute a complete re- turn on Form 706 of all property belonging to the decedent situated in the United States, including shares of stock in a domestic corporation. This re- turn, in triplicate, will be subscribed and sworn to before a notary public or a similar officer qualified to administer oaths. If the notary public or other officer is known to the transfer agent and his signa- ture is guaranteed by the transfer agent, the au- thority of the notary public or other official need not be attested by a certificate of a United States con- sul. In addition to the return, the foreign repre- sentative of the transfer agent will obtain from the personal representative of the estate a copy of the inventory required to be filed by the probate law of the country in which the decedent was domiciled at the time of death, which copy shall be certified to by the proper foreign judicial officer under the same conditions provided for the certification of the re- turn. The return and inventory will be forwarded to the United States with the order for transfer of the shares of stock. Upon receipt of the return and inventory by the transfer agent the items on the return will be care- fully checked against the inventory. The transfer agent will retain the inventory and send the return, in triplicate, to the Commissioner of Internal Reve- nue at Washington, with a certificate to the effect TREASURY DECISIONS. 301 T. D. 2708. that all property disclosed by the inventory to 1)'' situated in the United States has been included in the return on Form 706. The inventory will b<* furnished for inspection by the Commissioner of Internal Revenue in any case where the commis- sioner so desires. After a review of the return and verification of the amount of tax due, two copies of the return will be forwarded to the collector to whom the tax must be paid, who will make assessment, and upon pay- ment of the tax issue the usual receipts in tripli- cate and, in addition, will certify on one copy of the return furnished him that the amount of tax shown by the return to be due has been paid. This certi- fied and receipted copy of the return will be for- warded, with the usual receipts for payment, to the transfer agent, to be used as evidence that the se- curities listed on the return have been reported to the United States Government, and that the Federal estate tax has been paid with respect to all property disclosed on Form 706. Notice on Form 704 and Form 714 must be filed with the collector as heretofore. Daniel C. Roper, Commissioner of Internal Revenue. Approved April 25, 1918: L. S. Rowe, Acting Secretary of the Treasury. 20 302 FEDERAL ESTATE TAX. T. D. 2735. (T. D. 2735) Estate Tax. Real estate located outside of the United States belonging to a decedent resident within the United States should not be included in the gross estate of such decedent for estate-tax purposes. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C. To collectors of internal revenue and others con- cerned: The following ruling is based upon an opinion of the Attorney General, dated May 14, 1918 : The value of real estate, belonging to a decedent resident within the United States at the time of his death, located outside of the United States, mean- ing thereby the States, Territories of Alaska and Hawaii, and the District of Columbia, should not be included in determining the value of the gross estate of such decedent for the purposes of the tax im- posed by Title II of the revenue act of September 8, 1916. Daniel C. Roper, Commissioner of Internal Revenue. Approved June 17, 1918: L. S. Rowe, Acting Secretary of the Treasury. TREASURY DECISIONS. 303 T. D. 2756. (T. D. 275G) Estate Tax. (1) Conditions under which 5 per cent discount may be allowed for advance payment of estate tax; (2) conditions under which a tentative return may be filed; (3) granting of extension in which to file final return. Treasury Department, Office of Commissioner of Internal Revenue. Washington, D. C. To collectors of internal revenue and others con- cerned: Five Per Cent Discount. Section 204 of the estate-tax law (act of Sept. 8, 1916) provides that estate tax shall be due one year after decedent's death, and if the tax is paid before it is due a discount at the rate of 5 per cent per annum, calculated from the time payment is made to the date when the tax is due, shall be de- ducted. Discount is not allowable unless the total tax be determined and advance payment made in full. It is not contemplated by the act that immediately after a decedent's death, or at any time before the expiration of the year, the executor may make par- tial payment on account of the tax and receive credit for the discount because of advance payment. If advance payment is to be made before the due date of the tax, the estate must be in a position to file a final return on Form 706 showing the value of all assets as of the date of decedent's death and the 304 FEDERAL ESTATE TAX. T. D. 2756. allowable deductions to which the estate is entitled under section 203 of the act, the value of the net estate, and the determined tax because of the trans- fer of the net estate. Final return must be filed wherever advance pay- ment is desired and the amount paid should be en- tered upon the collector's assessment list for the month in which paid as advance collection. Tentative Return. Section 207 of the estate-tax act provides that if for any reason the amount of the tax can not be de- termined the payment of a sum of money sufficient in the opinion of the collector to discharge the tax shall be deemed payment in full of the tax, etc. This provision clearly relates to the time when the tax is due. The collector is not required to exercise his discretion as to what amount will satisfy the tax until the due date thereof. It is obvious that no dis- count is allowable upon such payment, as neces- sarily the payment can not be made before the ex- piration of a year following decedent's death. The following regulations govern the above pay- ments : If at the end of the year following decedent's death the executor represents and the collector is satisfied that the amount of tax upon the estate can not be determined, a return may be filed by the ex- ecutor setting forth the then known assets of the estate and the actual value thereof as of date of de- TREASURY DECISIONS. 305 T. D. 2756. cedent's death, the determined and allowable deduc- tions to which the estate is entitled, the value of the net estate thus disclosed, and the tax due thereon. This return will be designated "tentative." The tax shown to be due upon the tentative return should be paid and entered upon the collector's assess- ment list for the month in which paid. As further provided in section 207 of the act, if the amount of tax as finally determined is less than the amount paid upon the basis of the tentative re- turn the commissioner will, upon filing claim on Form 46, make refund of the excess payment. If the amount of tax as finally determined exceeds the amount so paid the commissioner will notify the ex- ecutor of such excess. From the time of such noti- fication to the time of final payment of such excess part of the tax interest will be added thereto at the rate of 10 per cent per annum. Extension for Filing Final Return. At the time the "tentative" return is filed an ex- tension not to exceed 90 days may be granted by the collector in which to file a final return. If at the expiration of the extension granted the execu- tor represents that he is still unable to determine the tax and file final return, a detailed statement as to the reasons preventing the determination of the tax should be transmitted to the bureau for con- sideration as to whether an additional extension should be granted. 306 FEDERAL ESTATE TAX. T. D. 2770. In every case where a tentative return is filed it should be plainly so designated, and a duplicate thereof transmitted to the bureau with a statement by the collector as to the period of extension granted. All regulations and Treasury decisions incon- sistent with the ruling contained herein are hereby modified. Daniel C. Roper, Commissioner of Internal Revenue. Approved September 5, 1918: L. S. Rowe, Acting Secretary of the Treasury. (T. D. 2770) Estate Tax. The time of notification to an executor of the amount of " ex- cess' ' estate tax due is the date on which notice thereof is received by the executor. Treasury Department, Office of Commissioner of Internal Revenue. Washington, D. C. To collectors of internal revenue and others con- cerned: Section 207 of the estate-tax law, Title II, of the act of September 8, 1916, provides in part as fol- lows : That the executor shall pay the tax to the col- lector or deputy collector. If for any reason the amount of the tax can not be determined, the pay- TREASURY DECISIONS. 307 T. D. 2770. mont of a sum of money sufficient, in the opinion of the collector, to discharge the tax shall be deemed payment in full of the tax, except as in this section otherwise provided. If the amount so paid exceeds the amount of the tax as finally determined, the Commissioner of Internal Revenue shall refund such excess to the executor. If the amount of the tax as finally determined exceeds the amount so paid the commissioner shall notify the executor of the amount of such excess. From the time of such notification to the time of the final payment of such excess part of the tax, interest shall be added thereto at the rate of 10 per centum per annum, and the amount of such excess shall be a lien upon the en- tire gross estate, except such part thereof as may have been sold to a bona fide purchaser for a fair consideration in money or money '^s worth. The question has arisen under this section as to what is the "time of such notification" from which interest is to be computed. The "time of such no- tification" is the date on which notice of the amount of such "excess part of the tax" is received by the executor, whether such notice is given by mail or otherwise. All regulations and rulings inconsistent herewith are modified accordingly. Daniel C. Roper, Commissioner of Internal Revenue. Approved November 6, 1918: L. S. Rowe, Acting Secretary of the Treasury. 308 FEDERAL ESTATE TAX. T. D. 2771. (T. D. 2771) Estate Tax. Conditions under which taxes on real and personal property and on income are deductible in computing the net estate of a decedent for purposes of taxation under Title II of the act of September 8, 1916. Treasury Department, Office of Commissioner of Internal Revenue. Washington, D. C. To collectors of internal revenue, internal- revenue agents, and others concerned: The estate-tax law (act of Sept. 8, 1916, sec. 203 [a] 1) permits the deduction of "administration expenses," "claims against the estate," and "charges against the estate," in determining the value of the net estate. Where the State statute makes the tax a lien against property it is deduct- ible as a "charge against the estate," where it is a personal obligation of the taxpayer it is deductible as a "claim against the estate." Taxes are never deductible as "administration expenses." In certain jurisdictions taxes upon both real and personal property are assessed prior to the expira- tion of the period for which the tax is laid ; payment is not required until a date subsequent to the assess- ment; and the tax liability is created as of a date prior to the performance by the tax officers of all of their duties, such as determining the exact amount to be assessed to the taxpayer, and giving him notice of the tax. The rule for determining deductibility, in these and other cases, is as follows : If the tax lia- TREASURY DECISIONS. 309 T. D. 2771. bility is created as of a date in the lifetime of the decedent, the whole tax is deductible, although the entire period for which the tax is laid has not elapsed, its exact amount is not then ascertainable, and payment is not required until a later date. On the other hand, if the tax liability is created as of a date subsequent to the decedent's death, no part of it is deductible, although part of the period for which the tax is laid elapsed in the decedent's life- time. The foregoing rules also apply to taxes on in- come, whether imposed by State statute or act of Congress. Where the statute creates either a lien or personal obligation, as of a date in the decedent's lifetime, the tax is deductible. Where the lien or obligation is created as of a date subsequent to the decedent's death, the tax is not deductible. The income and excess profits taxes imposed by the acts of September 8, 1916, and October 3, 1917, constitute personal obligations of the taxpayer, and are deductible in accordance with these rules. All unpaid taxes for years prior to that in which the de- cedent died are deductible. For the year in which the decedent died, the tax upon income up to the date of death is deductible. Daniel C. Roper, Commissioner of Internal Revenue. Approved November 8, 1918: L. S. Rowe, Acting Secretary of the Treasury. 310 FEDERAL ESTATE TAX. T. D. 2772. (T. D. 2772) Estate Tax. Securities such as shares of stock in domestic corporations which are property within the United States within the meaning of sec- tion 202, Title II, of the act of September 8, 1916, belonging to a nonresident decedent and deposited with the British Treasury, for which certificates of deposit were issued, are subject to estate tax on the death of such nonresident decedent if the certificates have not previously been transferred. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C. To collectors of internal revenue, internal-revenue agents, and others concerned: Estate tax is imposed by Title II of the act of September 8, 1916, upon all property of a nonresi- dent decedent situated in the United States. (See sees. 201, 202, 203, 205.) Section 202 provides that "for the purposes of this title, stock in a domestic corporation owned and held by a nonresident de- cedent shall be deemed property within the United States." The question has been considered whether, if such stock in a domestic corporation or other se- curity, which if owned by a nonresident decedent would be property within the United States, is de- posited with the British Treasury and a certificate of deposit is issued therefor, such stock or other property is upon the death of the certificate holder a part of his gross estate and subject to estate tax. The holder of the certificate of deposit is the bene- ficial owner of the stock or other property for TREASURY DECISIONS. 311 T. D. 2772. which such certificate is issued. The relation of the British Government to a certificate holder is sub- stantially, if not technically, that of a trustee to a beneficiary. Upon the death of the beneficiary of a trust a transfer subject to estate tax takes place with reference to property within the United States held upon trust for such beneficiary. This is true even though the equitable title to such stock passes without the recording of the transfer upon the books of the corporation. For the purpose of the estate tax, no distinction is to be taken between the rights of a deceased certificate holder and the rights of a deceased beneficiary of a trust of which an indi- vidual or corporation is trustee. It is held, therefore, that securities such as shares of stock in domestic corporations which are prop- erty within the United States within the meaning of Title II of the act of September 8, 1916, deposited by an individual not resident within the United States with the British Treasury, and for which cer- tificates of deposit were issued, are at the death of such nonresident, if such certificates have not been transferred, a part of his gross estate and subject to estate tax. Daniel C. Roper, Commissioner of Internal Revenue. Approved November 8, 1918: L. S. Rowe, Acting Secretary of the Treasury. 312 FEDERAL ESTATE TAX. T. D. 2802. (T. D. 2802) Estate Tax. Receipt of Liberty bonds for estate or inheritance taxes. