Before BIGGS, Chief Judge, and MCLAUGHLIN and O'CONNELL, Circuit Judges.
Sarah J. Kissam, a resident of New York, the "donor", died in 1918. Under Mrs. Kissam's will Louise V. Kerr, the "decedent," the donor's daughter, had a life estate in and a testamentary power of appointment over the corpus of a trust created by the will. The will provided that in default of appointment by the decedent the corpus should go equally divided to the decedent's two sons. The decedent died on September 19, 1942 resident in New Jersey and by her will exercised the power by appointing a life estate to her husband, remainders over at his death to her two sons. The decedent's will was admitted to probate in New Jersey on October 1, 1942 and to probate in New York as the will of a non-resident on February 3, 1943. The decedent's husband died in 1943. The sons expressly renounced the appointments to them under their mother's will electing to take under the donor's will. The law of New Jersey or of New York respecting the law of the execution of powers or of renunciations differs in no pertinent respect from the weight of authority throughout the States and need not be detailed here. The Tax Court of the United States held the value of the entire corpus to be includable in the decedent's gross estate. See 9 T.C. 359. The decedent's executors petitioned for review.
It will be observed that the critical date, that of the decedent's death, was September 19, 1942, and that the pertinent statute is Section 811 of the Internal Revenue Code, 26 U.S.C.A. § 811. The respondent contends that the corpus is includable under both subparagraphs (a) and (f) of Section 811. Both are set out in the margin*fn1 but we think it unnecessary to determine whether subparagraph (a) is applicable for we are of the opinion, as was the Tax Court, that tax incidence is created by paragraph (f). In so deciding we are faced, as was the Tax Court (see 9 T.C. at p. 360), "* * * with the difficult question of to what extent Helvering v. Grinnell, 294 U.S. 153, 55 S. Ct. 354, 79 L. Ed. 825, has survived Rogers Estate v. Helvering, 320 U.S. 410, 64 S. Ct. 172, 174, 88 L. Ed. 134. * * *"
In the Rogers case the Supreme Court rejected the state-law approach adhered to in Grinnell. The "recondite niceties of property law" and "the crazy-quilt of local formalisms of historic survivals" were said to be matters of indifference to the federal fisc. But the Rogers opinion also stated that where the donee of a power "* * * merely echoes the limitations over upon default of appointment he may well be deemed not to have exercised his power, and therefore not to have passed any property under such a power." In other words, if the precise interest passes to the beneficiary by a state-law title it would seem to be of little consequence that the donee of the power also endeavored to give it to the beneficiary by words of gift in a will.
In the case at bar, however, the donee, the decedent, Mrs. Kerr, created new estates by her exercise of the power by her will. She gave a life estate in the corpus to her husband and remainders to her sons. These estates were not identical with those which would have come into being upon the death of the decedent by state law under the will of the donor, Mrs. Kissam.The decedent "exhausted" the power. Property interests in fact passed by the decedent's will and this is what the estate tax hits. As was said in Rogers the statute taxes "an exercise of the privilege of directing the course of property after * * * death." Cf. Estate of Charlotte D.M. Cardeza, 5 T.C. 202, and our decision*fn2 affirming the cited case.
The decision of the Tax Court in the instant case ...