Opposition Brief — Leeds v. United States

Page

Opinions below... .......--------------------------------- 1

GN eee LA we eee Rader ew ake nma hake one ee 1

Question presented ------.--.....-.------------------------- 2

Statute and regulations involved -.-----..-..--.-------------- 2

| SaaS RR ER eg een coer eee peppereney nan pernan gene © 2

Lies cate we SR ke Secahinwaimdb Wie aims aie ok ka e Oe Sis en din Oe 5

De RS, aie kalagik bee ee hGs Keke es cen iobels karina 9

ETRE SEAT RTS Re aOR ARO IE CE FES 10

x CITATIONS

Cases:

Durden v. Commissioner, 3 T. C. 1_....-.-------------- 7

Houdry v. Commissioner, 7 T. C. 666. _.....------------ 6

Lyman v. Commissioner, 83 F. 2d 811_....-.------------ 5,8

Olds & Whipple v. Commissioner, 75 F. 2d 272__..------- 8

Shearer v. Anderson, 16 F. 2d 995__-_...-.------------- 7

/ + United States v. White Dental Co., 274 U. 8. 398____------ 6

Btatutes:

= Internal Revenue Code:

ee: es OD 0, FOr as Oa oe ee eh cee Se 7

‘f i ce ee i a Ok, BOND an hxc wkeewseechisasddene 6,8

i@ Pek ee Cee Si Oh A BED ckdn wa neancaneeanekwncs 7,10

a Revenue Act of 1942, c. 619, 56 Stat. 798, Sec. 156_.____- 9

_ Miscellaneous:

3 8. Rep. No. 1631, 77th Cong., 2d Sess., pp. 104-106 (1942-2

4 Com. Bull. 504, 600-001)... ....................--.. S

s Treasury Regulations 105, Sec. 81.39___......-..------- 11

i, re)

2

duthe Supreme Court of the Gnited States

OctoBEer TERM, 1948

No. 133

Grorce J. LEEDS, HERMAN J. DoNNER AND Harry

LEVINE, EXECUTORS OF THE Estate oF ADOLF W.

K. B. LEEWITZ, DECEASED, PETITIONERS

Vv.

THE UNITED STATES

ON PETITION FOR A WRIT OF CERTIORARI TO THE COURT

OF CLAIMS

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINIONS BELOW

The opinion of the Court of Claims (R. 17-22)

and the opinion of Judge Littleton, dissenting in

part (R. 23), are reported in 75 F. Supp. 312.

JURISDICTION

The judgment of the court below was entered

on April 5, 1948 (R. 23-24). The petition for a

writ of certiorari was filed on June 30, 1948. The

jurisdiction of this Court is invoked under Sec-

tion 3 (b) of the Act of February 13, 1925, as

amended by the Act of May 22, 1939.

(1)

2

QUESTION PRESENTED

Where an estate owned stock in corporations in

France and Belgium and, during the administra-

tion of the estate, in 1942, the German Government

issued orders of sequestration against the corpora-

tions, is the estate entitled to a deduction under

Section 812 (b) of the Internal Revenue Code for

losses arising from ‘‘other casualties’’ ?

STATUTE AND REGULATIONS INVOLVED

The applicable portions of the pertinent statute

and regulations are set forth in the Appendix,

infra, pp. 10-11.

STATEMENT

The special findings of fact of the Court of

Claims (R. 12-17), insofar as material to the issue

raised in the petition, may be summarized as

follows:

Petitioners are the executors of the estate of

Adolf W. E. B. Leewitz, who died on March 18,

1939. The executors duly filed an estate tax re-

turn, including as part of the gross estate shares

of stock of four foreign corporations: Markt &

Co., an English corporation, with its principal

place of business at Brussels, Belgium; Markt &

Co. (Paris) Ltd., a British corporation, with its

principal place of business at Paris, France;

Produits Jex Societe Anonyme, a French corpora-

tion, with its principal place of business at Paris,

France; and Nedal Societe Anonyme, a French

3

corporation, with its principal place of business

at Paris, Fvance, at a total valuation of $82,-

809.49. This value placed on the stock was ac-

cepted by the Commissioner of Internal Revenue

as correct. (R. 12-13.)

The estate of the decedent at all times men-

tioned was and still is in process of settlement and

administration, and the estate continued to own

the stock of the four corporations mentioned

above at least until 1946. In the years 1940 and

1941, the armies of Germany overran France and

Belgium and occupied those countries. On De-

cember 11, 1941, the United States declared war

on Germany. During the year 1944, Paris,

France, and Brussels, Belgium, were liberated.

(R. 15.)

On February 17, 1942, a German sequestrator

was appointed for the corporation Markt & Co.

(Paris) Ltd., and on November 19, 1942, a Ger-

man sequestrator was appointed for the Markt

corporation at Brussels. In each case the se-

questrator took under his control all the business

of the company. The orders of sequestration in

each case provided that, during the time of the

administration, the powers and authority of the

manager and of any other persons entrusted with

the representation or management of the enter-

prise were suspended, and that the sequestrator

was authorized to represent the enterprise.