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C. The appended department Circular No. 132, is- sued under date of January 30, 1919, with reference to the receipt of Liberty bonds in payment of estate or inheritance taxes, is published for the informa- tion of internal-revenue officers and others con- cerned. Daniel C. Roper, Commissioner of Internal Revenue. Approved March 12, 1919: Carter Glass, Secretary of the Treasury. (1) The following regulations are prescribed pursuant to section 14 of the second Liberty bond act, approved September 24, 1917, as amended by third Liberty bond act, approved April 4, 1918, which section, as so amended, reads as follows: Sec. 14. That any bonds of the United States bearing interest at a higher rate than four per centum per annum (whether issued under section one of this Act or upon conversion of bonds issued under this Act or under said Act approved April twenty-fourth, nineteen hundred and seventeen), TREASURY DECISIONS. 813 T. D. 2802. which have been owned by any person continuously for at least six months prior to the date of his death, and which upon such date constitute part of his estate, shall under rules and regulations prescribed by the Secretary of the Treasury, be receivable by the United States at par and accrued interest in pay- ment of any estate or inheritance taxes imposed by the United States, under or by virtue of any pres- ent or future law upon such estate or the inheri- tance thereof. (2) The bonds described in said section at present issued and outstanding are : (a) First Liberty loan converted 414 per cent bonds of 1932-47, dated May 9, 1918. (b) First Liberty loan second converted 414 per cent bonds of 1932-47, dated October 24, 1918. (These bonds are, of course, not yet receivable in payment of taxes.) (c) Second Liberty loan converted 4% per cent bonds of 1927-42, dated May 9, 1918. (d) Third Liberty loan 414 per cent bonds of 1928, dated May 9, 1918. (e) Fourth Liberty loan 414 per cent bonds of 1933-38, dated October 24, 1918. (These bonds are, of course, not yet receivable in payment of taxes.) (3) Bonds of the issues above described are re- ceivable for such taxes only in case such bonds have been owned by the decedent continuously for at least six months prior to the date of his death and upon such date constitute part of his estate. The 314 FEDERAL ESTATE TAX. T. D. 2802. reckoning of the required period of ownership will begin on the date when the decedent acquired such bonds by original subscription, by purchase, by con- version of bonds of other issues, or otherwise. In the case of acquisition of bonds by conversion of bonds of other issues previously owned, the date of presentation for conversion to the Treasury De- partment or a Federal reserve bank will be deemed the date of acquisition. Exchange of coupon for registered bonds, or registered for coupon bonds, or of bonds of one denomination for bonds of other denominations of the same issue, within six months prior to the date of death of the decedent, will not prevent the receipt of such bonds for estate or in- heritance taxes, provided that no change of owner- ship takes place. (4) Bonds tendered for payment of taxes pursu- ant to this regulation must be accompanied by an affidavit of one or more of the legal representatives of the estate on Form 760 hereto attached, and the collector is authorized to require such further evi- dence as may be necessary to enable him to deter- mine that the bond or bonds are properly receivable in payment of estate or inheritance taxes pursuant to law and these regulations. (5) On receipt of such bonds, and on making such determination, and provided that the bonds tendered conform to the other provisions of these regulations, the collector shall stamp or plainly write upon the face of each bond, the following: TREASURY DECISIONS. 315 T. D. 2802. (Date) This bond has this day been received in payment of estate (or inheritance) taxes on the estate of .... (Name of decedent) .... under authority of law, and the same will not be redeemed by the United States except for credit of the undersigned Collector of Internal Revenue for the District of and shall duly sign the same. Coupons, if any, attached to each bond, shall be stamped or marked "paid" on the face of each coupon in letters of suffi- cient size to be plainly legible. (6) The entire tax may be paid in bonds, or the tax may be paid partly in bonds, and partly by any other form of payment permitted by law or regula- tions duly in force. Collectors may not, however, receive bonds, the par value and accrued interest of which, computed in accordance with these regula- tions, aggregate a greater amount than the tax in payment of which the bonds are tendered. COUPON BONDS. (7) Coupon bonds received for such taxes must be delivered to the collector with all unmatured coupons attached and with all matured coupons de- tached. Detached matured coupons will not be re- ceivable in payment of estate or inheritance taxes. The portion of the face amount of the current coupon which represents accrued interest to date of receipt for taxes will be determined in the manner prescribed by the interest table (b) hereto attached, 316 FEDERAL ESTATE TAX. T. D. 2802. and such accrued interest will be receivable for estate or inheritance taxes. (8) Coupon bonds, after being received, and reception noted on the bonds, as above required, will be deposited by the collector in the Federal reserve bank of the district in which his office is located as a deposit of the par value with accrued interest, determined as above required. Such bonds must be transmitted by registered mail but will not be insured. The collector will transmit with the bonds an accurate schedule on Form 761 hereto attached, showing the serial number and denomina- tion of each bond transmitted, the issue, the date of issue, the face value and date of receipt for taxes, the amount of accrued interest and the amount for which credited against estate or inheritance taxes. Such schedule shall be made in quadruplicate, the original to accompany the bonds deposited with the Federal reserve bank, the duplicate to be trans- mitted to such Federal reserve bank under separate cover, the triplicate to be transmitted to the Secre- tary of the Treasury, Division of Loans and Cur- rency, Washington, and the remaining copy to be retained by the collector. (9) A Federal reserve bank on receipt and ex- amination of such bonds will charge the Treasurer's account with par and accrued interest to date of receipt for taxes as reported by the collector, give credit to the collector for like amount, and will issue a certificate of deposit in triplicate on National TREASURY DECISIONS. 317 T. D. 2802. Bank Form 15, and transmit the original to the Secretary of the Treasury through the Treasurer of the United States with its transcript, and the duplicate and triplicate to the collector, who will forward the duplicate to the Commissioner of In- ternal Revenue. Such Federal reserve bank will then physically cancel the bonds and coupons attached, and transmit the same to the Treasurer of the United States with the original or duplicate of the collector's schedule (Form 761), to which shall be added the Federal reserve bank's certificate as shown thereon. REGISTERED BONDS. (10) Registered bonds are also receivable for estate or inheritance taxes in accordance with these regulations. In addition to requiring the affidavit (Form 760) the collector shall determine that the registered owner whose name is inscribed on the bond is identical with the decedent whose estate is liable to estate (or inheritance) taxes and that the bond is presented from the custody or control of the legal representative or representatives of such estate. Such bond shall be assigned to "the Secre- tary of the Treasury for redemption in payment of estate (or inheritance) taxes" by the authorized representative or representatives of the deceased registered owner. Such representative or repre- sentatives must furnish to the collector a certificate under the seal of the court in which the estate is 318 FEDERAL ESTATE TAX. T. D. 2802. being administered or a duly authenticated copy of the letters testamentary or of administration, show- ing the appointment of such representative or rep- resentatives, and the date thereof. Such certificate must be dated within 30 days prior to its presenta- tion to the collector. If the representative be appointed to execute a will, a certified copy of the will must be furnished to the collector. All such documents of authority mil be attached to the bond and forwarded therewith by the collector as herein- after provided. Where there are two or more legal representatives, all must unite in an assignment, unless by decree of court or testamentary provision some one or more of them is or are designated or empowered to dispose of the bonds. The form printed on the back of the bond must be used for assignment, and the assignment must be dated and properly acknowledged, as prescribed in the note printed on the back of the bond. Officers authorized to take acknowledgments of assignments of regis- tered bonds in addition to those mentioned on the back of the bond are designated in the regulations of the Treasury Department in relation to United States bonds. The collector will satisfy himself that the above-mentioned documents of authority and the requisite signatures and acknowledgments are in hand before noting on the bond its reception for taxes, as provided in paragraph 5 hereof, but the final determination of the correctness or validity of the assignment will be made by the Secretary of TREASURY DECISIONS. 319 T. D. 2802. the Treasury, Division of Loans and ( 'urrency, at Washington, on receipt of all such bonds and docu- ments, when transmitted as hereinafter provided. (11) By reason of the periodical closing of the transfer books of the Treasury Department for the payment of interest on registered bonds, and the impossibility of stopping payment of interest to the registered holder during the period of such dosing, registered bonds will not be receivable in payment of estate or inheritance taxes during the period of closing of the books of the issue in ques- tion. The books are closed with respect to each issue for one month prior to each interest date. The closed periods with respect to each bond may there- fore be determined by inspection of the bond itself, being one month prior to each interest payment date named thereon, and until the day following such interest payment date. The closed periods for each issue of bonds receivable for estate or inheritance taxes are also stated in table {d) hereto attached. (12) Collectors will examine each registered bond tendered for estate or inheritance taxes to deter- mine whether the transfer books of the issue in question arc then opened or closed. If the books are then open but are due to close on a date too early to permit the bond to be transmitted to the Secretary of the Treasury, Division of Loans and Currency, and to be received by such division prior to the closing date, the collector will advise the Secretary of the Treasury, Division of Loans and 320 FEDERAL ESTATE TAX. T. D. 2802. Currency, by telegraph at the time of receipt of the bond, using Form (e) hereto attached, and will im- mediately confirm the same by mail. The Division of Loans and Currency will thereupon stop interest payment on such bond. The Secretary reserves the right (a) to refuse to receive in payment of estate or inheritance taxes any registered bond tendered to the collector during an open period but received at the Division of Loans and Currency during a closed period of the transfer books of the issue in question, unless the current payment of interest on such bond has been stopped, (b) to adjust the value at which such bond will be received in payment of estate or inheritance taxes at the equivalent of par and accrued interest on the date on which such bond was properly tendered to the collector. (13) Registered bonds receivable in accordance with these regulations will be received at par and accrued interest, computed from the last preceding interest date as shown thereon, to the date of re- ceipt, in accordance with Table {b) hereto attached. (14) Registered bonds when so received, and bearing the stamp or writing required by para- graph 5 hereof, will be transmitted with all accom- panying documents of authority to the Secretary of the Treasury, Division of Loans and Currency, Washington, by registered mail, but not insured. The collector will make an accurate schedule on Form 762 hereto attached in triplicate showing the date of death of the decedent, the serial number TREASURY DECISIONS. 321 T. D. 2802. and denomination of each bond, the issue, the date of issue, the face value, the date of receipt for taxes, and the amount for which credited against estate or inheritance taxes. The original of this schedule must accompany the bonds sent to the Secretary of the Treasury, Division of Loans and Currency ; the duplicate shall be transmitted to the Secretary of the Treasury, Division of Loans and Currency, under separate cover; and the triplicate shall be retained by the collector. (15) On receipt of such bonds, the Division of Loans and Currency will determine whether the assignment has been properly executed, whether the bonds are of an issue receivable for estate or inheritance taxes hereunder, whether the depart- ment's record of registration is consistent with the affidavit of ownership (Form 760), and the amount at which such bonds are receivable for estate or inheritance taxes, and will, if it find the bonds in order, transmit them with its advice on Form L. and C. 122 to the Treasurer of the United States for redemption. The Treasurer will thereupon cancel the bonds and issue a certificate of deposit in the name of the collector, in triplicate, and will forward the original to the office of the Secretary of the Treasury, Division of Public Moneys, and transmit the duplicate and triplicate of such certificate to the Commissioner of Internal Revenue, Accounts Divi- sion, who will forward the triplicate to the collector. 322 FEDERAL ESTATE TAX. T. D. 2802. GENERAL. (16) Until certificates of deposit are received by the collector, the amounts of bonds deposited must be carried as "Cash on hand," and not credited as "Collections," as the dates of the certificates of deposit determine the dates of collections. (17) The right is reserved to amend or withdraw the foregoing regulations in whole or in part at any time. Carter Glass, Secretary of the Treasury. Treasury Department, internal revenue. Form 760. Affidavit of Ownership of Bonds. State of , County of , ss.: We (I), the undersigned execut. . . ., administrat . . . , beneficiar . . . , legal representative of the estate of , deceased, who died on , 19 .... , do severally swear that the bond. . described below bearing interest at a higher rate than 4 per centum per annum was (or were) each owned by the decedent continuously for at least six months prior to the date of his (or her) death and upon such date constituted part of his (or her) estate, and that the following statements with respect to each such bond are true to the knowledge of deponent, to wit : TREASURY DECISIONS. 323 T. D. 2802. Serial No. Description of issue. Date of issue. Date of maturity. Date of acquisition by decedent. Face value. Coupon or regis- tered. (Each bond must be entered separately.) (Address for mail.) Subscribed and sworn to before me at. this day of , 19 Notary Public, Deputy Collector. 324 FEDERAL ESTATE TAX. T. D. 2802. Table (b). Treasury Department, division of loans and currency, Form L. & C. 90. (Ed. 50,000— Sept. 16, 1918.) Liberty Loan Interest Table for 4*4 Per Cent Bonds. Interest on $100 at 4*4 per cent per annum, payable semiannually (2y s per cent per half year). [Tables prepared by Government actuary.] Note. — Interest on United States bonds is com- puted on actual days basis within the interest period. For any given interest computation the appropriate column to be used may be determined from the following: NUMBER OF DAYS IN EACH HALF YEAR. Half year ending the 15th day of — Kegular years — Days March, May, July, August 181 April, June 182 October, December 183 January, Febru- ary, September, November 184 Leap years — Days March, May, July, August 182 April, June, Octo- ber, December . 183 January, Febru- ary, September, November 184 TREASURY DECISIONS. 325 T. D. 2802. Days. Half year of 181 "days. Half year of 182 days. Half vear of 183 days. Half vear of 184 days. 1 $0.01774033 .02348066 .03522099 .04696133 .05870166 .07044199 .08218232 .09392265 . 10566298 .11740331 . 12914365 . 14088398 . 15262431 . 16436464 . 17610497 . 18784530 . 19958564 .21132597 . 22306630 .23480663 .24654696 .25828729 . 27002762 .28176796 .29350829 .30524862 .31698895 .32872928 . 