King v. United States , 112 F. Supp. 804 ( 1953 )

Jones, Chief Judge,

delivered the opinion of the court:

This case involves a claim in the amount of $69,094.03, with interest, for refund of income taxes paid by plaintiff as trustee for John McDowell King, deceased. The relevant facts are undisputed.

Plaintiff is the trustee under a trust created for the decedent, by the terms of which the trustee had discretion to distribute the income or to accumulate it for the benefit of the decedent.

The decedent enlisted in the Enlisted Reserve Corps, Army of the United States, on June 29,1942. Pursuant to orders, he reported for and entered on active duty on January 17, 1943. Except for a formal discharge of one day to accept a commission as Second Lieutenant, in November 1943, the decedent remained on active duty until his death on May 4, 1944, while serving as a member of the 27th Fighter Squadron near San Severo, Italy. By his last will and testament all of his property was devised and bequeathed to his father, plaintiff herein, and mother, in equal shares.

Plaintiff, as trustee, filed fiduciary income tax returns for the calendar years 1942, 1943 and the period January 1 to May 31, 1944, in which federal income tax liabilities in the amounts of $69,094.03, $26,247.35, and $11,560.82, respectively, were reported and paid. Subsequent to the death, of decedent plaintiff duly filed claims for refund of taxes paid for the above periods upon the ground that such refunds were due under section 421 of the Internal¹ Eevenue Code (26 U. S. C. 1946 ed. Supp. II, Sec. 421)! These claims for refund were rejected and suit was instituted in this court on December 1,1950.

After the passage of Public Law 183, 82d Congress, 1st session, 65 Stat. 517, section 345 of which is now the basis of the present claim, the defendant made a refund of the amounts claimed with interest for the year 1943 and the period January 1 to May 31,1944. Consequently, plaintiff’s present claim for refund of $69,094.03, with interest, is related solely to the year 1942.

The controversy between the parties arises from lack of agreement as to the proper construction of section 345 of Public Law 183, supra, which provides as follows :

In the case of a trust which accumulated income for a beneficiary who died on or after December 7,1941, and before January 1,1948, while in active service as a member of the military or naval forces of the United States or of any of the other United Nations, there shall be allowed as a deduction in computing the net income of such trust (in addition to other deductions allowable under sections 23 and 162 of the Internal Eevenue Code) income of the trust for any taxable year (before diminution for income tax) which was accumulated for such beneficiary if—

(1) the income accumulated was for a taxable year of the trust which ended with or within a taxable year (ending on or after December 7, 1941) of suoh beneficiary during any fart of which he was a m&mjber of such military or naval forces, or, in the case of the taxable year of the trust during which such beneficiary died, the income accumulated was for the period in such taxable year prior to the death of such beneficiary; and

(2) the amount of such accumulated income was, without regard to this section, taxable to the trust, and

(3) the income for such taxable year accumulated for the beneficiary, if not distributed to him prior to his death, was payable by the trust at or after his death only to his estate, spouse, or lineal ancestors or descendants. [Italics supplied.]

The sole issue is whether or not the decedent was a member of “such military or naval forces” as that phrase is used in the statute.

ít is defendant’s position that the Enlisted Reserve Corps is not ordinarily considered a part of the “military * * * forces” in the commonly accepted use of that term, and in any case, the statute here in question requires that the decedent must have been on “active service” during the taxable year for which deduction is sought. On the other hand, plaintiff urges that the statutory requirements are met by showing that plaintiff was a member of the Enlisted Reserve Corps during 1942 since that organization is a part of “military * * * forces” and “active service” is required only for the year of death.

