
    NELS S. NYBERG, AS ADMINISTRATOR OF THE ESTATE OF PETER BERGMAN, v. THE UNITED STATES
    
    [No. H-441.
    Decided June 18, 1928]
    
      
      Mr. Marrvin Farrington for the plaintiff. Mr. Harry Faber 'White and. Mills <& Mills were on the brief.
    
      Mr. Dwight E. Borer, with whom was Mr. Assistant Attorney General Hermoim, J. Galloway, for the defendant.
    
      
       Certiorari denied.
    
   Moss, Judge,

delivered the opinion of the court:

Peter Bergman died intestate and without issue in the State of Nebraska, leaving surviving him a widow, Mary Bergman, and certain collateral kindred. His estate consisted of both real and personal property. Letters of administration were issued to plaintiff, Neis S. Nyberg, who in due time filed an estate-tax return, which included the value of all property, real and personal, left by the decedent, and paid the tax shown to be due, $14,692.30. Upon audit and review the Commissioner of Internal Revenue determined the gross value of the estate to be $549,157.16, the net estate $472,022.04, and the total tax $14,821.32, making an additional tax of $129.03, which was paid by plaintiff. On December 15, 1926, plaintiff filed a claim for refund based on the grounds, (1) that the value of the interest of the widow, and (2) the value of the homestead should not have been included in the gross estate. The commissioner rejected the first contention and allowed the second in the sum of $110.98. The question for determination is whether or not the value of the interest of the widow, Mary Bergman, in her husband’s estate should be included in his gross estate for estate-tax purposes. The question involved is controlled by sections 402 and 403 of the revenue act of 1921, 42 Stat. 278, the applicable portions of which are as follows:

“ Sec. 402. That the value of the gross estate of the decedent shall be determined by s including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated—
“(a) 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 part of his estate;
“(&) To .the extent of any interest theiein of the surviving spouse, existing at the time of the decedent’s death as dower, curtesy, or by virtue of a statute creating an estate in lieu of dower or curtesy; * *

Section 408 of the revenue act of 1921 provides, in part as follows:

“ That 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, * * *, losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualty, or from theft, when such losses are not compensated for by insurance or otherwise, and such amounts reasonably required and actually expended for the support during the settlement of the estate of those dependent upon the decedent, as are allowed by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered, but not including any income taxes upon income received after the death of the decedent, or any estate, succession, legacy, or inheritance taxes; * *

Dower and curtesy in the State of Nebraska were abolished by statute. In lieu thereof the Nebraska statute on the subject, section 1220 of the Compiled Statutes of Nebraska, in making provision for the descent of real property when the husband or wife survive, provides that subject to his or her debts, and the right of homestead, such property shall descend “ one-half to the husband or wife, if there be no children nor the issue of any deceased child or children, surviving.” It is the contention of plaintiff that the “interest ” of the widow in the property of the decedent existing at the time of the decedent’s death was in the nature of a vested estate, or, as described in plaintiff’s brief, a vested ownership, according to the laws of the State of Nebraska, and that such property did not come to her through the death of her husband either by inheritance or as a distributive share in his estate, and that the effect of the inclusion of such an interest in the gross estate of the decedent is to authorize a direct tax, and is, therefore, an unconstitutional exercise of the taxing powers of the Government. We are unable to agree with this contention.

The “ interest ” of the widow, Mary Bergman, in the real property of her husband, was an interest created by statute in lieu of dower. Under section 1220 of the Nebraska statute, real estate of which the deceased is seized at the time of his death passes by descent, subject to his or her debts. Upon the decease of the husband, if his personal property is not sufficient for the payment of the family allowance, debts, funeral charges, and expenses of administration, any part, or all, of the real estate may be sold and the proceeds applied to those purposes. If there is a residue, and only in that event, the statute provides that it “ shall descend ” to designated beneficiaries. It is at no time during the life of the husband a vested estate or a vested ownership. It will be seen at once that this interest does not have the certainty of the right of dower of which the wife may not be deprived, except by her own express consent. Section 402 (a), above quoted, mentions three conditions for determining the character of the property, the value of which should be included in the gross estate, (1) that it be subject to the payment of the debts of the decedent; (2) that it be subject to the payment of administration expenses; (3) that it be subject to distribution. The property under discussion was subject to each of these conditions. Under section 1222 of the Nebraska Statutes, which deals with the distribution of personal property, it is provided in the sixth clause thereof, The residue, if any, of the personal estate shall be distributed, in the same proportions to the same persons as prescribed for the descent of real estate.” (Our italics.) The property in question passed to the widow as a distributee. Under the Nebraska statute, the “ interest ” of Mary Bergman was a mere right to inherit. The tax under consideration is not a tax on property. It is an excise tax imposed on the transfer of the “ net estate ” of the decedent. In arriving at the “ net estate ” for the purpose of computing the tax, Congress deemed it proper to include in the gross estate the value of all property, real ca* personal, tangible or intangible, including in specific terms any interest of the surviving spouse in any of said property, and, resorting again to specific terms, “ as dower, curtesy, or by virtue of a statute creating an estate in lieu of dower or cwtesy.” The constitutionality of this statute is well established in a long line of cases, in which the general principles which must control the decision in this case, have been considered. See New York Trust Co. v. Eisner, 256 U. S. 345; Edwards v. Slocum, 264 U. S. 61; United States v. Robbins, 269 U. S. 315. Numerous other cases might be cited.

