*903 1. ESTATE TAX - NET ESTATE. - Held, in computing value of the net estate respondent erred in disallowing, under section 303(a)(1), Revenue Act of 1926, deduction of valid claims against the estate contracted bona fide and for an adequate and full consideration in money or money's worth, in excess of the value of assets of the estate available for the payment of such claims. Prior decisions followed.
2. STATUTORY CONSTRUCTION. - The Board may not construe a statute, plain and unambiguous in terms, so as to supply what is conceived to be an omission leading to mischievous and absurd results, by adding thereto in effect an additional or limiting provision. Crooks v. Harrelson,282 U.S. 55">282 U.S. 55; United States v. Goldenberg,168 U.S. 95">168 U.S. 95.
*251 This is a proceeding for the redetermination of the liability of the petitioner, under sections 315(b) and 316 of the Revenue Act of 1926, for a deficiency in estate tax of $93,610.40, alleged to be due from the estate of George K. O'Donnell, deceased. The sole issue*904 is whether respondent erred in disallowing as deductions, in computing the value of the net estate, the aggregate amount of funeral expenses and debts of the decedent which constituted valid claims against the estate, contracted bona fide and for an adequate and full consideration in money or money's worth, in excess of the value of the assets of the estate available for the payment of such claims.
FINDINGS OF FACT.
Petitioner is an individual, residing in the Borough of Manhattan, New York City. The decedent, George K. O'Donnell, died March 18, 1933. Petitioner received $732,681.66 as a beneficiary of insurance on the life of the decedent, which amount was included by respondent in the value of the gross estate.
The funeral expenses of George K. O'Donnell, deceased, amounted to $862.25, and were paid by the petitioner, and the amount thereof was fair and reasonable.
The following debts of said George K. O'Donnell, deceased, were contracted bona fide and for an adequate and full consideration in money or money's worth and were valid claims against his estate, and such claims were paid by the petitioner out of insurance proceeds *252 received by her as a beneficiary*905 of insurance taken out by the decedent upon his life:
| American Seal-Kap Corporation of Delaware, balance due by | |
| deceased as per books | $13,476.01 |
| Dr. M. J. Fien, professional services | 20.00 |
| Doctors Hospital, board, etc | 25.00 |
| Katherine Hayes, nurse | 16.00 |
| Anne J. Carrigg, nurse | 8.00 |
| Dr. John E. Hammett, professional services | 305.00 |
| Dr. Lewis Stevenson, professional services | 200.00 |
| Earl Benham, tailor | 170.00 |
| Abbotts Dairies, Inc., promissory note of deceased, with | |
| interest to March 18, 1933 | 25,325.00 |
| First Mortgage Securities Corporation on account of | |
| judgment against decedent (item 4 of obligations listed | |
| in stipulation III) | 7,500.00 |
| Total | 47,045.01 |
At the time of his decease, said George K. O'Donnell was personally obligated to each of the following named creditors in the amounts hereinafter stated, and each of said liabilities of the decedent was contracted by him bona fide for an adequate and full consideration in money or money's worth, and was a valid claim against his estate:
| Collector of internal revenue, 1st dist., New York | $902.46 |
| City of New York, 1930 personal tax | 759.63 |
| Great Neck Trust Co | 13,796.87 |
| First Mortgage Securities Corporation | 73,469.34 |
| Great Neck Trust Co. and/or Robert J. Kiesling | 1,476.06 |
| Barclay's Bank | 1,850.00 |
| Milton P. Kupfer | 1,300.00 |
| Harry Winston | 2,263.80 |
| Chelsea Second National Bank, Atlantic City, N.J | 2,508.90 |
| American Auction Sales Co | 150.00 |
| National Dairy Products Corporation | 26,353.21 |
| The Beach Club, Palm Beach, Florida | 10,885.00 |
| Normandie National Securities Corporation | 4,501.17 |
| Chase National Bank | 9,000.00 |
| Great Neck Trust Co | 10,116.67 |
| A. L. Rankin | 250.00 |
| Total | 159,583.11 |
