Contents

§ 19.2 ESTATE TAX RULESto stand under the rule concerning gifts to a trustee for a charitable purpose. 34Whereas the bequest in the earlier case 35 had been given outright to a Danishcity school district, the coin collection in this case had been donated to a governmentalsubdivision to be maintained in trust for the decedent. In drawing a linebetween what Congress may have intended in limiting an estate tax deductionfor gifts made directly to foreign governments and those given “in trust” to foreigngovernments for charitable purposes, the court in this case relied on the reasoningin another court opinion. 36In that case, a devise (bequest) had been made to the “mayor and magistratsraeteof Fuerth, Bayern, Germany to be used and expended for the benefit ofsaid City of Fuerth.” A majority of the court refused to apply the reasoning of theprior court opinion and, although the court disallowed the deduction because thebequest was left to a foreign city outright and not in trust, it noted in its ruling that“contributions and gifts to foreign cities for exclusively charitable purposes aredeductible,” notwithstanding the political nature of the trustee. 37The majority and dissent in this case emphasized that Congress logically couldhave differentiated between public purposes that could be advanced only underthe general estate tax deduction rule 38 and the charitable purposes contemplatedunder the rule concerning bequests to a charitable trustee. 39 The court wrote:It seems to us that the word “public” embodies a broader concept, and envisionsgifts to domestic government bodies for purposes other than the ordinaryphilanthropic purposes most people associate with “charity.” Consequently, itis our opinion that the use of the word “public” shows a Congressional intentionto bring within the statutory exemption gifts which could be used for suchstandard governmental functions as the payment of salaries to policemen andfiremen. We think there is a clear indication that Congress considered thatmany contributions which would benefit domestic municipalities are not charitable,because the exemption permits different and broader uses of a bequestthan those which are exclusively for charitable purposes. 40In another case, an estate was able to take a charitable deduction for a residuarybequest when the devise was made to a foreign political unit in trust forbuilding a home for the aged. 41After these court decisions, the IRS announced that a deduction is allowableunder the estate tax rules 42 with respect to a transfer of property to a foreigngovernment or political subdivision thereof for exclusively charitable purposes.43 The IRS noted the earlier court decision, 44 but looked to the more recentdecisions, 45 which had concluded that when the use of property is limited to34 IRC § 2055(a)(3).35 Edwards v. Phillips, 373 F.2d 618 (10th Cir.), cert. denied, 389 U.S. 834 (1967).36 Continental Ill. Nat’l Bank & Trust Co. v. United States, 403 F.2d 721 (Ct. Cl. 1968), cert. denied, 394 U.S.973 (1969).37 Id., 403 F.2d at 727.38 IRC § 2055(a)(1).39 IRC § 2055(a)(3).40 Continental Ill. Nat’l Bank & Trust Co. v. United States, 403 F.2d 721, 724 (Ct. Cl. 1968).41 National Sav. & Trust Co. v. United States, 436 F.2d 458 (Ct. Cl. 1971).42 IRC § 2055.43 Rev. Rul. 74-523, 1974-2 C.B. 304.44 Edwards v. Phillips, 373 F.2d 618 (10th Cir.), cert. denied, 389 U.S. 834 (1967).45 Old Colony Trust Co. v. United States, 433 F.2d 684 (1st Cir. 1971); Kaplun v. United States, 436 F.2d 799(2d Cir. 1970); National Sav. & Trust Co. v. United States, 436 F.2d 458 (Ct. Cl. 1971). 563