                 HE            NE

                        OF




Honorable Robert S. Calvert           Opinion No. M-1196
Comptroller of Public Accounts
State Finance Building                Re:   Whether the value of a
Austin, Texas 78774                         life estate may be de-
                                            ducted in computing ln-
                                            heritance taxes when the
                                            life tenant died within
                                            five years after receiv-
Bear   Mr.   Calvert:                       lng same.
     We have gathered the following facts from the files submitted
in connection with your request on the above captioned matter.
     George A. Mahler, husband of Ethel Mahler, died testate
October 15, 1965.  His wife, Ethel Mahler, received a life estate
in his one-half of the community and in all his separate property.
After allowable deductions, ,theseproperties were duly valued for
Inheritance tax purposes; and the inheritance~tax on the wife's
life estate was computed and paid on said valuation. At the same
time, inheritance taxes were also paid on the remainder interests,
which passed to their two children. Ethel Mahler died February 2,
1968, devising her entire estate to the two children in equal
portions. The Comptroller has not included the value of her life
estate in determining the amount of inheritance taxes which ac-
crued at her death. The attorneys for the estate contend that
the value of the mother'8 life estate should be deducted as pre-
viously taxed property in computing the Inheritance taxes due
from the two children.
     At the death of both George A. Mahler and Ethel Mahler, the
deduction for previously taxed property provided in Article 14.101


     l Vol. 20A, Tax.-Gen., V.C.S. (All subsequent article
references are to Vernon's Annotated Texas Statutes.)




                             -5836-
Honorable Robert S. Calvert, page 2            (M-1196)



read as follows:
            "The only deductions permissible under this law
       are ... and an amount equal to the value of any prop-
       erty forming a part of the gross estate situated in
       the United States received from any person who dies
       within five (5) years prior to the death of the dece-
       dent, this deduction, however, to be only in the amount
       of the value of the property upon which an Inheritance
       tax was actually paid and shall not include any legal
       exemptions claimed by and allowed the heirs or legatees
       of the estate of the prior decedent. ...'
     You have advised us that it has been your consistent depart-
mental construction for more than forty years, that Is, since
the enactment o the original deduction provision for previously
taxed property,5 that no part of the value of a life estate re-
ceived from a prior decedent could be allowed as a deduction
on the death of the life tenant within the five-year period.
     The attorneys for the estate take the position that the
only requisites for this deduction are (1) the inclusion for
inheritance tax purposes of the value of property in the gross
estate of the prior decedent, and (2) the death of the recipient
of said property within the five-year period. They argue that
this result necessarily follows from the fact that the original
Texas deduction provision was taken from the then current Federal
estate tax deduction provision. We quote the following excerpt
from their brief submitted in connection with this request:
             "The.old Federal law and Texas law have identl-
       cal construction through the phrase 'five years prior
       to the death of the decedent'. There is some dlffer-
       ence in wordage in that the Federal statute reads Iof
       any person who died', while the Texas statute reads
       'received from anyperson who dies'. (underlined for
       emFhasis.)‘he    meaning in eitherevent is not changed.
       Both statutes have reference to the value of property


       2 Formerly Article 7125.   Acts 1929,    41st Leg., R.S., ch. 26,
p.   60.




                             -5837-
 .




Honorable Robert S. Calvert, page 3    (M-1196)


     which formed part of the gross estate of the person
     who died five years 'prior' to the decedent."
     (Rnphasis theirs.)
     We think that the above noted difference is one of major
distinction, predicated upon the fundamental difference in the
nature of an Inheritance tax (levied upon the privilege of suc-
mn      and computed upon the net value of the share received,
by each recipient) and of an estate tax (levied upon the priv-
ilege of transfer   d computed upon the net value of the estates
                  33 This differe ce, long recognized in Texas,4
of the transferor).
was applied in Strauss v. Calvert,9 and resulted in a denial of
a deduction for previously taxed property which was not received
from the prior decedent (as opposed to no receipt from the second
decedent in this case).
     In the Strauss case, the court held that where, at the~death
of a husbandmederal       Government imposed an estate tax upon
the entire community estate, and the State levied the full 80$
of the allowable Federal credit under Section 1 of Article 7144,a,6
on the death of the wife within the five-year period, the bene-
ficiaries of the wife's will were not entitled to a deduction


     3 42 Am.Jur.2d 221, Inheritance, etc., Taxes, s5.
     4 Inheritance taxes are not Imposed upon property passing
at death, but upon the
290 S.W. 244 (Civ.App.
State, 5 S.W.2d 973.(Com.Ap& 1928); State v.-Honn.
 m.2d     6%. rehearing denied 72 S.m
          l&j-S.W.2d c
        :O S.W.2d 820:
         159.Tix. 385,
         336, 322 S.W.
         1 Nat, Bank, 1
         T533-3 m-913    (1970).            burdened-with '
is the right to receive as distinguished from the right of trans-
fer." Bethea v. She ard supra; Simco v. Shirk, 146 Tex. 259,
206 S.W.2d 221 (1947-Y----
     5 246 S.W.2d 287 (Tex.Civ.App., error ref., n.r.e. 1952).
     6 II
        ...eighty (80) per cent of the total sum of the estate
and transfer taxes imposed on such estate by the United States
Government under the Revenue Act of 1926, by reason of the prop-
erty of such estate which is situated in this State and taxable
under the laws of this State."
                           -5838-
                                                    .      .