The German authorities did not remove any

of the property of these corporations; and

4

Theodore Boury, who was the manager of Markt

& Co. (Paris) Ltd., at the time of the issuance of

the sequestration order, continued to act under the

control and direction of the German sequestrator,

These corporations continued in business although,

during the period of the German occupation, their

businesses declined drastically due to their inabil-

ity to import goods from the United States, which

was the most important part of their prewar

activities. (R. 15-16.)

The sole business of Nedal Societe Anonyme

was the manufacture of steel wool and it was the

largest manufacturer of its kind in France. In

August 1942, the Germans, by order of their

military authorities, took all the machinery from

the Nedal factory and that machinery has not yet

been returned. Produits Jex Societe Anonyme was

the sole selling agent of Nedal Societe Anonyme

and that constituted its most important activity.

This latter activity was entirely cut off on the

removal of the machinery from the Nedal plant

and the principal business of Produits Jex Societe

Anonyme was destroyed. In June and July 1942,

respectively, a German sequestrator was named

for the Nedal Societe Anonyme and the Produits

Jex Societe Anonyme. These orders of sequestra-

tion were similar to that in the case of the Markt

& Co. at Paris. (R. 16.)

Petitioners duly filed a claim for refund of

estate tax upon the ground that the amount of

$82,809.49, the value of the stocks as of decedent’s

a

5

death, should be allowed as a deduction from the

gross estate under the provisions of Section 812

(b) (5) of the Internal Revenue Code (R. 6-9,

17). The Commissioner of Internal Revenue

disallowed this claim and this suit was brought in

the Court of Claims within two years of the

rejection thereof (R. 17, 1).

The Court of Claims held that petitioners were

not entitled to deduct the value of the stocks from

the gross estate under the provisions of Section

812 (b) (5), Internal Revenue Code. The court,

however, rendered judgment for petitioners in the

amount of $11,136.88 resulting from the allowance

of certain executors’ commissions and attorney’s

fees, but this issue is not involved in the petition.

(R. 17, 23-24.)

ARGUMENT

1. The basic difficulty with the petitioners’ case

is their failure to prove ‘‘the losses alleged to have

been sustained.’’ (R. 20.) Since the judgment

of the court below rests upon that failure of proof

(id.), its ruling raises no question requiring

review by this Court. Were it not for this

deficiency in the record, the questions that

might have arisen out of a case properly made

might have been of intrinsic importance. As a

practical matter, however, there seems only to have

been one other reported case involving a construc-

tion of that portion of the estate tax allowing a

loss deduction (Lyman v. Commissioner, 83 F. 2d

811 (C. C. A. Ist)), and petitioners refer to no

6

pending cases. Petitioners do refer to other cases

involving a similar provision in the income tax

laws, but, for years beginning after December 31,

1940, Section 127 of the Internal Revenue Code

makes special provision for war losses and their

effect on income tax (see Appendix to Pet. for

Cert., pp. 17-19), and thus minimizes the im-

portance of the construction of the general loss

provisions to this field.

2. All of the decisions alleged by the petitioners

to be in conflict with that of the court below are

income tax cases, and hence, are of only collateral

interest. Moreover, they involve factual variants

which are of substantial distinguishing importance.

In Houdry v. Commissioner, 7 T. C. 666, and United

States v. White Dental Co., 274 U. 8S. 398, the

Vichy and German authorities had taken action

with respect to property which the courts, re-

spectively, characterized as ‘‘confiscation’’ (7

T. C. at 667) and a taking “‘similar in purpose

and legal effect to that authorized under the Trad-

ing with the Enemy Act of the United States”

(274 U. S. at 399). In the case at bar, the effect

of the sequestrations is not shown. The German

orders of sequestration themselves speak in terms

of suspending private management, not terminat-

ing it (R. 15. It is true that in the case of

Nedal Societe Anonyme, there was eviderice that

machinery was moved out and the factory later

destroyed but, again as the court below noted,

7

there is no showing as to what other assets the

corporation may or may not have had. ‘‘The

same holds true as to the stock held by the estate

of Produits Vex Societe Anonyme, whose prin-

cipal business was as selling agent for the Nedal

concern.”’ (R. 21.) Thus the record is barren

with respect to the question of whether petitioners’

stock had become worthless.

Shearer v. Anderson, 16 F. 2d 995 (C. C. A.

2d), simply holds that to fall within the loss pro-

vision of the income tax laws, the ‘‘casualty’’ need

not be attributable to purely natural causes.

Nothing in the decision below is to the contrary.

