14 T.C. 390">*391 The respondent determined a deficiency of $ 112,372 in the estate tax liability of the estate of Selina J. Gray, deceased. The petitioners claim an overpayment of estate tax.

The primary issue is:

Did Selina J. Gray, by electing to accept the provisions in her favor under the will of her deceased husband, make an effective contribution and transfer of her community share in her husband's estate, within the meaning of section 811 (c) of the Internal Revenue Code?

1950 U.S. Tax Ct. LEXIS 257">*260 The subordinate issues are:

(1) In the event that it is decided that she did so make a transfer of an interest in property as contemplated by the statute, should the specific bequests of $ 125,000 be deducted from the husband's half of the community property, before determining the value of decedent's interest so transferred?

(2) In the same situation, what is the effect of two assignments of certain portions of the decedent's life interest made during her lifetime to her two sons?

A further issue, relating to the proper amount of accrued income from the trust, was settled by stipulation.

FINDINGS OF FACT.

The case was submitted upon a stipulation of facts, exhibits, oral testimony, and a deposition. The facts stipulated are so found. Other facts are found from the evidence.

The petitioners are individuals and are the duly appointed, qualified, and acting executors of the last will and testament, dated January 5, 1943, of the decedent, Selina J. Gray, who died on the 14th day of November, 1943, being at the time of her death a resident of the City and County of San Francisco, State of California. The Federal estate tax return for the estate of the decedent was filed with the collector1950 U.S. Tax Ct. LEXIS 257">*261 of internal revenue for the first district of California on February 9, 1945.

14 T.C. 390">*392 The decedent was born on September 21, 1856. She and her husband, William J. Gray, hereinafter called Gray, were married on the 14th of March, 1887, at San Francisco, California. The decedent and her husband resided and were domiciled in the State of California at all times from and after their marriage until the death of decedent's husband.

Gray sold his business in 1918 and retired altogether from active business life in July, 1922. After his retirement from business life, he received no wage, salary, or other compensation or earnings and after his retirement his only income was from property acquired before retirement and reinvestments of the proceeds thereof. None of the property of Gray at his death had been acquired by gift, devise, bequest, or inheritance and all of it had been acquired during his marriage to the decedent.

The decedent and her husband had two sons, namely, William J. Gray, Jr., and Carlton R. Gray, and no other children.

About September 1, 1918, Gray removed from the safe his then existing will and, with the assistance of Carlton R. Gray, began to draft a new will patterned1950 U.S. Tax Ct. LEXIS 257">*262 after the old. William J. Gray, Jr., was in the Merchant Marine service at the time. In the will, the son, William J. Gray, Jr., is called William James Gray, and the son, Carlton R. Gray, is called Carlton Rickards Gray. The testator's will appointed the decedent executrix and their sons executors of the will and trustees of the trust. The will provided for a legacy of $ 25.000 to the testator's niece, Amy F. Turner, and then provided as follows:

All the rest, residue and remainder of the property of which I shall die possessed, I give, devise and bequeath unto the said Selina J. Gray, Williams [sic] James Gray and Carlton Rickards Gray in trust, however, for the uses and purposes herin [sic] named, to wit: First to deliver to my said sons, William J. Gray and Carlton R. Gray the sum of Fifty Thousand Dollars each. If both or either of my sons shall not survive me, the [sic] hereby given to them or him shall vest in their or his children [sic] born in lawful wedlock, the children [sic] of such deceased son of mine taking in equal portions the share which my son, their father, would have taken. Second The rest of my estate I leave or bequeath to my wife, 1950 U.S. Tax Ct. LEXIS 257">*263 Selina J. Gray, in trust, from which she is to receive the income. At her death or if my wife shall not survive me, I hereby give, devise and bequeath the share intended for her benefit to be equally divided between my sons William J. Gray and Carlton R. Gray.

The provision in favor of my wife in this clause are [sic] made in the belief and desire that she will accept the same in place of such community interest as she may be entitled to in the property owned by me in my lifetime. If, however, she prefer to have the community interest segregated, then I declare that the trust hereby made for her benefit shall be of no effect, and that all of the community property appertaining to me, and all of my separate property shall be held and finally distributed by my trustees.

Gray, his wife, and Carlton R. Gray had many discussions concerning the proposed terms of the will. Gray thoroughly explained to his wife her right under the community property law of California. He 14 T.C. 390">*393 was very much opposed to that law. The discussions related principally to whether the decedent should take under the trust provisions of the will or under the community property law. Under the former she1950 U.S. Tax Ct. LEXIS 257">*264 would receive all of the income from the residue of the estate, occupy a central position in the family, and thus have control of the family affairs.

