The opinion of the court was delivered by: BRENNAN
This is an action to recover $ 2,128,252.97 estate taxes alleged to have been illegally assessed against and collected from the estate of Rosamond Gifford, deceased.
The merits involve the single issue as to whether or not the residuary bequest and devise in the will of the deceased are allowable as a charitable deduction under the provisions of Sec. 812(d) of the Internal Revenue Code of 1939, 26 U.S.C.A. § 812(d). The problem centers upon provisions of the will of the decedent which provide that the residue and remainder of her estate shall become the property of a corporation to be 'created, managed and operated exclusively for religious, educational, scientific, charitable or benevolent uses'. The issue arises by reason of the decision of the Commissioner of Internal Revenue that the use of the word 'benevolent' as above, properly construed and applied, removes the corpus of the residue as an allowable deduction from the taxable estate.
A question of jurisdiction of this court is also raised by the defendant which is based upon two contentions. (1) That since plaintiff has petitioned the Tax Court to review a second deficiency assessment of estate taxes in this estate (not directly involved in this action), this court has lost jurisdiction under the provisions of Sec. § 7422(e) of the Internal Revenue Code of 1954, 26 U.S.C.A. 7422(e); (2) That not having paid the second deficiency assessment, the plaintiff may not maintain this action. Flora v. United States, 357 U.S. 63, 78 S. Ct. 1079, 2 L. Ed. 2d 1165.
The consideration of the above questions requires a factual background which was presented to the court by stipulations of facts received as exhibits and oral testimony presented upon the trial which was held before the court without a jury. The question of jurisdiction was actually raised by two procedures. The defendant, by formal notice of motion, moved for the dismissal of the complaint for lack of jurisdiction, the motion being returnable on May 9, 1958. The plaintiff filed answering affidavits and prior to the return date of the motion, it was agreed that all questions would be submitted to the court upon the trial of the action. Accordingly, the facts, especially as to jurisdiction, are understood to include those disclosed in the moving and opposing papers used upon the motion to dismiss since the trial record refers only briefly to said motion. A summary of the essential facts, gathered as above, is set out below.
Rosamond Gifford died testate on April 15, 1953, a resident of Oneida County, New York. Her only heirs were removed by at least five degrees of relationship or consanguinity. The will of the decedent was duly probated and eventually the present plaintiff was appointed and is duly acting as the administrator with the will annexed of the estate of the deceased. An estate tax return was filed on January 7, 1955 in which the residuary estate in the value of $ 4,071,543.43 was claimed as a charitable deduction as per the provisions of Sec. 812(d) of the Internal Revenue Code of 1939. This claimed deduction is based principally upon the provisions of paragraph 7 of the will of the decedent which is set out in the footnote below.
In accordance with the provision of the will, above referred to, the Rosamond Gifford Charitable Corporation was organized on June 23, 1954 pursuant to the Membership Corporations Law of the State of New York, McKinney's Consol.Laws, c. 35. On August 1, 1956, the United States Treasury Department issued its ruling letter which in substance exempted the income of any bequests, legacies and transfers to said corporation as exempt from taxation under the provisions of the applicable statutes. After the transfer of the residuary funds of the estate to the corporation, it proceeded to function in accordance with the powers granted, the details of which are unnecessary at this time.
The estate tax, as computed by the taxpayer upon the basis of the return filed as above in the amount of approximately $ 400,000, was paid. On March 13, 1957, a statutory notice of deficiency in the tax return as filed, in an amount in excess of $ 2,000,000 was given to the plaintiff by the defendant and a proposed deficiency assessment in the amount of $ 1,858,246.16 plus interest was indicated. The deficiency, above referred to, and the proposed deficiency assessment arises by the refusal of taxing authorities to allow the residue of the estate of the decedent in the amount of $ 4,071,543.43 as a charitable deduction.
On March 15, 1957, the plaintiff executed a waiver of the restrictions upon assessment and collection of the said deficiency and same was thereafter assessed and demand for payment made. On March 29, 1957, the aggregate amount of the deficiency assessment was paid under protest to the District Director of Internal Revenue at Syracuse, N.Y. Claim for refund was made and after the lapse of over six months, without action, on the part of the Bureau of Internal Revenue, this action was commenced on October 22, 1957. Two days later on October 24, 1957, the claim for refund was disallowed by the District Director at Syracuse.
The above outline of facts principally concern the merits of this litigation. Additional facts follow which are particularly pertinent to the jurisdictional questions raised.
Under date of December 16, 1957 an additional or second notice of a deficiency in the estate taxes was mailed to the representatives of the estate of the above deceased. This notice followed the usual form which is generally referred to as a ninety-day letter. The deficiency, referred to therein, is in the amount of $ 303,707.11 and arises by reason of the disallowance of a credit for New York State inheritance taxes which had been previously allowed, anticipated by the assumption that such tax would be paid to the state, such indebtedness to the state being computed upon the basis that the residue of the estate was not an allowable deduction from the taxable estate as a charitable gift. This deficiency is referred to in the first notice in a somewhat different amount. (The amount is not in controversy here). It is recited therein that such deficiency may be eliminated by payment of the additional amount due the state and filing evidence of such payment with its bureau in accordance with Regulation 105, Sec. 81.9.
On March 10, 1958 the taxpayer filed a petition in the Tax Court alleging the pendency of this action, setting forth the facts and asserting that the Commissioner of Internal Revenue is in error in determining the maximum credit for New York estate taxes to which the estate is entitled under 813(b) Internal Revenue Code, 26 U.S.C.A. § 813(b). The petition prays that the asserted deficiency be expunged.
On April 8, 1958 an answer was filed in behalf of the Commissioner which denies error in the matter of the asserted deficiency.
The issues raised as above are pending undetermined in the Tax Court. The amount of the second alleged deficiency has not been paid. The additional estate tax which might be due the State by reason of the disallowance of the charitable gift has also not been paid.
The challenge to this court's jurisdiction will be first considered; the same will require a reference to the applicable statutes and an amplification of the facts as above stated.
The defendant relies upon the provisions of 26 U.S.C.A. § 7422(e) as ousting this court of the jurisdiction previously acquired. The pertinent provision of the section follows: 'If the taxpayer files a petition with the Tax Court, the district court * * * shall lose jurisdiction of taxpayer's suit to whatever extent jurisdiction is ...