We turn first to the question of the status of the Enlisted Reserve Corps in relation to “military * * * forces”, as the latter term is used in the statute before us. Where the legislature has defined the armed forces, reserve components have been included. This is reflected in the following excerpts from statutes defining the composition of the army which were in effect either in 1942 or at the time Congress enacted the statute here in question:

The Army of the United States shall consist of * * * the Organized Reserves, including * * * the Enlisted Reserve Corps. [Act of June 4, 1920, 41 Stat. 759] The Organized Reserve Corps shall include * * * the Enlisted Reserve Corps * * *. [Act of March 25,1948, 62 Stat. 89]

The Army includes * * * the Organized Reserve Corps; * * * [Act of June 28,1950, 64 Stat. 268]

Likewise, the Department of the Treasury has defined the “military and naval forces” as including

* * * all regular and reserve components of the uniformed services which are subject to the jurisdiction of the Secretary of Defense, the Secretary of the Army, * * *. [Treasury Regulation 26 CFR 29.3797-11, promulgated March 14,1951]

Defendant has not cited any legislation in which the Enlisted Reserve Corps was excluded from the “military forces of the United States.” Instead, reliance is placed entirely on the argument that since reservists were not in uniform, received no compensation, and were not subject to military discipline, except for failure to report when ordered, they would not ordinarily be considered members of the military forces in the commonly accepted use of that term. If it is assumed that reservists are in fact excluded from the military forces in the “commonly accepted use of the term”, the statutory excerpts reproduced above make it apparent that the Congress has not accepted any such popular connotation. We feel, therefore, that an enlisted reservist was a member of the military forces in 1942, within the purview of section 345.

It is further contended that inasmuch as section 345, supra, provides a deduction for the year of death of a serviceman who dies in “active service as a member of the military * * * forces”, then extends the privilege to prior years during any part of which “he was a member of such military * * * forces”, we must logically conclude that Congress intended active service to be a prerequisite for relief in all periods involved. Such a conclusion does not necessarily follow. The statute, on its face, makes no such requirement. Nor is it illogical to set up certain stringent prerequisites before granting any relief whatsoever and then allowing more lenient provisions for other periods, once the original operative fact requirements have been met. This approach to tax relief for servicemen can be clearly seen in a House report on the 1947 amendment to section 421 of the Internal Revenue Code, supra, properly cited by defendant as a statute in pari materia with section 345 here in issue. Reference to the legislative history and construction² of section 421 is perhaps justified in view of the paucity of interpretive expressions concerning section 345. Section 421 uses language similar to that of section 345, the latter granting the same relief for trusts which the former contemplates for individual income. The House Ways and Means Committee placed the following interpretation on section 421 in reporting an amending bill, which was subsequently enacted:

* * * The bill [H. R. 479] retains the existing provision of section 421 that taxes unpaid at the date of the death of a member of the armed forces shall not be assessed, and if assessed the assessment shall be abated, and if collected shall be credited or refunded as an overpayment. This provision as to unpaid taxes is applicable to any taxable year of the decedent (dying after December 6, 1941, and prior to January 1, 1948, while serving as a member of the armed forces) even though the taxable year for which the taxes are unpaid ended prior to December 7,1941, and even though the decedent was not a member of the armed forces during such earlier taxable year. [House Report No. 1006, July 19, 1947, 80th Congress, 1st Session, 1947, U. S. Code Com-gressional Service 1612.] [Emphasis supplied.]

This would seem to dispose of defendant’s argument that all tax relief accorded members of the armed forces has been restricted to periods of active service. It is worth noting in this connection that in the statutes cited by defendant in support of that proposition, the active service requirement was spelled out quite specifically. See, e. g., section 142 Revenue Act of 1945, 59 Stat. 572. Also, the only proposed amendment to section 421 which specifically required active service for all periods involved (S. Rep. No. 221, 78th Congress, 1st session, pp. 48-49) was rejected in the Conference Committee. (H. Conference Rep. No. 510, 78th Congress, 1st session, pp. 68-69.)

In view of the language used in section 345 and the evidence of legislative intent brought to our attention, we are persuaded that the statute entitles plaintiff to the relief here sought. Judgment will accordingly be entered for plaintiff in the amount of $69,094.08, with interest as provided by law.

It is so ordered.

Howell, Judge; Madden, Judge; Whitaker, Judge; and Littleton, Judge, concur.

FINDINGS OF FACT

The court makes findings of fact, based upon the stipulation of the parties, the briefs and argument of counsel, as follows:

1. On February 16, 1935, Ida Y. McCrimmon, a resident of the County of Telfair and a citizen of the State of Georgia, died leaving a will in which certain of her properties were devised and bequeathed to plaintiff as trustee for her two grandnephews, Chandler King, Jr. (born August 22,1921), and John McDowell King (born November 19, 1923).