*906 Prior to his death, said George K. O'Donnell, deceased, was in sole control of two corporations, the Egroe Corporation and Washington Co., Ltd. He was the president of both corporations at the time of his death. He owned all of the common stock of Washington Co., Ltd., and 196 shares of the preferred stock thereof out of a total of 200 shares issued and outstanding, the remaining four shares of preferred stock having been used to qualify the directors. All of the stock of the Egroe Corporation was owned by said Washington Co., *253 Ltd. The obligations of said corporations, hereinafter set forth, were evidenced by promissory notes which were given to the respective creditors. The obligations were contracted by said corporations bona fide for an adequate and full consideration in money or money's worth. The creditors required the decedent to, and the decedent did, either endorse or guarantee the payment of said notes, and the obligations of the decedent, as the endorser or guarantor on the notes, constitute valid and legal claims against the estate of the deceased. Both of said corporations were absolutely insolvent and without any assets at the time of the death of*907 the decedent:
| The Egroe Corporation to National Dairy Products Corporation | $3,550.50 |
| Washington Co., Ltd., to Chase National Bank | 220,638.81 |
| Washington Co., Ltd., to National Safety Bank & Trust Co | 91,384.64 |
| Washington Co., Ltd., to National Safety Bank & Trust Co | 12,188.95 |
| Washington Co., Ltd., to Royal Bank of Canada | 145,679.81 |
| Washington Co., Ltd., to Royal Bank of Canada | 2,202.94 |
| The Egroe Corporation to Bank of Great Neck | 23,482.50 |
| The Egroe Corporation to Burne & Bowman, Inc | 2,716.74 |
| Total | 501,844.89 |
Subsequent to the death of the decedent, the American Seal-Kap Corporation of Delaware and the First Mortgage Securities Corporation each threatened to commence legal proceedings to collect from the petitioner the amount of their claims out of the insurance moneys received by the petitioner, and, because of such threatened proceedings, petitioner made the two payments of $13,476.01 and $7,500, respectively, to these creditors set forth above.
At the time decedent borrowed from Abbotts Dairies, Inc., the sum of $25,000, decedent, with the permission of the petitioner, deposited with said creditor, as security, jewelry belonging to petitioner which*908 was then worth more than the amount of the loan, and after the death of the decedent, petitioner, in order to secure the return of her jewelry, paid to Abbotts Dairies, Inc., $25,000, plus interest thereon at 6 percent from January 1, 1933, to the date of payment.
Under the laws of the State of New York, where decedent resided at the time of his death, life insurance payable to a specific beneficiary is not subject to the payment of the debts of the decedent, nor of the charges against his estate.
At the date of his death, the decedent owned certain shares of corporate stock which possessed a total value, as determined by respondent in computing the deficiency tax set forth in the deficiency notice, of $55,573. Said shares of stock, together with a credit balance of $38.34 with the Chase National Bank, constituted all the property of value of which decedent died possessed. All of said shares of stock had been deposited by the decedent with certain *254 of the creditors enumerated above, as collateral security for the payment of such obligations.
OPINION.
HILL: Petitioner's decedent died leaving assets subject to the payment of funeral expenses and claims against*909 the estate in the total amount of $55,611.34. The parties have stipulated, and we have so found, that the funeral expenses amounted to $862.25, which amount was fair and reasonable, and that there were valid claims against the estate, contracted bona fide and for an adequate and full consideration in money or money's worth, in the total amount of $708,473.01, or an aggregate of funeral expenses and claims in the amount of $709,335.26.
Respondent disallowed the deductions claimed for funeral expenses and debts of the decedent in excess of the amount of $55,611.34, representing the value of the assets subject to the payment of such items. Petitioner received the proceeds of certain policies of insurance on the life of the decedent, and concedes that she is liable for whatever estate tax deficiency may be due, but contends that the deficiency should be computed by allowing as deductions from the gross estate the full amount of the funeral expenses and claims as stipulated by the parties and set out in our findings of fact above.
