*2250 1. Real estate which under State statutes is not subject to administration expenses can not be included as part of decedent's gross estate under the Revenue Act of 1924.
2. The amount of an unpaid mortgage upon such real estate held not deductible from decedent's gross estate under section 303(a)(1) of the Revenue Act of 1924.
3. Petitioners sold decedent's real estate located in Missouri and the State court allowed them commissions because of such sale. Held, such commissions are not deductible from decedent's gross estate within the meaning of section 303 of the Revenue Act of 1924.
4. During 1925 petitioners paid State and city taxes assessed for that year against decedent's real estate. The real estate was not subject to Federal estate taxes. It was not shown that any lien existed for the amount of the taxes paid, nor that any personal obligation to pay them had accrued against decedent prior to his death. Held, the amount so paid is not deductible from decedent's gross estate.
5. Held, that the dower rights of the widow became consummate immediately upon decedent's death, and although she later elected to take under the will, the value of*2251 such dower interest should be included in decedent's gross estate.
6. Upon the evidence, held, that the value of certain life insurance policies should be included in decedent's gross estate under section 302(g) of the Revenue Act of 1924.
*132 This is a proceeding for the redetermination of a deficiency in estate tax asserted by the respondent in the amount of $3,016.83. The errors alleged were that respondent included as part of the gross estate of Philip A. McDermott, deceased: (1) The value of real estate situated in Missouri and belonging to decedent at the time of his death; and (2) the amount of widow's dower interest in the estate of said decedent. Petitioners abandoned the second contention, but respondent presents it as an issue.
Respondent now concedes error in including the value of the Missouri real estate. He also alleges that he erred in (1) allowing as a deduction from the gross value of decedent's estate the amount of unpaid mortgages which encumbered said real estate; (2) allowing as a deduction the full amount of commissions*2252 allowed to the executors; (3) allowing as a deduction the full amount of State and city taxes paid by decedent's executors; and (4) failing to include as part of decedent's gross estate the full amount, in excess of $40,000, of the proceeds of life insurance policies receivable by beneficiaries other than decedent's estate.
Petitioners deny that errors were committed by the respondent as he alleges, and allege that there is an overpayment of the tax.
FINDINGS OF FACT.
Philip A. McDermott, who was a resident of the city of St. Louis, Missouri, died on August 6, 1925. By his will he named as executors and trustees of his estate, Gertrude A. McDermott, his wife, Oreon E. Scott, and Oscar G. Hausner. Hausner died and Louis R. McDermott succeeded him as trustee.
Decedent, in his will, made several specific bequests. The rest and residue of his property, both real and personal, was left in trust for the benefit of decedent's wife, children and some other relatives. It was specified that decedent's widow was to receive $500, and the other cestuis que trust smaller amounts monthly. Decedent's gross estate was valued by respondent at $541,595.99.
*133 All other*2253 facts presented were stipulated by the parties as follows:
1. That the representative capacity of the petitioners, the date of death of the decedent, the administration of the petitioners under the will, their discharge as executors and services as trustees, residence of the petitioners, and the date of notice of deficiency, are as set forth in the original and/or amended petition.
2. That the taxes in controversy are Estate Taxes imposed by the Revenue Act of 1924.
3. That the total value of the Missouri real estate owned by the decedent at the time of his death amounted to $242,460; that the unpaid mortgages upon the property at date of death of the decedent amounted to $107,060.84, leaving an equity of the decedent in the said Missouri real estate of $135,399.16; that the said unpaid mortgages on the said real estate were liens and/or encumbrances against said real estate, the obligation for the payment of which was never assumed personally by the decedent; that the said real estate was acquired by the decedent during his lifetime, subject to the said mortgages; that the said mortgages were allowed by the respondent as a deduction from the gross estate of the decedent*2254 in arriving at the net estate for tax purposes; that the respondent does not contend that the said mortgages were other than bona fide mortgages contracted for fair consideration in money or money's worth.
4. That the decedent was survived by a widow and three (3) children; that the decedent died. leaving a last will and testament dated January 21, 1925, a true copy of which is attached hereto and made a part hereof as Exhibit "A"; that the widow took under the terms of said will; that under the laws of the State of Missouri the widow had a right to reject the will and a right of election to take under the laws of the State of Missouri; that had the widow elected to take under the laws of the State of Missouri the net value of her dower interest, as the surviving spouse, in the Missouri real estate belonging to the decedent at the time of his death would have been $33,270.75.
5. That there was paid at the time of the filing of the return for the estate of the decedent herein, the sum of $2,808.38 as estate taxes, for which the said estate is receiving credit.