34046961 .35220994 .36395028 .37569061 .38743094 .39917127 .41091160 $0.01167582 .02335165 .03502747 . 04670330 .05837912 .07005495 .08173077 .09340659 . 10508242 .11675824 . 12843407 .14010989 .15178571 . 16346154 .17513736 18681319 . 19848901 .21016484 .22184066 .23351648 .24519231 .25686813 .26854396 .28021978 .29189560 .30357143 .31524725 . 32692308 . 33859S90 .35027473 .36195055 .37362637 .38530220 .39697802 . 40865385 $0 01161202 . 02322404 .03483607 . 04644809 .05806011 .06967213 .08128415 .09289617 . 10450820 .11612022 . 12773224 . 13934426 . 15095628 .16256831 .17418033 . 18579235 . 19740437 .20901639 .22062842 .23224044 .24385246 .25546448 .26707650 . 27868852 .29030055 .30191257 .31352459 .32513661 .33674863 .34836066 .35997268 .37158470 .38319672 .39480874 .40642077 $0.01154891 2 . 02309783 3 03464674 4 .04619565 a .05774457 6 .06929318 7 .08084239 8 .09239130 9 . 10394022 10 .11548913 11 . 12703804 12 . 13858696 13 . 15013587 14 . 16168478 15 .17323370 16 . 18478261 17 . 19633152 18 .20788043 19 .21942935 20... .23097826 21 .24252717 22 . 25407609 23 .26562500 24 .27717391 25 . 28872283 26 .30027174 27 .31182065 28 . 32336957 29 . .33491848 30 .34646739 31 .35801630 32 . 36956522 33 .38111413 34 .39266304 35 .40421196 326 FEDERAL ESTATE TAX. T. D. 2802. Days. Half year of 181 days. Half year of 182 days. Half year of 183 days. Half year of 184 days. 36 37 38 $ . 42265193 .43439227 .44613260 .45787293 .46961326 .48135359 .49309392 .50483425 .51657459 .52831492 . 54005525 .55179558 .56353591 . 57527624 . 58701657 .59875691 .61049724 .62223757 .63397790 .64571823 .65745856 .66919889 .68093923 .69267956 . 70441989 .71616022 . 72790055 . 73964088 .75138122 .76312155 .77486188 .78660221 . 79834254 .81008287 .82182320 $.42032967 .43200549 .44368132 .45535714 .46703297 . 47870879 .49038462 . 50206044 .51373626 . 52541209 .53708791 .54876374 . 56043956 .57211538 .58379121 . 59546703 .60714286 .61881868 .63049451 .64217033 .65384615 .66552198 .67719780 . 68887363 . 70054945 .71222527 .72390110 . 73557692 . 74725275 . 75892857 . 77060440 . 78228022 . 79395604 .80563187 . 81730769 $.41803279 .42964481 .44125683 . 45286885 .46448087 .47609290 .48770492 .49931694 .51092896 .52254098 .53415301 .54576503 .55737705 . 56898907 . 58060109 .59221311 .60382514 .61543716 .62704918 .63866120 . 65027322 .66188525 . 67349727 .68510929 .69672131 .70833333 .71994536 .73155738 .74316940 .75478142 .76639344 .77800546 . 78961749 .80122951 .81284153 $.41576087 .42730978 .43885870 39 40 . 45040761 .46195652 41 42 43 44 .47350543 .48505435 .49660326 .50815217 45 .51970109 46 .53125000 47 .54279891 48 .55434783 49 .56589674 50 .57744565 51 .58899457 52 .60054348 53 .61209239 54 .62364130 55 .63519022 56 .64673913 57 .65828804 58 .66983696 59 . 68138587 60 .69293478 61 .70448370 62 .71603261 63 .72758152 64 . 73913043 65 . 75067935 66 .76222826 67 .77377717 68 .78532609 69 . 79687500 70 .80842391 TREASURY DECISIONS. 327 T. D. 2802. Days. Half year of 181 days. Half year of 182 days. Half voar of 183 days. Half year of 184 day-. 71 $.83356354 . 84530387 .85704420 .86878453 .88052486 .89226519 . 90400552 .91574586 .92748619 .93922652 .95096685 .96270718 .97444751 .98618785 .99792818 1.00966851 1.02140884 1.03314917 1.04488950 1.05662983 1.06837017 1.08011050 1.091850S3 1.10359116 1.11533149 1 . 12707182 1.13881215 1 15055249 1 . 16229282 1.17403315 1 . 18577348 1.19751381 1.20925414 1.22099447 1 23273481 $.82898352 . 84065934 .85233517 .86401099 .87568681 . 88736264 .89903846 .91071429 .9223«.)()11 .93406593 .94574176 .95741758 .96909341 .98076923 .99244506 1.00412088 1.01579670 1.02747253 1.03914835 1.05082418 1 . 06250000 1.07417582 1.08585165 1.09752747 1 . 10920330 1 . 12087912 1 . 13255495 1 . 14423077 1 . 15590659 1 . 1675S242 1.17925824 1 . 19093407 1.20260989 1.21428571 1.22596154 $.82445355 . 83606557 . 84767760 .85928962 .87090164 .88251366 .89412568 .90573771 .91734973 .92896175 .94057377 .95218579 .96379781 .97540984 .98702186 .99863388 1.01024590 1.02185792 1.03346995 1.04508197 1.05669399 1.06830601 1.07991803 1.09153005 1.10314208 1.11475410 1.12636612 1.13797814 1 . 14959016 1.16120219 1.17281421 1 . 18442623 1 . 19603825 1.20765027 1.21926230 $.81997283 72 .83152174 73 . 84307065 74 .85461956 75 76 86616848 .87771739 77 . 88926630 78 .90081522 79 .91236413 80 .92391304 81 93546196 82 .94701087 83 . 95855978 84 .97010870 85... .98165761 86 .99320652 87 1.00475543 88 1.01630435 89 1 . 02785326 90 1.03940217 91 1.05095109 92 1 . 06250000 93 1.07404891 94 1.08559783 95 1.09714674 96 1 . 10869565 97 1 . 12024456 98 1.13179348 99 100 101 I . 14334239 1 . 15489130 1 . 16644022 102 103 104 1.17798913 1 . 18953804 1.20108696 105 1.21263587 328 FEDERAL ESTATE TAX. T. D. 2802. Days. Half year of 181 days. Half year of 182 days. Half year of 183 days. Half vear of 184 days. 106 $1.24447514 1.25621547 1.26795580 1.27969613 1.29143646 1.30317679 1.31491713 1.32665746 1.33839779 1.35013812 1.36187845 1.37361878 1.38535911 1.39709945 1.40883978 1.42058011 1 . 43232044 1.44406077 1.45580110 1.46754144 1.47928177 1.49102210 1.50276243 1.51450276 1.52624309 1.53798342 1 . 54972376 1 . 56146409 1 . 57320442 1 . 58494475 1.59668508 1.60842541 1.62016574 1.63190608 1.64364641 $1.23763736 1.24931319 1.26098901 1.27266484 1.28434066 1.29601648 1.30769231 1.31936813 1.33104396 1.34271978 1 . 35439560 1.36607143 1.37774725 1.38942308 1.40109890 1.41277473 1.42445055 1.4361267 1.44780220 1 . 45947802 1.47115385 1.48282967 1.49450550 1.50618132 1.51785714 1.52953297 1 . 54120879 1.55288462 1 . 56456044 1.57623626 1.58791209 1.59958791 1.61126374 1 . 62293956 1.63461539 $1.23087432 1.24248634 1.25409836 1.26571038 1.27732240 1.28893443 1 . 30054645 1.31215847 1.32377049 1.33538251 1 . 34699454 1 . 35860656 1.37021858 1.38183060 1.39344262 1 . 40505465 1.41666667 1 . 42827869 1 . 43989071 1.45150273 1.4631H75 1.47472678 1 . 48633880 1 . 49795082 1 . 50956284 1.52117486 1.53278689 1.54439891 1.55601093 1 . 56762295 1.57923497 1 . 59084699 1.60245902 1.61407104 1.62568306 $1.22418478 107 1 . 23573370 108 1.24728261 109 1.25883152 110 1.27038043 Ill 1.28192935 112 1 . 29347826 113 1.30502717 114 1.31657609 115 1.32812500 116 1.33967391 117 1.35122283 118 1.36277174 119 1.37432065 120 1.38586956 121 1.39741848 122 1.40896739 123 1.42051630 124 1.43206522 125 1.44361413 126 1.45516304 127 1.46671196 128 129 130 1.47826087 1.48980978 1.50135870 131 132 1.51290761 1.52445652 133 1 . 53600543 134 1.54755435 135 1.55910326 136 1.57065217 137 1.58220109 138 1.59375000 139 1.60529891 140 1.61684783 TREASURY DECISIONS. 329 T. D. 2802. Days. Half year of 181 days. Half vear of 182 davs. Half vear of 183 days. Half year of 184 days. 141. 142. 143. 144. 145. 146. 147 148. 149 150. 151. 152. 153. 154 155 156 157 158 159 160 161 162 163 164 165 166 167 168 169 170 171 172 173 174 175 $1.65538674 1.66712707 1.67886740 1.69060773 1 . 70234807 1.71408840 1.72582873 1 . 73756906 1 . 74930939 1.76104972 1.77279005 1 . 78453039 1.79627072 1.80801105 1.81975138 1.83149171 1 . 84323204 1.85497238 1.86671271 1.87845304 1.89019337 1.90193370 1.91367403 1.92541436 1.93715470 1.94889503 1.96063536 1.97237569 1.98411602 1.99585635 2.00759668 2.01933702 2.03107735 2.04281768 2.05455801 $1.64629121 1.65796703 1 . 66964286 1.68131868 1.69299451 1.70467033 1.71634615 1.72802198 1.73969780 1.75137363 1.76304945 1.77472528 1.78640110 1.79807692 1.80975275 1.82142857 1.83310440 1.84478022 1.85645604 1.86813187 1.87930769 1.89148352 1.90315934 1.91483517 1.92651099 1.93818681 1.94986264 1.96153846 1.97321429 1.98489011 1.99656593 2.00824176 2.01991758 2.03159341 2.04326923 $1.63729508 1.64890710 1.66051913 1.67213115 1.68374317 1.69535519 1.70696721 1.71857924 1.73019126 1.74180328 1.75341530 1.76502732 1.77663934 1.78825137 1.79986339 1 81147541 1.82308743 1 . 83469945 1.84631148 1 . 85792350 1.86953552 1.88114754 1.89275956 1.90437159 1.91598361 1 . 92759563 1.93920765 1.95081967 1.96243109 1.97404372 1.98565574 1 . 99726776 2.00887978 2 02049180 2.03210383 $1.62839674 1 . 63994565 1.65149456 1 . 66304348 1 . 67459239 1.68614130 1 . 69769022 1.70923913 1 . 72078804 1 . 73233696 1 . 74388587 1 . 75543478 1 . 76698370 1.77853261 1.79008152 1.80163043 1.81317935 1 . 82472826 1.83627717 1.84782609 1.85937500 1.87092391 1 . 88247283 1.89402174 1 . 90557065 1.91711956 1 . 92866848 1.94021739 1.95176630 1.96331522 1.97486413 1.98641304 1.99796196 2.00951087 2 02105978 330 FEDERAL ESTATE TAX. T. D. 2802. Days. Half year of 181 days. Half year of 182 days. Half year of 183 days. Half year of 184 "days. 176 $2 . 06629834 2.07803867 2.08977901 2.10151934 2.11325967 2.12500000 $2 . 05494506 2.06662088 2 . 07829670 2.08997253 2.10164835 2.11332418 2.12500000 ?2. 04371585 2 . 05532787 2.06693989 2.07855191 2.09016393 2.10177596 2.11338798 2.12500000 $2 . 03260870 177 2.04415761 178 2.05570652 179 2 . 06725543 180 2 . 07880435 181.... 2 . 09035326 182 2.10190217 183... 2.11345109 184 2 . 12500000 EXAMPLE. $10,000 third Liberty loan 4% per cent bond of 1928, tendered in payment of estate taxes, January 5, 1919. Interest payment dates on third Liberty loan bonds are shown on the face thereof to be March 15 and September 15 in each year. Current half year interest period therefore ends March 15, 1919. The year 1919 being a "regular" (not a "leap") year, find "March" in the list at head of table under "Regular years." This list shows that the half year ending March 15, in a regular year, has 181 days. Compute number of days since the beginning of such half year that have expired to date of tender of bond, thus: TREASURY DECISIONS. 333 T. D. 2802. 1918 Days September 15 to September 30 L5 October 31 November 30 December 31 1919 January 5 Total 112 Enter table headed "Half year of 181 days" (second column) and seek in that column the amount of interest on $100 for 112 days. This will be found opposite the figure "112" (days) in first column, and proves to be $1.31491713. $100 is 1/100 of $10,000 (found by division), and the amount of interest accrued on a $10,000 bond is therefore 100 times the amount shown on the table, or $131.491713. The figures more than two places to the right of the decimal point are fractions of a cent (in this example, 1713). Fractions more than one-half a cent will be taken as one cent and added to the total : when less than one-half a cent they will be disre- garded. In this case .1713 of a cent is less than one- half a cent; consequently, the fraction will be dis- regarded, making the final figure of accrued interest sought $131.49. The bond is worth for estate taxes $10,131.49. When more than one bond is tendered in payment 332 FEDERAL ESTATE TAX. T. D. 2802. of estate taxes, each bond will be computed separ- ately, by the use of its proper table, and the result stated with the full resulting number of decimal places. These sums will then be added together, and the adjustment of fractions of a cent applied to the total, thus: Supposing, instead of one bond of the par value of $10,000, three such bonds were ten- dered, the result would be — First bond $131.491713 Second bond 131.491713 Third bond 131.491713 Total $394.475139 In this case the fraction of a cent (0.5139) is greater than one-half a cent; consequently, the accrued interest is $394.48, and the bonds are worth for estate taxes $30,394.48. Treasury Department, internal revenue. Form 761. SCHEDULE OF COUPON BONDS RECEIVED BY COLLECTOR IN PAYMENT OF ESTATE OR INHERITANCE TAXES AND TRANSMITTED TO FEDERAL RESERVE BANK. , 19.... Schedule of United States coupon bonds Liberty Loan , per cent, dated TREASURY DECISIONS. 333 T. D. 2802. , 19..., due 19..., received by collector of internal revenue of the district of , in payment of estate (or inheritance) taxes and transmitted on the above date to the Federal Reserve Bank of (Signed) , Collector. (Use separate schedule for each issue of bonds. Enter each bond of such issue separately.) Serial No. of bond. Face value. Accrued interest. Total (amount for which accepted for taxes). Date ac- cepted by collector. Total. . Federal Reserve Bank of ,19 I hereby certify that I have examined and for- warded to the Treasurer of the United States the 22 334 FEDERAL ESTATE TAX. T. D. 2802. above-described bonds, which were received from the collector named, amounting to $ , prin- cipal, and $ , accrued interest, which amounts have been charged and credited in the Treasurer's general account this day pursuant to the regula- tions of the Treasury Department. Cashier. Table {d). PERIODS DURING WHICH TRANSFER BOOKS ARE CLOSED FOR THE VARIOUS ISSUES OF LIBERTY BONDS RECEIVABLE FOR ESTATE OR INHERIT- ANCE TAXES. Title of bonds. First Liberty loan converted 4\4 per cent bonds of 1932-47 First Liberty loan second converted 4J4 per cent bonds of 1932-47 Second Liberty loan converted 4J4 per cent bonds of 1927-42 Third Liberty loan 4 J4 per cent bonds of 1928 . . . Fourth Liberty loan 4}4 per cent bonds of 1933-38 Closed periods. From close of business. May 15 Nov. 15 Apr. 15 Oct. 15 /Feb. 15 \Aug. 15 /Mar. 15 \Sept. 15 To open- ing of business. June 16 Dec. 16 M?y 16 Ncv. 16 Mar. 16 Sept. 16 Apr. 16 Oct. 16 TREASURY DECISIONS. 336 T. D. 2802. Note. — If the closing date falls on a Sunday or legal holiday, the transfer books will close on the preceding day; if the opening date Tails on a Sunday or legal holiday, the books will open on the follow- ing day. Form (e). ....(Date) 19. .. Secretary of the Treasury, Division of Loans and Currency, Washington, D. C: Stop interest on registered bonds inscribed (Name of registered owner) , aggregate face value (Total par value of bonds) first second third fourth dollars Liberty loan (if converted or second converted, so state) per cent, dated , 191. . ., due 19. . ., this day received for estate (or inheritance) taxes. Collector. (Bonds of only one owner and of one issue in one advice.) r Sample of above telegram. | 336 FEDERAL ESTATE TAX. T. D. 2802. Chicago, May 14, 1919. Secretary of the Treasury, Division of Loans and Currency, Washington, D. C: Stop interest on registered bonds inscribed John Doe aggregate face value four thousand four hun- dred fifty dollars first Liberty loan second converted four and one quarter per cent dated October twenty- four nineteen eighteen due nineteen thirty-two forty-seven this day received for estate taxes. Richard Roe, Collector. Treasury Department, internal revenue, Form 762. SCHEDULE OF REGISTERED BONDS RECEIVED BY COLLECTOR IN PAYMENT OF ESTATE TAXES AND TRANSMITTED TO THE SECRETARY OF THE TREASURY, DIVISION OF LOANS AND CURRENCY. ,19... Schedule of United States registered bonds Liberty loan , per cent, dated , 19. . ., due 19. . ., received by , collector of internal revenue of the district of , in payment of estate (or inheritance) taxes and transmitted on the TREASl'KY DECISIONS. 337 T. D. 2802. above date to the Secretary of the Treasury, Divi- sion of Loans and Currency. (Signed) Collector. (Use separate schedule for each issue of bonds. Knter each bond of such issue separately.) Serial No. Name of registered owner. Date of death of registered owner. Face value. Accrued interest. Total (amount for which accepted for taxes). Date ac- cepted by collector. Total. 338 FEDERAL ESTATE TAX. T. D. 2802. Treasury Department, l.oans and currency, Form L. & C. 122. Treasury Department, Office of the Secretary, Division of Loans and Currency, Washington, , 19. . The Treasurer of the United States. Sir: You are advised that the attached bond. ., registered in the name of received by the collector of internal revenue, district of , in payment of estate or in- heritance taxes on the estate of said registered owner, have been examined and found to be duly assigned to the Secretary of the Treasury for re- demption in payment of estate (or inheritance) taxes, and to be receivable in payment of such taxes at the values shown in the following table : Serial No. Description of issue. Face value. Accrued interest. Total value for payment of tax. TKKASUKY DKCISloNS. 339 T. D. 2878. (Bonds of only one owner on each form. Bach bond must be entered separately.) Total $ Respectfully, Chief Division of Loans and Currency. (T. D. 2878.) Receipt of Liberty bonds for estate or inheritance taxes. Treasury Department, Office of Commissioner of Ixtkrnal Revenue, Washington, I). 