Plaintiff depends chiefly on Frick v. Lewellyn, 298 Fed. 803; Munroe v. United States, 10 Fed. (2d) 230, Strahan v. Wayne, 93 Neb. 828, 142 N. W. 678. In the Frick case it was sought to impose the estate tax upon life insurance taken out by the decedent payable to his wife and daughter. The value of these policies, in excess of $40,000, under a provision of the statute now being considered had been included in the gross estate. The court properly held that the right of the beneficiaries did not spring from the death of the testator, but arose from the contracts of insurance, and that the provision in question was, in effect, the levying of a direct tax, and was therefore unconstitutional. The distinction between that case and the instant case is too obvious to require discussion. The decision in the Munroe case supports plaintiff’s contention that the tax under consideration is a direct tax. This decision is, however, contrary to the principles announced by the United States Supreme Court in the decisions above cited, and in others not enumerated. It is stated in plaintiff’s brief that the writ of error in this case was dismissed on motion of the Solicitor General. It is explained in defendant’s brief that the Government inadvertently prosecuted a direct appeal to the United States Supreme Court, when the case should have been appealed to the Circuit Court of Appeals, and for this reason the appeal had to be dismissed. In the Strahan case the court construed the Nebraska inheritance tax law and held that the interest of a surviving spouse is not taxable under that law. While it announced certain rules as to the nature of the right of a surviving spouse, no question was involved as to the authority of Congress to include in the gross estate the value of an interest which is distributed to the surviving spouse out of the estate of the deceased. If, however, this decision could properly be construed as sustaining plaintiff’s contention^ it is, like the Munroe case, out of harmony with the ruling of the United States Supreme Court, and has no binding force on this court.

For the reasons hereinabove set forth, the court is of the opinion that the interest of the widow, Mary Bergmon, in the estate of her deceased husband, Peter Bergman, was properly included in the gross estate of said decedent. The petition will be dismissed, and it is so adjudged and ordered.

Booth, Chief Justice, concurs.

Graham, Judge, took no part in the decision of this case.

Green, Judge,

concurring:

The contention on behalf of plaintiff concisely stated is that in Nebraska the wife is the owner in common with her husband of the property which but for her marriage would be his alone, and his death merely extinguishes his right in the portion thereof which is then set apart to her. It is therefore insisted that her distributive share is not covered by the Federal estate tax, and if it is, the tax to that extent is a direct tax, and is unconstitutional and void. In support of this claim of ownership in the wife which is repeatedly made in the argument on behalf of plaintiff, a decision of the Nebraska court is cited which is claimed to be controlling and binding upon this court.

That the Federal courts are not always bound by the construction of a State statute made by the Supreme Court of the State in which such statute was enacted would seem to follow from the decision in the case of Burk-Waggoner Oil Association v. Hopkins, 269 U. S. 110. Conceding, however, as I think we should, that a rule of property announced by a State court in construing a statute of its State must be followed by the Federal court in such a case as the one at bar, there still remains much more to be considered. It is sometimes difficult to determine what the State courts have actually held, for the reason that the language of the opinion considered may not be clear, or it may appear that implications drawn from it appear to be in conflict with other decisions of the same court and the law as universally accepted in the State where the opinion is rendered. Even when a conclusion is reached as to what the State court has held, it becomes necessary to consider whether it has any application to the case which is under consideration by the Federal court.

Such is the situation with reference to the decision of the Nebraska Supreme Court in the case of the Estate of Straban, 93 Neb. 828, upon which plaintiff’s case is based and which the United States District Court for the District of Nebraska cited as an authority in the case of Munroe v. United States, 10 Fed. (2d) 230, a case which was not reviewed by the Supreme Court for the reason that counsel for the Government mistook the remedy.

