Where testator died before July 1, 1902, but creditors had the
right, under the local law, as in Pennsylvania, to file claims
within a year, and legatees cannot demand payment out of the
personal estate until after ascertainment that there is a residue
available for payment of legacies, the interests of the legatees
were not absolutely vested in possession or enjoyment prior to July
1, 1902, and the tax paid on such legacies under the War Revenue
Act of 1898 should, pursuant to § 3 of the Act of June 27, 1902, be
refunded.
United States v. Jones, ante, p.
236 U. S. 106,
followed, and
Hertz v. Woodman, 218 U.
S. 205, distinguished.
201 F. 1021 affirmed.
The facts, which involve the construction of the War Revenue Act
of 1898 and the refunding act of June 27, 1902, are stated in the
opinion.
Page 236 U. S. 565
MR. JUSTICE VAN DEVANTER delivered the opinion of the Court.
Whether a succession tax collected under §§ 29 and 30 of the Act
of June 13, 1898, 30 Stat. 448, 464, c. 448, shall be refunded is
the matter here in controversy. The facts bearing upon its solution
are these: Ferdinand J. Dreer, a resident of Philadelphia,
Pennsylvania, died May 24, 1902, leaving a will directing that
certain legacies be paid out of his personal estate to two sons and
two grandchildren. The executors took charge of the property and
proceeded to administer it under the supervision of the orphans'
court, as the local law required, first for the benefit of the
creditors and next for the benefit of the legatees. The former had
a year within which to file their claims, and the latter were not
entitled to demand payment of the legacies until that time expired,
and then only in the event there was a residue available for the
purpose.
Jones' Appeal, 99 Pa. 124, 130;
Rastaetter's
Estate, 15 Pa.Super.Ct. 549, 553-555. On July 1, 1902, a date
the importance of which will be seen presently, less than two
months of the prescribed year had passed, and whether there would
be a residue for the payment of legacies was as yet undetermined.
In July, 1903, the Collector of Internal Revenue demanded of the
executors a succession tax of $1,692.75 on account of the legacies,
and the tax was paid under protest. Shortly thereafter, the
executors sought in the appropriate way to have the tax refunded,
but the request was denied, and they then sued the collector to
recover back the amount. In the circuit court, the executors
prevailed, and the judgment was affirmed by the circuit court of
appeals. 201 F. 1021.
By § 29 of the Act of 1898, an executor, administrator, or
trustee having in charge a legacy or distributive share exceeding
$10,000 in actual value arising from personal
Page 236 U. S. 566
property and passing from a decedent to another by will or
intestate laws was subjected to a tax graduated according to the
value of the legacy or distributive share, but that section was
repealed by the Act of April 12, 1902, 32 Stat. 96, c. 500, with a
qualification that the repeal should not be effective until July 1
following, and should not prevent the collection of any tax imposed
prior to the latter date. Next came the Act of June 27, 1902, 32
Stat. 406, c. 1160, the third section of which reads as
follows:
"That in all cases where an executor, administrator, or trustee
shall have paid, or shall hereafter pay, any tax upon any legacy or
distributive share of personal property under the provisions of the
Act approved June thirteenth, eighteen hundred and ninety-eight,
entitled, 'An Act to Provide Ways and Means to Meet War
Expenditures, and for Other Purposes,' and amendments thereof, the
Secretary of the Treasury be, and he is hereby, authorized and
directed to refund, out of any money in the Treasury not otherwise
appropriated upon proper application being made to the Commissioner
of Internal Revenue, under such rules and regulations as may be
prescribed, so much of said tax as may have been collected on
contingent beneficial interests which shall not have become vested
prior to July first, nineteen hundred and two. And no tax shall
hereafter be assessed or imposed under said Act approved June
thirteenth, eighteen hundred and ninety-eight, upon or in respect
of any contingent beneficial interest which shall not become
absolutely vested in the possession or enjoyment prior to said July
first, nineteen hundred and two."
As the context shows, the word "vested" in the first sentence
has the same meaning as "absolutely vested in possession or
enjoyment" in the second (
Vanderbilt v. Eidman,
196 U. S. 480,
196 U. S. 500;
United States v. Fidelity Trust Co., 222 U.
S. 158), and the words "contingent" and "absolutely
vested in possession or enjoyment" are used
Page 236 U. S. 567
antithetically, and applied to both legacies and distributive
shares. What is meant by "contingent" is indicated by the phrase
with which it is contrasted and by its application to distributive
shares as well as to legacies. The only sense in which the former
are contingent -- and it is practical, rather than technical -- is
that they come into being only where, in due course of
administration, the debts of the deceased are ascertained and it is
found that a surplus remains for distribution. It is in this sense
that the word is applied to distributive shares, and, of course, it
is applied to legacies in the same way. In speaking of this
section, we said in
United States v. Jones, 236 U.
S. 106:
"It deals with legacies and distributive shares upon the same
plane, treats both as 'contingent' interests until they 'become
absolutely vested in possession or enjoyment,' directs that the tax
collected upon contingent interests not so vested prior to July 1,
1902, shall be refunded, and forbids any further enforcement of the
tax as respects interests remaining contingent up to that
date."
That case related to a tax collected upon distributive shares in
an estate in Pennsylvania. The intestate had died before July 1,
1902, but the time for presenting claims against the estate had not
expired prior to that date, and therefore what, if any, surplus
would remain was still uncertain, and the heirs were not as yet
entitled to a distribution. It was accordingly held that the
distributive shares did not become "absolutely vested in possession
or enjoyment" before July 1, 1902, but remained contingent in the
sense of the statute, and consequently that the tax should be
refunded. The present case differs from that only in the fact that
here, the tax was collected upon legacies. This difference is not
material. The refunding act deals with both in the same way, and
the local law subordinates the rights of legatees to those of
creditors in like manner as it does the rights of distributees. It
follows that the tax here in question must be refunded.
Page 236 U. S. 568
The case of
Hertz v. Woodman, 218 U.
S. 205, is relied upon by the government, as it was in
United States v. Jones, supra, but, for reasons there
given, we think it is not in point here.
Judgment affirmed.
MR. JUSTICE McREYNOLDS took no part in the consideration and
decision of this case.