6. That in his deficiency notice dated December 1, 1928, a copy of which is attached to and made a part of the original*2255 and amended petitions, the Commissioner allowed as deductions from the gross estate of the decedent, the sum of $23,734.35, representing commissions paid by the petitioners on account of disbursements by them in the course of administration of the decedent's estate; that the executors of the decedent's estate, during the course of administration thereof, received and disbursed the sum of $217,243.45, representing the proceeds received by the said executors from the sale of Missouri real estate belonging to the decedent at the time of his death; that as compensation for their services the executors were entitled to and received a commission of five per cent (5%) on all personal property or money arising from the sale of real estate.
7. That the deductions allowed by the Commissioner, in his deficiency notice dated December 1, 1928, a copy of which is attached to the original and amended petitions, from the gross estate of the decedent, included the sum of $6,085.20, representing State and City taxes paid by the petitioners for the year 1925 on account of the Missouri real estate belonging to the decedent at the time of his death.
*134 8. That at the date of decedent's*2256 death, the amount receivable by beneficiaries, other than his estate, as insurance under certain insurance policies taken out by the decedent upon his own life, had a value of $86,942.79, of which the amount of $19,228.91, was receivable under four (4) certain insurance policies taken out by the decedent upon his own life and in which the beneficiaries were named prior to the date of the enactment of the Revenue Act of 1918; that the said four (4) insurance policies are those described and identified as items five (5), six (6), seven (7) and eight (8) listed under the heading, "Mortgages, Notes, Cash and Insurance" on page 2 of the deficiency notice attached to and made a part of the original and amended petitions; that in determining the deficiency the respondent did not include in the gross estate as insurance receivable by beneficiaries other than the estate in excess of $40,000, or in any other manner, the value of the aforesaid four (4) insurance policies amounting to $19,228.91. Each of the four (4) insurance policies contained a provision reserving to the decedent the right, at any time, to change the beneficiaries thereof. The value of the said four (4) insurance policies, *2257 amounting to $19,228.91 was received by the beneficiaries. Section 6181 Revised Statutes of Missouri of 1919, now known as Section 5771 of the Revised Statutes of Missouri of 1929 shall be considered in evidence.
OPINION.
MARQUETTE: At the time of his death, Philip A. McDermott owned real estate located in Missouri of the value of $242,460. Against this real property there was a bona fide mortgage encumbrance amounting to $107,060.84. Under the Missouri statutes the real property was not subject to the expenses of administration of the estate; hence, it formed no part of McDermott's gross estate for Federal estate-tax purposes. . The value of such realty, therefore, should be excluded in computing the estate tax.
Petitioners contend that the amount of the mortgage encumbrance, $107,060.84, should be deducted from the gross estate of the decedent under section 303(a)(1) of the Revenue Act of 1924. They also insist that under the same statutory provisions there should be deducted from the gross estate: (1) the full amount of commissions which the State court allowed them as executors, including $10,862.17 allowed by reason*2258 of the sale of the Missouri real estate; and (2) the full amount of State and city taxes, aggregating $6,085.20, paid by them in 1925 on account of the Missouri real estate.
We can not agree with the petitioners respecting these contentions. The pertinent provisions of the Revenue Act of 1924, which is here effective, are as follows:
SEC. 301. (a) * * * a tax equal to the sum of the following percentages of the value of the net estate (determined as provided in section 303) is hereby imposed upon the transfer of the net estate of every decedent dying after the enactment of this Act, * * *
SEC. 302. 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 -
(a) *135 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 a part of his estate;
(b) To the extent of any interest therein of the surviving spouse, existing at the time of the decedent's death as dower, *2259 curtesy, or by virtue of a statute creating an estate in lieu of dower or curtesy.
* * *
SEC. 303. 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, administration expenses, claims against the estate, unpaid mortgages upon, or any indebtedness in respect to, property * * * to the extent that such claims, mortgages, or indebtedness were incurred or contracted bona fide and for a fair consideration in money or money's worth.
In the section last quoted the word "property" is not qualified in express terms. In our opinion, however, it refers to and includes only such property of a decedent as may be subject to Federal estate taxes. Clearly, the purpose of sections 302 and 303 of the Revenue Act was to provide a method for determining the net amount of a decedent's estate which may be subject to the tax imposed by section 301 of the act. To accomplish such purpose, section 302 prescribes what shall be included in the gross estate. That having been determined, section 303 sets forth what may be deducted from such gross estate*2260 in order to fix the amount of the net taxable estate of the decedent.
