# Estate of Smith v. Commissioner > United States Tax Court · February 23, 1972 · 57 T.C. 650 URL: https://www.frixlaw.com/law-library/cases/4481951 ## Case - **Full name:** Estate of David Smith, Ira M. Lowe, Clement Greenberg, Robert Motherwell, Coexecutors v. Commissioner of Internal Revenue - **Court:** United States Tax Court - **Decided:** February 23, 1972 - **Citations:** 57 T.C. 650; 1972 U.S. Tax Ct. LEXIS 179 - **Precedential status:** Published - **Opinion:** Concurring in part by Tietjens - **Judges:** Tannenwald,Tietjens,Goffe,Forrester,Dawson,Hoyt,Withey - **Cited by:** 83 later opinions in the Frix Law Library ## Citator (automated) - No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases. - Full citator and citing cases: https://www.frixlaw.com/law-library/cases/4481951 ## Opinion text Tietjens, J., dissenting and concurring: This case was tried before Judge John W. Kern. Judge Kern died before he decided the case which then was assigned to me without objection. I do not disagree on the valuation issue so far as the discussion of the legal principles to be applied is concerned. I would, however, give more weight to the actual sales prices of various pieces of statuary sold both before and after the sculptor’s death as well as uncontested evidence of values placed on the separate pieces by both the respondent and petitioner if they had been sold separately. Accordingly I would find the fair market value of the 425 sculptures to be $4,284,000. On the remaining issue I concur. Goffe, ./., concurring in part, dissenting in part: I concur with the majority of the Court as to the fair market value of the sculptures at the date of decedent’s death but I must respectfully dissent on the issue of the extent of deductibility of selling commissions as administration expenses. Petitioner did not raise as an issue the possible invalidity of section 20.2053-3 (d) (2), Estate Tax Eegs. The opinion of the majority, however, determines that such section of the regulations is valid because of its age, its approval in Estate of Christine Swayne, supra, and because it is necessary in order to safeguard “the integrity of the estate tax by making certain that administration expenses which are properly deductible will normally be limited to those which could be anticipated as being necessarily incurred and paid during the period of administration.” I am constrained to dissent because I think it obvious that the section of the regulations is clearly outside the scope of the Code and contrary to the intent of Congress; the age of the section gives it no validity because it is contrary to the committee reports covering reenactment of the Code section; and because this Court did not pass upon the validity of the section in Swayne, but has, instead, ignored the application of the section in other cases, as have other courts. Section 2053(a) (2) of the Internal Revenue Code of 1954 provides as follows: SEC. 2053. EXPENSES, INDEBTEDNESS, AND TAXES. (a) General Rule. — For purposes of the tax imposed by section 2001, the value of the taxable estate shall be determined by deducting from the value of the gross estate such amounts— (1) for funeral expenses, (2) for administration expenses, (3) for claims against the estate, and (4) For unpaid mortgages on, or any indebtedness in respect of, property where the value of the decedent’s interest therein, undiminislied by such mortgage or indebtedness, is included in the value of the gross estate, as are allowable by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered. Section 20.2053-3 (d) (2), Estate Tax Eegs., provides as follows: (d) Miscellaneous administrative expenses. s*í í|« íjt íj: * * (2) Expenses for selling property of the estate are deductible if the sale is necessary in order to pay the decedent’s debts, expenses of administration, or taxes, to preserve the estate, or to effect distribution. The phrase “expenses for selling property” includes brokerage fees and other expenses attending the sale, * * ❖ It is apparent that the regulations impose a limitation upon the deductibility of selling expenses not prescribed 'by the Code, to wit, the sale giving rise to the expense must be necessary in order to pay the decedent’s debts, expenses of administration, or taxes, to preserve the estate or to effect distribution. It is this limitation which the majority of the Court applies against the petitioner to reduce its deduction for selling expenses. I am not unmindful of the principle of statutory reenactment upon which the majority apparently relies for its observation that the section 20.2053-3 (d) (2) of the regulations has been in effect since 1919. The principle of statutory reenactment is a rule of statutory construction and must be indulged in to find that Congress, by enacting section 2053(a) (2) of the Internal Revenue Code of 1954, intended to incorporate therein section 81.35 of Regs. 105 (not materially different from section 20.2053-3(d) (2), Estate Tax Regs.). The committee reports for the Internal Revenue Code of 1954 reflect no consideration of section 81.35 of Regs. 105. House Report No. 1331 is as follows: G. Expenses, indebtedness, and taxes (sec. 2053) Funeral expenses, administration expenses, claims against the estate and unpaid mortgages are deductible in computing the taxable estate under present law. However, this deduction is limited to those expenses allowable by the laws of the jurisdiction under which the