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Estate of Charlotte D. M. Cardeza v. United States

decided: November 14, 1958.

ESTATE OF CHARLOTTE D. M. CARDEZA, DECEASED. FIDELITY-PHILADELPHIA TRUST COMPANY, EXECUTOR, APPELLANT IN NO. 12569
v.
UNITED STATES OF AMERICA, APPELLANT IN NO. 12570



Author: Staley

Before GOODRICH, STALEY and HASTIE, Circuit Judges.

STALEY, Circuit Judge.

These appeals present another aspect of the litigation regarding the taxes paid by the Cardeza Estate. The decedent, during her lifetime, transferred a substantial amount of money to a trust established by the will of her father. The decedent's children and their issue were the primary beneficiaries of one-third of this trust. However, if the decedent survived all her children and their issue she became entitled to the income of that share for life with a testamentary power of appointment over the corpus.

In an earlier opinion, Cardeza's Estate v. C.I.R., 1949, 173 F.2d 19, 9 A.L.R.2d 1368, this court held, inter alia, that the decedent's contributions to the share of the trust here involved were includible in her estate as a transfer in contemplation of or intended to take effect in possession or enjoyment at or after death, within the meaning of Section 811 (c) of the Internal Revenue Code of 1939. Under that section property thus transferred was includible in the transferor's gross estate regardless of the value of the reversionary interest.

Subsequent to our decision, Congress enacted the Technical Changes Act of 1949, 63 Stat. 891. Section 7 (a) of the Act amended Section 811 (c) of the Internal Revenue Code of 1939 to provide special tax treatment for a limited class of property transferred on or before October 7, 1949.*fn1 Where the transfer was intended to take effect in possession or enjoyment at or after the transferor's death, the property would not be includible in the gross estate unless the transferor retained an express reversionary interest, the value of which immediately prior to his death exceeded 5 per cent of the value of the property transferred . Relying upon Section 811 (c), as so amended, taxpayer filed a claim for refund with the Commissioner of Internal Revenue. The claim was disallowed by the Commissioner and taxpayer commenced this suit for refund.

The taxpayer moved for summary judgment, which motion was granted by the district court. Judgement was entered in favor of the taxpayer in the amount claimed with interest at 6 per cent computed from the date of the payment of the tax. On appeal by the government, this court vacated the judgment and remanded the cause to the district court for further proceedings.*fn2 The taxpayer renewed its motion for summary judgment. The district court thereupon entered judgment for the taxpayer without interest on the overpayment and rendered an additional opinion explaining the denial of interest.*fn3

These cross appeals followed. Taxpayer's appeal relates solely to the disallowance of interest on the overpayment. The government contends that the district court erred in holding that a reversionary interest such as this is not susceptible of valuation in accordance with "usual methods * * * including the use of tables of mortality and actuarial principles."

Section 7 (a) of the Technical Changes Act provides that the value of the reversionary interest is to be determined "by usual methods of valuation, including the use of tables of mortality and actuarial principles." The Conference Committee Report explains the intention of Congress even more clearly when it states:

"The rule of Robinette v. Helvering (318 U.S. 184 [63 S. Ct. 540, 87 L. Ed. 700]), under which a reversionary interest not having an ascertainable value under recognized valuation principles is considered to have a value of zero, is to apply."*fn4

A regulation issued by the Commissioner of Internal Revenue is substantially similar in portent.*fn5

Robinette v. Helvering, 1943, 318 U.S. 184, 63 S. Ct. 540, 87 L. Ed. 700, concerned the valuation of a contingent reversionary remainder dependent upon survivorship by the grantor of her daughter without issue who should reach the age of 21 years. The Court concluded, 318 U.S. at page 189, 63 S. Ct. at page 542, that the

"Actuarial science may have made great strides in appraising the value of that which seems to be unappraisable, but we have no reason to believe from this record that even the actuarial art could do more than guess at the value here in question."

Appended to the government's opposition to taxpayer's motion for summary judgment in the district court was an affidavit of an actuary. The actuary, purportedly utilizing the latest actuarial tables and approved actuarial principles, fixed an "at least" valuation on the reversionary interest retained by the decedent of 7.976 per cent of the value of the estate. The government here contends that by this affidavit there arose a question of fact which had to be resolved by trial and thus necessarily precluded the district court from entering summary judgment. It, however, fails to recognize that for the purpose of passing upon the motion for summary judgment the district court considered the opinion of the actuary contained in the affidavit and concluded that no weight could be given to it for the reasons set forth in its opinion. This is made clear by the district court in its opinion wherein it states:

"Thus the taxpayer must demonstrate to the court's satisfaction that the best that the actuarial art can do toward establishing the value of the reversion is no more than a guess, but if he can do that by the admitted facts and the defendant's evidence, he need not ...


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