Petition for Writ of Certiorari — Estate of DuPont v. Commissionner

zee. BDO TRE SI OP GLARE AS

IN THE

Supreme Court of the United States

OCTOBER TERM, 1955

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Estate or Ricnarp C. DuPont, Deceased,

Witmincton Trust Company, Executor,

Petitioner,

VS.

CoMMISSIONER OF INTERNAL REVENUE,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

Georce S. Lersure,

Carperry O’SHEa,

2 Wall Street,

New York 5, New York,

Attorneys for Petitioner.

_ Of Counsel:

Donovan LeisurE Newton & IrvINE

ob aetee Si

INDEX

PAGE

Opinions Below 1

Jurisdiction 2

Questions Presented 2

Statutes and Regulations Involved 2

Statement of Case 2

Reasons for Granting the Writ )

Conelusion 7

Cases CrtTEep

Commissioner v. Connelly, 338 U.S. 258 (1949) ..... . 5,6,7

Jose Soriano v. United States, No. 760 7

Mitchell v. Cohen, 333 U. S. 411 (1948) 6,7

Sratutes Crrep

Internal Revenue Code of 1939, See. 22(a) (13) cnn ia nue

Internal Revenue Code of 1939, Sec. 22(b) (13) we 5

Internal Revenue Code of 1939, See. 989 ccc 2, 4, 5, 6

)

28 U.S. C. See. 1254(1)

: IN THE

i Supreme Court of the United States

d | OCTOBER TERM, 1955

: | No,——————

Estate or Ricnarv C. DuPont, Deceased,

Witmincton Trust Company, Executor,

Petitioner,

Vs.

CoMMISSIONER OF INTERNAL REVENUE,

, Respondent.

4.

r

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

, Estate of Richard C. DuPont, Deceased, Wilmington

‘Trust Company, Executor, prays that a writ of certiorari

issue to review the judgment of the United States Court of

) Appeals for the Third Circuit, entered in the above-enti! |

case on May 16, 1956.

Opinions Below

) The findings of fact and opinion of the Tax Court

t (App. 3a) are reported in 18 T. C. 1134. The opinion of the

Court of Appeals (App. 27a) is reported in 233 F. 2d 210.

tS fal

Jurisdiction

The jurisdiction of this Court is invoked under 2g

U. S. C. See. 1254(1). The Judgment of the Court of

Appeals was entered May 16, 1956.

Questions Presented

Was decedent in active service as a member of the

military forces of the United States, within the meaning of

Section 939 of the Internal Revenue Code of 1939, when,

during World War II he was killed parachuting from a

glider while on an ordered military mission, where his

duties in the Air Forces were of a military nature which

normally only commissioned officers are ordered to per-

form, he not being commissioned and for military reasons

having all outward indicia of a civilian employee?

Statutes and Regulations Involved

Section 939(a) of the Interna] Revenue Code of 1939

and pertinent Treasury Regulations thereunder are printed

at pages 24a-26a of the Appendix of petitioner.

Statement of Case

Decedent was a famed expert in glider activities. In

World War II the development and use of gliders for mili-

tary invasion and combat was an urgent and vital part of

the Air Forces program. General Arnold, the Commanding

General of the Army Air Forces, appointed decedent, then

only 31 years of age, as his Special Assistant and a member

of the Air Staff with “the authority of an Assistant Chief

of Air Staff’? to have charge of the Air Forces Glider

vrogram. He was ordered to report directly to General

Arnold. His duties were to plan and supervise the glider

program; determine tacti¢s, techniques and tactical pro-

jwiency requirements for use of gliders; determine policies,

programs, standards and doctrines for training individuals

and units; direct and coordinate testing of gliders; and in

other ways to expedite the glider program.

Under orders from General Arnold decedent made vari-

ous trips to military air stations and camps for glider

surveys, maneuvers and tests. He worked in the field with

Major General Ridgeway and airborne troops in devising

training techniques and tactics for anticipated use of

viiders in combat. In July, 1943, at the request of the

heater Commander he was ordered to the North African

Theater of Operations during the campaign in Sicily. While

there he personally observed the use of gliders in combat

operations during the Sicilian Campaign. Subsequently he

was posthumously awarded the Distinguished Service

Medal for contributing materially to the successful accom-

nlishment of a mission of the greatest importance in the

ir effort.