estate is being administered and cannot exceed the value of the property included in the gross estate subject to claims, that is, the probate estate. Thus, if the decedent has placed most of his assets in a trust (not includible in his probate estate) funeral and other expenses actually paid * * * out of the trust assets are not allowed as a deduction to the extent they exceed the value of the property in the probate estate. These arbitrary distinctions have been removed under your committee’s bill. Expenses incurred in connection' with property subjected to the estate tax, although not in the probate estate, are to be allowed as deductions, if the expenses are of the type which would be allowed as deductions if the property were in the probate estate and they are actually paid within 1 year of the decedent’s death. In addition, expenses in connection with property subject to claims are to be allowed without regard to the total value of the probate estate if they are paid within the period provided for the assessment of the estate tax. [H. Rept. No. 1337, to accompany H.R. 8300 (Pub. L. No. 591), 83d Cong., 2d Sess., p. 91 (1954). S. Rept. No. 1622, to accompany H.R. 8300 (Pub. L. No. 591), 83d Cong., 2d Sess., pp. 124-125 (1954).] The lack of indication tliat Congress considered the regulations brings the matter into precisely the holding of the Supreme Court in Commissioner v. Glenshaw Glass Co., 348 U.S. 426 (1955), where the Court stated at page 431 of its opinion: Re-enactment — particularly without the slightest affirmative indication that Congress ever had the Highland Farms decision before it — is an unreliable in-dicium at best. I submit that Congress considered only the limitation of State law in enacting section 2053(a) (2) of the Internal Revenue Code of 1954 as the report quoted above obviously demonstrates. The majority feels that the limitation imposed only by the regulations is necessary to safeguard the integrity of the estate tax. Congress apparently did not feel such a safeguard was necessary. Congress provided that deductions for selling expenses were allowable if permitted under State law. That is the sole limitation provided by Congress in the statute and reflected in the committee reports. If additional safeguards are needed they should come from Congress, not from the Secretary or his delegate in the form of unauthorized regulations. In my opinion the integrity of the estate tax must be safeguarded from unauthorized and unwarranted limitations imposed by regulations as well as abuses which may occur elsewhere. The majority indicates that section 20.2053-3 (d) (2), Estate Tax Regs., has been sustained by this Court in Estate of Christine Swayne, supra. Nothing in that opinion indicates that the validity of the regulations was challenged. The Court did not state that the regulations were valid. In the instant case the validity of the regulations was not challenged but the majority of the Court undertakes to decide they are valid. The opinion in Swayne distinguishes Estate of Louis Sternberger, 18 T.C. 836 , (1952), affd. 207 F. 2d 600 (C.A. 2, 1953), reversed on other grounds 848 U.S. 187 (1955). 1 It is distinguished on the ground that the Sternberger estate was being administered under the laws of New York rather than under the laws of Connecticut where the Swayne estate was being administered. The Court specifically found in Sternberger that the proceeds from the property sold which gave rise to the expenses deducted were not needed to pay debts or expenses but were allowable under New York law. I believe the Sternberger case is squarely in point and the majority opinion herein is incorrect where it says at pages 660-661 that: The mere fact that the commissions claimed by petitioner herein to be deductible were allowed by the New York Surrogate’s Court is not sufficient. The clause “as are allowable by the laws of the jurisdiction * * * under which the estate is being administered,” contained in section 2053(a), establishes a threshold and not an exclusive condition; the requirements of respondent’s regulations must also be satisfied. * * * My position is supported by the opinion of the U.S. Court of Appeals for the Seventh Circuit in Ballance v. United States, 347 F. 2d 419 (C.A. 7, 1965). It may well be that in fulfilling the test of allowability under State law the taxpayer is also fulfilling a requirement of that section of the regulations which I find invalid. Be that as it may. the test is still State law. See Dauphin Deposit Trust Co. v. McGinnes, 208 F. Supp. 228 (M.D. Pa. 1962), affirmed on another issue 324 F. 2d 458 (C.A. 3, 1963), and In Re Bartlett’s Estate, 153 F. Supp. 674 (E.D. Pa. 1957). I believe tliis situation existed in our opinion in Estate of James S. Todd, Jr., supra, cited by the majority; i.e., allowability under State law fulfilled the test set forth in the regulations. I see nothing in the Todd opinion, however, indicating that the validity of the regulations was in issue or necessarily determined to be valid. For the foregoing reasons, I believe petitioner should be allowed to deduct all the selling expenses paid. FORRESTER, Dawson, and Hoyt, A/., agree with this concurring and dissenting opinion. Withey, /., agrees only with respect to the dissent. The issue of deductibility of selling expenses in Sternberger was not raised on appeal. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/4481951. Public record. Not legal advice.