A similar question of interpretation arose in , where the court dealt with a statute concerning one who was summoned "as a witness by either House to give testimony or produce papers, upon any matter under inquiry before either House." The court said, at page 667:
It is true that the reference is to "any" matter under inquiry, and so on, * * * but nothing is better settled than that statutes should receive a sensible construction, such as will effectuate the legislative intention and, if possible, so as to avoid an unjust or absurd conclusion; and we think that the word "any" as used in these sections, refers to matters within the jurisdiction of the two Houses of Congress, before them for consideration and proper for their action.
Sections 302 and 303 of the Revenue Act of 1924 deal only with such property of a decedent as may, under the conditions prescribed, become subject to the Federal estate tax. They have no concern with any property not subject to such tax. Obviously, therefore, the words in those sections were used with reference to such taxable property, *2261 and to none other; and the deductions allowed in section 303 can only refer and apply to a gross estate as determined under *136 the provisions of section 302. A different interpretation, such as the petitioners are urging upon us, in our opinion would not be a sensible one, nor effective of the legislative intent. We hold, therefore, that the encumbrance against the real estate, which could not in any event be subject to Federal estate tax, was not a deductible mortgage upon property within the meaning of section 303. Cf. .
Nor can the amount of the mortgage be deducted as a claim against the estate. The obligation to pay off the mortgage indebtedness was not created or assumed by the decedent, did not rest upon him, and could not have been made the foundation of a personal judgment against him during his lifetime or of a claim against his estate.
Respecting commissions allowed to petitioners by the State court on account of the sale of decedent's real estate in Missouri, it is self evident that, since the real estate was not subject to administration expenses any charge or expense incurred in selling such property*2262 can not be classified as an expense of administration under the controlling revenue act. Nor were the commissions in question claims against the decedent's estate within the meaning of the revenue act. In , the court was passing upon a like question and defined the term "claims against the estate" as being "such demands or claims of a pecuniary nature, which could have been enforced against the decedent during his life." To the same effect are ; affd., ; and . As the obligation to pay the commissions in question did not accrue during the decedent's lifetime, nor as a part of the administration of his estate, we hold that the amount of such commissions, $10,862.17, is not deductible from the gross estate for the purpose of Federal estate taxes.
As to the deduction of the amount of State and city taxes against decedent's real estate paid by petitioners, their argument is that all taxes are a lien upon the property of the owner from and after June first of the year in which*2263 levied; that the taxes in question constituted a lien on decedent's property at the time of his death and were, therefore, a claim against his estate.
We are not impressed by the argument. Section 9746 of the Missouri Statutes, cited by petitioners as creating a lien for taxes on June first, makes no mention of a lien at all. It does provide that whoever owns property on June first shall be liable for taxes thereon for the ensuing year. The record is silent as to the date when McDermott acquired the land in question. If it was subsequent to June 1, 1925, then under the statute relied upon by petitioners the tax liability rested not upon McDermott, but upon a predecessor in title. And it is well established that taxes do not become liens even *137 upon the property upon which they are assessed unless made so by statute. ; . The two decisions relied upon by the petitioners are both based upon the fact that the State taxes had become a lien against the estates of the respective decedents prior to the time of death. In the present proceeding no such*2264 fact is established.
The Missouri Revised Statutes of 1919, section 12803, declare that:
Each tract of land or lot shall be taxable with its own taxes, no matter who is the owner, nor in whose name it is assessed.
Other provisions are that when, on January first, land becomes delinquent for nonpayment of taxes, the collector shall bring suit for the amount and shall sell the land to satisfy the judgment for taxes. Sections 12928, 12944 and 12946. It is thus apparent that real estate taxes and the enforced collection thereof are, in Missouri, matters in rem rather than in personan, and such taxes fall within the same category as mortgages against the real estate, so far as concerns their deductibility under section 303 of the revenue act. Hence, in computing the net estate of the decedent the amount of the real estate taxes paid by the petitioners may not be deducted.
The next question is whether there should be included in decedent's gross estate the net value of the interest which the widow would have received as dower had she elected to take under the State statutes. Those statutes, so far as here pertinent, provided as follows:
SEC. 315. DOWER IN REAL ESTATE*2265 - Every widow shall be endowed of the third part of all the lands whereof her husband * * * was seized of an estate of inheritance, at any time during her marriage, to which she shall not have relinquished her right of dower, in the manner prescribed by law, to hold and enjoy during her natural life.
SEC. 316. WIDOW HAS RIGHT TO TRANSFER HER UNASSIGNED DOWER INTEREST - Any widow shall have the right to transfer and assign her unassigned dower interest in the real estate of which her husband died seized, * * *
* * *
SEC. 328. LAND PASSING BY WILL HELD IN LIEU OF DOWER - If any testator shall, by will, pass any real estate to his wife, such devise shall be in lieu of dower out of the real estate of her husband whereof he died seized, or in which he had an interest at the time of his death, unless the testator, by his will, otherwise declared.
