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LANGFITT v. UNITED STATES

December 28, 1970

Joseph A. LANGFITT, Jr., Executor under the Will of Caroline O. Markel, Plaintiff,
v.
UNITED STATES of America, Defendant


Gourley, District Judge.


The opinion of the court was delivered by: GOURLEY

This action is brought by the executor of the estate of Caroline O. Markel to recover federal estate taxes alleged to have been wrongfully collected by the Internal Revenue Service. The decedent, a resident of Pittsburgh, Pennsylvania, died testate on June 19, 1965. Plaintiff, the duly qualified executor of the estate, timely filed a federal estate tax return wherein he reported no federal estate taxes payable. Upon auditing the return, the Commissioner of the Internal Revenue Service, through his agents, disallowed a charitable deduction to which plaintiff had asserted the estate was entitled by virtue of Paragraphs 4 and 5 of the Will. A deficiency was assessed. Plaintiff paid the deficiency with interest, filed a timely claim for refund with the Internal Revenue Service, and instituted the instant action in this Court to recover a tax erroneously collected. Jurisdiction exists under 28 U.S.C. ยง 1346.

 Defendant filed an Answer to the Complaint, a Stipulation of Facts was filed, and the matter subsequently was heard non-jury by this member of the Court. Upon review of the pleadings, Stipulation of Facts, testimony adduced at trial and the law applicable herein, the Court concludes that judgment must be entered in favor of the defendant.

 The essential facts are these. The decedent executed her Will on December 12, 1964, providing for numerous specific bequests in Paragraph 3 thereof and bequeathing the residuary in Paragraphs 4 and 5 as follows:

 
"4. I give and bequeath the residue of my estate to the Trustees hereinafter named, in trust however, to create a fund to be called the 'Clyde Markel Fund'. Said Trustees shall invest its fund in prudent securities and use the income therefrom to pay the initiation fees and dues for students who have been pledged to join the Phi Delta Fraternity but cannot afford such costs. Should said Trustees ever determine that there is no longer need for such trust, they shall remit such fund to the General Council of said Fraternity.
 
5. I appoint Harbaugh Miller, Esquire, Humbert Bianchi and Joseph A. Langfitt, Jr. Esquire, all of Pittsburgh, Pennsylvania, Trustees of the above named fund, and give to them the power of self perpetuation."

 It is agreed by the parties that, in referring to "Phi Delta Fraternity," the decedent clearly intended to designate the organization properly known as Phi Delta Theta Fraternity.

 The Phi Delta Theta Fraternity was founded at Miami University, Oxford, Ohio, in 1848. It was incorporated under the laws of the State of Ohio on March 12, 1881. The purposes of the Fraternity include "literary improvement and social culture" as well as other purposes typical of college fraternities. The Fraternity has applied for and been granted an exempt status, for purposes of the federal income tax, as a social and recreational association. However, it has never sought an exemption as a charitable or educational institution.

 The decedent died on June 19, 1965. Thereafter, on January 18, 1966, the Trustees named in Paragraph 5 of the Will conducted an organizational meeting wherein they adopted and reduced to writing regulations to govern the administration of the trust established in Paragraph 4 of the Will. By the regulations, the Trustees provided that stipends would be paid from the income of the trust fund to various chapters of the Fraternity upon appropriate applications being submitted by the Presidents or Treasurers thereof. Under the trust regulations, grants were to be sought on behalf of particular members and/or pledges of the various chapters, and the applications were to include statements as to the needs of such persons for financial assistance in paying their dues and/or initiation fees.

 Plaintiff filed his first and final account as executor of the estate of the decedent in the Orphans' Court of Allegheny County, Pennsylvania. At the audit, conducted on September 18 and October 23, 1967, the individual Trustees under the Will presented a "Petition for Award of Residue to Phi Delta Theta Educational Foundation." It was alleged in said Petition that ascertainment of those members and pledges of the Fraternity needing financial assistance in the payment of their dues and initiation fees was a task beset with difficulties so great as to render administration of the trust impractical if not impossible. Accordingly, the Trustees requested that they be relieved of the duty of administering the trust in the manner provided in Paragraph 4 of the Will and asked that the residue of the estate be awarded, in lieu thereof, to the Phi Delta Theta Educational Foundation.

 In the Orphans' Court proceeding, an appearance was entered by the Attorney General of the Commonwealth of Pennsylvania. The United States was not a party, although counsel for the Internal Revenue Service was present as an observer. The Orphans' Court received the testimony of the Executive Secretary of Phi Delta Theta, one of the original trustees of the Phi Delta Theta Educational Foundation, and the plaintiff. Thereafter, on October 23, 1967, the Orphans' Court granted the Trustees' Petition, stating in its Order as follows:

 The Phi Delta Theta Educational Foundation was incorporated in Ohio under the Ohio Non-Profit Corporation Law, and its purpose is stated in its Articles of Incorporation as follows:

 
"The purpose for which this corporation is formed is to provide for the advancement of learning, particularly in colleges and universities in which chapters of the Phi Delta Theta Fraternity are active, through the granting of scholarships or other aid to deserving students in such colleges and universities and through the extension of financial or other ...

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