In appointing him as Special Assistant in charge of

the Glider Program, General Arnold designated that he

‘‘serve in a civilian capacity’’. General Arnold would tes-

tify that by such words he meant that in civilian clothes

du Pont could deal direct with the General and was thus

relieved of channelling his activities through numerous

subordinate military offices, and since time was crucially

of the essence, his being in civilian clothes was ‘‘truly a

military expedient’’. Thus, he was not commissioned as an

TE

4

oflicer but to enable him to expedite the duties ordered by

General Arnold he was given all the outward indicia of a

civilian, He filed the Civil Service Commission form and

took the oath of office of a government employee, the

administrative assistant to the Secretar y of War in a form

designated his position as a Special Consultant, his ap-

peninent was for 90 days and extended, and his pay was

20 a day.

Decedent died on September 10, 1943, on ‘a military

mission under direct orders from Headquarters’? when, at

March Field in California, his parachute opened too late

after he had to bail out of a falling experimental glider,

piloted by an Army Colonel, in which decedent was riding

as an observer of its military characteristics.

General Arnold would testify that

‘‘Factually he was as much a member of our

military establishment as though he held a commis-

sion. He gave his life in military service as actually

as any officer in uniform in actual military combat.”’

The Tax Court held that Section 939 was an exemption

statute to be strictly limited, and relying on the use of

the word ‘‘soldier’’ in an extemporaneous statement made

in a Congressional debate, held the statute embraced ‘only

persons formally members of the armed forees.’’? The

Court of Appeals, looking only at the outward civilian

indicia clothing decedent’s position, affirmed.

RE xartee Ch “ CNAME

Reasons for Granting the Writ

i. The decision of the Court below conflicts with the

principle clearly established in Commissioner v. Connelly,

338 U. S. 258 (1949). That case held that the test of

whether one is deemed in military service for purposes of

the particular statute, is determined, not by his formal

military or non-military status, but by whether his func-

tions are of a military character. Section 939, here in-

volved, without doubt was a tax relief or remedial measure

entitled to liberal construction, enacted to remove the estate

tax on those who died while performing hazardous military

functions in line of their duties while actively serving as

a member of the armed forces. The hazardous military

dangers incident to military duties is key to the meaning

of this statute. When Congress meant to limit the words

‘‘a member of the armed forces’’ to formally commissioned

officers or enlisted men it used the words ‘‘commissioned

officer’? and ‘‘enlisted personnel’’ in Section 22(b) (13)

of the Internal Revenue Code of 1939, whereas in order

to carry out the alleviating purpose of Section 939 it used

the broad words ‘‘citizen or resident’’.

In the Connelly case this Court held that the compensa-

tion received by a commissioned officer of the Coast Guard

Reserve (by statute defined as part of the naval forces)

was not ‘‘for active service as a commissioned officer in the

military or naval forces’’ where the functions he performed

as such an officer were the same civil service duties he per-

formed as a lawyer in the Geodetic Survey before he was

commissioned and in all other respects as to pay, leave,

ete. he retained his former civilian status. The Court held,

in essence, that the statute was intended to exempt only

pay received for performing military functions.

The instant case presents the reverse side of the coin,

Here the functions decedent was called upon to perform

were strictly of a military nature of the type which only au

Air Force General can or is ordered to perform. Decedent

was given the authority of an Assistant Chief of Air Stail,

all of whom were generals. As the Court in the Connelly

case laid aside the military status of taxpayer and looked

at his civilian functions to carry out the Congressional pur-

pose of Section 22(a)(13), so should the civilian indicia of

decedent, assumed by him as a military expedient so he

could under direct orders from General Arnold more quickly

perform his military duties, be disregarded. His ciear

military functions bring him within Section 939.

In Mitchell v. Cohen, 333 U.S. 411 (1948), the question

was whether the term ‘‘ex-servicemen’’ under the Veterans

Preference Act included a person who served in the Coast

Guard Reserve but whose functions were such as did not

disrupt his regular civilian job or his home life. The

Court adopted the military function test, and properly

decided that his former military status should be disre-

garded where his military functions did not alter his regu-

lar civilian job.

In the instant case, the court below erroneously tested

decedent’s rights under Section 939 by his outward appear-

ance of a civilian rather than, as Congress necessarily

intended in such statute, by the hazardous military fune-

tions he was ordered to perform in line of his military

duties and service in the Air Forces. Such disregard of the

principles which this Court has so clearly established

renders the decision of the Court below in conflict with the

Connelly and Mitchell cases and warrants this Court’s

review.

2. The Supreme Court has granted a petition for a

writ of certiorari in Jose Soriano v. United States, No. 76V.

