Root v. Commissioner

*699OPINION.

Korner, Chairman:

The- petitioner, Susie M. Hoot, brings this proceeding as executrix of her deceased husband to test the right of the Commissioner to assert a tax on the estate of the decedent, in the computation of which he has included as a part of the gross estate the value of a certain parcel of real property which was owned by the decedent and his wife up to the time of the death of the former. From the agreed statement of facts upon which the case was submitted it appears that by warranty deed, executed November 29, 1921, there was conveyed to H. L. Root and Susie May Root, husband and wife, a lot of land in Kansas City. H. L. Root died on February 26, 1923, and left surviving, as his sole heir, his wife, Susie May Root, who was duly appointed and qualified as executrix of his estate. The value of the property is not in dispute.

It is unnecessary to detail here the chronology of events leading up to the bringing of this proceeding. They are fully set out in the findings of fact. Suffice it to say that the Commissioner proposes to collect an estate tax from the estate of the decedent predicated upon the inclusion, as a part of the gross estate, of the value of the land just referred to. The petitioner, contends that the land was conveyed to her and her deceased husband as tenants by the entirety and was so held by them until the death of the decedent, and that, as such, it is no part of decedent’s estate and is, therefore, not properly to be included in the value of that estate under the provisions of the Revenue Act of 1921 relating to estate taxes. The Commissioner contends that the value of the land in question should be so included, whether or not the grantees of the property were tenants by the entirety, for the reason that the value of property so held is specifically made a part of the gross estate by that statute. In answer to this contention of the Commissioner, the petitioner insists that, if such be the effect of the provisions of the Revenue Act, such provisions are in contravention of Article XIV, section 1, of the Constitution of the United States, in that it constitutes an unlawful taking of the property of Susie M. Root without due process of law.

We are convinced from the authorities called to our attention that the common law doctrine of estates by the entirety obtains in the State of Missouri. Frost v. Frost, 200 Mo. 474; 98 S. W. 527; Kegan v. Haslett, 128 Mo. App. 286; 107 S. W. 17. The portion of the Missouri statute, section 4600, R. S. 1899; Ann. Stat. 1906, p. 2499, *700which was construed in Kegan v. Haslett, supra, has been carried forward into the revision of 1919, being section 2213, R. S. 1919. It is equally clear from the authorities that this doctrine obtains notwithstanding the “ Married Woman’s Act.” Frost v. Frost, supra; Stifel's Union Brewing Co. v. Saxy, 273 Mo. 159; 201 S. W. 67; Ashbaugh v. Ashbaugh, 273 Mo. 353; 201 S. W. 72. We are likewise convinced that under the laws of Missouri the deed to H. L. Root and Susie May Root, husband and wife, created in the grantees therein an estate by the entirety. Hume v. Hopkins, 140 Mo. 65; 41 S. W. 784; Wilson v. Frost, 186 Mo. 311; 85 S. W. 375; Holmes v. Kansas City, 209 Mo. 513; 108 S. W. 9; Burke v. Murphy, 275 Mo. 397; 205 S. W. 32; Traw v. Heydt (1919), 216 S. W. 1009; Elliott v. Roll (1920), 226 S. W. 590. These decisions and others which have been brought to us leave no doubt in our minds that from the earliest days down to the time of the death of Henry L. Root the doctrine of estates by the entirety and the legal consequences flowing therefrom obtained and constituted a rule of real property in that State.

We now inquire as to the effect of a rule of property, established by the laws and decisions in a State, on a Federal court, in determining an issue arising out of the same state of facts. The petitioner contends that the laws and decisions of the State of Missouri defining and determining an estate by the entirety and the legal consequences flowing therefrom, constitute a rule of property in that State which is binding upon the Federal courts in the determination of the same question. Her contention is borne out by the highest authority.

In Jackson v. Chew, 12 Wheat. 153, 161-169, the court said:

After such a settled course of decisions, and two of them in the highest court of law in the state, upon the very clause in the will now under consideration, deciding that Joseph Eden did not take an estate-tail, a contrary decision by this court would present a conflict between the state courts and those of the United States, productive of incalculable mischief. If, after such an uninterrupted scries of decisions for twenty years, this question is not at rest in New York, it is difficult to say, when any question can be so considered. And it will be seen, by reference to the decisions of this court, that to establish a contrary doctrine here, would be repugnant to the principles which have always governed this court in like eases. * * *
* * * This court adopts the state decisions, because they settle the law applicable to the case; and the reasons assigned for this course, apply as well to rules of construction growing out of the common law, as the statute law of the state, when applied to the title of lands. And such a course is indispensable, in order to preserve uniformity; otherwise, the peculiar constitution of the judicial tribunals of the states and of the United States, would be productive of the greatest mischief and confusion.
* * * And whether those rules of land titles grow out of the statutes of a state, or principles of the common law adopted and applied to such titles, can make no difference. There is the same necessity and fitness in *701preserving uniformity of decisions in the one case as in the other. * » *
* * * After such a series of adjudications for such a length of time, in the state courts, upon the very point now before us, and relating to a rule of landed property in that state, we do not feel ourselves at liberty to treat it as an open question.