The report of the Strahan case discloses a very peculiar record. The question in the case to be determined by the Nebraska court was whether the statutes of that State imposed an inheritance tax on the distributive share which the widow received out of the estate of her husband upon his death. What is sometimes referred to as.the majority opinion of the court held that her share was not subject to such a tax, reversing the lower court. Another judge dissented entirely; a third did not sit; a fourth judge (Sedgwick) concurred in the result but construed the Nebraska statute and said that, “Under this act * * * the surviving spouse ‘ succeeds ’ to the rights which the statute gives in the property that was held in the name of the decedent,” basing this statement upon the title of the act which was, “An act to provide for succession to the estates of decedents and to repeal [sections named].” If this be a correct construction of the Nebraska law, it would seem to need no argument to show that the decision does not support plaintiff’s case; although in the same opinion it is held, concurring with what is called the majority opinion, that the inheritance tax law of Nebraska does not apply to the widow’s interest. The remaining judge dissented expressly from the majority •opinion in so far as it held that personal property of the estate was not subject to an inheritance tax and dissented also with the argument made in the concurring opinion that the inheritance tax should not apply to property acquired by succession. His opinion also states (referring to Nebraska statutes) :

The ¿inheritance tax law makes all property taxable which shall pass by will or by the intestate laws of this State.’ The succession law of 1907 is indubitably £ the intestate law of this State.’ In fact, it is now the only intestate law there is in this State, and is clearly included within the terms of the taxing statute.”

No opinion was expressed by him as to the effect of the statute on real estate other than as contained in the quotation above set forth. It is obvious that the opinion last referred to is an authority for the application of the Federal tax instead-of against it.

All that can be ascertained from the conflicting opinions in this case is that two judges concurred in holding that the Nebraska inheritance law did not apply to the widow’s distributive share. As this conclusion was reached from the application of different and inconsistent principles, I am unable to understand how it can be said that the Supreme Court of Nebraska has laid down a rule of property which must be followed in the case at bar; and if it did, I would ask from which opinion the rule is taken, and what the rule is.

An examination of the Stratum, case shows that in none of these conflicting opinions is it held that the ownership of the property distributed to the widow existed in her prior to the death of her husband. On the contrary, in both the State and Federal cases from Nebraska which are relied upon by plaintiff her right is spoken of as “ inchoate.” In other words, she had nothing but an expectancy. Some reliance has been placed on a statement in what is called the majority opinion that the “ effect of the Nebraska decedent .law ” is practically the same as that where community property prevails. This may be true so far as exemptions from State inheritance tases are concerned. So also it is said in the-same opinion that the interest of the wife is similar to that of a “ silent partner.” Similar it may be in some respects,, but as the Nebraska courts have held and still hold that the-husband is not a mere agent or partner, these loose expressions ought not to be interpreted as meaning that the husband' is either an agent for, or a partner of, his wife in regard to the property which may subsequently be distributed to her by reason of his death.

In the concurring opinion by Judge Sedgwick it is also-said, “The policy of our law, as developed by legislation from time to time, has been more and more to place husband', and wife upon an equality as to their property, and to regard each as interested in the property held in the name of either.” But this is far from saying that actual ownership-existed as it does in the case where property is held in common. In fact, the same opinion says that “ Under this act the husband and wife are placed upon an exact equality as-to the rights of each in the property of the other ” (italics mine), which is equivalent to saying that property allotted' the wife was not hers, but was owned by her husband up-to his death. This construction accords with the words of' the Nebraska statute, which as recited therein applies to “ real estate of which the deceased is seized at the time of his death ” (italics mine), and also says that such property “ shall descend ” to designated beneficiaries, and provides for-the distribution of the personal property. That the husband can not deprive the wife of her interest by will is immaterial. This is true as to the dower right which the Nebraska statute abolished and which is still prevalent in-many States, and this dower like the rights conferred by the Nebraska statute, is transmitted by operation of law and not by any act of the decedent. Further on in this opinion the effect of the transfer of the husband’s property at his-death by “ operation of law ” will be considered. Enough has, I think, been presented to show that the Strahan case does not support plaintiff’s contention. A later case is cited by counsel for plaintiff as affirming the Strahan case, but an examination of the opinion therein shows that the subject.. case and nothing contained in the decision has any application to the case at bar.

Counsel for plaintiff call attention to the fact that the Federal tax is upon the transfer of the net estate, and it is argued that this requires a transfer by the decedent in order that the tax may be applicable, and that as the distributive share of the widow came to her by operation of law it is not covered by the Federal tax. This argument appears to me to be based upon an entire misconception of the Federal estate tax and the principles upon which it is based, an error which runs all through the argument of plaintiff.

In considering this question it ought to be kept in mind that the Federal tax is not a tax upon the property although it is often spoken of as su,ch for the reason that the tax is paid out of the estate. In Knowlton v. Moore, 178 U. S. 41, it is said:

“ 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 court also quotes from Hanson’s Death Duties the following:

“ What it taxes is not the interest to which some person succeeds on a death, but the interest which ceased by reason of the death.”