0. To collectors of internal revenue and others con- cerned : Referring to T. D. 2705, dated April 23, 1918, de- partment circular No. 132, dated January 30, 1919, and T. D. 2802, dated March 12, 1919, as to the receipt of Liberty bonds for estate or inheritance taxes, the date of original subscription or the date of the bonds, whichever date shall be later in time, shall be deemed the date of acquisition in cases where the bonds are acquired by original subscrip- tion, provided that payment in full on the sub scription be completed and the bonds delivered thereon. Daniel C. Roper, Commissioner of Internal Revenue. 340 FEDERAL ESTATE TAX. T. D. 2898. Approved July 2, 1919: L. S. Rowe, Acting Secretary of the Treasury. (T. D. 2898.) Receipt of Liberty bonds for estate or inheritance taxes. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C. To collectors of internal revenue and others con- cerned: Referring to T. D. 2705, dated April 23, 1918, department circular No. 132, dated January 30, 1919, and T. D. 2802, dated March 12, 1919, as to the receipt of Liberty bonds for estate or inherit- ance taxes, in the case of the acquisition of bonds by conversion of 4 per cent bonds of the first Liberty loan converted or of the second Liberty loan pre- viously owned; pursuant to the extension of the conversion privilege made by Treasury Department circular No. 137, dated March 7, 1919, as supple- mented June 10, 1919, the date from which the bonds issued upon such conversion bear interest at the rate of 4*4 per cent per annum, and not the date of presentation of the 4 per cent bonds for con- version, will be deemed the date of acquisition for TREASURY DECISIONS. 341 T. D. 2904. the purpose of reckoning the required period of ownership. Daniel C. Roper, Commissioner of Internal Revenue. Approved July 24, 1919: Carter Glass: Secretary of the Treasury. (T. D. 2904) Receipt of 4% per cent Victory notes for estate or inheritance taxes. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C. To collectors of internal revenue and others con- cerned: Referring to Treasury Department circular No. 151, dated June 24, 1919, as to the receipt of 4% per cent Victory notes for estate or inheritance taxes, the date of original subscription, or the date of the notes, whichever date shall be later in time, shall be deemed the date of acquisition in cases where the notes are acquired by original subscrip- tion, provided that payment in full on the sub- scription be completed and the notes delivered thereon. Daniel C. Roper, Commissioner of Internal Revenue. 342 FEDERAL ESTATE TAX. T. D. 2905. Approved July 31, 1919: Carter Glass: Secretary of the Treasury. (T. D. 2905.) Estate tax. Receipt of 4% per cent Victory notes for estate or inheritance taxes. Treasury Department, Office of Commissioner of Internal Revenue, Washington, D. C. To collectors of internal revenue and others con- cerned: The appended department circular No. 151, issued under date of June 24, 1919, with reference to the receipt of 4% per cent Victory notes in pay- ment of estate or inheritance taxes, and supple- menting department circular No. 132, dated January 30, 1919 (T. D. 2802), as to receipt of Liberty bonds for estate or inheritance taxes, is published for the information of internal-revenue officers and others concerned. This decision is supplementary to article 91 of regulations No. 37, revised, 1919. Daniel C. Roper, Commissioner of Internal Revenue. Approved July 31, 1919: Carter Glass, Secretary of the Treasury. TREASUKY DECISIONS. 343 T. D. 2905. RECEIPT OF 4% PER CENT VICTORY NOTES FOR ESTATE "1: INHERITANCE TAXES. (1) Any of the Victory Liberty loan 4% per cenl convertible gold notes of 1922-23, hereinafter called 4% per cent Victory notes, which have been owned by any person continuously for at least six months prior to the date of his death, and which upon such date constitute part of his estate, shall be receivable by the United States at par and accrued interest in payment of any estate or inheritance taxes imposed by the United States, under or by virtue of any present or future law, upon such estate or the in- heritance thereof, in accordance with the rules and regulations prescribed by the Secretary of the Treasury herein and in Treasury Department cir- cular No. 132, dated January 30, 1919, the provisions of which circular are hereby extended, subject to the provisions hereof, to such 4% per cent Victory notes. (The 4% per cent Victory notes are, of course, not yet receivable in payment of such taxes. The 3% per cent Victory notes are not, under exist ing law, receivable in payment of such taxes.) (2) The word "bond" or "bonds," where it appears in said circular, shall be deemed, subject to the provisions hereof, to include ¥Y\ per cent Victory notes; provided, however, that the accrued interest to the date of reeeipt for taxes will be determined in the case of both cupon and registered 4% per cent Victory notes in the manner prescribed by the in- terest table hereto attached (Form L. & C. 226) and 344 FEDERAL ESTATE TAX. T. D. 2905. not in the manner prescribed by the interest table (b) attached to said circular. Internal-revenue Forms 760, 761, and 762, Form L. & C. 122, and tele- graph Form (e) attached to said circular shall be used in connection with 4 3 /4 per cent Victory notes, the word notes being substituted for the word bonds wherever it appears. (3) The transfer books for registered 4% per cent Victory notes will be closed from the close of business May 15 to the opening of business June 16, and from the close of business November 15 to the opening of business December 16, in each of the years 1920, 1921, 1922, and from the close of busi- ness on April 20, 1923. The registered notes have coupons attached thereto for interest payable December 15, 1919, and the transfer books will there- fore not be closed during the year 1919. The coupons maturing December 15, 1919, must be attached to registered notes received in payment of taxes before December 15, 1919. (4) The Secretary of the Treasury may amend or withdraw the foregoing rules and regulations in whole or in part at any time. Carter Glass, Secretary of the Treasury. TREASURY DECISIONS. 345 T. D. 2905. Treasury Department, division of loans and cubbency, Form L. & C. 226. Victory Liberty Loan. Interest table for 4% per cent Victory notes received for estate or inheritance taxes. [Prepared by Government actuary.] Note. — Interest on Victory notes is computed on actual day's basis within the interest period. For any given interest computation, the appropriate column to be used may be determined from the fol- lowing : NUMBER OF DAYS IN EACH HALF YEAR. Half year ending the loth day of — Regular years — Days Leap years — Days June 182 June 183 December 183 December 183 346 FEDERAL ESTATE TAX. T. D. 2905. Number of days 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. Interest on $100 at 4% per cent per annum, payable semiannually (2% per cent per half year). Half vear of 182 days. Half year of 183 days. $0.0130495 $0.0129781 .0260989 .0259563 .0391484 .0389344 .0521978 .0519126 .0652473 .0648907 .0782967 .0913462 .1043956 .1174451 .1304945 .1435440 .1565934 .1696429 .1826923 .1957418 .2087912 .2218407 .2348901 .2479396 .2609890 .0778689 .0908470 .1038251 I 38. .1168033 .1297814 .1427596 .1557377 .1687158 .1816940 .1946721 .2076503 .2206284 .2336066 .2465847 2740385 .2725416 2870879 .2855191 3001374 .2984973 3131868 .3114754 3262363 .3244536 3392857 .3374317 3523352 .3504098 3653846 .3633880 3784341 .3763661 3914835 .3893443 Number of davs 31. 32. 33. 34. 35. 39. 40. 41. 42. 43. 14. 45. 46. 47. 48. 49. .2595628 50 51. 52. 53. 54. 55. 56. 57. 58. 59 . 60. Interest on $100 at 4% per cent per annum, payable semiannually (2% per cent per half year). Half year of 182 days. $0.4045330 .4175824 .4306319 .4436813 .4567308 .4597802 .4828297 .4058791 .5089286 .5219780 .5350275 .5480769 .5611264 .5741758 .5872253 .6002747 .6133242 .6263736 .6494231 .6524725 .6655220 .6785714 .6916209 .7046703 .7177198 .7307692 .7438187 .7568681 .7699176 .7829670 Half year of 183 days. $0.4023224 .4153005 .4282787 .4412568 .4542350 .4672131 .4801913 .4931694 .5061475 .5191257 .5321038 .5450820 .5580601 .5710382 .5840164 .5969945 .6099727 .6229508 .6359290 .6489071 .6618852 .6748634 .6878415 .7008197 .7137978 .7267760 .7397541 .7527322 .7657104 .7786885 TREASURY DECISIONS. 347 T. D. 2905. Number of days Interest on $100 at 4% per cent per annum, payable semiannually (2% per cent per half year). Half rear of 182 days. Half year of 183 dayB. 61 $0.7960165 $0.7916667 62 8090659 .8046448 63 8221154 -.8176230 64 8351548 .8306011 65 8482143 .8435792 66 8612637 .8565574 67 8743132 .8695355 68 8873626 .8825137 69 9004121 .8954918 70 9134615 .9084699 71 9265110 .9214481 72 9395604 .9344262 73 9526099 .9474044 74 9656593 .9603825 75 9787088 .9733607 76 9917582 .9863388 77 1.0048077 .9993169 78 1.0178571 1.0122951 79 1.0309066 1.0252732 80 1.0439560 1.0382514 81 1.0570055 1.0512295 82 1.0700549 1.0642077 83 1.0831044 1.0/71858 84 1.0961538 1.0901639 85 1.1092033 1.1031421 86 1.1222527 1.1161202 87 1.1353022 1.1290984 88 1.1483516 1.1420765 89 1.1614011 1.1550546 90 1.1744505 1.1680328 [nteresl on $100 at 4% per cent per annum, payable semiannually (2 :t s per cenl per half year). Number of f tlie return such supple- mental data and statements as may be necessary to substantiate the return and establish the correct tax. In the case of the estate of a nonresident, there should be filed — (1) Certified copy of will, if decedent died testate, or of each will if decedent left more than one, to govern in different jurisdictions. (2) A certified copy of inventory of the complete gross estate, whether situated within or without the United .States. Separate seh<>dules should be made for property within and without the Inited States respectively. (3) If any deduction is claimed, a certified copy of schedule of debta and expenses allowed. 7. Thi9 form consists of cover sheets, general infomation sheet, and thirteen schedules. Care should be taken to see that the return is filed complete and that all schedules are included in the proper order. The inventory of the gross estate must be set forth upon the schedules pro- vided, and may not be attached in the form of an exhibit. 8. The questions asked under each schedule should bo specifically answered, and if the decedent owned no property of any class specified under the schedule, the word "None" should be written across the schedule. 9. If there is not sufficient space for all entries under any schedule, use additional sheets of the same size, numbering them consecutively as follows: Schedule A-l, A-2. etc., and insert them in the proper order in the return. 10. Any property owned jointly or as tenants in the entirety, should be en- tered under the schedule for the particular kind of property involved, with a statement of the origin, nature and extent of the interest. Jointly owned real estate, for example, should be entered on Schedule A. 11. Where decedent died subsequent to February 24, 1919, property identi- fied as received from an estate taxed within five years, and subsequent to October 3, 1917, or identified as exchanged for such property, must be en- tered in Schedule G exclusively and not under any other schedule, whether real estate or other property. 12. Further instructions will bo found under each schedule. Returns not in accordance with the instructions upon this form will not be accepted. Estate of District of General Information Sheet. » The information called for on this page is necessary for purposes of record and verification. Fill out all blanks carefully. The name of the decedent's legal heirs and next of kin required whether the decedent left a will or not. Tf the will names more than ten, only the names of the ten principal beneficiaries are required. State whether decedent died testate or intestate ( Answer. ) Permanent residence at time of death Actual place of death Age at death Business or employment Business address HEIRS AT LAW, LEGATEES, AM) BENKFIOARIES. Name. Relationship. Address. (If more space is needed, insert additional sheets of the same size.) 3G2 Fedekal, Estate Tax. Estate op District or Schedule A. Real Estate. INSTRUCTIONS. Real estate should be so described that it may be readily located. The legal description is not required unless necessary to show the exact location. The character of the buildings should be stated and the character and area of unimproved land. For location, such details as the following may be necessary : City or town property. — Street and number, ward, map or subdivision, block and lot, etc. Bural property. — County, township, range, block and lot, street, landmarks, etc. If any item of real estate is subject to mortgage, the unpaid balance of the mortgage should be shown under " Description." The full value of the property and not the equity must be extended in the value column. The mort- gage must be deducted under Schedule J of this return. All rents accrued and unpaid should be apportioned to the date of death whether due at that time or not. For further instructions see Article 13 et seq., Regulations No. 37, Revised, 1919. Did the decedent, at the time of death, own any real estate? (Answer ' ' Yea" or " No.") Assessed Actual value for value on year of day of Item decedent's decedent's Accrued No. Description of real estate. death. death. rents. Total. Grand total (If more space is needed, insert additional sheets of same size.) Estate or District or Schedule B. Stocks and Bonds. instructions. Give a complete and adequate description of all securities, as follows: Stocks. — State the number of shares, exact title of corporation, common or preferred, par value, and quotation at whicli returned. If a listed security, state principal exchange upon which sold. If unlisted, show the address of the issuing company. Examples: 10 shares American Car & Foundry Co., preferred, par $100, at 98, New York Exchange. 10 shares Eagle Manufacturing Co., Red Bank., N. J., com- mon, par $25, at 30, unlisted. Forms. 3C3 Bonds. — State quantity and denomination, exact title, kind of bond, inl rate, and due dates. State the exchange upon which lintel or the address of company, if unlisted. Example: Ten $1,000 Baltimore & Ohio Railway Co. first mortgage 4 per cent registered 50-year gold bonds, due 1948, January, April, July, ami October, at 96, New York Exehi Listed stocks and bonds should bo returned at the mean between the high and low sale prices on the- day of death; if there was no sale on the day of death, the nearest sale price, either before or after death, and within a reasonable period thereof, should bo. taken. Unlisted securities which are actively dealt in should bo appraised upon tln> basis of last sales prior to death. The source of the quotation should be stated. Inactive stock and stock in close corporations should bo appraised upon tho basis of net assets of the company at the time of death and its earning capacity during the five preceding years. If such stock forms a material part of tho estate there must be submitted copies of statement of assets and liabilities as of tho date of death and for each of tho five years preceding death, and a state- ment of net earnings per year for the same period. Securities returned as of no value, nominal value, or obsolete should be listed last, and the address of the company and tho State and date of incorporation should be stated, if obtainable from tho certificate. Copies of correspondence or statements of reasons for return at no value should be retained for inspection. Interest on bonds should be apportioned to the death computed upon the basis of 3G0 days to the year and returned in interest column. Dividends upon stock declared prior todeath. and payable after date of death, must bo re- turned separately unless reflected in the price at which the stock is returned. In nonresident estates the actual depository on date of death on all bonds should be shown. For further instructions see Article 15 et seq., Regulations No. 37, Revised, 1919. Did the decedent own any stocks or bonds? (Answer " Yes " or " No.") Item Value on Interest or No. Description. day of death. dividends. Total $. Grand total (If more space is needed, insert additional sheets of same size.) Estate or District of . Schedule C. Mortgages, Notes, Cash, and Insurance. INSTRUCTIONS. The four classes of property on this schedule should bo listed separately in the order given. Mortgages. — State (1) face value and unpaid balance, (2) date of mortgage, (3) name of maker, (4) property mortgaged, (5) interest dates and rate of interest. For example: Bond and mortgage for $5,000, unpaid balance $5,000; dated January 1, 1910, John Doe to Richard Roe; premises 22 Clinton St., 3G4 Federal Estate Tax. Newark, N. J. ; interest payable at 6 per cent per annum January 1 and Jury 1 ; interest paid to January 1, 1912. Notes, promissory. — Give similar data. Cash in possession. — List separately from bank deposits. Cash in bank. — Name bank and amount in each bank and give serial number of account. Include accrued interest in income column, or indicate if included in total on deposit. Insurance. — The proceeds of all life insurance to whomsoever payable must be returned regardless of value. Insurance payable to executor must be returned first. State (1) name of company, (2) number of policy, (3) name of person receiving insurance. Include full amount received. Important. — If there is insurance payable to beneficiaries other than the executor, deduction may be taken at bottom of this page equal to the amount returned for such insurance, but not exceeding $40,000. For further instructions see Article 34 et seq., ^Regulations No. 37, Eevised, 1919. 