*52 Decision will be entered under Rule 50.
Value of 99-year leasehold interests (exchangeable for 999-year interests) in land situated in Kenya Colony, British East Africa, held excludible from decedent's gross estate for Federal estate tax purposes, as "real property situated outside of the United States," under Internal Revenue Code, sec. 811.
*783 Involved in this proceeding is an estate tax deficiency of $ 287,001.61.
Certain issues having been eliminated by a stipulation of the parties and others reserved*53 for settlement under Rule 50 recomputation, the sole remaining question is whether the agreed value of leasehold interests (99-year leases, exchangeable at the lessee's option for 999-year leases) in land situated in Kenya Colony, British East Africa, should be excluded from decedent's gross estate as "real property situated outside of the United States," within the meaning of section 811, Internal Revenue Code.
Some of the facts have been stipulated.
FINDINGS OF FACT.
The stipulated facts are hereby found accordingly.
Decedent died on January 9, 1942, a citizen of the United States of America and a resident of Pittsburgh, Pennsylvania. Fidelity Trust Co. is executor of the estate. The estate tax return was filed on April 9, 1943, with the collector for the twenty-third district of Pennsylvania, in which it was elected that the value of the gross estate be determined under the optional method, as authorized by section 811 (j) of the Internal Revenue Code.
At the time of her death decedent was the owner of the lessee's interest under four leases covering land and improvements situated in Kenya Colony, British East Africa, totaling 14,691.7 acres, of an agreed value, as of the optional*54 valuation date, of $ 103,374.68.
Three of the leases were granted by the King of England and the fourth by the Commissioner for the East Africa Protectorate to predecessors in title of decedent. They did not differ in any material respect. Each was for a term of 99 years, exchangeable for 999-year leases, at the lessee's option.
The Kenya Colony system of jurisprudence, as on January 9, 1942, was based upon the provisions of the Order-in-Council of June 27, 1921, and was derived from the Civil Procedure and Penal Codes of India and other India Acts, the substance of the common law, the doctrines of equity, and statutes of general application in force in England on August 12, 1897, and certain "Lands" and "Titles" Ordinances of 1902, 1915, and 1919.
The law of Kenya Colony in effect on January 9, 1942, did not classify any interests in property as "real property." The only difference made between interests in land and interests in other kinds of property, such as stocks, bonds, money, and the like, was the distinction between "movable" and "immovable" property. Leases of the type *784 here involved would be classified as "immovable" property, and were, as such, subject to estate*55 duty in Kenya Colony, which duty was paid upon decedent's death.
OPINION.
Although the present controversy is argued broadly by the parties, and counsel deal ably and extensively with a wide range of topics, reaching from conflict of laws to the Hohfeldian analysis and from East Africa to Cuba, we find it unnecessary to go beyond a few narrow principles in disposing of the limited issue which seems to us presented by this record. The subject matter of the disputed application of Federal estate tax is a group of leases for 99 years, exchangeable at the lessee's option for 999-year leases, of property located in Kenya Colony, British East Africa. The question is whether decedent's rights as lessee thereunder are exempted from estate tax by the provision 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, except real property situated outside of the United States"; in other words, were the leases "real property situated outside the United States," within the meaning of these provisions? Cf. James M. B. Hard, 9 T. C. 57.*56 We think they were.
We accept, for purposes of this opinion, the assumptions that Congress, in its selection of the words "real property," was dealing with a term in common use and intended it to have its generally accepted meaning; that the strict and historic common law definition of real property excludes even long term leases, which were viewed as chattels real and hence personalty; and that, if we can decipher the definition intended by Congress, it is of little moment how these property rights in real estate are defined under Kenya law.
