Commissioner of Internal Revenue v. Sternberger's Estate/Dissent Reed
Mr. Justice REED, with whom Mr. Justice DOUGLAS joins, dissenting.
The facts are fully and fairly stated in the Court's opinion. Its statement of the legal issues accords with our understanding of the case, to wit:
'The question before us is what, if any, charitable deduction may be made despite (1) the deferment of the effective date of the charitable bequest until the deaths of both decedent's wife and daughter and (2) the conditioning of the bequest upon a lack of descendants of decedent's daughter surviving at that time.'
The reason for dissenting, at some length, is that the Court's conclusion seems to disregard the words of the statute in question and to subvert the purpose of Congress in its enactment, that purpose admittedly being to encourage testamentary gifts to corporations organized for certain objects considered highly desirable for the good of our people.  There is a certain hesitation in dissenting from an interpretation of a tax statute remediable by Congress, but as the Court's decision springs, we think, from an overemphasis on regulations, a protest may have usefulness as a counterweight against future extensions of such treatment to statutory language.
First. The statute, 26 U.S.C. § 812(d), 26 U.S.C.A. § 812(d), allows as deductions from the gross estate 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 * * *.' There is no legislative history explanatory of its meaning.  If we read the quoted portion of § 812 alone, could there be any doubt that the Sternberger bequest is deductible? We think not. It says 'all bequests'-whatever the charity takes under the will. There is not a word that limits the deduction of bequests to what assuredly goes to the institution. It is the 'amount' of the bequest that is deductible-its presently ascertainable value. The statute plainly allows deferred charitable bequests. It does not require assured enjoyment.
Under the Court's interpretation, if a child were bequeathed his father's estate for life with remainder in default of issue to the recognized institutions, the full estate tax would have to be paid. On the other hand, if the estate were left simply to the child for life and then to the same institutions, the estate would be free from the tax on the present value of the remainder. Such a differentiation is not found in the statute. The Congress said that charitable bequests should be deductible. The valuation of the charitable interest in one instance would be greater that in the other; the tax less. But in each case the net estate would be reduced only by the present actuarial value of the charitable bequest. While particular estates would securetax advantages under our interpretation, in the aggregate the charitable deductions should substantially equal the amount received by the tax-recognized institutions. This would surely fairly carry out the congressional purpose. To view respondent's contention as urging a possible over-all tax windfall for estates is to deny the mathematical law of averages. 
Our interpretation of the statute has support in the language of Treasury Regulation 105, § 81.44. After referring to the valuation of bequests whose value is presently ascertainable, the regulation adds:
'If the present worth of a remainder bequeathed for a charitable use is dependent upon the termination of more than one life, or in any other manner rendering inapplicable Table A or B of § 81.10, the claim for the deduction must be supported by a full statement, in duplicate, of the computation of the present worth made, in accordance with the principle set forth in § 81.10, by one skilled in actuarial computations.'
The tables refer to a remainder contingent on the termination of one life only. Section 81.44 alone would allow, in the light of the statutory language, a deduction for a contingent bequest, uncertain as to ultimate receipt. See the Court's opinion, 75 S.Ct. 235. The Court does not follow this language of the Regulations because of § 81.46 and because of 'statutory emphasis upon outright bequests.' We find no such emphasis. The purpose of the statute leads us to the contrary result. 
The Court agrees, however, with the Government's contention that 'it is immaterial whether the charity's contingent possibility of receipt can be valued as of the decedent's death.' It holds that it is only when ultimate receipt must follow that § 812(d) allows a deduction. Although the Government asserts its conclusion is upheld by our decisions, we do not think they so hold. In this Court five cases have touched upon the problem. Three of them were disposed of because of the failure to introduce, or the impossibility of making, a valuation upon sound actuarial principles.  None of them held that bequests are not deductible although the ultimate taking by the charitable beneficiary was uncertain.
Two-Ithaca Trust Co. v. United States, 279 U.S. 151, 49 S.Ct. 291, 73 L.Ed. 647, and United States v. Provident Trust Co., 291 U.S. 272, 54 S.Ct. 389, 78 L.Ed. 793-allowed a deduction for conditional charitable bequests. The former because a right to invade the corpus was fixed by a standard capable of being stated in money and, as the income of the estate was ample for the needs of the life beneficiary, there was no uncertainty sufficient to justify a refusal of the deduction for the charitable remainder. The latter is, on its face, a decision that would decide the issue, simpliciter, of the deductibility of contingent bequests. Neither is here controlling, however, since in both the charity was held to be assured of taking. The Provident Trust case is worth a moment's examination. Property was left by will in trust for the deceased's daughter for life; upon her death the corpus was to pass to her lawful issue; but should she die without issue, the estate was to be distributed among various charitable organizations. Prior to the death of the testator, an operation had rendered the daughter incapable of childbearing, assuring the vesting of the charitable remainder. This Court did not apply the then existing regulation (the predecessor to § 81.46(d))  which would have denied a deduction. It ignored the regulation, apparently believing it in conflict with the purpose of the statute, and allowed the deduction, thus requiring the amendment of the regulation to its present form. The Court stated the relevant inquiry to be as follows:
'The sole question to be considered is, What is the value of the interest to be saved from the tax? That is a practical question, not concluded by the presumption invoked, but to be determined by ascertaining in terms of money what the property constituting that interest would bring in the market, subject to such uncertainty as ordinarily attaches to such an inquiry. See Ithaca Trust Co. v. United States, supra.' 291 U.S. at page 286, 54 S.Ct. at page 392.