1. Did the decedent, at the time of his death, own any mortgages, notes, or cash? (Answer " Yes " or " No.") 2. Was any insurance payable on life of decedent to executor? (Answer 11 Yes " or " No.") 3. "Was any insurance payable on life of decedent to beneficiaries other than executor? (Answer ' ' Yes " or " No. ") Income Item. Value on accrued to No. Description. day of death, date of death. Less amount of insurance payable to ben- eficiaries other than the executor not in excess of $40,000 Total taxable • • * • Grand total (If more space is needed, insert additional sheets of same size.) Estate of District of ^. .... Schedule D. Other Miscellaneous Property. instructions. Under this schedule include all items of gross estate not returned under another schedule, including the following: Debts due the decedent; interests in business; claims, rights, royalties, and pensions; leases^ judgments, choses in action, shares in estates of decedents or trust funds; transfer value of fire and other protective insurance; household goods and personal effects, including wearing apparel; farm products and growing crops; live stock, automobiles, etc When an interest in a copartnership or unincorporated business is returned, submit in duplicate statement of assets and liabilities as of date of death and for the five years preceding death, and statement of the net earnings for th* same five years. Good will must be accounted for. In listing automobiles give make, model, and year. Forms. 365 Did the decedent, at the time of his death, own any interest in a copartnership or unincorporated business? (Answer " Yes " or " No.") Did the decedent, at the time of his death, own any miscellaneous property not returnable under any other schedule? (Answer ' ' Yes " or " No. ") Item Value on Accrued No. Description. day of death. income. Total. Grand total (If more space is needed, insert additional sheets of same size.) Ectate or District of : Schedule E. Transfers. INSTRUCTIONS. All gifts and transfers, including trusts, of a material part of the estate, made or executed by the decedent within two years prior to the date of death, other than by a bona fide sale, for a fair consideration in money or money 's worth, must be returned under this schedule and the value of the property shown in the first column. The value must also be extended into the second column for inclusion in the gross estate unless the executor has clear evidence to show that the transfers in question were not in fact made in contemplation of death. All gifts and transfers made in contemplation of death or to take effect at or after death without such consideration, are taxable and must be included in the gross estate regardless of the date of transfer. All transfers of a material part of the decedent's estate made more than two years prior to death must be returned under this schedule, but the value need not be extended into the sec- ond column if the executor desires to contend that the transfers were not made in contemplation of death. In all cases where a transfer or gift is listed under this schedule, but the value not e«tended into the second column for inclusion in the gross estate, the executor is required to submit as a part of the return documentary evidence in the form of affidavits fully setting forth all the facts and circumstances indi- cating the intent of the decedent in making the transfer. Where the transfer was effected by deed of trust, copy of such instrument should be filed in duplicate. Make full entry, giving name of transferee, date and form of transfer, description of property, and value at time of death. For further instructions see Article 22 et seq., Regulations No. 37, Revised, 1919. 1. Did the decedent, during the period within two years prior to death, make any transfer of a material portion of his estate in the nature of a final disposition or distribution thereof without a fair consideration in money or money's worth? (Answer " Yes " or " No.") 2. Did the decedent, at any time prior to two years before his death, make any transfer or create any trust in contemplation of or intended to take effect at or after death without consideration? (Answer " Yes " or " No.") 24 3G6 Federal, Estate Tax. Did the decedent, at any time, make a transfer of a material portion of hia estate without consideration, but not believed to be in contemplation of death or intended to take effect at or after death? (Answer " Yes " or No.") What trusts, if any, created by the decedent, were in existence at the time of his death ? Item No Details of transfer. Value on day of death. Value to be included in gross estate. Total. Grand total | $ . . . (If more space is needed, insert additional sheets of same size.) Estate or District of Schedule F. Powers of Appointment. INSTRUCTIONS. Property passing under a general power of appointment exercised in the decedent's will must be returned. If the decedent exercised a general power by deed, the property must be included in the gross estate if the deed was made in contemplation of death or intended to take effect at or after death, except where executed for a fair consideration in money or money 's worth. Certified copy, in duplicate, of the will or deed conferring the power upon the decedent, and of the instrument by which the power was exercised, must be filed with the return. Property passing under the exercise of a power of appointment should not be listed under any other schedule. For further instructions see Article 30 et seq., Regulations No. 37, Revised, 1919. 1. Did the decedent, at any time, by will or otherwise, transfer property by the exercise of a general power of appointment? (Answer "Yes" or " No.") 2. Did the decedent, at any time, by will or otherwise, exercise a limited power of apointment? (Answer "Yes" or "No.") .... Item No. Description and details. Value on day of death. Accrued income. Total. Grand total (If more space is needed, insert additional sheets of same size.) FoBM8. 307 S6TATK Or District or Schedule G. Property Identified as Taxed Within 5 Years. (Taxed under Act of October 3, 1917, or Revenue Act of 1918.) INSTRUCTIONS. Before executing this schedule read carefully Articles 50 et seq. and 62, wider Kegulations No. 37, Revised, 1919. Property identified as received from an estate taxed within five years, or acquired in exchange for such property, must be included in this schedule and deduction taken under Schedule K. In order to be entitled to this exemption, the first decedent must have died subsequent to October 3, 1917, and the second decedent must have died on or after February 25, 1919. The exemption is lim- ited to the identical property received or property identified as acquired by first exchange of such property. No exemption is permitted for property acquired by a second or subsequent exchange. If property identified as acquired by first exchange is listed, it must be listed in such manner as to indicate that fact and to show the original property /eceived from the first estate. If property is acquired by exchange, the full value of the property must be entered in this schedule and carried forward to the recapitulation of the gross estate, even though the present decedent gave additional valuable consideratiou over and above the value of the property given in the exchange. In such cases there should be deducted in the space provided below the proportion of the present value of the property received in exchange that the additional consid- eration bore to the entire consideration given. For example: An item of property valued at $10,000 is exchanged for an item of property valued at $15,000, $5,000 additional being given by the decedent. The full value of the property received in exchange should be listed in this schedule, but one-third of the present value should be deducted in the space below before the total is carried forward to Schedule K as a deduction. Unless property can be clearly identified, the deduction can not be taken. The burden of proof rests upon the person claiming the deduction. If property of this nature has been received from more than one estate, give separate statements for each estate, repeating the heading given below : Estate or Prior Decedent. X;ime of decedent Date of death Residence at time of death Name and address of administrator or executor Return filed with collector at Item No. Description of property. Value on day of death. Accrued income. Total to be included in the gross estate Less proportion of present value of prop- erty acquired by exchange representing proportion of additional consideration given (see above) Total to be taken as deduction (see Schedule K ) I (If more space is needed, insert additional sheets of same size.) :?08 Federal Estate Tax. Estate of District of Schedule H. Funeral Expenses and Administration Expenses. INSTRUCTIONS. Funeral expenses and miscellaneous administration expenses should be item- ized. Give name of creditor and exact nature of expense. Preserve all vouchers and receipts for inspection. No deduction may be taken upon the basis of a vague or uncertain estimate, but a close estimate is deductible. Where the amount is estimated, indicate that fact. Executors' or administrators' commissions may be estimated, provided that the commissions will be awarded by the court of probate jurisdiction or allowed in a probate account and will be paid. Attorneys' fees should be entered in the exact amount paid or to be paid. In the absence of an award by the court, this item is not deductible in these States where the fee is a charge against the executor and not against the estate. Estate, legacy, succession, and inheritance taxes, a»d taxes on income accrued after death, are not deductible. For further instructions see Articles 37 et seq. and 59 et seq., Regulations No. 37, Revised, 1919. Item No. Amount of item. Totals. Funeral expenses Total funeral expenses Executor 's commission Attorney 's fee Miscellaneous administration expenses. . . Total miscellaneous expenses Total. (If more space is needed, insert additional sheets of same size.) Estate of District of Schedule I. Debts of Decedent. INSTKUCTIONS. Itemize fully below all valid debts of the decedent due and owing at the time of death. Preserve all vouchers for inspection. If deduction is claimed for a debt, the amount of which is disputed or the subject of litigation, only such amount may be deducted as the estate concedes to be a valid claim. The fact of litigation should be stated. If any debt has been canceled by the creditor, no deduction may be taken. Enter notes unsecured by mortgage under this heading and give full details, including name of payee, face and unpaid balance, date and term of note, interest rates and date to which interest was paid prior to death. Care must be taken to state the exact nature of the claim as well as the name of the creditor. If the claim is for services rendered over a period of time, Forms. 309 etate the period covered by the claim. Example: January 1, 1919, Edison Elec- tric Illuminating Company, for electric service during December, 1918, $25. Item No. Date of claim. Creditor and nature of claim. Amount. I $ Total I $ . . . (If more space is needed, insert additional sheets of same size. I Estate of District of Schedule J. Mortgages, Net Losses, and Support of Dependents. instructions. Mortgages. — Give location of property, name of mortgagee, date and term of mortgage, amount and unpaid balance, rate of interest, date to which interest was paid prior to death. Enter in second column accrued interest apportioned to date of death. Unsecured no + es should be listed under Schedule I. Losses. — Losses are strictly limited to net losses arising from fire, storm, shipwreck, or other casualty, or from theft to the extent that such losses are not compensated for by insurance. Losses must occur during the settlement of the estate. Depreciation in the value of securities does not constitute a deductible loss. In listing losses, specify nature. If insurance was received on account of loss, state the amount collected. Support of dependents. — No deduction may be taken under this item unless the local law permits the allowance, the local court has made a decree specifying the amount thereof, and in fact the allowance was reasonably required for the support of the person in question. In listing this item, give the names of the dependents and their relationship. For further instructions see Article 47 et seq. and 61, Eegulations No. 37, Eevised, 1919. Item No Mortgages. Amount. Accrued interest. Total Grand total (If more space is needed, insert additional sheets of same size.) Item No Net losses during administration. Amount. Total (If more space is needed, insert additional sheets of same size.) 370 Item No Federal Estate Tax. Support of dependents. Amount. Total (If more space is needed, insert additional sheets of same size.) Estate op District op Schedule E. Property Identified as Taxed Within Five Years. INSTRUCTIONS. Enter in this schedule, by separate estates if more than one estate is involved, the total amount deductible as representing property received from an estate taxed within five years or acquired by exchange for property so received, as set forth in Schedule G. Important. — Care must be observed to enter in this schedule only the present value of the property actually received, or if such property has been exchanged for other property, the present value of such other property. Where the exchange was equal, the full present value should be entered. Where the decedent in acquiring such other property gave additional consideration, there should be deducted such proportion of the present value of the property acquired in exchange as the value of the original property bore to the entire consideration given. For further instructions see Article 50 et seq. and 62, Regulations No. 37, Revised, 1919. Item Name of No. prior decedent. Address. Date of death. Amount. $ Total. (If more space is needed, insert additional sheets of same size.) Charitable, Public, and Similar Gifts and Bequests. When a deduction is claimed under this schedule, there must be submitted (1) certified copy of will or instrument of gift, (2) receipt or statement show- ing payment or acceptance, (3) affidavit of executor, showing whether will has been or will be contested, (4) such other document or evidence as may be specified by the Bureau. For further instructions see Artic'e 53 et seq. and 63, Regulations No. 37, Revised, 1919. Item Character of No. Name and address of beneficiary. institution. Amount. Total (If more space is needed, insert additional sheets of same size.) Forms. 371 Sched- ule. A B C D E P O Schedule L. Recapitulation, Bates of Tax and Tax Due, and Jurat. Gross estate. Value. Real estate Stocks and bonds Mortgages, notes, cash, and insurance Other miscellaneous property Transfers Powers of appointment Property identified as taxed within five years. Total gross estate $ *. Sched- ule. H K Deductions. Amount. Tuneral expenses Administration expenses : Executor 's fee Attorney 's fee Miscellaneous Debts of decedent Unpaid mortgages Net losses during settlement Support of dependents Property identified as taxed within five years. Charitable, public, and similar bequests Specific exemption (resident decedents only) . Total deductions Total gross estate (within U. S. in nonresident estates) Total deductions (for nonresident, see Schedule M) . . Net estate for tax | $ Schedule M. Deductions — Estate of Nonresident. If the decedent was not a resident of the United States, Hawaii, or no deductions whatever are allowable unless the value of that part gross estate situated outside of the United States. Hawaii or Ala-k i forth. If it be desired to claim deductions, execute Schedules H-I-J compute the deductions allowable as follows; 1. Value of gross estate in United States (Schedules A-B-C-D-E-F-G) $. 