The same court in Suydam v. Williamson, 24 How. 427, 433-434, approved this doctrine and quoted from Jackson's case, supra, as follows:

The inquiry is very much narrowed by applying the rule which has uniformly governed this court, that where any principle of law establishing a rule of real property has been settled in the State courts, the same rule will be applied by this court that would be applied by the State tribunals.

Mr. Justice Story, in United States v. Crosby, 7 Cr. 115, 116, said:

The question presented for consideration, is, whether the lew loei contractus or the lew loot rei sites is to govern, in the disposal of real estates. The court entertain no doubt on the subject; and are clearly of opinion, that the title to land can be acquired and lost only in the manner prescribed by the law of the place where such land is situate.

To like effect the Supreme Court, in Clarke v. Clarke, 178 U. S. 186, 191, quoting from DeVaughn v. Hutchinson, 165 U. S. 566, 570, said:

It is a principle firmly established that to the law of the State in which the land is situated we must look for the rules which govern its descent, alienation and transfer, and for the effect and construction of wills and other conveyances.

To the same effect see the recent decision in United States v. Title Insurance & Trust Co., 265 U. S. 472, 486. Many decisions of the Supreme Court affirming this principle are to be found.

Decisions of Federal courts inferior to the Supreme Court are to the same effect. The District Court for the Northern District of California, in deciding Blum v. Wardell, 270 Fed. 309, at p. 313, said:

The plaintiffs further contend that this court is not bound by the construction placed upon the laws of California by the highest court of the state. With this contention I am unable to agree. The federal tax is imposed on the transfer of the net estate, and, whether there is a transfer upon the death of the husband depends upon the statutes and rule of decision in the state where the parties reside and the property is situate. (Italics ours.)

The Circuit Court of Appeals, Ninth Circuit, affirming the decision of the District Court (276 Fed. 226) went further and held that if the law of the State determined that, for purposes of the State inheritance tax there was no transfer, that determination is binding on the Government for purposes of Federal estate tax. In that case the Supreme Court denied the Government’s petition for a writ of certio-rari. To the same effect see First National Bank v. Obion County, 3 Fed. (2d) 623, 626-627; Bellamy v. Pitts, 4 Fed. (2d) 523, 525 (C. C. A., Fifth Circuit). In view of these decisions, we conclude that our consideration of the issue in the instant case must be in the *702light of the law and decisions of the State of Missouri in respect of estates by the entirety.

We turn, then, to the decisions of the courts of Missouri, which may be regarded as stating not merely a rule of law but also a rule of property in that State, to determine what those rules are with respect to estates by the entirety. In Gibson v. Zimmerman, 12 Mo. 385, it is stated that husband and wife are the only persons who can be tenants by the entirety; that this tenancy must be created or take effect during coverture, and owes its qualities to the unity of the persons of husband and wife. The court states that it is well settled, that if an estate be given to a man and his wife, they take, neither as joint tenants, nor as tenants in common, for, being considered as one person in law, they can not take by moieties, but both are seized of the entirety, the consequence of which is that neither of them can dispose of any part without the assent of the other, but the whole goes to the survivor.

In Garner v. Jones, 52 Mo. 68, the court held that in the case of an estate by the entireties there was no survivorship as in joint tenancies, but a continuance of the estate in the survivor as it originally stood. The only change by death was in the person, not in the estate. Before death both spouses constituted one person holding the entire estate, and after the death of either, the survivor remained as the only holder of the entire estate. This case was quoted with approval in Stifel's Union Brewing Co. v. Saxy, 273 Mo. 159; 201 S. W. 67, 68.