Our conclusion is that the purpose of § 812 was to allow a deduction for charitable bequests that are capable of valuation at the time of death, although it is not certain that the gift will ultimately fall to the contingent beneficiary. See in accord Meierhof v. Higgins, 2 Cir., 129 F.2d 1002, a case in conflict with Newton Trust Co. v. Commissioner, 1 Cir., 160 F.2d 175, which ultimately led to the allowance of this certiorari. The purpose of § 812 and its background forbid, we think, a conclusion that Congress intended to exclude a deduction in those cases.
Second. The Government asserts and this Court agrees that although it is clear that § 812 allows a deduction for some contingent bequests, § 81.46 of the regulations limits those contingencies to instances where the 'possibility that charity will not take is so remote as to be negligible.' Clearly the possibility here is not 'remote.' The chances are against the charity taking. It is quite true that § 81.46 has survived reenactment of I.R.C., § 812, and that it can be interpreted as a limitation upon the deductibility of contingent remainders. However, we do not think such a ruling would be consistent with the purpose of Congress, manifested by I.R.C., § 812.
Whether the Regulations are written into the Estate Tax law by reenactment or are merely indicative of congressional purpose,  the deduction section and the regulations are to be interpreted in the light of the congressional purpose. Whatever may be the varying views as to the desirability of testamentary gifts of moneys or businesses to public or private charitable foundations, Congress has sanctioned such provisions, vested or with certain degrees of contingency, by the deduction section of the Estate Tax.  The policy has brought munificent gifts to the chosen institutions.
If it were not for the reenactment of § 812 after the promulgation of § 81.46, we would have no hesitation in declaring it in conflict with the statute. Even in interpreting statutes when isolated provisions would produce results 'plainly at variance with the policy of the legislation as a whole,' we follow the purpose rather than the literal words. United States v. American Trucking Ass'ns, 310 U.S. 534, 543, 60 S.Ct. 1059, 1063, 84 L.Ed. 1345. That rule is applicable here. Regulations do not have the safeguards of federal statutory enactments. Interested parties outside the Internal Revenue Service perhaps may not be heard. Reports explaining the action are not available. Public discussion, such as happens in Congress, does not take place. In short, we think that reenactment of a statute after the due adoption of a regulation does not make the regulation a part of the statute. It is only an indication of congressional purpose to be weighed in the context and circumstances of the statutory language. In this instance the congressional purpose to encourage gifts to charity should not be frustrated by the issuance of a regulation.
For the foregoing reasons we would affirm the judgment of the Second Circuit.
^1 See note 3 of the Court's opinion.
^2 See note 2 of the Court's opinion.
^3 As the Court states the actuarial method and assumes by not reaching it, note 8 of the opinion, the correctness of the computation of the value of the conditional remainder to charity, we will merely add that this position accords with the conclusion of the Tax Court, 18 T.C. 836, and the Court of Appeals, 2 Cir., 207 F.2d 600, through its reliance on Meierhof v. Higgins, 2 Cir., 129 F.2d 1002, 1003, a case also involving the multiple decrement theory. See Jordan, Life Contingencies, 251.
'The Court of Claims did not find that the present value of the contingent bequests to the charities can be determined by the calculations of actuaries based upon experience tables. * * *
'If all the facts stated had been embodied in findings, no legal basis would be laid for the deduction claimed. The volume and character of the experience upon which the conclusions drawn from these two tables are based differ from the volume and character of the experience embodied in standard mortality tables almost as widely as possibility from certainty.' 276 U.S. at pages 492-493, 48 S.Ct. at page 347.
The tables were based on the limited experience of male and female members of the Scotch peerage. Merchants Nat. Bank of Boston v. Commissioner, 320 U.S. 256, 64 S.Ct. 108, 88 L.Ed. 35; Henslee v. Union Planters Nat. Bank, 335 U.S. 595, 69 S.Ct. 290, 93 L.Ed. 259. Compare Robinette v. Helvering, 318 U.S. 184, 63 S.Ct. 540, 87 L.Ed. 700.
^6 'Conditional bequests.-Where the bequest, legacy, devise, or gift is dependent upon the performance 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. Where, by the terms of the bequest, devise or gift, it is subject to be defeated by a subsequent act or event, no deduction will be allowed.' Treas.Reg. 37, Art. 56.
^7 Compare Helvering v. R. J. Reynolds Tobacco Co., 306 U.S. 110, 115, 59 S.Ct. 423, 425, 83 L.Ed. 536; Crane v. Commissioner, 331 U.S. 1, 8, 67 S.Ct. 1047, 1051, 91 L.Ed. 1301, with Helvering v. Wilshire Oil Co., 308 U.S. 90, 60 S.Ct. 18, 84 L.Ed. 101. See 54 Harv.L.Rev. 377, 398, 1311.
^8 Griswold, Cases and Materials on Federal Taxation (3d ed.), 679, setting out the legislative history of the section with brief reference to the differing views on the merit of the charitable deduction; Paul, Federal Estate and Gift Taxation, Vol. I, c. 12.