OPINION.
Opper, Judge:This proceeding involves a deficiency in Federal estate tax in the amount of $203,020.17 determined against the Estate of Edward H. Luehrmann.
All of the facts were stipulated. They are hereby found.
The stipulation reflects certain concessions on the part of each of the parties. The only question for our consideration is whether executors’ commissions and costs of administration which were claimed as deductions on the estate’s Federal income tax returns, during the course of administration, and were not claimed as deductions on the estate’s Federal estate tax return, as amended or supplemented, are required to be deducted from the gross estate in computing, for estate tax purposes, the value of a charitable bequest which consists of the income from the residue of the corpus of the estate following a life interest in said income. The parties have stipulated that the deficiency in Federal estate tax is $63,959.70 if we hold for respondent, and $39,535;57 if wé hold for petitioners.
Edward H. Luehrmann (hereinafter referred to as the decedent) died on March 10,1952, leaving a last will and testament which was duly admitted to probate in the Probate Court of the City of St. Louis, Missouri, on March 13, 1952. Decedent’s Federal estate tax return and “supplemental” Federal estate tax return were filed on May 26, 1953, and December 15, 1953, respectively, with the director of internal revenue, St. Louis, Missouri.
Under the terms of decedent’s last will and testament, Jane Louise Luehrmann, Leo S. Eassieur, and August C. Johanningmeier were named as executors and were duly qualified. On May 29,1954, Jane Louise Luehrmann remarried and is named in the Probate Court as Jane Louise Hord. On May 29, 1955, Leo S. Eassieur died and Chas. D. Long was appointed as successor executor and was duly qualified.
Under the terms of his last will and testament, decedent gave, devised, and bequeathed the residue of his estate in trust. The income for her life (with the exception of two relatively minor income bequests) was to be paid to his sister-in-law, now Jane Louise Hord, and at her death in perpetuity to Washington University, a corporate charitable institution organized and existing under the laws of the State of Missouri. The applicable provisions of the will are as follows:
ITEM VII: I direct that all the rest, residue and remainder of my estate, of whatever hind or character, and wheresoever the same may be situated, whether the same he real, personal or mixed, of which I may die seized or possessed, or to which I may be entitled at the time of my death, including any and all legacies or devises herein contained which shall have lapsed, shall pass to my sister-in-law, Jane Louise Luehrmann, Leo S. Rassieur and the St. Louis Union Trust Company, a corporation of the City of St. Louis, Missouri, as Trustees upon the trusts, for the use and benefit of those hereinafter named, and with the powers and duties hereinafter set out, to-wit:
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(5) I direct the Trustees after paying all expenses of administering said trust, including compensation of the Trustees, to pay to Herbert Sharp, who is now in my employ, the sum of One Hundred Thirty Dollars ($130.00) per month, and Mary Krause, who is now also in my employ, the sum of Eighty Dollars ($80.00) per month for and during the period of their respective natural lives, but only so long as each of them respectively shall remain in the service of my said sister-in-law, Jane Louise Luehrmann, or shall have left her service in a manner which she is willing to certify in writing to the Trustees was satisfactory to her and with her approval.
After making the foregoing payments I direct my said Trustees to pay over to my said sister-in-law, Jane Louise Luehrmann, for and during the period of her natural life all the balance of the net income from said trust estate in monthly or other convenient installments. I further direct that from and after the death of my said sister-in-law the entire net income from said trust fund, after making the monthly payments required to be made to Herbert Sharp and Mary Krause, shall be paid to Washington University, a corporation under the laws of Missouri, for the use and benefit of its medical school to be used and applied by said medical school for scientific study, research, and experimentation to discover the causes, treatment, relief and cure of degenerative diseases such as diabetes, heart disease and circulatory diseases, such study, research and experimentation to be conducted by and under the supervision and direction of full time professors in said medical school, so long as the said Washington University shall maintain a department in its medical school for such study, research and experimentation.