2. Value of gross estate outside of the United States (attach itemized schedule showing values) 3. Value of total gross estate wherever situated ( 1 plus 2) 4. Gross deductions under Schedules H-I-J 5. Net deductions under Schedules IT-T-.T (that propor- tion of 4 that 1 bears to 3, not exceeding 10% of 1 ) 6. Schedule K (within the United States) 7. Total deductions allowable (5 plus 6) 8. Net estate taxable ( 1 minus 7 ) Alaska, of his be set K and 372 Federal Estate Tax. Rates and Tax Due. Date of deatl (Date.) O) (2) (3) Sept. 9, Mar. 3, Oct. 4, (4) 1916, to 1917, to 1917, to On and Mar. 2, Oct. 3, Feb. 24, after 1917, 1917, 1919, Feb. 25, Net estate. inclusive, inclusive, inclusive. 1919. Exceed- Not ex- Amount Eate Kate Eate Bate Amount ing — ceeding — of block. per cent. per cent. per cent. per cent. of tax. $50,000 $50,000 1 1% 2 1 1 $ $50,000 150,000 100,000 o 3 4 2 150,000 250,000 100,000 3 4% 6 3 250,000 450,000 200,000 4 6 8 4 450,000 750,000 300,000 5 7% 10 6 750,000 1,000,000 250,000 5 7% 10 8 1,000,000 1,500,000 500,000 6 9 12 10 1,500,000 2,000,000 500,000 6 9 12 12 2,000,000 3,000,000 1,000,000 7 10% 14 14 3,000,000 4,000,000 1,000,000 8 12 16 16 4,000,000 5,000,000 1,000,000 9 13% 18 18 5,000,000 6,000,000 1,000,000 10 15 20 20 6,000,000 7,000,000 1,000,000 10 15 20 20 7,000,000 8,000,000 1,000,000 10 15 20 20 8,000,000 9,000,000 1,000,000 10 15 22 22 9,000,000 10,000,000 1,000,000 10 15 22 1 25 22 10,000,000 I........ 1 io 1 15 25 Total $ Jurat for Executors and Administrators. We — I the undersigned execut administrat , do hereby solemnly swear — affirm that on the day of , 19 , the court at granted letters testamentary or of administration upon the estate of the foregoing named decedent to ; that have made diligent search for property of every kind left by the decedent; that have carefully read the instructions printed on this form; that hereon is listed all of the property, tangible and intangible, forming the gross estate of the decedent so far as it has come to knowledge and information ; that have no knowledge of any transfers made or trusts created in contemplation of death or to take effect at or after death, except as stated on Schedule E ; that to the best of knowledge, information, and belief the value shown for each item of property listed hereon was the actual and full value of the same at the time of decedent's death; and that the debts, expenses, and charges entered hereon as deductions from the gross estate are correct and legally allowable. Jurat for Beneficiaries, Custodians, and Trustees. I -We the undersigned beneficiar Custodian — Trustee, do hereby solemnly ewear — affirm that have carefully read the instructions printed on this form ; that hereon is listed all of the property, tangible or intangible, contained in the gross estate of the decedent which has come into possession and control; that to the best of knowledge, information, and belief, the value shown for each item of property listed hereon was the actual and full Forms. 373 value of the same at the time of the decedent's death; and that the debts, expenses, and charges entered hereon as deductions from the gross estate are correct and legally allowable. (Name) (Address) (Name) (Address) (Name) (Address) Subsoribed and sworn to before me, at this day of , 19.... Notary Public — Deputy Collector. Note. — If there is more than one executor or administrator all must sign and swear to the return. Attorney 'a name and address (The foregoing forms are taken from the Second Edition of Gleason and Otis on Inheritance Taxation, with certain changes due to subsequent revision by the Government.) SIXTY-DAY NOTICE — ESTATE OF NONRESIDENT.* To be filed in duplicate by executor or person in possession of property. (Observe instructions on reverse side.) Name of decedent Date of death Place of death Residence 19... Commissioner of Internal Revenue, Estate Tax Division, Treasury Department, Washington, D. C. 1. I , pursuant to the requirements of section 404 of the Revenue Act of 1918, approved February 24, 1919, hereby give notice that I had actual or constructive possession of property or an interest in property which constituted a part of the gross estate situated in the United States of the above-named decedent on date of death, or I came into possession of such property on the day of , 19. . . . The description and approximate value of such property at tho time of death were as follows: Description. Value. (Attach schedule if more space is required.) •This is Form 705 and contains these words of identification: "Treasury Department, U. S. Internal Revenue, Estate Tax, Form 705, Revised July. 1919." 374 Federal Estate Tax. I also have information that property or an interest in property situated in the United States belonging to said decedent was in the possession of others, as shown below: Name of possessor. Address. Description of property. 2. To the best of my knowledge the value of the gross estate of the de- cedent situated in the United States is $ and the approximate values of the various classes of property comprising such gross estate at date of death were as follows: Real estate Stocks and bonds Miscellaneous personalty Property transferred (see Instructions 4 [c] ) Property owned jointly Life insurance for benefit of estate Other life insurance (Estimated values will be accepted.) Total That the names and addresses of the legal representatives of the estate and their attorneys insofar as known to me are: Executor or *, In United States Administrator I Outside United States Name. Address. ... (In United States Attorneys ( 0utside Un i te d States. I hebeby certify that I have carefully read the instructions on the reverse side of this form and that all the statements made herein are correct to the best of my knowledge and belief. Signature Designation (See paragraph 2 of instructions on back.) Address Instructions. 1. Estates subject to notice. — This notice must be filed for the estates of all nonresident decedents having any gross estate as defined by the law, con- sisting of property situated in the United States, which includes the States, the Territories of Alaska and Hawaii, and the District of Columbia. 2. Persons required to file notice and time of filing, — This notice must be filed by all persons having possession of any property, situated within the United States, which forms part of the gross estnte of a nonresident decedent. The notice must be filed within sixty days after receiving information of the decedent's death, or, where possession is acquired after such death, within sixty days after taking possession. This requirement applies to agents, bankers, beneficiaries, brokers, custodians, debtors, factors, fiduciaries, guar- dians, joint owners, partners, safe-depo3it companies, transferees, warehouse companies, and all other persons having possession of property constituting part of the gross estate of the decedent. 3. Place of filing — This notice must be filed with the Commissioner of Internal Revenue, Washington, D. C Forms. 375 4. Qrosa estate. — The gross estate, as defined by section 402 of the Revenue Act of 1918. approved February 24, 1919, includes: (a) Property which after decedent's death is subject to payment of charges, to expenses of administration, and to distribution as a part of his estate. (b) Interest of surviving spouse, as dower, courtesy, or estate in lieu thereof. (c) Property transferred or placed in trust in contemplation of death or to take effect in possession or enjoyment at or after death. (d) Property held jointly or as tenants in the entirety. (e) Property passing under a general power of appointment. (f) (1) Insurance payable to a decedent's estate, his personal repre- sentatives, or to any person for the benefit of the estate. (2) Insurance payable to beneficiaries in excess of $40,000. 6. Property situated in the TJbiited States. — The notice is required only with reference to property situated in the United States. This includes all property, whether real or personal, which is actually situated in this country, including bonds, money on deposit in domestic banks, and debts due by domestic creditors. It also includes stock in domestic corporations, wherever the certificates may be kept, and life insurance payable by domestic insur- ance companies. 6. Liability for tax. — Any person in possession of property winch constitutes a part of the estate of a nonresident decedent may be held personally liable for the payment of the estate tax in the event that the property is removed from the jurisdiction of the United States before the tax has been satisfied, or provision made for its payment. 7. Lien. — The tax is a lien for ten years upon the entire gross estate, ex- cept such part of it as is used for the payment of charges against the estate and expenses of its administration allowed by any court having jurisdiction. 8. Penalties. — The penalty for knowingly making any false statement in this notice is a fine not to exceed $5,000, or imprisonment, or both. Penalty for failure to file notice as required is a fine not to exceed $500, and cost of suit. 9. Delinquency. — In the event of failure to file this notice within the sixty days prescribed by law, a detailed explanation under oath should accompany the notice when filed SIXTY-DAY NOTICE FOR TRANSFER AGENTS — ESTATE OF NONRESIDENT* This notice must be filed in duplicate. (Observe instructions on reverse side.) Name of decedent Date of death Place of death if known Residence 19 ... . COMMISSIONER OF INTERNAL Pl'.VKNl i:. Estate Tax Division, Treasury Department, Washington, D. C. The undersigned, pursuant to the requirements of section 404 of the Revenue Act of 1918, approved February 24 1919, hereby gives notice that on the dav of 19 a communication was received •This is Form 714 and contains these words of identification: "Treasury Department, U. S. Internal Revenue, Estate Tax, Form 714, Revised July, 1919." 376 Federal Estate Tax. from , acting in the capacity of , whose address is , directing the transfer to whose address is the stocks or bonds listed below of the Company, a corporation organized in the United States, owned by the above- named decedent at time of death and entered on the books of such company in the name of whose address is Number. Description. Face value. (Attach schedule if more space is required.) The names and addresses of the legal representatives of the decedent's estate, insofar as known or shown by the records of this company, are: Name. Address. Executor or ^ In United States Administrator Outside United States A , . ^ In United States Attorneys { 0utside United Sta tes The undersigned has information that property owned by the decedent at the time of death was in the possession of others as shown below: Name of possessor. Address. Description. I hereby cebttfy that I have carefully read the instructions on the reverse side of this form and that all statements made herein are correct to the best of my knowledge and belief. Signature Designation Address Instructions. 1. By whom notice must be filed. — This notice must be filed by each com- pany, transfer agent, or registrar requested to make transfer of stocks or bonds issued by a corporation organized in the United States belonging at time of death to any person who died outside the United States since Sep- tember 8. 1916. The term "United States" means the States, the Territories of Alaska and Hawaii, and the District of Columbia. 2. Time of filing. — .This notice must be filed by the company, transfer agent, or registrar within 60 days after receipt of request for the transfer of securi- ties belonging to any person dying outside the United States or within 60 days of receipt of information of the death of such person. 3. Place of filing. — This notice must be filed with the Commissioner of Internal Revenue at Washington, D. C. 4. Supplemental data. — Copy of will, inventory, or other documents received with the order for transfer will assist the Bureau of Internal Revenue if submitted with this notice. Transfer of stock should not be made unless notice has been filed with the Commissioner of Internal Revenue and per- mission to make such transfer has been granted. FOKMS. 377 This summary, executed as directed, is to accompany each report of a final in- vestigation of an estate by a Revenue Agent or Collector TREASURY DEPARTMENT.* Internal Revenue Bureau — Estate Tax. Estate of i Collection District Residence Reporting officer Date of death ,19 Date of report ,19 Executor or administrator (The above data and that required in Columns I and II will be inserted by the examining officer.) Returned (Form 706). II. Recom- mended in report III. Accepted by Commis- sioner. Gboss Estates Realty Gifts and transfers Stocks and bonds Share in jointly-owned property. . . Mortgages, notes, and miscellaneous. Total Deductions : Funeral expense Administration expense: Extcutor 's fee Attorney's fee Miscellaneous Claims against estate: Mortgages Debts of decedent Net losses during administration. . . . 8upport of dependents Oother charges allowed by local law. Specific exemption TOTAT. Total Gross Estate Total Deductions . , Net Estate ♦This is Form 722 and contains these words of identification: Department, Internal Revenue Service, Form 722. "Treasury 378 Federal Estate Tax. Returned (Form 706). Not exceeding $50,000.. @ $50,000 - $150,000.. @ $150,000 - $250,000..® $250,000 - $450,000.. @ $450,000 - $1,000,000.. @ $1,000,000 - $2,000,000.. @ $2,000,000 - $3,000,000.. @ $3,000,000 - $4,000,000.. @ $4,000,000 - $5,000,000.. (5) $5,000,000 - $8,000,000.. @ $8,000,000 - $10.000,000. @ Exceeding $10,000,000. .@ Total Tax Percent. Returned . Additional . II. Recom- mended in report III. Accepted by Commis- sioner. AFFIDAVIT OF OWNERSHIP OF BONDS* State of County of ss ' : We (I), the undersigned execut , administrat , beneficiar legal representative of the estate of de- ceased, who died on , 19. . . ., do severally swear that the bond described below bearing interest at a higher rate than 4 per centum per annum was (or were) each owned by the decedent continuously for at least six months prior to the date of his (or her) death and upon such date con- stituted part of his (or her) estate, and that the following statements with respect to each such bond are true to the knowledge of deponent, to wit: Date of Date of Acquisition Face Coupon or Maturity, by Decedent. Value. Registered. I I Serial No. Description of Issue. Date of Issue. (Each bond must be entered separately.) (Address for mail.) Subscribed and sworn to before me at this of , 19 day Notary Public, Deputy Collector. *This is Form 760 and contains these words of identification: "Treasury Department, U. S. Internal Revenue, Form 760." Forms. 379 SCHEDULE OF COUPON BONDS RECEIVED BY COLLECTOR IN PAY MENT OF ESTATE OR INHERITANCE TAXES AND TRANS- MITTED TO FEDERAL RESERVE BANK.* 19.. Schedule of United States coupon bonds Liberty Loan , per cent dated , 19. ... , due 19 , received by , Collector of Internal Revenue of the district of , in payment of estate (or inheritance) taxes and transmitted on the above date to the Federal Reserve Bank of (Signed) Collector. (Use separate schedule for each Issue of bonds. issue separately.) Enter each bond of such Serial No, of Bond. Face Value Accrued Interest. Total (Amt. for which Accepted for Taxes) . Total. . Date Accepted by Collector. Federal Reserve Bank of. 19.. I hereby certify that I have examined and forwarded to the Treasurer of the United States the above-described bonds which were received from, the collector named, amounting to $ principal, and $ , accrued interest, which amounts have been charged and credited in the Treasurer's general account this day pursuant to the regulations of the Treasury Department. Cashier. SCHEDULE OF REGISTERED BONDS RECEIVED BY COLLECTOR IN PAYMENT OF ESTATE TAXES AND TRANSMITTED TO THE SECRETARY OF THE TREASURY, DIVISION OF LOANS AND CURRENCY. 