The fundamental question there presented is whether

Filipino guerilla units engaged in military operations dur-

ing the Japanese occupation of the Phillipines were in ‘‘the |

service of the armed forces of the United States’’ by reason

of the call into such service of all the organized military

forces of the Phillipine Government. The guerilla forces

performed actual military operations and functions for

our armed forces in the South Pacific after the surrender

at Bataan and Corregidor of the formally inducted United

States and Phillipine military forces.

Again this Court has before it the question of whether

the formalistie or the realistic test should govern. Since

the instant case presents a problem similar in principle

and in application, it is appropriate that the writ sought

be granted in this case.

CONCLUSION

For the foregoing reasons this petition for a writ

of certiorari should be granted.

Respectfully submitted,

Grorce S. Letsure,

Carperry ©’SHEa,

Attorneys for Petitioner.

Of Counsel:

Donovan LeisurE Newton & IrvINE

= SC

r No. 319 AUG 1 41956

OF Ar aCe

JOHN T. FEY, Clerk

UNITED STATES COURT OF APPEALS

For tHe Tuirp Circuit

No. 11,800

ESTATE OF RICHARD C. DU PONT, Decrasen,

Wimineton Trust Company, Execvror,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

Ox Petition to Review a Decision OF THE Tax Court oF

THE Unrrep STAteEs.

Argued April 19, 1956

Before Goopricu, Katopner and Hastir, Circuit Judges.

OPINION OF THE COURT

(Filed May 16, 1956)

By Goopricn, Circuit Judge

The present appeal is from a decision by the Tax Court

of the United States deciding in favor of the Commissioner

on two points raised by counsel for the taxpayer. 18 T.C.

1134 (1952). One of the questions is the valuation of cer-

tain life insurance policies owned by the decedent, Richard

C. DuPont, on the life of his father. The other question

involves an exemption from an additional estate tax im-

posed by section 935 of the Internal Revenue Code of 1939

Bib eats

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(26 U.S.C.A. § 935) found in section 939 of the Internal

Revenue Code. 26 U.S.C.A. § 939 (Supp. 1955). The last

point will be considered first.

The exemption just mentioned reads as follows:

‘*The tax imposed by section 935 shall not apply to the

transfer of the net estate of a citizen . . . dying

- While in active service as a member of the mili-

tary or naval forces of the United States . . |”

The words to which we must give attention are the last

ones in the quotation. Was Mr. Richard DuPont, at the

time he met death in a glider accident, ‘‘a member of the

military or naval forces of the United States?”

The decedent in his lifetime had acquired fame as an

expert in glider activities. His experience and knowledge

in this field resulted in his appointment as a member of the

staff of General H. H. Arnold, Commanding General of

the Army Air Forces. He was appointed a Special Assist-

ant to the Commanding General ‘‘in charge of the Army’s

glider program for air transport of Army troops and cargo

by gliders . . .”? This quotation is taken from the find-

ings of fact which in turn were largely composed of a stip-

ulation between the parties which was adopted by the eourt.

If living the General would have testified **Factually, he

was as much a member of our military establishment as

though he held a commission. He gave his life in military

service as actually as any officer in uniform, in actual mili-

tary combat.’’ The reference to the giving of his life was to

the fact that Mr. DuPont had been killed in a glider acci-

dent while in the performance of his duties as special eon-

sultant.

There is no doubt that Mr. DuPont gave his life in the

service of his country. Nevertheless, we think it clear that

he did not come within the exception to section 935 already

referred to. The reasons are to be found in the facts stip-

ulated between the parties. Mr, DuPont filed a Civil Serv-

own

RS EE A TAS SETS ATER SNARES RAEI FANE UR sah e res

ice Commission form. He was appointed as ‘‘Special Con-

sultant.’? His appointment was for a brief period, ninety

days at the start. There was a special arrangement about

his pay. 't was to be $25.00 for each day he worked. His

travel applications and orders were issued from the civilian

personnel division of the Office of Chief of Air Staff. It

is quite clear to us that the Tax Court was correct in find-

ing that the decedent was employed by the United States

in a civilian capacity because that was a more convenient

form of employment for him to have to accomplish the

things which his expert knowledge would help him accom-

plish for the air force.

The undefinitive legislative history of this exemption

paragraph is set out in the Tax Court’s opinion and will

not be repeated here.’ Compare also for a comparable

though not similar situation, Commissioner v. Connelly, 338

U.S. 258 (1949) ; likewise, for a case where the taxpayer had

many more of the indicia of military service than we have

in the present case, United States v. Popham, 198 F.2d 660

(Sth Cir. 1952).