During the course of administration of the estate the following costs of administration and executors? commissions (hereinafter sometimes collectively referred to as administration expenses)1 were claimed as deductions on the estate’s Federal income tax returns: $1,260.97 for the year 1952; $78,204.12 for the year 1953; $29,265.31 for the year 1954; and $12,381.28 for the.year 1955. These administration expenses were not claimed as deductions on the estate’s Federal estate tax return.
Petitioners filed a statement and waiver referring to section 162(e), I.E.C. 1939, with its income tax return for the taxable year 1953.
In determining the estate tax deficiency, respondent deducted the administration expenses totaling $121,111.68 mentioned above from the corpus of the gross estate in computing, for estate tax purposes, the value of the charitable bequest. Petitioners contend that such administration expenses should not be so deducted.
We agree with respondent that under the terms of the will the charitable bequest herein consists of a remainder interest in the residue of the estate following a life interest therein and is not to be computed as a “percentage of the taxable estate” as stated by petitioners. Cf. William Nelson Cromwell et al., Executors, 24 B.T.A. 461; Estate of Leonard S. Waldman, 46 B.T.A. 291; Hartford Nat. Bank & Trust Co. v. United States, (D. Conn.) 106 F. Supp. 76. Thus, the real disagreement of the parties is as to the value of the residue of the estate which must be used in computing the present value of the remainder interest therein. The disagreement as to the value of the residue is, in turn, due entirely to their differences with respect to whether the executors’ commissions and costs of administration mentioned above are to be deducted from the corpus of the estate in determining the present value of the income therefrom which decedent bequeathed to Washington University.
The residue of the estate (sometimes referred to as the residuary estate) has been defined as that which remains after all debts and expenses of administration, as well as all specific bequests and devises, have been paid or satisfied. Black’s Law Dictionary (4th ed.); Nichols v. Swickard, 211 Iowa 957, 234 N.W. 846, 847. See also In re Cushman’s Estate, 143 Misc. 432, 257 N.Y. Supp. 582, 586; Brown v. Hilleary, 147 Ore. 185, 32 P. 2d 584, 587.
It may well be that petitioners had the right to deduct some of the administration expenses from the gross income of the estate for the purpose of computing the estate’s Federal income tax liability. This right would be derived from section 23 of the Internal Revenue Code of 1939, and is predicated upon the provisions contained in section 161(a)(3) that “[i]ncome received by estates of deceased persons during the period of administration or settlement of the estate” is subject to the same income taxes as are imposed upon individuals, and the provisions contained in section 162 that the net income of the estate “shall be computed in the same manner and on the same basis as in the case of an individual,” with certain exceptions, including the qualification contained in section 162(e).
We may also agree with petitioners that, having elected to deduct administration expenses from the gross income of the estate for income tax purposes, the estate is not permitted, because of the provisions of section 162(e),2 thereafter to deduct again such expenses from the gross estate for estate tax purposes.
But we agree with respondent’s argument that the amount deductible from the gross estate for the valuation of a charitable bequest may not be greater than the value of what the charitable corporation is actually entitled to and does, in fact, receive. Harrison v. Northern Trust Co., 317 U.S. 476.
At one time it was thought that Congress intended charitable residuary bequests to be deductible at their gross value without reduction for any costs or administration expenses. Edwards v. Slocum, 264 U.S. 61. Congress promptly corrected this assumption by enacting what is now section 812(d), I.R.C. 1939.3 And the purpose of this legislation was declared to be “to limit the deduction for charitable bequests, etc., to the amount which the decedent has in foot and in law devised or bequeathed to charity.” H. Rept. No. 708, 72d Cong., 1st Sess., pp. 49-50. (Emphasis added.)
In general, where, as in the case of section 812, the Federal statute, expressly or impliedly, under its operation, depends upon local law, the local law governs. See Estate of Jean S. Alexander, 25 T.C. 600. Here, as petitioners imply in their reply brief, it appears that local law would require the estate’s costs of administration and executors’ commissions to be payable from the corpus and not from the income of the estate. See Estey v. Commerce Trust Co., 333 Mo. 977, 64 S.W. 2d 608. We could dispose of the issue on that basis alone — that is that “in law” decedent bequeathed only the net residue to charity. See Hardenbergh v. Commissioner, (C.A. 8) 198 F. 2d 63, certiorari denied 344 U.S. 836, affirming 17 T.C. 166.
