Appeal from the United States District Court for the Northern District of Illinois, Eastern Division - No. 69 C 2257 Richard B. Austin, Judge.
Fairchild, Pell and Stevens, Circuit Judges.
The Continental Illinois National Bank and Trust Company of Chicago brought this action as executor of the estate of the decedent Josephine W. Speth to recover an alleged overpayment of estate tax and interest.*fn1 After a bench trial, the district court entered judgment in favor of the taxpayer from which the Government has appealed.
The decedent Josephine Speth died on March 28, 1966, at the age of 75. Her sister, Margaret Speth, had died one month earlier on February 21, 1966. By her will, Margaret bequeathed to the decedent a life estate in certain property. At the time of Margaret's death, Josephine was suffering from cancer of the colon with metastasis to the liver.
The taxpayer, in computing the federal estate tax on Josephine's estate, claimed a credit under § 2013 of the Internal Revenue Code of 1954 for the amount of federal estate tax paid by the estate of Margaret on the life estate transferred to Josephine. In calculating the amount of this credit, the taxpayer used the actuarial tables set forth in § 20.2031-7(f) of the Treasury Regulations to value Josephine's life estate at the time of Margaret's death. The indicated table expectancy was approximately six years. The Commissioner disallowed the taxpayer's computation of the credit on the ground that, under Revenue Ruling 66-307, Josephine's actual life expectancy had to be utilized in determining the value of her life estate.*fn2
The district court held, alternatively, that (1) the Revenue Ruling did not control this case, and (2) the Revenue Ruling was invalid. The Government contests both holdings on appeal.
Section 2013 of the Internal Revenue Code was enacted "to prevent the diminution of an estate by the imposition of successive taxes on the same property within a brief period." Sen. Rep. No. 1622, 83rd Cong., 2d Sess. 121 (1954). The section provides for a credit against estate tax where the decedent has received property in a transfer during the previous ten years which transfer was itself subject to estate tax.*fn3 With certain adjustments and limitations not relevant here, the tax credit is the amount which bears the same ratio to the total estate tax paid by the transferor as the value of the property transferred bears to the total value of the transferor's taxable estate. If the transferred property has no value, the credit will, therefore, be zero. The percentage of credit allowed to the transferee's estate decreases ratably over the ten-year period.*fn4
The credit applies to any beneficial interest in property received by the transferee. § 2013(e). Thus, the credit is available for a life estate held by the decedent-transferee, even though the life estate will not be included in his estate and, therefore, cannot itself be the subject of double taxation. See Treas. Reg. §§ 20.2013-1(a) and 20.2013-5(a).*fn5
Section 2013(d) provides, in general, that "the value of property transferred to the decedent shall be the value used for the purpose of determining the Federal estate tax liability of the estate of the transferor" subject to certain adjustments not relevant here. The Code itself does not, however, set forth the manner for computing the value of a life estate in property transferred to the decedent when the property was taxed in the estate of the transferor. The Treasury Regulations state, inter alia, at § 20.2013-4(a), that:
"If the decedent received a life estate or remainder or other limited interest in property included in the transferor's gross estate, the value of the interest is determined as of the date of the transferor's death on the basis of recognized valuation principles (see especially §§ 20.2031-7 and 20.2031-10)."*fn6
Section 20.2031-7 of the Regulations contains the mortality tables for valuing life estates.*fn7
The Government admits that, as a general rule, the § 2013 credit on a life estate is to be calculated by finding the actuarial life expectancy, as determined by the tables in Treasury Regulation § 20.2031-7, of the life tenant as of the transferor's death. The Government contends, however, that there is an ...