But a long term lease, particularly one for essentially 999 years, has come to be regarded as real property for many purposes and in many situations. Wells v. Savannah, 87 Ga. 397">87 Ga. 397; 13 S.E. 442">13 S. E. 442; affd., 181 U.S. 531">181 U.S. 531; Norfolk v. Perry Co., 108 Va. 28">108 Va. 28; 61 S.E. 867">61 S. E. 867; affd., 220 U.S. 472">220 U.S. 472; Ralston Steel Car Co. v. Ralston, 112 Ohio St. 306">112 Ohio St. 306; 147 N. E. 513; Fidelity Trust Co. v. County of Wayne, 244 Mich. 182">244 Mich. 182;*57 221 N.W. 111">221 N. W. 111; Ocean Grove Camp Meeting Association v. Reeves, 79 N. J. L. 334; 75 Atl. 782; affd., 80 N. J. L. 464; 79 Atl. 1119; Jones v. Magruder (Dist. Ct. Md.), 42 Fed. Supp. 193. Congress could well have intended to include such property interests in the phrase "real property," above all in an estate tax provision. Cf. Helvering v. Hallock, 309 U.S. 106">309 U.S. 106. The present express exception came into the law in 1934, but for many years before that respondent had implied a similar exclusion. See Carrie S. Fair, Executrix, 35 B. T. A. 41; reversed (C. C. A., 3d Cir.), Fair v. Commissioner, 91 Fed. (2d) 218. The authority for *785 this was an Attorney General's Opinion issued in 1918, 31 Op. Atty. Gen. 287, which reasoned that the situs of real property was its physical location and that real estate located abroad, "unlike personal estate there, cannot be enjoyed as such in*58 any true sense without the protection and supervision of the laws of the foreign jurisdiction in which it is situated, while as to personal property the fact may very well, for obvious reasons, be different." See Carrie S. Fair, Executrix, supra, p. 45.
When Congress came to amend the law in 1934, it accepted the "almost universally established principle of estate taxation that real estate should be subject to death duties only in the country where situated." S. Rept. No. 558, 73d Cong., 2d sess., p. 46. Granting implicitly the power of Congress to include all property in the tax base of a domestic estate, see Paul, Federal Estate and Gift Taxation, sec. 2.10, we nevertheless consider it more realistic and logical that, in choosing to exempt "real property," Congress should have intended to exclude also such a virtual fee simple estate as a 999-year lease than that it should have considered it as subject to the fact of enjoyment and the theory of situs like an automobile or a share of stock. It is "not probable that Congress intended in this modern taxing act to use the phrase * * * in the technical nicety of the common law with respect to interests*59 in lands flowing from a system of feudal tenure which did not exist in this country after the American Revolution." Jones v. Magruder, supra; cf. Helvering v. Hallock, supra;National Memorial Park, Inc. v. Commissioner (C. C. A., 4th Cir.), 145 Fed. (2d) 1038; certiorari denied, 324 U.S. 858">324 U.S. 858.
This view seems to us not foreclosed, but, indeed, fortified by an examination of Carrie S. Fair, Executrix, supra, both as disposed of by the then Board of Tax Appeals and upon reversal by the Third Circuit. The subject matter there in controversy was Cuban "hipotecas," liberally defined as mortgages, collectible only from the proceeds of the land. The Board reasoned that "These 'hipotecas' * * * were debts due the decedent," and, since "a debt has a situs for taxation at the domicile of the creditor," Congress, "in providing for the * * * computation of the tax on other property passing from the decedent, did so in the light of the above rule in the United States as to the situs for taxation of debts * * *." Upon review, the Court *60 of Appeals placed more weight upon the connection with real estate, and held: "As real property situated outside the United States the value of the hypotecas [sic] should have been excluded from the decedent's gross estate * * *."
But to us the significance of both opinions is the effort to capture the essential nature of the rights as to which transferance by death was being taxed. Concluding, as we do, that the transfer of a 999-year *786 lease of real property is essentially and realistically a transfer of the real estate itself, it follows that the leases in controversy are encompassed within the term "real property situated outside of the United States," as that phrase is used in section 811, and hence are to be excluded from the estate.
Decision will be entered under Rule 50.