3. Even if the petitioners are correct in their

contention that Sections 812 (b) (5) (estate tax

provision) and Section 23 (e) (3) (income tax

provision) are in pari materia and should be read

together, their position in this case is no

stronger. Petitioners cite no cases holding that

the mere existence of a state of war gives rise to a

easualty loss deduction. Cf. Durden v. Commis-

stoner, 3 T. C. 1, and cases cited therein as to when

losses are deductible for income tax purposes un-

der the ‘‘other casualty’’ provisions. Mere

shrinkage in value of stocks has been held not

sufficient to result in a deductible loss under the

casualty sections of the Code whether for income

tax or estate tax purposes, or in fact under any

of the other loss provisions of the income tax

statutes. Olds & Whipple v. Com. issioner, 75

8

F. 2d 272 (C. C. A. 2d) (income taxes) ; Lyman v.

Commissioner, 83 F. 2d 811 (C. C. A. 1st) (estate

taxes).

4. The action of the court below in refusing to

consider the provisions of Section 127 of the In-

ternal Revenue Code, as added by the 1942 Act

(Appendix to Pet. for Cert., pp. 17-19), since in

its opinion it had no application to estate taxes,

was proper. Section 127 allows a deduction for

‘twar losses’’ providing that in certain circum-

stances arising out of World War II, losses are

‘‘deemed’’ to have been sustained at certain dates.

It gives the taxpayer a certain choice of dates as

to when the loss may be claimed without the

necessity of proving actual seizure or destruction

and makes elaborate provision for the inclusion

in income of later years of any recoveries.’ The

conclusion of the court below is supported by the

language of the statute itself which clearly refers

to the determination of tax on an annual basis.

Section 127 states that the losses are allowable

‘*For the purposes of this chapter’’ (Chapter 1

of the Code which deals with the imposition of

income taxes).* Section 156 (b) of the Revenue

? The report of the Senate Finance Committee on the 1942

Act, S. Rep. No. 1631, 77th Cong., 2d Sess., pp. 127-130

(1942—2 Cum. Bull. 504, 599-601), states that this section

provides practical rules for the treatment of property de-

stroyed or seized in the course of military or naval operations

in view of the difficulty in determining when the actual de-

struction or seizure occurred, or in determining the facts

establishing the loss in case the property is in enemy country.

9

Act of 1942, c. 619, 56 Stat. 798, provides that

“The amendments made by this section shall be

applicable to taxable years beginning after De-

cember 31, 1940.”’

CONCLUSION

The petition for a writ of certiorari should be

denied.

Respectfully submitted.

~ Puiip B. PERLMAN,

Solicitor General.

“ THERON LAMAR CAUDLE,

Assistant Attorney General.

~ STANLEY M. SILVERBERG,

~ Exizasetu B. Davis,

Special Assistants to the Attorney General.

Aveust 1948.

* Estate taxes are imposed by Chapter 3 of the Code.

APPENDIX

INTERNAL REVENUE CODE

Sec. 812. NET ESTATE.

For the purpose of the tax, the value of the net

estate shall be determined, in the case of a citizen

or resident of the United States by deducting

from the value of the gross estate—

* * * * *

(b) Expenses, Losses, Indebtedness, and

Taxes.—Such amounts—

(1) for funeral expenses,

(2) for administration expenses,

(3) for claims against the estate,

(4) for unpaid mortgages upon, or any indebt-

edness in respect to, property where the value

of decedent’s interest therein, undiminished by

such mortgage or indebtedness, is included in the

value of the gross estate, and

(5) reasonably required and actually expended

for the support during the settlement of the estate

of those dependent upon the decedent,

as are allowed by the laws of the jurisdiction,

whether within or without the United States, un-

der which the estate is being administered, but not

including any income taxes upon income received

after the death of the decedent, or property taxes

not accrued before his death, or any estate, suc-

cession, legacy, or inheritance taxes. The deduc-

tion herein allowed in the case of claims against

the estate, unpaid mortgages, or any indebtedness,

shall, when founded upon a promise or agree-

(10)

11

ment, be limited to the extent that they were con-

tracted bona fide and for an adequate and full

consideration in money or money’s worth. There

shall also be deducted losses incurred during the

settlement of estates arising from fires, storms,

shipwrecks, or other casualties, or from theft,

when such losses are not compensated for by in-

surance or otherwise, and if at the time of the

filing of the return such losses have not been

claimed as a deduction for income tax purposes

in an income tax return.

* * * * *

(26 U. 8. C. 812.)

TREASURY REGULATIONS 105, PROMULGATED UNDER

THE INTERNAL REVENUE CODE

Sec. 81.39. Losses from casualties or theft.—

There may be deducted under this heading losses

incurred during the settlement of the estate aris-

ing from fires, storms, shipwrecks, or other casual-

ties, or from theft, if such losses are not com- -

pensated for by insurance or otherwise. Such

losses are not deductible if, at the time of the

filing of the estate-tax return, they have been

claimed as a deduction for income-tax purposes in

an income-tax return.. If the loss is partly com-

pensated for, the excess of the loss over such com-

pensation may be deducted. Losses not of the

nature described are not deductible. In order to

be deductible a loss must occur during the settle-

ment of the estate. If a loss with respect to an

asset occurs after distribution thereof to the dis-

tributee it may not be deducted.

U. S. GOVERNMENT PRINTING OFFICE: 1948