In Frost v. Frost, supra, the Supreme Court of Missouri said:

Washburn, speaking of estates in entirety, says: “But, if the estate is conveyed to them originally as husband and wife, they are neither tenants in common nor properly joint tenants, though having the right of survivorship, but are what are called ‘tenants by entirety.’ While such estates have, like a joint tenancy, the quality of survivorship, they differ from that in this essential respect, that neither can convey his or her interest so as to affect the right of survivorship in the other. They are not seized, in the eye of the law, of moieties, but of entireties.” 1 Washburn, R. P. (6th Ed.) p. 562. The common-law doctrine of estates in entirety is the law of this state. Hall v. Stephens, 65 Mo. 670, 27 Am. Rep. 302; Bank v. Fry, 168 Mo. 492, 68 S. W. 348. The test-writer last above quoted, on the same subject, adds that on the death of either the survivor does not acquire a new title, but holds only the same title which he or she took in the beginning, freed of the contingency.

The decisions of the courts of Missouri are replete with utterances in line with those just given, but the law of that State is exhaustively treated and seems to be well summarized in the recent cases of Stifel's Union Brewing Co. v. Saxy, supra (decided in 1918), and in Ashbaugh v. Ashbaugh, supra (decided in 1918). In the former case the court said:

Warvelle on Real Property, §111, says:
“ It differs from the estate of joint tenancy in that joint tenants take by moieties and at the same time are each seized of an undivided part of the *703whole. In the estate by entirety neither tenant is seized of a part, or moiety, hut both of them have the entire estate, and as this involves in itself a physical impossibility in the ease of ordinary individuals it necessarily follows that effect can only be given to the grant by regarding both tenants as constituting but one person. But this, in fact, is just what the law does, and as this unity of person is never recognized save in the case of husband and wife, the estate by entirety is confined exclusively to persons within the marriage relation.”
* * * * * * *
“Both would therefore be seized of the entire estate; neither could dispose of any part of same without the assent of the other, and upon the death of either the whole estate would remain in the survivor. In this latter respect while the right of survivorship gives to the estate an apparent resemblance to joint tenancy, it yet differs materially from joint tenancy, for the survivor succeeds to the whole not by the right of survivorship simply, as is the case with joint tenants, but by virtue of the grant which vested the entire estate in each grantee, or, in contemplation of law, in one person with a dual body and consciousness.”
Stewart says (section 306) :
“ On the death of either, the other has the whole estate, continuing alone his or her former holding, and not taking by survivorship in the sense that a surviving joint tenant does.” (Italics ours.)

The court then, after quoting with approval from Garner v. Jones, supra, continues:

In Thornton v. Thornton, 3 Rand. (Va.) 179, it was said:
“ But husband and wife have the whole from the moment of the conveyance to them; and the death of either cannot give the survivor more.”

In Ashbaugh v. Ashbaugh, supra, the court said:

An estate by the entireties is created by a conveyance to the husband and wife by a deed in the usual form. It is one estate vested in two individuals who are by a fiction of law treated as one person, each being vested with entire estate. Neither can dispose of it or any part of it without the concurrence of the other, and in case of the death of either the other retains the estate. It differs from a joint tenancy where the survivor succeeds to the whole estate by right of the survivorship; in an estate by entireties the whole estate continues in the survivor. The estate remains the same as it was in the first place, except that there is only one tenant of the whole estate whereas before the death there were two. (Italics ours.)

That the rule obtaining in the State of Missouri is the general and accepted rule of the common law is evidenced by the opinion of Mr. Chief Justice Fuller, in Hunt v. Blackburn, 128 U. S. 464, 469, wherein he said:

Undoubtedly, at common law, husband and wife did not take under a conveyance of land to them jointly, as tenants in common or as joint tenants, but each became seized of the entirety, per tout, et non per my; the consequence of which was that neither could dispose of any part without the assent of the other, but the whole remained to the survivor under the original grant.

The fact that the husband pays with his own funds for the land taken by him and his wife as tenants by the entirety, does not make *704any difference. They become thereby owners by the entirety. Elliott v. Roll, supra; Bender v. Bender, 281 Mo. 473; 220 S. W. 929.

The Commissioner’s position is simply stated. It is, in effect, that the statute requires that to the extent of his interest therein held as tenants by the entirety by the decedent and any other person, the value of such interest shall be included in the value of the gross estate, and that in view of this requirement the value of the property in question here must be so included. Let us examine this matter closely.

The provisions of law under which this controversy arises are sections 401 and 402 of the Revenue Act of 1921, which, so far as material here, are as follows:

Sec. 401. That, in lieu of the tax imposed by Title IV of the Revenue Act of 1918, 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. * * *
Sec. 402. 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.
* * * * * * *
(d) To the extent of the interest therein held jointly or as tenants in the entirety by the decedent or any other person. * * *

It will be noted that the imposition of the tax is upon the transfer ” of the net estate of the decedent. This is conformable to the language of the Supreme Court in Knowlton v. Moore, 178 U. S. 41, 56, wherein, after an exhaustive review of the subject of death duties, Mr. Justice White said:

* * * Although different modes of assessing such duties prevail, and although they have different accidental names, such as probate duties, stamp duties, taxes on the transaction, or the act of passing of an estate or a succession, legacy taxes, estate taxes, or privilege taxes, nevertheless tax laws of this nature in all countries rest in their assent upon the principle that death is the generating source from which the particular taxing power takes its being and that it is the power to transmit, or the transmission from the dead to the living, on which such taxes are more immediately rested.