2. The will provided for the trustee:

(a) To manage the said trust estate and to do whatever he might deem necessary for the best interest of the said trust estate,

(b) To collect the income from such trust estate, and

(c) After deducting the expense of administering the trust estate, to distribute the income or so much thereof as he deemed advisable at such intervals as he thought proper, “equally between” the two beneficiaries, and on termination of the trust, when the youngest reached age 35, to divide the corpus of said trust estate in “equal portions” between the two beneficaries.

3. On September 28, 1940, Chandler King, Jr., a resident of the County of Hamilton and a citizen- of the State of Tennessee and one of the beneficiaries of the aforesaid trust, was killed in an automobile accident. Under the laws of the State of Georgia (the domicile of Ida V. McCrimmon at the time of her death) the said one-half interest of the trust estate belonging to Chandler King, Jr., terminated; and the property with respect thereto was transferred by the trustee from the trust to Chandler King, Sr., the plaintiff herein, as administrator of the estate of Chandler King, Jr.

4. After the death of Chandler King, Jr.:

(a) The remaining one-half of the trust estate continued in plaintiff as trustee, and thereafter,

(b) John McDowell King, who was also a resident of the County of Hamilton, State of Tennessee, was the sole party having a beneficial interest in the said trust and the remaining trust estate.

5. On June 29,1942, John McDowell King, Serial Number 14 102 621, enlisted in the Enlisted Reserve Corps, Army of the United States, on which occasion he took the following oath:

I, John McDowell King, do solemnly swear that I will hear true faith and allegiance to the United States of America; that I will serve them honestly and faithfully against all their enemies whomsoever; and that I will obey the orders of the President of the United States and the orders of the officers appointed over me, according to the Rules and Articles of War.

6. By Special Orders Number 7, Headquarters Fourth Service Command, Atlanta, Georgia, January 8,1943, certain Air Corps Enlisted Reservists, including John McDowell King, Serial Number 14 102 621, were appointed Aviation Cadets and ordered to active duty effective January 17,1943, and directed to proceed to the Air Forces Classification Center, Nashville, Tennessee, and reported on January 18,1943, to the Commanding Officer for duty. Pursuant to said Orders, and on January 17, 1943, John McDowell King entered on active duty. A copy of Special Orders Number 7 is attached to the original of this stipulation, marked Exhibit A, and made a part hereof.

7. On November 2, 1943, John McDowell King was honorably discharged to accept a commission, and on the next day, November 3,1943, he accepted a commission as a Second Lieutenant, Army of the United States, and was assigned Serial Number 0 759 025. He reported for active duty the same day and remained on active duty until his death on May 4,1944, near San Severo, Italy, as the result of an airplane crash while serving as a member of the 27th Fighter Squadron. There is attached hereto, marked Exhibit B, and made a part hereof, an Official Statement of the Military Service and Death of John McDowell King, Second Lieutenant Air Corps.

8. Plaintiff duly qualified as Executor of the Estate of John McDowell King in the Probate Court in and for the County of Hamilton, State of Tennessee.

9. By the last will and testament of John McDowell King, all of his property, “of whatsoever nature, real, personal or mixed, and wheresoever situated,” was devised and bequeathed to his father, the plaintiff herein, and to his mother, Virginia M. King, share and share alike.

10. Plaintiff duly filed a “Fiduciary Income Tax Return, Chandler King, Trustee for John King” (Form 1041), for each of the calendar years 1942 and 1943 and the period January 1, 1944, to May 31, 1944, in which Federal income tax liabilities in the amounts of $69,094.03, $26,247.35 and $11,560.82, respectively, were reported and duly paid.