But in addition, as to the “fact,” there is no evidence whether the administration expenses in question were paid out of current income or out of the estate corpus. If they were in fact paid out of corpus, then the corpus was reduced by that amount, the bequest to charity would be similarly diminished, and the charitable deduction would have to be adjusted accordingly. Since there is no proof and since the burden is on petitioners, it would appear that this alone would be sufficient to defeat the claim.
We may go further, however, and consider the possible alternatives. Either these administration expenses were paid out of corpus or they were paid out of current income. If they were in fact paid out of corpus, the charitable deduction would, as we have said, necessarily be reduced accordingly. But even if they were paid out of income, the only possible assumption is that the payment was so made with the consent and approval of the income beneficiary who would, if she had insisted, have been entitled to the current income. This being so, any payment of the administration expenses out of money to which the life beneficiary was entitled would have constituted a contribution by her to the charity and not by the estate. Estate of Herman Hohensee, Sr., 25 T.C. 1258. And her approval must be assumed since as we have seen, without it the local law would have required that the current income be paid to her without deduction for such expenses.
Eespondent’s rulings respecting the amount of the permissible marital exemption when expenses have been deducted on an estate’s income tax return, upon which petitioners rely, are in reality applications of the principles above described and in fact support and are consistent with respondent’s position here. Eev. Eul. 55-225, 1955-1 C.B. 460; Eev. Eul. 55-643, 1955-2- C.B. 386.
Finally, petitioners’ reliance on section 162(e), I.E.C. 1939, seems to ns misplaced. That provision was intended to deal solely with the amount of administration expenses deducted from the gross estate in order to compute the net estate upon which estate tax would be paid. It is clear that the option and waiver provisions were inserted to prevent a double deduction on both income and estate tax returns. H. Eept. No. 2333, 77th Cong., 2d Sess. (1942), pp. 75-76; S. Eept. No. 1631, 77th Cong., 2d Sess. (1942), p. 136. This is not our present problem. Decedent left the income from the net residue of his estate to charity. We are required only to determine the value of that bequest. Payments claimed as reductions of income which are in reality payable out of, and deductions from, corpus, result in a correspondingly lesser amount of the net residue and consequently of the amount which decedent intended to go to the charitable beneficiaries.
Eeviewed by the Court.
Decision will he entered that there is a deficiency in the amovmt of $63,959.70.Withev, concurs in the result.
under Regs. 105, see. 81.32, “Administration expenses Include (1) executor’s commissions; (2) attorney’s fees; and (8) miscellaneous expenses.”
SEC. 162. NET INCOME.
The net income of the estate or trust shall be computed In the same manner and on the same basis as in the case of an individual, except that—
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(e) Amounts allowable under section 812(b) as a deduction in computing the net estate of a decedent shall not be allowed as a deduction under section 23, except subsection (w), in computing the net income of the estate unless there is filed, within the time and in the manner and form prescribed by the Commissioner, a statement that the items have not been claimed or allowed as deductions under section 812(b) and a waiver of the right to have such items allowed at any time as deductions under section 812(b).
SEC. 812. NET ESTATE.
For the purpose of the tax the value of the net estate shall be determined, in the case of a citizen or resident of the United States by deducting from the value of the gross estate—
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(d) Transfers for Public, Charitable, and Religious Uses. — The amount of all bequests, legacies, devises, or transfers * * * to or for the use of the United States, any State, Territory, any political subdivision 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 * * *. If the tax imposed by section 810, or any estate, succession, legacy, or inheritance taxes, are, either by the terms of the will, by the law of the jurisdiction under which the estate is administered, or by the law of the jurisdiction imposing the particular tax, payable in whole or in part out of the bequests, legacies, or devises otherwise deductible under this paragraph, then the amount deductible under this paragraph shall be the amount of such bequests, legacies, or devises reduced by the amount of such taxes. The amount of the deduction under this subsection for any transfer shall not exceed the value of the transferred property required to be included in the gross estate. * * »