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Norris v. Commissioner of Internal Revenue.

April 8, 1943

NORRIS ET AL.
v.
COMMISSIONER OF INTERNAL REVENUE.



Petition for Review of Decision of the United States Tax Court.

Author: Evans

Before EVANS, MAJOR, and MINTON, Circuit Judges.

EVANS, Circuit Judge.

Fannie W. Norris of Milwaukee, Wisconsin, died testate. By her will, she gave to charity generously, to many long-time employees, and to many old friends and distnat relatives. She named two trustees (one, her son) who were "authorized and empowered" to name charitable associations and institutions which would receive her charitable gifts. She also authorized the said trustees to determine the amounts so to be given.

The deductibility, for Federal estate tax purposes, of sums devoted to charity, by said testamentary trustees, is the sole issue reised on this appeal. The trustees exercised their "discretion" before they filed the estate tax return. They made a $5,000 gift to the Columbia Hospital in Milwaukee. They also made a $284,341.10 gift to the Norris Foundation, a Wisconsin charitable corporation. Both gifts were fully executed.

There is no question but that these donations were to charites, such as come within the exemption provisions of the Federal Statute. Sec. 303(a) (2) (3). Petitioners attempted to deduct these sums when making their tax returns, but the respondent rejected them. A deficiency tax of $68,294.81 was assessed. The contest here is over propriety of this assessment.

On appeal the United States Tax Court held these gifts could not be excluded from testatrix' taxable estate.

This ruling was based on the assumption that the charitable gifts were not absolute at the death of the testatrix, but were completely contingent, upon the exercise thereafter, of the trustess' "discretion." They were therefore covered by the Regulations which deny deductibility of contingent charitable bequests.

Sec. 303 (a)(3), Revenue Act of 1926, as amended, 26 U.S.C.A. Int. Rev. Acts, pages 232, 235, and Regulations 80, Articles 44 and 47, are here set forth:

"[Sec. 303 (a) (3)] For the purpose of the tax the value of the net estate shall be determined -

"(a) In the case of a citizen or resident of the United States, by deducting from the value of the gross estate -

"(3) The amount of all bequests, legacies, devises, or transfers, * * * to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes. * * *"

Regulations No. 80 of Treasury Department contain two Articles which must be considered.

"Art. 44. Transfers for public, charitable, religious, etc., uses. - Deduction may be taken of the value of all property transferred by will * * * not to exceed the value of the transferred property required to be included in the gross estate if * * * the property was transferred * * *(2) to or for the use of any corporation or association organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes * * *; or (3) to a trustee or trustees, * * * if such transfers, legacies, bequests or devises are to be used by such trustee [or] trustees, * * * exclusively for religious, charitable, scientific, literary or educational purposes, * * *."

"Art. 47. Conditional bequests. - If the transfer is dependent upon the perform ance of some act or the happening of some event in order to become effective, it is necessary that the performance of the act or the occurrence of the event shall have taken place before the deduction can be allowed.

"If the legatee, devisee, donee, or trustee is empowered to divert the property or fund, in whole or in part, to a use or purpose which would have rendered it, to the extent that it is subject to such power, not deductible had it been directly so bequeathed , devised, or given by the decedent, deduction will be limited to that portion, if any, of the property or fund which is exempt from an exercise of such power."

Stating the facts which supply the background of this controversy, briefly, it may be said, -

Mrs. Norris, who died in '37, in her long will, provided for the payment of many specific legacies and also for the payment of income during the life of the annuitants to many other named beneficiaries. She also made numerous gifts conditional on the survival of the legatees and in some instances the duration of gifts in trust depended upon the survival of other than the first-named legatee.

There were two patagraphs of her will, (R) and (T), herewith set forth, which are lergely ...


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