The second question is more difficult. The decedent

owned, at the time of his death, some insurance pclicies

upon the life of his father who was then living. He also

owned an interest in a trust of other life insurance policies

upon the life of his father. But the questions here involved

will be settled if we consider only the first group.

It is conceded that the passing of these policies from

the living to his successors is subject to tax ‘‘To the extent

of the interest therein of the decedent at the time of his

death . . .’? under section 811(a) of the Internal Revenue

Code of 1939, 26 U.S.C.A. § 811(a). The dispute here con-

cerns a criterion to determine the extent of the decedent’s

interest at the time of his death, in other words, valuation.

The Commissioner contends that the valve is replacement

1 See 18 T.C. 1134, 1142 (1952). That the legishtors vere thinking in

terms of “servicemen” finds additional support in a committee report which

accompanied the bill extending the exemption to victims of the Korean conflict.

S. Rep. No. 781, 82d Cong., Ist Sess. VIII, B, 1 (1951).

saelaemehie th te

cost, that is, what it would cost to go out and get, on the

effective date, this policy from the same or other | surance

company. If such policies could not be purchased, then

the value is to be set at interpolated terminal reserve. This

is the reserve value which the company keeps on its books

against its liability on the contracts plus the adjustment

of the reserve to the specific date in question. Commis-

stoner v, Edwards, 135 F. 2d 574, 576 (7th Cir. 1943). The

petitioner says the policy should be included in the gross

estate ‘“‘at the present value of the face amounts of the

policies but at not less than their cash surrender values.’’?

We have no direct authority in point. The petitioner

has cited us some discussions by writers and a decision or

two which we think too far away from the point at issue to

be worth carrying into citation.

If the question were one with regard to an inter vivos

gift of an insurance policy the law is well settled, by now,

that the rule contended for by the Commissioner in this case

is to be followed. Guggenheim v. Rasquin, 312 U.S. 254

(1%+1); Powers v. Commissioner, 312 U.S. 259 (1941);

United States v. Ryerson, 312 U.S. 260 (1941) ; Houston v.

Commissioner, 124 F.2d 518 (3d Cir. 1941) ; Phipps v. Com-

missioner, 43 BTA 790 (1941); Lockhart v. Commissioner,

46 BTA 426 (1942).

The taxpayer argues that we should not apply this rule

to the case of an estate tax. It is contended that no one

would make a gift of a life insurance policy unless the un-

derstanding with the donee was that he wanted the 'ife

insurance protection and would keep the policy. Where

this information as to mental state of donors and donees

comes from we do not know. Then the argument continues

that the only value which an insurance policy on the life

of another person has to the executor is its cash surrender

value. The executor, it is argued, may not properly keep

2 If the terms of this claim seem ambiguous, the language is the Petitioners,

not ours. It is doubtless used in an effort to tie up the solution of the question

with an earlier regulation hereafter discussed.

this insurance policy on the life of another in the estate

because it does not produce enough income.

We do not go along with this argument by the peti-

tioner. He cites us no authority that the executor must

immediately cash in life insurance policies which the de-

cedent owned on the life of another. Nor can we accept

his argument that in all cases the value would not be any-

thing more than the right to get the money at the cash

surrender value. If the named insured were advanced in

years and in precarious health, it might well be that the

actual value, as a practical matter, is far more than the

cash surrender value which the company by its charts and

tables would be willing to pay on the policy on a given date.

But, as we remarked in Mearkle’s Estate v. Commis-

sioner, 129 F.2d 386, 388 (1942), these matters lie in the

field of speculation or at best discussion. As pointed out

by the Supreme Court in the Guggenheim case, supra, a life

insurance policy is not a simple contract to pay money but

a complex kind of a chose in action. The right to keep it

to collect money at a future date may be worth more than

the right to get today that part of the policy which, under

the company’s contract, is called its cash surrender value.

There is some advantage in having rules applicable to

estate tax go along parallel with those applicable to gift

tax since one is if not altogether complementary at least

related to the other.* This does not mean that this paral-

lelism must follow in every case. In a case where the rule

is set_in gift tax as it is in this situation, it is not unreason-

able for the administrative arm of the government to adopt

that rule for the similar problem in estate tax. This it has

done by a 1952 amendment to the regulations which by its

terms is to be given retroactive effect.*

The taxpayer argues that the amendment to the regu-

lation changes the rule theretofore established also by reg-

ulation and cannot be applied retroactively to a situation

3 Harris v. Commissioner, 340 U.S. 106, 107 (1950).

4 T.D. 5906, 1952-1 Cum. Brit. 155, para. 1.

OE EOE VOR PE ARs OT I -

OE FEILER FT EROS THI OC AI EE RRR NN OS REI RM MDE cle RS

6

}

which arose before the current amendment was promul-

gated.