Under the laws of the State of New York, where decedent died, the life insurance received by petitioner was not subject to the payment of decedent's debts*910 nor of the charges against his estate.
The Revenue Act of 1926, in so far as pertinent here, is quoted in the margin. 1
The question presented in this case has heretofore been considered and decided by us, in harmony with petitioner's contention, in ; ; . See also .
However, in the instant proceeding, respondent presents a new thesis with such insistence as to merit specific consideration*911 and discussion. While respondent does not argue that the deductions in controversy do not come within the letter of the quoted statute, he says that it is an established rule of statutory construction that the *255 intent of the legislature should govern; that the intendment of the Federal estate tax statute is to impose an excise upon the donative transfer of property at death; that in addition to exemptions, including $40,000 of insurance proceeds received by a specific beneficiary, there is excluded from the measure for the tax property set aside for public and charitable uses, as well as all property which does not pass as a gratuity, leaving as the measure for the tax only the property which passes from the decedent to others as a gift.
Respondent, therefore, argues in effect that to allow the deductions claimed by the petitioner would be to permit a corresponding amount of property to pass from decedent to another as a gift without being taxed, which would defeat the object and purpose of the statute and lead to an absurdity.
In *912 , the collector there urged substantially the same argument as is presented by the Commissioner here. In rejecting such theory, the Court in part said:
It is urged, however, that, if the literal meaning of the statute be as indicated above, that meaning should be rejected as leading to absurd results, and a construction adopted in harmony with what is thought to be the spirit and purpose of the act in order to give effect to the intent of Congress. The principle sought to be applied is that followed by this court in * * *. But a consideration of what is there said will disclose that the principle is to be applied to override the literal terms of a statute only under rare and exceptional circumstances. The illustrative cases cited in the opinion demonstrate that, to justify a departure from the letter of the law upon that ground, the absurdity must be so gross as to shock the general moral or common sense. Compare *913 . And there must be something to make plain the intent of Congress that the letter of the statute is not to prevail. .
* * * But an application of the principle so nearly approaches the boundary between the exercise of the judicial power and that of the legislative power as to call rather for great caution and circumspection in order to avoid usurpation of the latter. * * * It is not enough merely that hard and objectionable or absurd consequences, which probably were not within the contemplation of the framers, are produced by an act of legislation. Laws enacted with good intention, when put to the test, frequently, and to the surprise of the lawmaker himself, turn out to be mischievous, absurd, or otherwise objectionable. But in such case the remedy lies with the lawmaking authority, and not with the courts. [Citing authorities.]
The effect of respondent's argument is that we should supply what he conceives to be an omission in the statute by adding the provision that the net estate*914 should be determined by deducting claims, within the limitations stated, only to the extent of the value of the assets or property available to pay them. In , the Court commented on this point as follows:
The primary and general rule of statutory construction is that the intent of the lawmaker is to be found in the language that he has used. He is *256 presumed to know the meaning of words and rules of grammar. The courts have no function of legislation, and simply seek to ascertain the will of the legislator. It is true there are cases in which the letter of the statute is not deemed controlling, but the cases are few and exceptional, and only arise when there are cogent reasons for believing that the letter does not fully and accurately disclose the intent. No mere omission, no mere failure to provide for contingencies, which it may seem wise to have specifically provided for, justify any judicial addition to the language of the statute.
Respondent's contentions can not be sustained, and on authority of the decisions hereinabove cited, his action in the instant case is reversed.
Judgment will*915 be entered under Rule 50.
Footnotes
1. 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, * * * to the extent that such claims * * * were incurred or contracted bona fide and for an adequate and full consideration in money or money's worth, * * * as are allowed by the laws of the jurisdiction * * * under which the estate is being administered * * *. ↩