19- Schedule of United States registered l>onds Liberty Loan per cent dated 19 due 19 received by , Collector of Internal Revenue of the district of , in payment of estate (or inheritance) taxes and transmitted on the above date to the Secretary of the Treasury, Division of Loans and Currency. (Signed) Collector. (Use separate schedule for each Issue of bonds. Enter each bond of such issue separately.) •This is Form 761 and contains these words of identification: "Treasury Department, U. S. Internal Revenue, Form 761." fThis is Form 762 and contains these words of identification: "Treasury Department, U. S. Internal Revenue, Form 7(32. ' ' 380 Federal Estate Tax. Date of Total Serial Name of Death of Accrued (Amt. for Date No. Registered Registered Face Value. Interest. which Accepted Owner. Owner. Accepted by Col- for Taxes ) . lector. Total REVENUE AGENT'S SUBPOENA DUCES TECUM* In the matter of the Estate of Deceased, District of i\ The Commissioner of Intebnal Revenue. To Residing at Greeting: You are hereby requirred, under section 1305 of the Revenue Ac* of 1918, to appear before the undersigned at on the day of , at o'clock in the noon, to give testimony in the matter of the above- entitled estate, and to bring with you the following books and papers: Witness my hand this day of 19- U. S. Internal Revenue Agent. ESTATE TAX DEPOSITION, t Estate of. District " The Commissioner, for the purpose of ascertaining the correctness of any return or for the purpose of making a return where none has been made, is hereby authorized, by any revenue agent or inspector designated by him for that purpose, to examine the books, papers, records, or memoranda bear- ing upon the matters required to be included in the return, and may require the attendance of the person rendering the return or of any officer or employee of such person, or the attendance of any other person having knowledge in the premises, and may take his testimony with reference to the matter re- *This is Form 789 and contains these words of identification: "Treasury Department, U. S. Internal Revenue, Estate Tax, Form 789." fThis is Form 790 and contains these words of identification: "Treasury Department, U. S. Internal Revenue, Form 790." Forms. 381 quired by law to be included in such return, with power to administer oaths to such person or persons. (Section 1305, Revenue Act of 1918, approved February 24, 1919.) Every collector, deputy collector, internal-revenue agent, and internal- revenue officer assigned to duty under an internal-revenue agent, is authorized to administer oaths and to take evidence touching any part of the administra- tion of the internal-revenue laws -with which he is charged, or where such oaths and evidence are authorized by law or regulation authorized by law to be taken." (Section 1317, Revenue Act of 1918, amending section 3165 of the Revised Statutes.) Estate Tax Deposition. of (Name of affiant.) (Address.) county of , State of being duly sworn in the matter of estate of deceased, in accordance with the provisions of the above-quoted law, and in response to the interrogatories propounded to him, deposes and says: CERTIFICATE RELEASING ESTATE TAX LIEN.* Washington, D. C, , 19 Estate of District By direction of the Commissioner of Internal Revenue, and in accordance with section 409 of the Revenue Act of 1918, I do hereby certify that the following-described property formed a part of the gross estate of the above- named decedent, subject to the Federal estate tax: And I do further certify that the estate tax with respect to this property has been fully discharged or duly provided for. wherefore and by reason whereof I do hereby issue this certificate releasing the lien of the United States on the aforesaid property, as provided by law. Deputy Commissioner. •This is Form 792 and contains these words of identification: "Treasury Department, U. S. Internal Revenue, Form 792." 25 382 Fedekal, Estate Tax. & H ti 13 3 x o u O m S4 « M « V o *3 I— I 03 e «*» 1 o ^» £ hi .0 o T3 CO o ID Oj | P Q c3 o -^ » -t^ »- 13 bD .9 a Ph CO o O 3 * H w H W H " c3 c3 ® ■21? SI'S S o H .H d « g +i x ^ o ^2 E CO 2 « d u d ^ S OOrd OhO w >d S 03 a> Forms. 383 Internal Revenue Service. Estate of .SHEET No. 1. Exhibit. .. District of. Date of death COMPARATIVE BALANCE SHEET* Name of company Address Date of organization Nature of business Par value of shares — Common, $. . Preferred, $. . Maturity date of bonds Description. No. 1. No. 2. No. 3. No. 4. No. 5. (Date) 19.. (Date) 19.. (Date) 19. . (Date) 19.. (Date) 19.. ASSETS. Current. Cash Notes receivable $ $ $ 1 1 $ $ Accounts receivable Inventories: Finished goods 1 1 Materials and work process Raw materials Supplies Accrued interest Due from officers and em- ployees Stocks and bonds of other companies. , Liberty bonds Mortgages Fixed. Land Buildings Machinery and tools Vehicles Working animals Furniture and fixtures Patents and trade-marks. . . . Miscellaneous. •This is Form 831 and contains these words of identification: "Treasury Department, Internal Revenue Service, Estate Tax Division, Form 831." 384 Federal Estate Tax. Treasury bonds. Total . LIABILITIES. Current. Notes payable Accounts payable Accrued salaries and wages. Accrued interest Fixed. Bonded debt Mortgages Reserves : For bad debts For sinking fund For depletion For depreciation of — Buildings Machinery and tools.. Vehicles Working animals Furniture and fixtures Leaseholds Patents and trade-marks Capital and Surplus. Common stock Preferred stock Surplus and undivided profits from last year Undivided profits carried to surplus this year Total. Forms. 085 Estate of SHEET No. 2 Exhibit. . . .District of. ADJUSTED BALANCE SHEET.* Name of Company Address . Description No. 5 As per Books No. 5a. Actual Value Do not write in this column. ASSETS. Current. Cash Notes receivable Accounts receivable .... Inventories: Finished goods .... Materials and work Raw materials .... Supplies Accrued interest Due from officers and employees.... Stocks and bonds of other companies* Liberty bonds* Mortgages process. Fixed. Land Buildings Machinery and tools. . . . Vehicles Working animals Furniture and fixtures . . . Leaseholds Patients and trade-marks Good will Miscellaneous Unexpired insurance Other prepaid items , Sinking fund Treasury stockt , Treasury bondst Total J This is Form 831-A and contains these words of identification: "Treasury Department. Internal Revenue Service. Estate Tax Division, Form 831-A." * Submit schedules showing description and amount of each item carried in these accounts. t Submit schedules showing number of shares, or bonds, dates acquired, prices paid, and basis of book values. 386 Federal Estate Tax. LIABILITIES. Current. Notes payable Accounts payable Accrued salaries and wages. Accrued interest Fixed. Bonded debt Mortgages Reserves : For bad debts For sinking fund For depletion For depreciation of — Buildings Machinery and tools . . . Vehicles Working animals Furniture and fixtures . Leaseholds Patents and trade-marks . Capital and surplus. Common stock Preferred stock Surplus and undivided profits from last year Undivided profits carried to surplus this year Total Forms. 387 SHEET No Exhibit Nora— Sheets 3 to 7, inclusive: A separate Analysis on this Form must be filed for each of the five years covered by the Balance Sheets shown oh Sheet 1. The five Sheets thus required are to be numbered Sheet 3. Sheet 4, Sheet 5, Sheet 6, and Sheet 7, and the number of the Balanace Sheet referred to should also be inserted by the Agent in the spaces provided, Sheet 3 re- ferring to Balance Sheet No. 1, Sheet 4 referring to Balance Sheet No. 2, etc. Estate of District of ANALYSIS OF SURPLUS.* Balance Sheet No Name of Company Address Surplus and Undivided Profits at beginning of Year 19 Add: Net income for year without deducting income and excess profits taxes paid during the year $ Other credits to surplus — Total Deduct : Income and excess profits taxes paid during the year on income of the previous year $. Additional income and excess profits taxes paid during the year on income of previous years. . Dividends paid during the year — From current income — In cash ( date ) In stock ( date ) From income of previous years — In cash ( date ) In stock ( ) Other charges to surplus — Surplus and Undivided Profits at the end of the year (as shown by Balance Sheet No ) 9 ■ 'This is Form 831-B and contains these words of identification: "Treasury Department, Internal Revenue Service, Estate Tax Division, Form 831-B." 388 Federal Estate Tax. SHEET No. 8. Exhibit Estate of , District of ANALYSIS OF SURPLUS.* Balance Sheet No. 5a. Name of Company Address Surplus and Undivided Profits at the end of the year 19 , as shown by Balance Sheet No. 5 $. Add: Adjustments by way of additions arising in connection with adjusted values shown in Balance Sheet No. 5a: Total $ . Deduct: Adjustments by way of deductions arising in connection with adjusted values shown in Balance Sheet No. 5a: Adjusted Surplus as shown by Balance Sheet No. 5a. *This is Form 831-C and contains these words of identification: "Treasury Department, Internal Revenue, Estate Tax Division, Form 831-C." Forms. 389 ■c * w S 3 o ►-1 Q E CO w CO p fclH O < § p 00 w > I— I H s o u o a <*> ©•a Net income remaining and available for distribution. e» S © © eJ •/. •- ~ ® 0j "H a ^ S 5 • »o i- 4* oj §-3,o «3 a b >> © « S •" 4) S O. oj a? a O t< t- O o C O O fi hH «©^ O ?! s © wa u. oo £S 41 u a ithou ncom profit m ► « © 00 *>> come ting exces (- o a SJ — 3 _ T3 T3 X 3 fe 4e g £ Es © <*> "Z> S 1_ O) S3 V OJ © k> a~ w a i, ta • c .2 3 * © - *"> — 00 oD oj aj" C © oo £ t, © . •" a fl -§T)£ ca- fe a» - 12 O CO .a a u oc o 390 Federal Estate Tax. w s o u o »-) fa H CO fa fa o a s p CO fa > 1—1 H § fa s o c S ». 5 3 (-' '3 ^ cS 9 i* 0) ^- > o -E c 5 a- 73 •£-* ° 'P* fa 5 S3 *■* l g| '&. >-.£ V fa i I h R hi O •« o> «*s o s3 8g ""' H tj ej 2 a *» S * o _ o w s »s "So (h 1 •*« fth fc €» ."8-d •* » .« 13 *5 fag m O cap inclu urpli ■s S — a TJ -73 S > d did i— T T3 d) <» pO >»■♦* a hH €* 0) H bo 3 e5 >H Oi C) Oi O Od (V > < IV. RECENT CHANGES IN REGULATIONS. A very recent revision of the Estate Tax Regula- tions, made in the present year, has resulted in cer- tain changes which, for convenience, are here grouped together. (1) TRANSFER OF STOCK AND PAYMENT OF INSURANCE; HOW EFFECTED ; PAYMENT OR SECURING OF TAX. The revision of 1921 adds the following new articles : Art. 75-A. Transfer of stock of nonresident decedent; how made. — Wherever a transfer agent is required to file 60-day notice as provided in Article 74, he shall not make transfer of the stock standing in the name of the decedent until there has been delivered to such collector of internal revenue as may be designated by the Commissioner the bond of the party to whom the stock is to be transferred with corporate surety in an amount to be fixed by the Commissioner, conditioned for the payment of the tax upon the transfer of the decedent's estate, not exceeding in amount the value of the stock to be transferred. Upon receipt of the 60-day notice the Commissioner will at once, upon request, fix the amount for which the bond is to be given. In lieu of the bond a deposit of the amount so fixed may be made with such collector of internal revenue as the Commissioner may designate. Where a sum of money is deposited in lieu of the bond, and it exceeds the amount of the tax as finally determined, the excess will be refunded to the person making deposit. In lieu of the provisions and restrictions hereinbefore set forth, transfer agents are authorized to make a transfer of stock standing in the [391] 392 FEDERAL ESTATE TAX. name of a nonresident decedent to the duly qualified an- cillary executor or administrator within the United States, who shall make a return on form 706, as any other executor is required by law to do, provided that such transfer agent at the time of making such transfer gives notice thereof in writing to the Commissioner of Internal Revenue. Art. 76-A. Payment of policy of life insurance taken out by resident and nonresident decedents ; how made. — Where- ever an insurance company is required to file a 60-day notice, as provided in Article 76, where the insured was a nonresident it shall not make payment of any policy or policies to a foreign executor or administrator, or to an individual beneficiary 7 , until there has been delivered to such collector of internal revenue as may be designated by the Commissioner the bond of the party to whom the insur- ance is to be paid, with corporate surety in an amount to be fixed by the Commissioner, conditioned for the payment of the tax upon the transfer of the decedent's estate, not ex- ceeding the amount of insurance payable under such policy to the executor, and the excess over $40,000 of the aggre- gate insurance payable to specific beneficiaries other than the executor or the estate of the decedent. Upon receipt of the 60-day notice the Commissioner will at once, upon request, fix the amount of the bond to be given. In lieu of such bond a deposit of the amount fixed may be made with such collector of internal revenue as the Commissioner may designate. If in lieu of the bond a sum of money is deposited, and such sum exceeds the amount of tax as finally determined, the excess will be refunded to the per- son making the deposit. In lieu of the bond or a deposit of money, where insurance is payable to a foreign executor or administrator, the insurance may be paid to ancillary executor or administrator appointed within the United States, provided that such ancillary executor or adminis- trator shall have given bond with corporate surety in an amount sufficient, in the opinion of the Commissioner, to discharge the tax liability of the estate, not exceeding the RECENT CHANGES IN REGULATIONS. 393 amount of insurance subject to be included within the gToss estate of the decedent. Wherever insurance companies are required to file a 60- day notice, as provided in Article 71, where the decedent is a resident and there is subject to be included within the decedent's gross estate any excess over $40,000 in the aggregate of insurance payable to specific beneficiaries other than the executor or the estate of the decedent, the same provisions and restrictions in regard to payment of insurance shall apply and govern insurance companies as are set forth in this article in the case of nonresidents. Where insurance companies are required to file a 60- day notice, as provided in Article 71 or in Article 76, if the decedent is a resident or nonresident, and there is an excess over $40,000 in the aggregate of all insurance pay- able to specific beneficiaries other than the executor or the estate of the decedent, insurance companies are authorized, in lieu of the provisions and restrictions hereinbefore set forth, upon consent of the beneficiaries to make payment of such insurance to such beneficiaries through the duly qualified executor or administrator within the United States or through the duly qualified ancillary executor or adminis- trator in the United States, who shall make return on form 706 of the excess over $40,000 of such insurance, if the estate be that of a nonresident, or that of a resident if there be a net estate subject to tax. (2) RESERVATION OF POWER TO CONTROL ADMINISTRATION OF TRUST. In the revision of 1921, Art. 25 reads as follows: "Property held in trust under any instrument in which the grantor has reserved a power of revocation, or any power which has that effect, constitutes a part of the gross estate of such grantor for the purposes of this tax. For example, where a father places property in trust for the 394 FEDERAL ESTATE TAX. present benefit of his son, but reserves power to revoke the trust at any time during his life, the value of the entire property transferred should be included in the gross estate." The following sentence in the revision of 1919 is omitted : "A transfer by way of trust is also taxable where the grantor reserves power to control the administration of the trust, as by reserving power to change the trustee, the trust period, the trust property, or the respective inter- ests of the beneficiaries in such property." The present intention is apparently to include only such transfers as contain what amounts, in substance, to a reserved power of revocation. (See p. 54.) (3) VALUATION OF INTEREST IN BUSINESS; GOOD WILL. The revision of 1921 treats this subject as fol- lows: "A fair appraisal as of the date of death should be made of all the assets of the business, tangible and in- tangible, and the business should be given a net worth equal to the amount which a purchaser, whether an indi- vidual or corporation, would be willing to pay therefor at a normal sale in view of the net value of the assets and the demonstrated earning capacity. Special attention should be given to fixing an adequate figure for the value of the good will of the business in all cases where the decedent has not, for a fair consideration in money or money's worth, agreed that his interest therein shall pass at his death to his surviving partner or partners." (Art. 15, par. 5.) RECENT CHANGES IN REGULATIONS. 