In assessing the "Estate Tax" under the "Revenue Act of 1918,"
40 Stat. c. 18, Title IV, charitable bequests which are deductible
from the gross estate in fixing the net taxable estate should be
deducted without any diminution on account of the tax itself, even
though, being residuary, they will ultimately bear the tax burden.
P.
264 U. S. 62.
Cf. Young Men's Christian Assn. v. Davis, ante,
264 U. S. 47.
287 F. 651 affirmed.
Certiorari to a judgment of the circuit court of appeals
affirming a judgment of the District Court for the plaintiffs in
their action to recover from the Collector the amount of a tax paid
under protest.
MR. JUSTICE HOLMES delivered the opinion of the Court.
This is a suit brought by the respondents, executors of the will
of Mrs. Sage, to recover the amount of a tax paid under protest.
The tax was levied under the act of February 24, 1919, c. 18, §
401, 40 Stat. 1057, 1096,
Page 264 U. S. 62
which imposes upon "the transfer of the net estate of every
decedent dying after the passage of this Act" taxes equal to
specified percentages of the net estate determined as provided in §
403. Mrs. Sage left an estate of $49,129,256.99. She bequeathed
specified sums amounting to $1,285,000 for charitable purposes,
$8,618,079.55 for purposes other than charitable, and the residue
to charitable and educational institutions named. It is admitted
that, in estimating the tax now in question, there is to be
deducted from the gross estate the sum of $3,789,321.74 for debts
and expenses and the charitable gifts of $1,285,000. These, with
the gifts to individuals above stated, would leave a residue of
$35,436,855.70, which the executors contend is exempt by the
statute. Adding to the sums admitted to be exempt the residue thus
arrived at and the statutory exemption of $50,000, the amount for
which exemption is claimed will be $40,561,177.44, leaving a
taxable remainder of $8,568,079.55. The government required the
payment of an additional sum reached by deducting from the exempted
estate the amount of the tax to be paid, or, in other words, adding
the amount of the tax to the taxable estate. The suit is to recover
this additional sum. The executors prevailed in the district court
and circuit court of appeals after a discussion with which the
government well might have remained satisfied. 287 F. 651.
The government's argument turns largely upon the consideration
that a residue is only what is left after the payment of paramount
claims. But this is not a tax upon a residue, it is a tax upon a
transfer of his net estate by a decedent, a distinction marked by
the words that we have quoted from the statute, and previously
commented upon at length in
Knowlton v. Moore,
178 U. S. 41,
178 U. S. 49,
178 U. S. 77. It
comes into existence before, and is independent of, the receipt of
the property by the legatee. It taxes, as Hansen, Death Duties,
puts it in a passage
Page 264 U. S. 63
cited in 178 U.S.
178 U. S. 49,
"not the interest to which some person succeeds on a death, but the
interest which ceased by reason of the death." It levies a sum
equal to a certain percentage of the value of the net estate, and
provides the criteria by which the net estate shall be ascertained.
It thus manifestly assumes that the net estate will be ascertained
before the tax is computed. The government offers an algebraic
formula by which it would solve the problems raised by two mutually
dependent indeterminates. It fairly might be answered, as said by
the circuit court of appeals, that "algebraic formulae are not
lightly to be imputed to legislators," but it appears to us that
the structure of the statute is sufficient to exclude the
imputation. As further remarked below, the theory departs from the
long established practice of the law not to regard the incidence of
a tax in the levying of a tax, and the position of the government
is contrary to the expressed intent of the statute to encourage
charitable bequests. It is inconsistent with itself also in
maintaining that, while the distribution of the burden of taxation
among the several beneficiaries is a matter of state regulation,
the residue is not to be diminished by the state inheritance tax,
but only by the estate tax of the United States.
Judgment affirmed.
THE CHIEF JUSTICE took no part in the decision of this case.