               TEEATJTORNEYGENE~
                          OF   TEXAS


  FVIJiL WILSON
*-x-r0RNEY GENERAL
                         February 28,,lg61

    HonorableRobert S. Calvert    Opinion No. WW-1003
    Comptrollerof Public Accounts
    Capitol Station               Re: Reconsiderationof
    Austin, Texas                      Opinion No. WW-922 per-
                                       taining to taxability
                                       for inheritancetax pur-
                                      poses of bequest to the
                                      United States to be used
                                       for the retirementof the
                                      National Debt in view of
                                      new proposal with regard
    Dear Mr. Calvert:                  to.use of said bequest.
         In Opinion No. W-922 this office-consideredthe taxabil-
    ity .for.inherLtance
                       ~tsx purposes of a beque~st,in
                                                    trust to the
    United States Government to be used'forthe retirementof the
    National Debt. The specific bequest reads as follows:
               'I direct that any Income from'the
             Susan Vaughan Clayton Trust.No.,2 . . .
             be paid for the period provided in the
             instrumentcreating said Trust, as
             follows:
               "(a) One-half (l/2) of such income
             to my beloved country, the United States
             of America, to be used for the retire-
             ment of the National Debt. . .. ."
         This bequest was subject to inheritancetax unless exempt
    by the following provision of Article 14.06-ClassE, ch. 14,
    Title 122-A, Ts.x.-Gen.,V.C.S.:
               "Provided,however, that this Article
             shall not apply .onproperty passing to
             or forthe use of the United States, or
             to or for the use of any.religlous,educa-
             tional or charitable orgsnlzation,~incorpo-
             rated,,~unlncorporatedor in the form of a
             trust, when such bequest, devise or gift
             Is to be used within this State. The exemp-
             tion from tax under the preceding provisions
             of this Article shall, withoutlimiting its
             applicationunder other appxopriate- clr-
             cumstances,apply to all or so much of any
Honorable Robert S. Calvert, Page 2     Opinion No. WW-1003


         bequest, devise or gift to or for the
         use of the.,UnitedStates, or a religious,
         educationalor charitableorganization,
         which is, In writing and.prior to the
         payment of the tax, irrevocablycommitted
         for use exclusivelywithin the State of
         Texas or transferredto a religious,
         educationalor charitableorganization
         for use exclusivelywithin this State.".
     ,Inan effort to obtain exemption, the following proposal
was submltted,ina letter from William B. Butler, United States
Attorney for the Southern District of Texas, by Norman W. Black,
Assistant, dated July 13, 1960, addressed to Honorable Robert S.
Calvert,.StateComptrollerof Public Accounts.
           "I.have informed the Department of
         Justice (and they have informed the Secre-
         tary of the Treasury) that Article 14.06
         offers a possibilitywhereby the Unit@
         States could,legally.avoidthe payment:~
         of State InheritanceTaxes onthis Trust .':
          the tax is estimated at approximately
         5400,000.00).  The Secretary of the
         Treasury has suggested the following:
         arrangement,whereby the ,incomefrom the-
         bequest by the late Mrs. Clayton could   ~1
         be used exclusivelywithin the State:of
         Texas for the retirement of the National
         Debt. That proposed arrangement is as
         follows:
           "'The Treasury would make special
         arrangements.toreceive within the State ~
         of Texas moneys representingincome de-
         rived from the Susan ,V.~ClaytonTrust No.
         2 and would maintain them in a separate
         account in the name of the Treasurer of
         the United States in the State of Texas
         and not interminglethem with sny.other
         funds of the United States. Such moneys.
         would be used solely to redeem public
         debt obligationspresented to the 4’Waswy
         for redemption in the State ,ofTexas.
            "'Specifically,.the~,moneyswould.be
         paid to the United.Statesat the.#Federal
         preserveBank of Dallas; Texas, for credit
         ~to the Treasurer of the United States.: :
          The Treasurer would maintain a special '~
          deposit account with.the Eederal Reserves,
Honorable Robert S. Calvert,.Page3      Opinion No. WW-1003


