Before SWAN, MEDINA and WATERMAN, Circuit Judges.
Edward F. Pipe deceased on September 20, 1948 domiciled in the State of New York. He was survived by his widow, Nettie M. Pipe, who became executrix of his estate. The executrix petitions us, pursuant to sections 7482 and 7483 of the 1954 Internal Revenue Code, 26 U.S.C.A.§§ 7482, 7483, to review a Tax Court decision reported in 1955, 23 T.C. 99. This decision holds that the decedent's estate tax was overpaid in the amount of $114.76, but since the Tax Court took into account a sum of $19,310.29 deposited by taxpayer solely to stop the running of interest, the determination actually was a finding of an estate tax deficiency in the amount of $19,195.53. This deficiency results from the denial by the Commissioner of a deduction of $141,473.55 claimed under section 812(e) of the Internal Revenue Code of 1939, as amended in 1948, 26 U.S.C.A. § 812(e). The deduction was sought with respect to a bequest by decedent to his surviving spouse of a legal life estate in personalty that had been valued for federal estate tax purposes at $217,429.84, coupled with unlimited powers in the widow to invade during her lifetime, but with remainders over to named legatees as to any residue left at her death.
The pertinent provisions of the will are as follows:
"Third: All the rest, residue and remainder of my estate, of whatsoever nature and wheresoever situated, hereinafter referred to as my 'residuary estate,' I give, devise and bequeath to my wife, Nettie M. Pipe, to have and to hold the same for the term of her natural life, with full power to use, enjoy, sell or dispose of the income and principal thereof, or any part thereof for such purposes or in such manner, as she in her uncontrolled discretion may choose, it being my desire to place no restraint on her in any respect concerning the absolute right of full disposition and use of the whole or any part of said income or principal of my residuary estate, except that she shall have no power over the disposition of such part thereof as remains unexpended at the time of her death.
"I direct that my said wife shall not be required to file any bond or other security for the protection of any remainderman interested in my said residuary estate, and she shall not be limited in investing and reinvesting the same to securities of the kind authorized by law for the investment of trust funds. During the life of my said wife, any stocks, bonds or other securities may be registered in the name of my said wife alone as if she were the absolute owner of such property, and no one dealing with her with respect to my residuary estate shall be responsible for the application of any proceeds of sale or other disposition of property.
"Fourth: On the death of my said wife * * * I give and bequeath all * * * of the property which can be identified at my wife's death as a part of my residuary estate * * * absolutely, to [certain named legatees]."
The appellant's first principal contention is that this bequest qualifies for the so-called marital deduction under subsection 812(e) (1) (A) of the 1939 Code inasmuch as the life tenancy it creates is equivalent to absolute ownership of the principal of the bequest. Appellant relies on section 149 of the New York Real Property Law, McKinney's Consol. Laws, c. 50, which is also applicable to personal property. In re Dean's Estate, 1938, 166 Misc. 499, 2 N.Y.S2d 757. Section 149 provides:
"Where an absolute power of disposition, not accompanied by a trust, is given to the owner of a particular estate for life or for years, such estate is changed into a fee absolute in respect to the rights of creditors, purchasers and incumbrancers, but subject to any future estates limited thereon, in case the power of absolute disposition is not executed, and the property is not sold for the satisfaction of debts."
It is argued that under the law of New York this particular bequest created a fee absolute interest in the widow and that New York law determines the legal characterization of the bequest because the testator died domiciled in New York.
The appellant argues that the person who has a fee in respect to the rights of his creditors under section 149 has a fee for all practical purposes. This position is untenable, however, because one of the most significant elements of absolute ownership is the power of the owner to determine to whom the property shall pass upon his death. Section 149 specifically protects the interests of remaindermen limited after a life tenancy in the event the life tenant does not fully dispose of the property during his lifetime . Since Mrs. Pipe cannot make a testamentary disposition of any part of this estate, her interest is not converted into a fee simple absolute by section 149.*fn1 Terry v. Wiggins, 1872, 47 N.Y. 512; In re Alimann's Will, Sur., 1953, 128 N.Y.S.2d 204.
The appellant's second main contention is that this bequest, if it does not convey a fee simple absolute, qualifies for the marital deduction under ...