395 The special provisions in the revision of 1919 concerning cases in which the deceased partner dis poses of his interest to the surviving partners (see pp. 101-3) are omitted. Good will is included in all cases " where the decedent has not, for a fair con- sideration in money or money's worth, agreed that his interest therein shall pass at his death to his surviving partner or partners;" but specific cases are not treated. (4) DEDUCTION OF EXECUTORS' COMMISSIONS. The present deduction provision is set out at pages 124-5. The revision of 1919 provided : "No amount may be deducted as commission in excess of that actually paid, or to be paid. Where the commis- sion has not been allowed by the probate court, it may be deducted if its amount and future allowance are reason- ably certain. In such case the executor must furnish satisfactory evidence at the time investigation is made that an account will be filed and the commission claimed. Where the executor does not intend to make any charge upon the estate for his services, or where he does not in- tend to file any account with the local court, no deduction may be claimed." (Art. 42.) The amendment of 1921 appears to abolish a dif- ference formerly made between the case of execu- tors' commissions and attorneys' fees. (See supra, pp. 128-9.) 396 FEDERAL ESTATE TAX. (5) DEDUCTION OF ATTORNEYS' FEES. The present deduction provision is set out at pages 127-8. The revision of 1919 contained the f ollowing : "Deduction may be taken for an attorney's fee for services rendered to the executor or administrator, in his official capacity, to the extent that such fees are allowed by the laws of the local jurisdiction. Fees may be de- ducted, although not allowed by the decree of court, pro- vided they are reasonable in amount, and have actually been paid, or will be paid. Where the disbursement has not been made, the executor must furnish at the time of the investigation satisfactory evidence that payment will be made, and the amount of such payment. The fees of an attorney employed by the executor to conserve the assets of the estate, to resist claims, and to defend the will may be deducted, since these are duties which the executor is required to perform. The cost of litigation instituted by the beneficiaries as to the amount of their respective interests may not be deducted, since expenses of this character are properly charges against the beneficiaries personally, rather than against the gen- eral estate." (Art. 43.) (6) support of dependents; deductibility. Article 49, as contained in the revision of 1921, is set out at page 148. It is materially different from the revision of 1919. The changes, however, are not radical. Apparently support may now con- sist of supplies, or similar essentials, as well as money; and there is, perhaps, some relaxation of RECENT CHANGES IN REGULATIONS. 397 the earlier rule thai the alleged dependent must 1>'- in actual need of support. (See pp. 14S, 148a.) (7) MANNER OF PAYING TAX. Article 65, as contained in the revision of 1!M!>, provided for payment of the tax only by check, and required checks to be payable to the order of the Commissioner, and to be certified. The revision of 1921 provides for payment by "checks, drafts or money orders," and that they shall be payable "to the order of Collector of Internal Revenue." The last sentence of the article formerly read: "Acceptance of the check discharges the tax only in case subsequent investigation and audit disclose that the correct amount has been paid." It now reads: "Payment so made of an amount indicated to be due upon the return discharges the tax only in case subsequent investigation and audit disclose that the correct amount has been paid." The re- vision recognizes that the payment may be of an amount notified to be due as additional tax, — in which case payment of the sum fixed is recognized as a discharge. (8) KXTENSION OF TIME TO FILE RETURN. Article 81, as contained in the revision of 1921, is set out at pages 190-1. It differs from the revision of 1919 in requiring the first application to be made at least thirty days prior to the due date of the return, and that statement be made concerning the 26 398 FEDERAL ESTATE TAX. gross estate and the deductions claimed. The former requirement that, "At the time of filing such return he (the executor) must pay a sum sufficient in the opinion of the collector to satisfy the tax," is retained, but limited to cases where no extension of time to pay the tax has been granted. It is pro- vided that the statements accompanying the appli- cation will be investigated both in acting upon the application and in determining the amount to be paid in the first instance. (9) PAYMENT OF TAX ; CONDITIONS. The revision of 1921 makes changes in the last paragraph of Article 90, so that it reads: "Payment will not be accepted before a return in proper form has been filed, except in cases where an ex- tension of time to file a return has been granted but no extension of time has been granted within which to pay the tax, and the executor desires to make payment under section 407 of the act of an amount sufficient in the opinion of the collector to discharge the tax. Payment of the amount of tax shown to be due by a return accepted by the collector, executed in good faith and accurate so far as the executor could ascertain from his own knowl- edge and in the exercise of diligence, will be considered payment of the tax in full under section 407 of the act, subject to adjustment resulting from investigation, except as to any item which should have been but was not embodied in the return. If at the time payment is made the exact amount of the tax cannot be determined, the payment of a sum of money sufficient, in the opinion of the collector, to discharge the tax will be considered pay- ment in full, except as the tax is adjusted after investiga- tion. (See Arts. 78, 95.) If the return filed contains a RECENT CHANGES IN REGULATIONS. 399 gross or fraudulent misstatement of fact, the payment of the amount of tax shown to be due thereby will not be deemed to be payment in full of the tax, since the col- lector's decision is based upon the assumption that the return is made in good faith." (Art. 90.) (10) INTEREST WHERE FRAUDULENT RETURN FILED. The revision of 1919 provided that where the return contained a gross or fraudulent misstatement of fact "interest upon the unpaid balance of tax, determined after investigation, will be added at the rate of six per centum per annum from the expira- tion of one year after the decedent's death to the expiration of 30 days from notification and there- after at the rate of ten per centum per annum until paid." (Art. 96.) The italicized words are omitted in the revision of 1921. (11) TIME WHEN TAX PAYMENT MAY BE ENFORCED. The revision of 1921 adds the following sentence to Art. 120. "While no interest may be added to the tax unless pay- ment thereof has not been made within one year and 180 days after decedent's death, the tax itself is due and must be paid within one year after the decedent's death unless an extension of time for the payment thereof has been granted by the Commissioner. ' ' This is an express formulation of a ruling pre viously made by the Bureau, and set out at page 196. GENERAL INDEX GENERAL INDEX. References are to Pages. A Abatement paok See Claims for Abatement. Accounts receivable valuation of 103 Advance payment when not permitted (Revenue Act of 1916, T. D. 2415) 251, 252 Advancements not necessarily transfer in contemplation of death... 48 payments to children — when considered advance- ments 24, 25 Affidavit of ownership of bonds used to pay tax — Form 760 378 Ambassador residence of 8 Analysis of surplus of corporation— Forms 831-B, 831-C...387, 388 Annuities inclusion in gross estate 22 valuation of 109- 114 Appointed property general rule of inclusion — constitutionality 72 power must be general 73 powers exercised prior to February 24, 1919 73-79 original department rule — property included in all cases 73-75 later rule — inclusion dependent on rights of cred- itors of appointor 75, 76 not included in New York, Maryland and Penn- sylvania 77, 78 [403] 404 GENERAL INDEX. References are to Pages. Appointed property — Continued page decisions in Illinois and Ohio 78, 79 rule in Pennsylvania — not taxable 351, 352 inclusion in gross estate (Revenue Act of 1916, T. D. 2477, 3088 270, 351, 352 Appraisal of personal and household effects 108 Appreciation in value of property after death — not included in gross estate 12, 249 Assessed valuation as evidence of value 95 Attorney's fees deductibility 127-129 Auction sales as evidence of value 95 B Balance sheet of corporation — comparative — form 831 383, 384 of corporation — adjusted — form 831-A 385, 386 Bare legal title property not included in gross estate 22, 23 Beneficiaries when to give notice 172, 173, 265, 266 when to file return 184, 185 Bonds inclusion in gross estate 19 of domestic corporations — when not included in gross estate (Revenue Act of 1916, T. D. 2530) 285-287 of foreign corporations — when included in gross estate (Revenue Act of 1916, T. D. 2530) 287 Books and records production may be required 229, 230 (JENERAL INDEX. 405 References are to Pages. British treasury page property deposited with — situs 89, 90, 310, 311 property deposited with — valuation 89, 90, n. Brokerage fees deductibility 129 Burial plot deduction of expense 121, 122 Business interest in — how valued 101-103 c Cemetery lots inclusion in gross estate 18 Certificate of release of estate tax lien — form 792 381 Charitable and similar bequests deductibility 152-161 amount of deduction 159, 160 charitable corporations — what are 154, 155 conditional bequests 157, 158 foreign bequests deductible 154 general rules 153, 154 gifts in decedent's life time 153, 154 private stockholders or individuals — who are 156 proof required • 156, 157 religious corporations conducting business 155, 156 specific cases 158, 159 time of death 152 Children payments to — when included in gross estate 24, 25 Christmas present as transfer in contemplation of death 47 Claims against estate-deductibility 130,131 how paid — deduction of taxes 242, 243 406 GENERAL INDEX. References are to Pages. Claims for abatement PAGE abatement of excess tax — limitation of time to file claim 239 does not bar collection 239 may be made on form 47 237, 238 papers to be filed 238 where rejected does not affect interest 239 Claims for refund may be made on form 46 237, 238 papers to filed 240, 241 time to file — payment in instalments 241, 242 when deduction of charitable gift not allowed 167 Close corporation valuation of stock .96, 97 valuation of stock — where option to purchase given 13, 103, n. Collection of tax enforcement by personal liability of executor or bene- ficiary 216 from beneficiary • 225, 226 remedy by suit — not exclusive 214, 215 remedy by distraint 215 Collector to inform commissioner of 30-day notice from non- resident estate (Revenue Act of 1916, T. D. 2490) 271-274 Commissions of executor— deductibility 124, 125, 395 bequest in lieu of — deductibility 125, 126 of trustee — deductibility 126 Common, estates in not included in gross estate 58 Compromise limitation of power 218 money received — not refunded 218 power to compromise government claims 217, 218 GENERAL INDEX. 40/ References are to Pages. Community property ita<;k inclusion in gross estate 58-61 in Texas — one-half to be included in gross estate (Revenue Act of 1916, T. D. 2450) 259-262 Contingent interests inclusion in gross estate 21 valuation of 114 Corporate agents duties of (Revenue Act of 1916, T. D. 2490) 271-274 Court decisions promulgated (T. D. 2976, 3027, 3088) 351, 352 Courtesy See Dower Crops vaulation of 104 Custodian of property — when to give notice 269 D Death, actions for right not included in gross estate 24 Death benefits included in taxable insurance 79 Deductions administration expenses 123-129 attorneys' fees 127-129, 396 brokerage fees 129 charitable and similar bequests 152-16] claims against estate 130, 131 commission of executor 124-127, 395 decision of local courts — what effect to receive. . .119, L20 funeral expenses 121-123 general requirements for 118, 119 local law — allowance by necessary (Revenue Act of L916, T. I). 2453) 262, 263 losses from casualty or theft 142,143 408 GENERAL INDEX. References are to Pages. Deductions — Continued page miscellaneous expenses 129, 130 mortgages — unpaid 141 nonresident estates — deduction by 161-167 charitable and similar gifts — full amount deduct- ible 165 charitable and similar gifts — deduction limited to domestic gifts 165, 166 time of decedent's death 166 claims, administration expenses, etc. — how far de- ductible 162, 163 information required as to foreign property 167 property previously taxed — must be situated in the United States — full amount deductible. 163, 164 statutory provision — proportionate deduction.... 161 property previously taxed 148b-151 where property is included in gross estate 150 where property is taken in exchange — proof re- quired 150, 151 provisions of Revenue Act of 1916 116-118 states — deduction of federal tax by 138-141 statutory provision 116 support of dependents 143-148b, 396-397 taxes death duties 134-137 income taxes 133, 134, 308, 309 property taxes 131-133, 308, 309 Depositions commissioner may take 230, 231 in estate tax matters— form 790 380, 381 Discount conditions of granting (Revenue Act of 1916, T. D. 2756) 303-306 not allowed on additional assessment (Revenue Act of 1916, T. D. 2570) 293 GENERAL INDEX. 409 References are to Pages. Discount — Continued PA0K rules for computation (Revenue Act of 1910, T. D. 2497). . . . 275-278 Dividends inclusion in gross estate 20, J71 Domicile specific cases 8 tests of 8 Donees duties of (Revenue Act of 1916, T. D. 2454) 204-200 notice by 172 Dower and courtesy election barring dower 30, 31 estates in lieu of — what are 26, 27, 28 inclusion in gross estate 25, 26 status under Revenue Act of 1916 28, 29 under state inheritance tax statutes 31, 32 Due date ♦ of tax 196, 399 E Entirety See Joint Interests Equitable interests included in gross estate 23 Escheated property taxability of • 6 Estate tax computation of tax 12-1(5 estates subject to 7 general nature 6 general scheme of stat ute 3, 4 not a direct property tax 4, 5 not a legacy tax 5, not apportioned among beneficiaries 5 410 GENERAL INDEX. References are to Pages. Estate tax — Continued pagk rates of tax 10-12 time of taking effect 4, n. Examination of records — may be made by commissioner 229, 230 of witnesses — commissioner may direct 230, 231 Executors duty to file return 183, 184 duty to pay tax 197, 222, 223 duty to render statement 231 duty to give sixty-day notice 169, 170, 176 foreign — information required from 193-195 liability for tax — not affected by distribution of estate 223, 225 Exemption See Specific Exemption Extension payment of tax — conditions of granting 209 payment of tax — what constitutes "undue hardship". 210 payment of tax — extension does not affect interest. . . . 210 payment of tax — extension does not affect time to file return 210 return— time to file. 190-191, 294, 295, 296, 305, 306, 397-398 F Fiduciary duties of (Revenue Act of 1916, T. D. 2454) 264-269 when to give notice 173, 177, 265 when to file return (Revenue Act of 1916, T. D. 2421) 255, 256 Foreign diplomat residence of 8 Forms for estate tax 353-390 GENERAL INDEX. 411 References are to Pages. 6 German mark PAGK valuation of ll- r ) Gifts causa mortis as transfer in contemplation of death 45, 4