11. Thereafter, the plaintiff duly filed with the Collector of Internal Revenue for the District of Tennessee claims for refund (Form 843) for the calendar years 1942 and 1943, and the period January 1, 1944, to May 31, 1944, in the respective principal amounts of $69,094.03, $26,247.35 and $11,560.82. In said claims for refund the plaintiff set forth:

John M. King, Army serial number 14 102 621 was enlisted in the Enlisted Reserve Corps June 29, 1942, at Chattanooga, Tennessee. He left the United States for service overseas March 6, 1944; arrived in Italy March 30, 1944, and was killed May 4, 1944 near San Severo, Italy, as the result of an airplane crash while serving as a member of the 27th Fighter Squadron. Chandler King, father of the deceased and as Trustee for said John M. King, paid the Federal income tax as shown above on the respective dates. Refund under Section 421 of the Internal Revenue Code is respectfully requested.

12. By registered letter dated December 29,1948, the Commissioner of Internal Revenue notified plaintiff that the claims for refund so filed were disallowed in full.

13. On December 1, 1950, plaintiff brought suit in the United States Court of Claims, Docket No. 49946, to recover from the United States the sums of $69,094.03, $26,247.35, and $11,560.82 (with interest thereon as provided by law), representing amounts paid as Federal income taxes for the calendar years 1942 and 1943 and the period January 1 to May 31,1944.

14. On October 20, 1951, Public Law 183, 82nd Congress, 1st Session, was approved by the President providing as follows:

Sec. 345. Abatement of Tax on Certain Trusts for Members of Armed Forces Dving in Service.

In the case of a trust which accumulated income for a beneficiary who died on or after December 7, 1941, and before January 1, 1948, while in active service as a member of the military or naval forces of the United States or of any of the other United Nations, there shall be allowed as a deduction in computing the net income of such trust (in addition to other deductions allowable under sections 23 and 162 of the Internal Eevenue Code) income of the trust for any taxable year (before diminution for income tax) which was accumulated for such beneficiary if—

(1) the income accumulated was for a taxable year of the trust which ended with or within a taxable year (ending on or after December 7,1941) of such beneficiary during any part of which he was a member of such military or naval forces, or, in the case of the taxable year of the trust during which such beneficiary died, the income accumulated was for the period in such taxable year prior to the death of such beneficiary; and

(2) the amount of such accumulated income was, without regard to this section, taxable to the trust, and

(3) the income for such taxable year accumulated for the beneficiary, if not distributed to him prior to his death, was payable by the trust at or after his death only to his estate, spouse, or lineal ancestors or descendants.

15. Based upon the foregoing provision of law the respondent on July 16, 1952, made a refund of $38,808.17 with interest thereon of $17,826.50, representing the entire amount claimed for the year 1943 and the period January 1 to May 31, 1944, in which John M. King was on active duty. Accordingly, so much of this case as pertains to the year 1943, and the period January 1 to May 31, 1944, is no longer in issue.

16. Defendant has not refunded the amount claimed for the year 1942, and such claim accordingly remains in issue.

CONCLUSION OF LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes that as a matter of law the plaintiff is entitled to recover, and it is therefore adjudged and ordered that he recover of and from the United States sixty-nine thousand ninety-four dollars and three cents ($69,094.03) with interest as provided by law.

1 Sec. 421. Abatement of tax for members of armed forces upon death.

In the case of any individual who dies on or after December 7, 1941, while in active service as a member of the military or naval forces of the united States or of any of the other united Nations and prior to January 1, 1948—

(a) the tax imposed by this chapter shall not apply with respect to the taxable year in which falls the date of his death, or with respect to any prior taxable year (ending on or after December 7, 1941) during any part of which he was a member of such forces ; and

(b) the tax under this chapter and under the corresponding title of each prior revenue law for taxable years preceding those specified in clause (a) which is unpaid at the date of his death (including interest, additions to the tax, and additional amounts) shall not be assessed, and if assessed the assessment shall be abated, and if collected shall be credited or refunded as an overpayment. [Repealed September 23, 1950, 64 Stat. 947.)

2 The question of an active service requirement for years prior to that of death is not raised in any of the cases cited -where section 421 was construed. See Lloyd v. Delaney, 181 F. 2d 941; Allen v. Bickerstaff, 200 P. 2d 181; Boone v. Lightner, 319 U. S. 561.