Petition for A Writ of Certiorari — Hostetter v. United States

In THE

Supreme Court of the United States

OCTOBER rey

MIRIAM G. HOSTETTER,

Petitioner,

V.

UNITED STATES OF AMERICA.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES CIRCUIT COURT OF APPEALS

FOR THE THIRD CIRCUIT AND BRIEF

IN SUPPORT THEREOF.

H. F. STAMBAUGH,

Attorney for Petitioner.

66 St. Nicholas Buildiug,

Pittsburgh, Pa.

Se eeaaeEEAIRE

SMITH BROS. CO. INC., LAW PRINTERS, 208-212 GRANT STREET, PITTSBURGH, PA.

SMR CA LAI ELLIE NU LICL TPE DE Me BE EEN EM

PAGE

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I. Summary Statement ............--e+eeee- 1

| eo Eee ee rere ere eee ee ae keke ae © 6

Il. Questions presented ........------++eeees 7

IV. Reasons relied on .........:-eeeeeeereeees 8

Bere ee Pu, Tl er Mee ST eee eR st tn. 10

Opinions of the courts below............-+++>: 10

Argument ....... 0. ccc eee cece e eee e eens 10

I. Petitioner paid the California inheritance

tax and is entitled to recover under sub-

paragraph A (4) ....... eee eee cece eee 10

Finding which is a conclusion from rec-

ords or undisputed facts may be re-

WE vc vig eas bkas UN PRI e ee 13

Il. Petitioner is entitled to deduction under

subparagraph A (5) .......-eeeeeeeeees 20

Ill. District court erred in holding that credit

of California tax against Federal estate

tax prevented petitioner from claiming a

deduction for her share of California tax.. 26

California inheritance tax law..............-. 30

The reports of House and Senate committees on

tai TO: ois 665 8S ERA PERS FRR RE aS 33

4 een: ees

Index.

PAGE

CITATIONS

Bianchi v. Vere, 17 Fed. (2d) 22............... 13

Budd v. Commissioner, 43 Fed. (2d) 509....... 13

Estate of Watkinson, 191 Cal. 591.............. ll

Greenfield v. Blumenthal, 69 Fed. (2d) 294...... 13

In re Estate of D. Herbert Hostetter, (Unre-

ported opinion of the Orphans’ Court)..... 19

In re Estate of Miller, 184 Cal. 674.............. 11

In re Estate of Rath, 10 Cal. (2d) 399.......... 11

In re Heilbron Bros. Inc., 226 Fed. 803.......... 13

Lansill v. Commissioner, 17 B. T. A. 413........ 24

Lentz v. Commissioner, 21 B. T. A. 1336, 1342.. 24

Quinn v. Union Nat. Bk., 32 Fed. (2d) 762...... 13

United States v. Kombst, 286 U.S. 424......... 11

Washburn v. Commissioner, 51 Fed. (2d) 949... 18

STATUTES

California Inheritance Tax Law............... 30

Reports of House and Senate Committees on Sec.

a AE SEE ARIEL cs oe ae apg eae oe ee 33

Supreme Court of the United States

OCTOBER TERM, 1940.

it PERT TEE

MIRIAM G. HOSTETTER,

Petitioner,

v.

UNITED STATES OF AMERICA.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES CIRCUIT COURT OF APPEALS

FOR THE THIRD CIRCUIT.

To the Honorable, the Chief Justice and Associate Jus-

tices of the Supreme Court of the United States:

The petition of Miriam G. Hostetter, respectfully

represents :

I. SUMMARY STATEMENT OF THE MATTER INVOLVED.

Your petitioner requests this court to review the

judgment of the Circuit Court of Appeals of the Third

Circuit in the above cause. The judgment was entered

on June 27, 1940 and a petition for rehearing was denied

on August 9, 1940.

The Circuit Court of Appeals affirmed the judgment

entered in favor of the respondent and against the peti-

tioner by District Judge Robert M. Gibson for the Dis-

trict Court for the Western District of Pennsylvania

(R. 195).

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2 Petition for Writ of Certiorari.

