Respondents brought this suit against the Government in the District Court for the Northern District of Texas for a refund of estate taxes paid pursuant to an asserted deficiency. The Court of Appeals for the Fifth Circuit held that respondents were entitled to certain marital deductions under § 812(e) of the Internal Revenue Code of 1939 and also to deductions for other payments as 'claims against the estate' and 'administration expenses' under § 812(b)(3) and (2) of the 1969 Code. 5 Cir., 309 F.2d 592. We granted certiorari to consider questions of statutory interpretation important to the administration of the federal estate tax laws. 372 U.S. 928, 83 S.Ct. 873, 9 L.Ed.2d 7 2.
Lowell H. Stapf died testate on July 29, 1953, a resident and domiciliary of Texas, a community property jurisdiction. At the time of his death he owned, in addition to his separate estate, a substantial amount of property in community with his wife. His will required that his widow elect either to retain her one-half interest in the community or to take under the will and allow its terms to govern the disposition of her community interest. If Mrs. Stapf were to elect to take under the will, she would be given, after specific bequests to others, one-third of the community property and one-third of her husband's separate estate. By accepting this bequest she would allow her one-half interest in the community to pass, in accordance with the will, into a trust for the benefit of the children. It was further provided that if she chose to take under the will the executors were to pay 'all and not merely one-half' of the community debts and administration expenses.
The relevant facts and computations are not in dispute. The decedent's separate property was valued at $65,100 and the community property at $258,105. The only debts were community debts totalling $32,368. The administration expenses, including attorneys' fees, were $4,073. If Mrs. Stapf had not elected to take under the will, she would have retained her fully vested one-half interest in the community property ($129,052) which would have been charged with one-half of the community debts ($16,184) and 35% of the administration expenses ($1,426). Thus, as the parties agree, she would have received a net of $111,443.
In fact Mrs. Stapf elected to take under the will. She received, after specific bequests to others, one-third of the combined separate and community property, a devise valued at $106,268, which was $5,175 less than she would have received had she retained her community property and refused to take under the will.
In computing the net taxable estate, the executors claimed a marital deduction under § 812(e)(1) of the Internal Revenue Code of 1939 for the full value of the one-third of decedent's separate estate ($22,367) which passed to his wife under the will. The executors also claimed a deduction for the entire $32,368 of community debts as 'claims against the estate' under § 812(b)(3) and for the entire $4,073 of expenses as 'administration expenses' under § 812(b)(2). The Commissioner of Internal Revenue disallowed the marital deduction and the deductions for claims and administration insofar as these represented debts (50%) and expenses (35%) chargeable to the wife's one-half of the community. Respondents then instituted this suit for a tax refund. The District Court allowed the full marital deduction but disallowed the disputed claims and expenses. 189 F.Supp. 830. On cross-appeals the Court of Appeals, with one judge dissenting on all issues, held that each of the claimed deductions was allowable in full. 309 F.2d 592. For reasons stated below, we hold that the Commissioner was correct and that none of the disputed deductions is allowable.
By electing to take under the will, Mrs. Stapf, in effect, agreed to accept the property devised to her and, in turn, to surrender property of greater value to the trust for the benefit of the children. This raises the question of whether a decedent's estate is allowed a marital deduction under § 812(e)(1) (E)(ii) of the 1939 Code where the bequest to the surviving spouse is on the condition that she convey property of equivalent or greater value to her children. The Government contends that, for purposes of a marital deduction, 'the value of the interest passing to the wife is the value of the property given her less the value of the property she is required to give another as a condition to receiving it.' On this view, since the widow had no net benefit from the exercise of her election, the estate would be entitled to no marital deduction. Respondents reject this net benefit approach a d argue that the plain meaning of the statute makes detriment to the surviving spouse immaterial.