The opinion of the court was delivered by: MURPHY
This is an action by the executors of the estate of Josiah C. Thaw for a refund of an estate tax deficiency.
The decedent died March 15, 1944, and thereafter an estate tax of $ 420,309.17 was duly paid. After an audit of the return plaintiffs received a thirty-day letter on October 23, 1946, wherein they were advised that the Treasury was asserting a deficiency based upon, among other items, the full value of a trust created by the decedent on December 30, 1935. This amount was 'included under the provisions of § 811(c) of the Internal Revenue Code' of 1939, 53 Stat. 121, 26 U.S.C.A. § 811(c). The executors thereupon filed a protest objecting inter alia to the inclusion of any part of this trust in the gross estate, and more particularly to the refusal to deduct the value of the life estate. Thereafter plaintiffs participated in a series of conferences with the Technical Staff. On July 11, 1947, plaintiffs, by their attorney, wrote to Mr. Kluttz of the Technical Staff proposing that the issues be compromised by including the remainder value of the trust in the gross estate. On September 26, 1947, plaintiff signed the following waiver which was accepted by Mr. Kluttz on December 8, 1947.
'Offer of Waiver of Restrictions against Immediate Assessment and Collection of Deficiency in Estate Tax
'Head of Division 'District of -- Third New York
'Pursuant to the provisions of Section 871(d) of the Internal Revenue Code (26 U.S.C.A. § 871(d)), the undersigned Executors of the Estate of Josiah C. Thaw offer to waive the restrictions provided in Section 871(a) of the Internal Revenue Code, and consent to the assessment and collection of a deficiency in estate tax in the sum of $ 37,564.15, together with interest thereon as provided by law.
'It is understood that evidence of payment of estate, inheritance, legacy or succession taxes to any of the several States, Territories, or the District of Columbia, as required by Section 81.9 of Regulations 105, will be filed with the Bureau of Internal Revenue at Washington, D.C., as promptly as practicable.
'This Offer of Waiver of Restrictions is subject to acceptance by or on behalf of the Commissioner of Internal Revenue, on the basis of the adjusted liability as hereinabove proposed, and is to take effect as such only from the date said adjusted liability is accepted by or on behalf of the Commissioner as a basis for closing the case, and if not thus accepted will have no force or effect.
'If this proposal is accepted by or on behalf of the Commissioner, the case shall not be reopened nor shall any claim for refund be filed or prosecuted respecting the taxes for the above-named estate, in the absence of fraud, malfeasance, concealment or misrepresentation of material fact, or of an important mistake in mathematical calculations, except that a claim for refund may be filed with respect to any overpayment resulting from the allowance of any credit under Section 813(b) of the Internal Revenue Code [26 U.S.C.A. § 813(b)], and the Executors also agree, upon request of the Commissioner, to execute at any time a final closing agreement as to the estate tax liability, on the foregoing basis, under the provisions of Section 3760 of the Internal Revenue Code [26 U.S.C.A. § 3760].
'Bank of New York 'By (Name indecipherable) 'Trust Officer 'Executor '(Sgd) Margaret Thaw Morris 'Executor 'Date Sep 26 1947.'
The deficiency was thereafter paid with interest.
Subsequently Congress amended § 811(c) of the Internal Revenue Code of 1939 by 7 of the Technical Changes Act of 1949, 63 Stat. 894. This, in short, retroactively excluded from the gross estate of decedents making transfers before October 8, 1949, expressly created reversionary interests unless they exceeded 5 per centum of the value of the property. Plaintiffs, relying upon ...