Moore and Kaufman, Circuit Judges, and Ryan, District Judge.*fn* Moore, Circuit Judge (dissenting).
This appeal presents a narrow issue requiring the interpretation of Section 2011(a) of the 1954 Internal Revenue Code, to determine the proper credit for State death taxes against the federal estate tax.*fn1 The question posed is: do the words "gross estate" in the statute mean gross estate for federal estate tax purposes, or do they mean gross estate used by a State in arriving at its inheritance or succession tax. Put another way, we are asked whether an estate may credit against federal estate taxes, death taxes paid to a State on property included in the State return but excluded from the federal estate tax return.
The District Court ruled that a credit was allowable for State taxes paid even though the property was not included in the federal return (297 F. Supp. 1080). We disagree, and therefore reverse.
The facts are not in dispute. Connecticut included in the gross estate of the decedent certain assets, valued at $931,031.70, of a trust established by decedent for the benefit of his son. This asset was not taxed in the federal estate because the remote reversionary interest of decedent was less than 5%.*fn2 The portion of the Connecticut succession tax attributable to the trust amounted to $69,422.88. The Internal Revenue Service denied the maximum credit for State taxes claimed by asserting that the maximum credit should be reduced by the sum of $69,422.88 paid to Connecticut in respect of the trust not taxed on the federal return.
There is virtually no authority to guide us. No case directly in point has been cited, nor is the legislative history of the statute particularly revealing. However, considering such background as is available, together with our interpretation of the applicable provisions of the Internal Revenue Code, we are convinced that Congress could not have envisioned a credit for State taxes on property not included in the federal return.
The predecessor to the present Section 2011 was originally enacted in 1924 to prevent the various States from engaging in tax slashing competition seeking the residence, and hence the estates, of the wealthy.*fn3 This was to be accomplished by the means of a tax credit against the federal estate tax to avoid double taxation of estate assets.*fn4 This intention was manifest in the Congressional reports:
"The several States, by the use of this provision, will be enabled to make use of the inheritance tax without additional cost to its citizens."*fn5
When, as here, there is no federal tax on the property, and only one State tax is imposed, there can hardly be any reason for the tax credit, which was designed to avoid the burden of double taxation.
The rationale of the federal estate tax is a levy not on the property of which an estate is composed, but an excise imposed on the transfer of or shifting relationships to property at death. United States Trust Co. of New York v. Helvering, 307 U.S. 57, 59 S. Ct. 692, 83 L. Ed. 1104, § 2001 I.R.C. We do not believe that, within that theory, Congress could have intended to give a credit for property not transferred at death within the purview of the federal estate tax law.*fn6
To buttress its position, the Government cites an unbroken series of Treasury Regulations which consistently refer to the words "gross estate" in the context of "gross estate for federal estate tax purposes."*fn7 From these, it appears that the Treasury Regulations have limited the credit for State taxes to property included in the gross estate of the decedent for federal estate tax purposes. While not binding upon us, these consistent regulations of more than forty years would appear, in the absence of any contrary indication, to have received Congressional approval in the light of the indicated purpose of the State tax credit. Helvering v. Winmill, 305 U.S. 79, 59 S. Ct. 45, 83 L. Ed. 52.
On balance, considering the original design of the credit for State death taxes, the mischief which it was designed to prevent, and the underlying purpose in avoiding double taxation on a decedent's estate, we conclude that the credit was never intended to apply to property not subject to tax as part of the federal gross estate.