FYirther on in the same case it is also stated that the act of 1864 added a duty on the passing of real estate, so that a system prevailed by which there was a probate duty charged upon the whole estate, a legacy duty upon legacies or distributive shares, and a succession duty charged against each interest in real property. All through this case inheritance and succession duties as to real property are treated as being on the same footing and all of the taxes referred to above are spoken of as being valid and constitutional.

Conceding for the purposes of the argument that the widow in Nebraska does not take her distributive share by virtue of inheritance but simply by operation of law, there can be no question but that the Federal law applies to the estate which she received.

It is true that the a transfer of the net estate,” but there can be no claim that there was not a transfer when the widow received her share. The “ net estate ” is ascertained by taking what is included in the “ gross estate ” and then deducting certain exemptions and allowances. In fact, the words “ net estate ” used in the Federal statute have a special meaning very different from their ordinary use and are often misunderstood by those not skilled in law. It is not the net value of the estate that the decedent owned, but a sum made up by subtracting from the “ gross estate ” these exemptions and allowances. The “ gross estate ” likewise has a special meaning given it by the act and it includes any interest acquired by the surviving spouse existing “ at the time of the decedent’s death * * * by virtue of a statute creating an estate in lieu of dower or curtesy.” The statute expressly says:

“ The term net estate ’ means the net estate as determined under the provisions of section 403.”

Section 403 provides that the value of the net estate shall be determined as stated above.

While the statute imposes a tax only upon the “ transfer of the net estate” it should be observed that it does not require that the transfer should be made by the decedent. The transfer referred to is unmistakably the “ transfer or receipt of the property as the result of death.” This clearly appears from the language of the statute in specifying the items which make up the gross estate. No reference therein is made to a transfer by the decedent except in one separate paragraph applying to a particular condition.

If the rule was, as contended on behalf of plaintiff, that the Federal tax does not apply to property which was not transferred by the husband and passed by operation of law, it would lead to some very absurd results. In fact, it would be easy to avoid the Federal tax entirely by making no will, in which event all of the property would pass by “operation of law.” The part received by the children or parents in the estate of the decedent as well as that of collateral heirs would all be determined by the law of the domicile of the decedent and a tax upon the estate would be futile. Such a principle carries its own refutation.

Congress in framing the estate tax had other decisions which sustained it.

In New York Trust Co. v. Eisner, 256 U. S. 345, 348, Knowlton v. Moore, supra, is affirmed and it is said, quoting in part from that case, that it “ treated the ‘ power to transmit or the transmission or receipt of property by death ’ as all standing on the same footing.” In this decision the practical and historical grounds of this tax were alluded to, doubtless for the reason that they had prevailed for more than a hundred years, and it is said that “ upon this point a page of history is worth a volume of logic.”

Surely a “ transfer ” is included in a “ transmission.” That there was a transmission of the property does not seem to me to admit of discussion. The husband’s ownership— and I think it clear that he did have an ownership of the property subsequently apportioned to his wife — ceased by death and was transmitted or transferred to his wife.

Frick v. Lewellyn, 298 Fed. 803, is cited by plaintiff’s attorneys as authority for their contention, but in my view it has no application to the case now under consideration.

In the Frick case no property of the decedent passed by reason of his death. His death merely matured a contract for the payment of money — not to his estate but to certain beneficiaries. The only connection which his death had with the matter was to fix the date at which the insurance policies in question matured and the time at which they were payable.

It seems to me clear that the Federal inheritance tax was especially intended and written to cover such cases as the one at bar and to meet and avoid the objections made to the tax in the argument on behalf of plaintiff.

There remains only the question arising upon the constitutionality of the tax with respect to its admeasurement. Here again the argument for its unconstitutionality is based upon a misconstruction of the Federal statute. In New York Trust Co. v. Eisner, supra, it is said “ For if the tax attaches to the estate before distribution — if it is a tax on the right to transmit, or on the transmission at its beginning, obviously it attaches to the whole estate except so far as the statute sets a limit.” (Italics mine.) The whole estate was transferred upon the death of the husband, part of it distributed by operation of law, but what is there in this that should exclude this part from taxation or prevent its being included with the rest of the estate in admeasuring the tax? The value of all the property transferred or of any part thereof bears a reasonable relation to the admeasurement of the tax. The fact that the widow may have had some interest therein which under the Nebraska statute she was liable to lose by death or by judicial sale might be a reason for reducing the tax if Congress saw fit, but does not prevent this value from being used for the purpose of admeasuring the tax. If the tax was upon the property, the rule would be different, but it still remains an excise, not upon the property but upon its transmission, and every principle that sustains the estate tax in any respect sustains this application of it.  