Miriam G. Hostetter, the petitioner, on March 14,

1927, filed her individual income tax return for 1926,

upon the cash receipts and disbursements basis, disclos-

ing a tax payable of $32,599.77, and paid this sum on the

same date to the Collector (2nd Find., R. 186).

On March 12, 1930, the petitioner filed a claim for a

refund of the sum of $22,912.54 on the ground that she

was entitled to a deduction, not claimed in her return,

of the sum of $92,451.56 on account of inheritance tax

paid by her to the State of California on her life interest

in the estate of her deceased husband, D. Herbert Hos-

tetter (3rd Find., R. 187).

Petitioner’s claim for refund was rejected by the

Commissioner on January 22, 1932 and petitioner filed

this suit on January 20, 1934 under the Tucker Act to

recover the sum of $22,912.54, with interest (4th Find,

R. 187).

The deduction of the item of $92,451.56 from her

gross income for 1926 would reduce the amount of in-

come tax from the sum of $32,599.77 to $9,687.23, or a

difference of $22,912.54, the amount of the refund

claimed (Petition, Par. 8th, admitted by answer, R. 16).

D. Herbert Hostetter died on September 28, 1924

(Sth Find., R. 181). He left to survive him his widow,

Miriam G. Hostetter, petitioner; two sons, D. Herbert

Hostetter, Jr., and Frederick G. Hostetter; and two

daughters, Miriam H. Young and Helene Hostetter; and

four grandchildren (5th Find., R. 181).

By his will (Ex. 1, R. 78) he appointed Miriam G.

Hostetter, his wife, and Helene Hostetter, a daughter,

and the Fidelity Title and Trust Company, of Pittsburgh,

as his executors and trustees (R. 83).

In Paragraph Two of his will, testator devised the

residue of his estate to his trustees, in trust, to pay one-

half the income to his wife, the petitioner, during her

life and one-eighth of the income to each of his four

Petition for Writ of Certiorari. 3

children during their lives and to pay shares of the in-

come for life to his four grandchildren after the death

of their parents.

The California inheritance tax upon the estate of the

testator was assessed by decree of the Superior Court of

Los Angeles County dated January 20, 1926, which pro-

vided (Ex. 2, R. 87):

“That the market value of the property subject

to inheritance tax in the above entitled proceeding

is $3,636,701.58; that the persons to whom said

property passed from decedent, their relationship to

decedent, the value of their respective interests in

said property, and the taxes to which the same are

respectively liable, are hereby assessed and fixed as

follows: (Italics ours)

“Name and Value of

Relationship Interest Tax

Miriam G. Hostetter,

Widow $ 941,179.63 $ 92,451.56

D. Herbert Hostetter,

Jr., Son 542,926.73 44,801.21

Frederick G. Hostetter,

Son 552,274.73 45,922.97

Miriam H. Young,

Daughter 572,545.01 48,355.40

Helene Hostetter,

Daughter 580,543.62 49,315.23

Frederick G. Hostetter,

Jr., Gr. Son 111,807.97 3,476.56

Anna Hostetter, Gr.

Daughter 111,807.97 3,476.56

Jane Hostetter, Gr.

Daughter 111,807.96 3,476.56

Barbara Smith, Gr.

Daughter 111,807.96 3,476.56

$3,636,701.58 $294,752.61.”

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4 Petition for Writ of Certiorari.

The report (Ex. 2, R. 91) of the inheritance tax ap-

praiser was filed previously on J anuary 5, 1926 and

stated the tax in substantially the same language and

form as the order of the Superior Court just quoted.

The receipt (Ex. 2, R. 95) of the County Treasurer

issued for the tax on February 10, 1926 stated that the

tax paid was upon the gifts to the beneficiaries listed.

The total tax of $294,752.61 was paid by one check

of the Fidelity Title & Trust Company. Before the check

was sent, the attorneys for the Pennsylvania trustees

had secured from the attorneys for the California execu-

tors a written opinion that the California inheritance

tax was assessed against the beneficiaries individually,

and it had been agreed by these attorneys, the trustees

and the beneficiaries that the Pennsylvania trustees

should advance or loan the amount of the tax to the

beneficiaries out of the principal of the trust and that

the beneficiaries should pay the tax with the money so

advanced (Ex. 4, R. 111; Ex. 5, R. 111; Ex. 8, R. 119;

Ex. 9, R. 121). A written agreement dated January 15,

1926 (Ex. 6, R. 112), was executed under which the bene-

ficiaries gave their notes to the trustees for the amounts

advanced to them for the purpose of paying the Cali-

fornia tax. These notes were for the exact amount

assessed against each beneficiary by the decree of the

California court.