         Bank for these particularmoneys. This
         account would be separate from the account
         now maintained by the Treasurer with the
         Federal Reserve Bank of Dallas for General
         operatingpurposes. .The moneys thus
         received in Texas and held on deposit with
         the Federal Reserve Bank of Dallas would be
         identifiedspecially on the books of the
         Treasury to be available for retirementof
         the national debt. From time to time, as
         public debt obligationsare presented to
         the Federal Reserve Bank of Dallas for
         redemptionby that Bank as fiscal agent
         of the United States, the Treasury would
         direct the bank to redeem such obligations
        ~-fromthe moneys held on deposit In the.speclal
         account representingthe income from the
         bequest."'
     Opinion No. WW-922 reviewed the controllingcourt decisions
and reached the following conclus-ion:
          "We think that the foregoing decisions
        demonstratethat the 'use1 contemplated
        by the statute is a direct, actual uses
        within the State for the benefit of and
        limited to its citizens. We,do not think
        that this requisite,usecan be satisfied
        by the~mere retention in the.State of
        funds devised for the retirement of the
        national debt. Any benefit which the ,~
        residents of this State would receive
        under the proposed arrangementwould be ~~
        at best an incidentalbenefit shared
        equally with all of,the residents of all
        other forty-nine states."
    In view of this conclusionexemption was denied.
     The United States, through Its appropriateofficials,has
submitted another plan which It is urged would satisfy the
requisite use withinthe State of Texas and result in exempting
the bequest from any inheritancetax. We set out the plan, as
submitted,below:
          "The Treasury would make special arrange-
        ments to receive within the State of Texas
        moneys representingincome derived from the
        Susan V. Clayton Trust No. 2 and would maln-
        tain them in a separate account ln.the name
Honorable Robert S. Calvert,,P~age
                                 ~4     Gpinion~.No.
                                                   ~~-1003


        of the Treasurer of the United States
        in the State of Texas and not intermingle
        them with any other funds of the..Unlted
        States. Such moneys would be used solely
        to redeem public debt obligationsowned
        by residents of the State of Texas pre-
        sented to the Treasury for redemption In
        the State of Texas.
          "Specifically,the moneys would be paid
        to the United States at the‘Fe.deralReserve
        Bank of Dallas, Texas, for credit to the
        Treasurer of the United States; The Treasurer
        would maintain a special deposit account with
        the Federal Reserve Rank forktheseparticular
        moneys. This account would be separate~.from
        the account now maintained by the Treasurer
        with the Federal Reserve Bank of Dallas.for~..
        general operating purposes. The moneys thus
        received in Texas and held on depo~sitwith.
        the Federal Reserve Bank of Dallas.would be
        identified specially on the books of the
        Treasury to be available for retirementof
        the national debt. From time to time, as
        public debt obligationsowned by residents
        of the State of Texas are presented to the
        Federal Reserve Bankof Dallas for redemption
        by that bank as fiscal agent of theunited
        States, the Treasury would direct the-bank
        to redeem such obligationsfrom the moneys
        held on deposit in the special account repre-
        senting the Income from the bequest;",
     It is evident that the only differencebetween the pro-
posal first submitted and the last proposal is that In using
the trust income for the retirement of the National Debt, such
use would be limited to the discharge of such public debt
obligationsas are owned by residents of this State.
     Although the Government'sposition In connectionwith this
new proposal is appealing on its face, we do not think it will
bear analysis. True, only residents of,Texas will have obliga-
tions of,the United States Governmentsatisifed from the bequest,
but are we to assume that an obligation owned by a Texas re,-
sident Is, for this reason, any less an obligationof the Govern-
ment of the United States or that the Government'sliability
is limited to this bequest or mustbe satisfiedtherefrom?
Wherein lies any~benefitto Texas residents Lnthe satisfaction
of these obligationsfrom this special fund rather than from
any Governmentrevenues? Were,,we,to  assume .thatthe Govern-
HonorableRobert S. Calvert, Page 5         Opinion No. WW-1003


ment will default in whole or in part in the discharge of
its obligations,Texas residents, as a result of the con-
templated commitment,would have no added security for their
loans. The proposed commitmentcould not so change the
Government'sexisting contractualliability to all its
creditorsnor effectuateany priority for Texas creditors.
     Finally, who will ultimatelybenefit from the retire-
ment of part or all of the National Debt of the United States?
Not just the creditorswho are repaid the loans that they have
made to the United States. Rather, all of the citizens of the
United States will benefit in the resulting diminutionof the
tax burden which they must bear.
     We must, therefore,again conclude that any benefit which
the residents of this State would receive under this last pro-
posed arrangementwould be, at best, an incidentalbenefit
shared equally with all of the residents of all the other forty-
nine states. The requisite "use within this State" would not
be satisfied,and exemption must be denied.

                          SUMMARY
              A bequest in trust to the United
         States to be used for the retirementof
         the National Debt may not obtain exemption
         from inheritancetaxes by a commitment
         that the bequest will be used to redeem
         only public debt obligationsowned by
         Texas residents.
                               Yours very truly,
                               WILL WILSON
                               Attorney General of Texas
MMP:cm
APPROVED:
                                    Marietta McGregor
OPINION COMMITTEE:                  Assistant
W. V. Geppert, Chairman

William T. Blackburn
Leon Pesek
John C. Steinberger
REVIEWED FOR THE ATTORNEY GENERAL
By: Morgan Nesbitt