Honorable Robert S. Calvert, page 4     (M-1196)


for the value of her one-half of the community in computing the
basic inheritance taxes levied by Article 7117. At pages 289,
290, the court said:
          "The appellee has a fourth counterpoint to the
     effect that since the decedent, Mrs. Taub, did not
     receive her one-half of the community estate from her
     husband, Max Taub, at the time of his death, and since
     no State inheritance tax was levied against her share
     of such estate, Article 7125 does not authorize a de-
     duction of the value of this property in computing the
     inheritance taxes due at Mrs. Taub's death.
          "The Comptroller's Department has consistently
     construed Article 7125 to allow the deduction for
     previously taxed property only if such property had
     been received from a prior decedent. The defiartment
     had construed the deduction allowed by Article 7125
     for previously taxed property as inapplicable to a
     surviving spouse's share of the community estate on
     the death of such surviving spouse, even though the
     entire community estate had been Included in com-
     puting the Federal estate taxes due at the death of
     the spouse first to die.
          "Attorney General's opinion V-402, addressed to
     the Comptroller, held that the inclusion of the entire
     community estate in determining the amount of Federal
     estate tax due at the death of a husband did not pre-
     vent the State from imposing an Inheritance tax on the
     right to succession to the wife's one-half community
     interest, even though the wife died less than five
     years after the death of her husband.
          "We believe that the opinion of the Attorney
     General and the departmental construction by the
     Comptroller's Department is entitled to and should
     be given consideration and deference. Walker v. Mann,
     Tex.Civ.App., 143 S,W.id 152 (error ref.).
          "m   Mrs. Taub owned one-half of the community
     estate and as such owner did not receive anything
     from her husband other than a more complete control




                           -5839-
  .




Honorable R0bert.S. Calvert, page 5      (M-l 196)


      of her property, and consequently had not received
      it from a decedent within five years prior to her
      death, and no inheritance.tax was assessed by or
      paid to the State within the last five years under
      the provisions of Chapter 5 by reason of the trans-
      fer or receipt of any part of the property which
      constituted Mrs. Taub’s estate at her death. Jones
      v. State, Tex.Com.App., 5 S.W.2d 9 3; State v.
      Wless, 141 Tex. 303, 171 S.W.2d 84L , 147 A.L.R. 460."
     Tl-qs,the inclusionin the decedent’s estate of the same
property subjected to tax in the estate of a prior decedent did
not result in a deductionfor previously taxed property, even
though the property had, in fact, been sub,jectedto Texas death
taxes at the death of the prior decedent within the five-year
period, and,even though it was actually received at the death
of the second decedent.
     The evident purpose of the deduction for previously taxed
property is to prevent.the diminution, or even extinction, of
estates which would ,otherwisebe subjected to inheritance taxes
within the five-year period.7 In order for inequitable results
to ensue, there must not only have been an inheritance tax paid
at the death of the prior decedent.,but also a second inheritance
tax must accrue at the death of the second decedent within the
five-year period by virtue of the receipt of the previously’
taxed property e In the instant case, no part of the value of
the mother’s life estate was received by the two children. No
tax accrued from which to make any deduction. No inequitable
result has ensued.
     Although we do not think that our conclusion needs more
than the foregoing analysis to sustain it , we are of the further
opinion that in the event the deduction for previously taxed
property be deemed in anywise ambiguous or uncertain, a reasonable


     7 The most recent amendment provides for even greater amelis-
ration by allowing a deduction of a percentage of the value of
previously taxed property in graduated decreasing amounts over a
ten-year period e Acts 1971, 62nd Leg., p- 2$+5> ch. 974, B,3>
eff. Aug. 30, 1971.




                            -5840-
Honorable Robert S. Calvert, page 6         (M-1196)


construction placed upon a statute by the Department charged w th
its administration Is entitled to consideration and deference,8
and will ordinarily be adopted and upheld by the courts. This
rule is particularly applicable to an~administrative construction
of long standing, In the Instant case, more than forty years.

                         SUMMARY
            The deduction allowed for previously taxed property
       In Article 14.10, 20A, Tax.-Gen., V.C.S., does not
       authorize the deduction of the value of a life estate
       In computing inheritance taxes when the life tenant
       dies within five years after receiving same.




                                            ney General of Texas
Prepared by Marietta McGregor       Payne
Assistant Attorney General
APPROVED:
OPINION COMMITTEE
Kerns Taylor, Chairman
W. E. Allen, Co-Chairman
James Broadhurst
Arthur Sandlln
John Reeves

SAMUEL D. MCDANIEL
Staff Legal Assistant
ALFRED WALKER
Executive Assistant
NOLA WHITE
First Assistant


       8 Strauss, lnfra, p. 5; 52 Tex.Jur.2d 259-263, Statutes,
a77.
                                -5841-