The first and final account of the California execu-

tors (Ex. 10, R. 125-126), charged these executors with

the item of $294,752.61 as advancements to the widow

and other beneficiaries to pay California inheritance

taxes. The supplemental account of the Pittsburgh trus-

tees dated May 21, 1927 (Ex. 11, R. 126) , listed the notes

of the same beneficiaries as assets of the estate.

By requirement of the Orphans’ Court of Allegheny

County the agreement of January 15, 1926 (Ex. 6, R.

Petition for Writ of Certiorari. 5

112) was superseded by an agreement executed under

date of July 1, 1927 (Ex. 13, R. 127). This second agree-

ment was similar in form, but shortened the period of

installment payments from ten to six years and required

the notes of the beneficiaries to be secured by collateral

(Ex. B, Ex. C, Ex. D, R. 173).

Miriam G. Hostetter, the widow and petitioner, on

October 27, 1927 repaid to the trustees in cash the full

sum Of $92,451.56 which had been loaned to her to pay

her share of the California tax.

The item of $92,451.56 was not claimed as a deduc-

tion by the petitioner in her income tax return for the

year 1926, and was not claimed as a deduction in the in-

come tax returns filed by the executors or in the fiduciary

return filed by the trustees for the year 1926, or any

other year (R. 15).

The executors filed an estate tax return on which the

Commissioner assessed an estate tax liability of

$1,819,838.91. Against this assessment the Commis-

sioner allowed a credit for payment of state inheritance

taxes which included the item of $294,752.61, which had

been paid to the State of California. (Ex. 16, R. 162;

Ex. 17, R. 166; Ex. A, R. 171).

The right to this deduction was claimed by the peti-

tioner under both clauses a (4) and a (5) of Section 703

of the Revenue Act of 1928, which are quoted in the

Appendix (infra, pp. 29-30).

The opinion of the District Judge held that the pay-

ment of $92,451.56 for California tax had been made by

the estate and not by the petitioner as beneficiary. This

finding was a conclusion from documentary and other

written evidence and also was based upon an interpreta-

tion of a written agreement.

MOIR At

6 Petition for Writ of Certiorari.

The opinion did not discuss the right of the peti-

tioner to the deduction under clause a(5), Sec. 703.

The District Judge also held that because the estate

had received a credit for the $294,752.61 for California

Inheritance Tax against the Federal Estate Tax, the peti-

tioner might not be heard to assert her payment of

$92,451.56, as a beneficiary, as a deduction in her per-

sonal income tax return (R. 191). The opinion stated

that the credit against the Federal Estate Tax had been

secured by the representation that the executors had

paid this sum. As will be shown in the brief, such repre-

sentation was not made and was not necessary in order

to secure the credit against the Federal Estate Tax.

The Circuit Court of Appeals affirmed the decision

of the District Court. Its opinion held that the petitioner

was not entitled to the deduction under clause a(4) be-

cause the California tax had been paid by the estate;

and that she was not entitled under clause a(5) be-

cause she had not proved that the right of the estate to

claim this deduction was barred by the statute of limi-

tations at the time the petitioner filed her claim for

refund.

ii. JURISDICTION.

The judgment of the Circuit Court of Appeals was

entered on June 27, 1940. A petition for rehearing was

denied on August 9, 1940. The jurisdiction of this Court

is invoked under Section 240 (a) of the Judicial Code,

as amended by the Act of February 13, 1925.

Petition for Writ of Certiorari. 7

Il. QUESTIONS PRESENTED.

Did the Circuit Court of Appeals properly interpret

retroactive subparagraphs a (4) anda (5) of the Reve-

nue Act of 1928, in holding that—

(1)—The evidence did not show that payment

of the California inheritance tax had been made by

the petitioner as beneficiary within the meaning of

subparagraph a (4)?