SEC. 329. RENUNCLATION OF WILL - In such case the wife shall not be endowed in any of the real estate whereof her husband died seized or in which he had an interest at the time of his death, unless she shall, by writing duly executed and acknowledged as in the case of deeds for land, and filed in the office of the court in which the*2266 will is probated and recorded within twelve months after the proof of the will, not accept the provisions made for her by said will. * * *
The net value of the interest in question was $33,270.75. Petitioners contend that, because the widow did not renounce the will as *138 provided in the statute quoted above, but elected to take under it, she therefore had no dower interest or statutory interest in lieu thereof in decedent's estate. Respondent urges the view that the widow's dower interest, which was inchoate but not defeasible by the husband during his life, became consummate at the instant the husband died and that when, thereafter, she elected to take under the will instead of under the statute, she purchased the benefits under the will.
In our opinion the respondent's contention is correct. By section 302(b) of the Revenue Act of 1924 the value of a decedent's gross estate shall include the dower interest of the surviving spouse, and that right is not limited, as in section 302(a), to only so much of decedent's estate as is subject to payment of charges, administration expenses, and to distribution. Under section 315 of the Missouri Statutes the widow had an*2267 indefeasible dower right in the land of which her husband died seized. At once upon the death of the husband that dower right became consummate, vesting in her a definite right of property. She was not obligated to retain that right, but might transfer it even before the dower to which she was entitled was assigned to her. In the present proceeding such a transfer, or what was equivalent thereto, took place when the widow accepted the provisions of her husband's will and failed to file a written renunciation thereof within the statutory period of twelve months. Several of the Circuit Courts of Appeal have held, in cases similar, that acceptance of an annunity in lieu of dower amounted to a purchase of such annuity by the relinquishment of dower. ; ; . In the latter case the court said that, as the dower interest "was her individual property on her husband's decease, and as she elected to take the annuity provided in his will, it is quite too clear for argument she was a purchaser*2268 for value of the annuities."
We conclude, therefore, that the widow of Philip A. McDermott became vested with a dower interest in the real estate owned by him at his death; and that the value of that interest, amounting to $33,270.75, should be included in the gross estate of the decedent for Federal estate-tax purposes.
In respect of the last question presented, it appears that decedent left insurance policies upon his life receivable by beneficiaries other than his estate, of the aggregate value of $86,942.79; that four of the policies, amounting in value to $19,228.91, were omitted by respondent in determining the total gross estate of the decedent. Respondent now contends that such omission was error on his part and asks that it be rectified.
*139 Section 302(g) of the Revenue Act of 1924 provides that there shall be included in the gross estate the amount of insurance upon decedent's life in excess of $40,000 which may be receivable by beneficiaries other than the estate; and paragraph (h) of that section makes paragraph (g) applicable to all cases arising either before or after that act was enacted. The date of enactment was June 2, 1924.
Each of the policies*2269 in question contained approvision reserving to the decedent the right, at any time, to change the beneficiaries thereof. That right was limited, however, by the Missouri Statutes, which provided that if a wife were named as beneficiary the husband could not change the beneficiary and name a creditor in place of the wife unless the wife gave her written consent.
Petitioner's argument is based upon the assumption that in the four policies in question decedent named his wife as beneficiary. There is nothing in the record before us to warrant such assumption. Nowhere in the evidence submitted is there any intimation as to who were the beneficiaries of those policies, except that they were other than decedent's estate. So far as the record discloses, decedent had full power to cancel the policies, or change the beneficiaries to whomsoever he chose. He thus had complete dominion and control over the policies at all times, and the fact that he may not have exercised his right to change beneficiaries can not in any way affect the situation. Upon the face of the record his right to change beneficiaries was not minified up to the very moment of his death. The case of *2270 , which is relied upon by the petitioners, is not in point, for the basic principle of that decision is that a named beneficiary, under a policy which does not reserve to the insured a right to change beneficiaries, has a vested right which can not be taken away without consent. In the present proceeding the right to change beneficiaries was reserved to the insured, subject only to a statutory limitation which, so far as the record discloses, has no application here. Clearly, the value of the policies in question should be included in decedent's gross estate, for those policies formed a part of his life insurance in excess of $40,000. This principle has been asserted in many decisions. Cf. ; ; ; ; ; *2271 ; ; and .
Reviewed by the Board.
Decision will be entered under Rule 50.
SEAWELL dissents.