The opinion of the court was delivered by: BARD
This is an action by the surviving executor of the estate of Charles W. Tindle, deceased, to recover a refund of federal estate taxes which it paid. I make the following special
1. The plaintiff is the surviving executor of the estate of Charles W. Tindle, deceased, who died February 15, 1937.
2. Belle McGill Tindle, the other executor of the estate, died July 24, 1941.
3. The plaintiff and Bell McGill Tindle, as executors of this estate, executed under oath an estate tax return, Form 706, for the estate, wherein they exercised the option granted by Section 302(j) of the Revenue Act of 1926 as amended by Section 202(a) of the Revenue Act of 1935, 26 U.S.C.A.Int.Rev.Code, § 811(j), to have the property included in the gross estate of the decedent valued as of one year after the decedent's death.
4. At the time the estate tax return in this case was filed on May 12, 1938, Article II, Reg. 80 (1937) of the Treasury Department and the instructions contained in Form 706 required executors exercising the option to include in the gross estate interest and dividends collected and accrued upon bonds and stocks between the date of the decedent's death and the optional valuation date.
5. As then required by Article II, Reg. 80 (1937) of the Treasury Department and by the instructions contained in Form 706, the plaintiff and Belle McGill Tindle, executors, included in Schedule B of the return as part of the value of the gross estate of the decedent, interest and dividends aggregating $ 31,219.56 collected and accrued upon stocks and bonds between the date of the decedent's death and the optional valuation date, and attached to Schedule B, as part of the return, a rider reading as follows:
'In this return the Executors elect to have the property included in the gross estate valued as of the date one year after the decedent's death, with the exceptions provided in Section 302(j), as enacted by Section 202(a) of the Revenue Act of 1935. Since the Regulations provide that in case of such election, the income received by the Executors, between the date of the decedent's death and the optional valuation date, shall be included, this return complies with that requirement but, in so doing, the Executors desire to state that such income is included only under protest.
'Not only is it clear from the text of the Act that such income, while subject to Income Tax, is not subject to Estate Tax, but this natural and obvious meaning of the Act was emphasized by the report of the Conference Committee which framed the provision in the question. The Managers on the part of the House, in their explanatory statement, set forth a schedule showing exactly how the Estate Tax should be computed in case the subsequent valuation date is elected and from this schedule it was clearly apparent that no income should be included.
'Therefore, the Executors respectfully request the Commissioner of Internal Revenue to reconsider the utterly unfounded Regulation in the light of these facts and to adjust the tax upon this decedent's estate accordingly.'
6. Plaintiff and Belle McGill Tindle, as executors of the estate, duly filed the estate tax return, including the above rider as part thereof, with the Collector of Internal Revenue at Philadelphia on May 12, 1938, and simultaneously paid to the Collector the sum of $ 98,318.08.
7. The Office of the Internal Revenue Agent in Charge, Philadelphia Division, made an examination of the above mentioned estate tax return and proposed a deficiency of $ 394.68, which deficiency the plaintiff and Belle McGill Tindle, as executors of the estate, paid to the Collector of Internal Revenue at Philadelphia, Pennsylvania, on December 13, 1938, together with interest at $ 13.66, the total payment being $ 408.34.
8. On March 3, 1941, the Supreme Court of the United States in the case of Maass, Executor v. Higgins, 312 U.S. 443, 61 S. Ct. 631, 85 L. Ed. 940, 132 A.L.R. 1035, held where an executor elects under Section 302(j) of the Revenue Act of 1926 as amended, to have the estate valued as of one year after death, rents, dividends and interest accrued and received between the time of death and the time of such valuation are not to be included as part of the value of the gross estate and that Article II, Reg. 80 (1937) of the Treasury Department to the contrary was invalid.
9. Treasury Decision 5047 which was duly approved on May 22, 1941, and was filed with the Division of the Federal Register on May 24, 1941, amended Article II, Reg. 80 ...