(2)—Petitioner could not recover under sub-

paragraph a (5) because the evidence did not show

that the claim of the estate to deduction was barred

by the statute of limitations at the time when the

petitioner filed her claim for refund?

(3)—Did the fact that the amount of the California

inheritance tax was allowed as a credit against the Fed-

eral estate tax prevent the petitioner, as beneficiary,

from claiming a deduction for her share of the California

inheritance tax in her personal income tax return, as

ruled by the District Judge and not reviewed by the

Circuit Court of Appeals?

(4)—Did the Circuit Court of Appeals properly

hold that there was substantial evidence to support the

finding of the District Judge, that the California in-

heritance tax had been paid by the estate?

(5)—Did the Circuit Court of Appeals err in hold-

ing that the finding of the District Court was conclusive

if supported by substantial evidence, where such finding

was a conclusion drawn from documentary evidence and

involved the interpretation of a written contract?

PEE AERO SME RIE RO RN

E.

IV. REASONS RELIED ON FOR ALLOWANCE OF WRIT.

(1)—In holding that the California inheritance tax

was paid by the estate and not by the beneficiary, the

Circuit Court of Appeals placed a construction on sub-

paragraph a (4) in conflict with the decisions in the

class of cases in which inheritance tax was paid by the

check of the fiduciary and out of the funds of the estate

and yet was held to have been paid by the beneficiary,

where the amount was either deducted from the share

of the beneficiary in the principal of the estate or repaid

to the estate by the beneficiary from his share of the

net income, or otherwise.

8 Petition for Writ of Certiorari.

(2)—The interpretation of subparagraph a (5) as

allowing the deduction only if the estate’s claim to a

deduction is barred by the statute of limitations at the

time when the beneficiary files her claim for refund—

renders subparagraph 5 virtually useless and inappli-

cable. Such interpretation is contrary to the plain pur-

pose of subparagraph a (5) as set forth in the reports

of the House and Senate Committees on the passage of

Section 703 (Appendix, pp. 34-35).

(3)—The ruling of the District Judge, not reviewed

or corrected by the Circuit Court of Appeals, that the

fact that the amount of the California tax was allowed

as a credit against the Federal estate tax prevents the

petitioner, as a beneficiary, from claiming a deduction

for her share of the California tax, is erroneous. This

interpretation of Section 703 of the Revenue Act of 1928

and of Section 301 (b) of the Revenue Act of 1924,

would deny the right of a beneficiary to deduct her share

of estate inheritance tax in every case where the item

of estate inheritance tax was credited against the Fed-

eral estate tax; or at least in every case where the bene-

Petition for Writ of Certiorari. 9

ficiary was also a fiduciary participating in obtaining

such credit.

The purpose of allowing the credit against Federal

estate tax was to afford some relief from double taxa-

tion on the same assets whether the inheritance tax is

paid by the estate or by the beneficiary. In either

case the inheritance of the beneficiary is ultimately

diminished.

(4)—It has been held by the Third Circuit Court of

Appeals and by other circuits that a finding which is a

conclusion from undisputed or record facts may be re-

viewed by the appellate court, whether or not there is

substantial evidence to support such conclusion.

The finding of the District Judge, approved in this

case, was based upon documentary evidence and upon

an interpretation of a written contract involving a

question of mixed law and fact.

The approval of the finding of the District Judge is

further based on the check and the written agreement

without considering the other documents which show

the purpose of the check and by whom the payment was

ultimately made.

WHEREFORE, your petitioner prays that a writ of

certiorari be issued out of this Honorable Court directed

to the United States Circuit Court of Appeals for the

Third Circuit, commanding that court to certify and

send to this court for its review and determination, a

full and complete transcript of the record and all pro-

ceedings in the case of Miriam G. Hostetter, petitioner,

v. United States of America, respondent, No. 7233; and

that the judgment of said Circuit Court of Appeals may

be reversed by this Honorable Court and that your peti-

tioner may have such other and further relief in the

premises as to this Honorable Court may seem meet and

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