If the earlier regulation did in fact cover the type of

problem presented by this case, the argument would re- )

quire very thoughtful consideration. But we disagree with )

taxpayer’s contention on the effect of the regulation. In

our view the original regulation did not offer a solution to

the problem here. Taxpayer cites a section which at first

blush appears applicable because of general language about

“future payments.”® Yet the catch line heading this pro- :

vision, ‘‘ Annuities, life, remainder, and reversionary in-

terests’’, indicates a much more limited scope, which we

do not think properly expanded to cover an ordinary in-

surance policy on the life of another. And taxpayer himself

puts in question the appropriateness of the regulation when

he adds his own gloss to the method prescribed. ‘‘ Present |

value’’ becomes ‘‘present value but not less than cash sur-

render value.”’

When under the Code of 1939 the regulation was drawn

which governs the valuation of a gift of insurance on the

life of another, the proper method had been made clear by

court decisions and the established approach was reflected

in the regulation.® At the time the regulation which tax-

payer now cites was drafted there was no case law indicat-

ing the appropriate treatment for the comparable estate tax

situation. With such a state of affairs we think it more rea-

sonable to conclude that a regulation making no specific

reference to insurance on the life of another was not de-

signed to offer a definitive solution to a unique and com-

plicated problem of valuation.

As we pointed out in a similar situation in the Mearkle

case, cited above, here is a situation where it may well be

that more than one method of valuation could be established}

as reasonable. A good case could be made, perhaps, for

saying that what passed on from the dead to his executor

5 USS. Treas. Reg. 105, §81.10(4) (3) (1942).

6 U.S. Treas. Reg. 108, § 86.19(#) (1943).

a LOE NETS LF LLY EM La ee ae ON LR ak

7

was what the executor could get for this policy by turning

it into money. As already said, however, that omits cer-

tain elements in the life insurance contract which may well

change the rule when we decide upon its ‘‘value’’ at a par-

ticular time. When more than one rule is possible and

the Commissioner has laid down one in complete accord-

ance with the rule for gift taxation and which is not in

itself unreasonable, we cannot say that the determination

is so arbitrary as to be unlawful.

The decision of the Tax Court will be affirmed.

A true Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

CER ERR RET OV LBS BEE IE SITET RO ONO AL ee SAR OS

No. 319

IN THE

Auited States Court of Appeals

For the Third Circuit

No. 11800

ESTATE OF RICHARD C. DuvPONT, DECEASED,

WILMINGTON TRUST COMPANY, EXECUTOR.

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Petitioner,

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CEO,

VS.

COMMISSIONER OF INTERNAL REVENUE,

Respondent.

— ee

EN ety Ee) we soa s

ON PETITION TO REVIEW THE DECISION OF

THE TAX COURT OF THE UNITED STATES

APPENDIX OF PETITIONER

Te ee

Be ahaa ty, ea

Vaya

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CaRBERY O'SHEA,

2 Wall Street,

New York 5, N. Y.

Attorney for Petitioner.

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cathe hye aod tt aie

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Of Counsel:

~ Donovan Leisure Newton & Irvine

INDEX TO APPENDIX

Relevant Docket [Entries

Findings of Fact and Opinion of Tax Court

Decision of Tax Court

AOOee eee eee eeeeeneenen

Statute and Regulations Involved:

1. Relating to Insurance Issue

2. Relating to Military Service Issue

3 PETITIONER’S APPENDIX

Relevant Docket Entries

Tax Court Docket No. 17,261

Record

Document

Number

1948

Feb. 12—Petition received and filed. Taxpayer

notified. Fee paid 2

March = 9—Answer filed by General Counsel 5)

1950

May 11—Motion for leave to file attached

amendment to petition granted,

amendment filed 10

June 16—Answer to amendment to Petition filed

by General Counsel. 6/19/50—Copy

served 13

1951

Oct. 1—Hearing had before Judge Van Fos-

san on the merits. Stipulation of facts

filed. Petitioner's brief due 11/15/51:

General Counsel's brief due 12/31/51.

Petitioner's reply 1/15/52 24

“ 8—Motion for leave to file amendment

to petition granted, amendment filed 26

a 2o—Transcript of Hearing 10/1/51 filed 27

Dee. 6—Answer to amendments to petition

filed by General Counsel. 12.10.51—

Copy served 30

ws 20—Briet filed by taxpayer. (P) Copy

served 12/31/51 32

lla]