If, as the statute provides and the Supreme Court holds, the tax is imposed on a “ transfer ” from the dead to the living, there remains for determination the sole question of what was transferred by the decedent, H. L. Root, to his wife. The rule of the common law as to estates by the entirety is clear, and the application of the rule in the State of Missouri is no less so, that there is no transfer of interest or estate to the survivor on the death of either spouse. This is necessarily so because each took the whole estate by the original *705grant by reason of the unity of person existing under the marriage relation. The death of one spouse added nothing to the interest or estate of the survivor. The conclusion is, therefore, irresistible that there was not a transfer of any estate from H. L. Root to Susie M. Root. The effect of the Commissioner’s proposed action would be to tax the executrix on an alleged transfer to her of property which, as we have seen from the rule of property established in Missouri, has not and can not be transferred to the executrix by, or because of, the death of the decedent, and which property, as we have seen, belonged to Susie May Root in her own right, both before and after the death of her husband. In other words, the effect of the Commissioner’s proposed action would be to make the estate of the decedent pay an estate tax for the transfer of property to Susie M. Root which was always hers and which was not transferred to her by her husband at any time.

It is argued that what this statute taxes is not necessarily the interest or estate to which Susie M. Root succeeded on the death of her husband, or the interest or estate transferred to her thereby, but that it is the interest of the decedent which ceased by reason of his death. This point has been raised in other similar cases. The Circuit Court of Appeals, speaking to this point in Lynch v. Congdon, 1 Fed. (2d) 133, 135, said:

* * * It is the theory of the plaintiff in error that the tax is not upon the transfer of property included in the gross estate, but upon the cessation of decedent’s interest in these deposits; that it is not a question of transfer from a joint depositor to the surviving joint depositor; that there is in fact no such transfer, each depositor being an owner of the entire interest in the entire property during their joint lives, and therefore there is no passing of property from decedent to the survivor, but merely a cessation of decedent’s interest in the property; that such property is the same as any other property, and that Chester A. Congdon had the entire interest in the same, and that it ceased by reason of his death. However interesting and debatable as a matter of first impression this theory may be, we think consideration of it foreclosed by the decision of the Supreme Court of the United States in Shwab v. Doyle, 258 U. S. 529, 42 Sup. Ct. 391, 66 L. Ed. 747, 26 A. L. R. 1454 and companion cases.

We do not find that it has been held that an estate tax was or could be a tax on an interest which was annihilated at death. The decedent could not transmit, transfer or devise to someone else at his death such interest as he had in the real estate here in question. At his death his interest was reduced to nothing; it was as if it had never existed. It was annihilated — wiped out. In our opinion, cases like Y. M. C. A. v. Davis, 264 U. S. 47, and Edwards v. Slocum, 264 U. S. 61, are inapplicable, for there it was held that, where there has been a transfer to the executor, the residuary legatee may have to pay a tax more logically assessed against primary legatees.

*706In a recent decision of the Court of Claims in Blount v. United States, 59 Ct. Cl. 328, the court considered the same point and, at p. 346, said:

In a late case it is said that what this law taxes is not the interest to which legatees or devisees succeeded on death, but the interest of the decedent which ceased by reason of his death. See Y. M. C. A. v. Davis, 264 U. S. 47. But this does not mean that the tax is upon an estate which ceases by reason of the death. It would hardly be contended that this statute imposes a tax on an estate for life held by one at the time of his death on the theory that the tax is upon an interest which ceases by reason of the death. It was said by Mr. Justice White, in Knowlton v. Moore, 178 U. S. 41, 57: “ Confusion of thought may arise unless it be always remembered that, fundamentally considered, it is the power to transmit or the transmission or receipt of property by death which is the subject levied upon by all death duties.” The tax here is upon the transfer of an estate which passes from the decedent, and is not upon an estate which ceases with his death.

In the Blount case the court was speaking of an estate by the entirety. In that case the facts were in all material respects on all fours with those in the instant case. The only essential difference between the two cases is the fact that in the Blount case the grant of the estate by the entireties took place before the enactment of the statute under which the tax was sought to be imposed, while in the instant case the grant was made after the enactment of the Revenue Act of 1921 under which this controversy arises. In the Blount case the decision was not, however, made to turn on that point. After discussing the application of the doctrine of estates by the entirety in the District of Columbia, where that case arose, in connection with the Revenue Act of 1916, the terms of which are essentially identical with those of the Revenue Act of 1921 in so far as they relate to the subject matter here, the court concluded:

It follows that the tax should not be assessed against the estate of tenants by the entirety because the wife did not take as upon a transfer from the husband at his death, but took under the original grant, his estate ceasing.

In the Blount case an appeal was taken to the Supreme Court of the United States, but when the case came on for argument the appeal was dismissed on the motion of the Solicitor General. In our opinion the conclusion of the Court of Claims above quoted was the correct conclusion. We are unable to distinguish it in principle from the instant case. In our opinion the fact that the conveyance of the land in question here was made to H. L. Root and his wife subsequent to the enactment of the Revenue Act of 1921 does not alter the case.

The argument is made that it is within the power of Congress to tax the value of such an estate as is here under consideration. It is argued that while in United States v. Field, 255 U. S. 257, the *707court held that the existence of a power of appointment does not of itself vest any interest in the donee in the appointed estate, which may be .included as a part of the deceased donee’s gross estate, that nevertheless, the decision of the court was made to turn on the point that, in the statute under consideration in that case, there was not an express purpose to tax property passing under a general power of appointment exercised by a decedent had such a purpose existed. It was further argued that the court there left the question open as to what the rule would be in a case wherein the grant was executed subject to the passage of an act specifically including such property in the gross estate. From this it is argued that, in the instant case, Congress had specifically provided for the inclusion as a part of the gross estate of the interest held by decedent as tenants by the entirety with his wife or any other person, and that it was within the power of Congress so to provide.

To our minds, this argument is beside the point. We choose rather to look to what Congress has provided, than to what it might have provided. We are impressed with the fact that each case before us carries within itself its full burden of difficulties, and we prefer to bear these than to fly to others which may be highly interesting and, under a different statute, worthy of the gravest consideration. We opine that we have fulfilled our duty in a case when we confine our views to the given situation and render a decision on that alone.

Section 401 of the Revenue Act of 1921 contains the only provision where an estate tax is imposed. That section is the imposing clause of the Federal estate tax. There is no such tax imposed by any other section. Section 402 provides the method of determining the value of the gross estate out of which the net estate (determined as provided in section 403) is evolved. When the value of the net estate is determined, the basis of the tax is found. But before the net estate can be used as a basis for such a tax it must have been transferred by the decedent at his death. The section which imposes the tax, the only section which does so, provides that “ a tax * * * is hereby imposed upon the transfer of the net estate of every decedent * * Rote that the tax is not upon the net estate. If it were, we would have a different question to decide, but, as we have said, we are now considering only what is provided by the statute. Since Congress has imposed the tax on the transfer of a certain estate, the whole argument and the conclusions therefrom must rest on the premise that there was a transfer. The first step to be taken, then, is to determine if there was a transfer of something. If there was, then the next step is to determine what was transferred and the value thereof. On the other hand, if it be *708determined that nothing was transferred, then the conclusion is both logical and irresistible that there is nothing on which to impose a tax. If the estate in question was not transferred, it becomes unnecessary and even absurd to attempt to find the value of a nonexistent element. Sections 402 and 403 enumerate the elements entering into the value of the estate and provide the method for measuring that value. If a given estate is transferred, it becomes necessary to determine its value, and at that point it may be important and interesting to consider whether Congress had acted within the scope of its power and authority in providing for its inclusion among the elements going to make up that value. But, as we have said, if it be first determined that at his death the decedent did not transfer a given estate, the question as to whether Congress might have taxed its value if it had been transferred becomes a moot question and unnecessary of decision. We have shown heretofore that the estate by the entirety held by decedent and his wife, prior to the former’s death, was not transferred by his death to anyone. Since it was not so transferred, no tax is imposed by the statute in respect of it, and it becomes unnecessary to discuss its value or the power of Congress to predicate a tax on the inclusion of its value in the decedent’s estate.

The statute imposes on this Board the duty of redetermining de novo the correct deficiency involved in any proceeding properly brought before it. If, in our opinion, the deficiency proposed to be collected by the Commissioner is not a correct and -proper deficiency, we conceive it to be our duty to so determine. It is our opinion that the deficiency proposed here is not a correct or proper deficiency and we so hold.

Judgment will be entered for the petitioner after 15 days’ notice, under Rule 50.

Moeeis, Sternhagen, and Milliken concur in the result only.