Gray also explained to his wife that under the community property law she would receive a half interest in his estate and each son would receive a quarter thereof. He further embodied the effect of the community property law in the will itself in order that his wife might read his interpretation of the law and govern herself accordingly. He advised her to take under the trust. She followed his advice, since she was well along in age, was not interested in investments, and was attracted by the prospect of receiving almost double the income which she would have received under the community property law. She was further influenced by the fact that she could thus make gifts to her own relatives to offset the special bequest to Amy Turner.

The will was executed in Gray's office on the morning of September 26, 1918. The decedent was not present at the time of the execution. On the afternoon of the same day she came to her husband's office. She read the will over casually, had it explained to her, questioned some provisions of it, and1950 U.S. Tax Ct. LEXIS 257">*265 discussed its terms at length with a witness to the will, now deceased, a business associate of her husband. The decedent then inscribed beneath her husband's signature, in her own handwriting, "Approved Selina J. Gray."

Gray died on August 28, 1933, being at the time of his death a resident of the City and County of San Francisco, State of California. All properties acquired by him during his lifetime and remaining in his possession at the time of his death (and not one-half or other fractional portion thereof) were returned as part of his taxable gross estate for Federal estate tax purposes and a Federal estate tax was paid on the whole thereof.

Gray had made transfers to his sons between June 12 and August 11, 1933, in the aggregate amount of $ 153,932.

With respect to such transfers the "Report of Inheritance Tax Appraiser" filed July 19, 1934, in the state proceedings recites:

That the said transfers to each of the said children of said decedent were made without valuable and adequate consideration and in contemplation of death, and intended to take effect in possession and enjoyment upon the death of the said decedent, and the same are taxable under the Inheritance Tax Laws1950 U.S. Tax Ct. LEXIS 257">*266 of the State of California, except that the same having been made by said decedent from community property, only one-half of such transfers are valid under the laws of the State of California and therefore only one-half of the same are taxable herein; * * *

Gray's will was duly admitted to probate as his last will by an order duly given and made by the Superior Court of the State of California14 T.C. 390">*394 in and for the City and County of San Francisco on the 14th day of September, 1933, in that certain estate proceeding entitled: "In the Matter of the Estate of William James Gray, also known as William J. Gray, also known as W. J. Gray, deceased," and numbered 65170 Probate in the records and files of that court.

On April 10, 1934, the Superior Court duly made a decree of partial distribution in the estate proceeding distributing to Amy F. Turner stock valued at $ 9,950 as a part payment of her legacy. On September 17, 1934, the court decreed the complete distribution of the legacy to Amy F. Turner in stocks and cash. Prior to March 14, 1935, the executors paid to Amy F. Turner the amounts authorized by such decree.

On September 17, 1934, it decreed a similar distribution of $ 27,811.501950 U.S. Tax Ct. LEXIS 257">*267 to Carlton R. Gray. On the same day the court ordered a partial distribution of the assets of the estate to the trustees named in the will. In that decree appears the following paragraph:

That as more fully appears from Article V of the last will and testament of said decedent, Selina J. Gray, widow of said decedent, was required to elect either to accept the provisions for her benefit contained in said last will and testament, or in lieu thereof to take the share of the community property of said decedent to which she was entitled by law upon the death of said decedent. That said Selina J. Gray has heretofore elected in writing to accept the provisions for her benefit contained in said last will and testament in lieu of the share of community property to which she became entitled by law upon the death of said decedent. That on the 2nd day of August 1934, said Selina J. Gray executed a formal election to accept the provisions of the last will and testament of said decedent for her benefit in lieu of her aforesaid share of said community property. That said election, duly executed by said Selina J. Gray as aforesaid, was filed with this court in the above entitled matter on the1950 U.S. Tax Ct. LEXIS 257">*268 10th day of August, 1934.

On November 14, 1934, William J. Gray, Jr., and Carlton R. Gray were decreed further distributions from the estate.

On March 14, 1935, the decedent and William J. Gray, Jr., and Carlton R. Gray filed with the Superior Court their verified first and final account and report as executors of the last will and testament of the decedent's husband. The account showed the distribution of the assets of the estate pursuant to the above mentioned decree. On March 27, 1935, the court approved the final distribution of the residue of the estate. The said Superior Court had sole and exclusive jurisdiction of Gray's estate.

On July 28, 1936, the decedent released and surrendered her right to the repayment of $ 16,908.04 advanced by her to the trustees.

After Gray's death the two sons, William and Carlton, had need of additional income in order to meet their living expenses. They discussed with their mother, the decedent, the possibility of receiving regularly some of the trust income. Their mother agreed to an assignment of $ 100 a month of the income of the trust to each of the 14 T.C. 390">*395 sons. This formal assignment was made on July 28, 1936. In connection with1950 U.S. Tax Ct. LEXIS 257">*269 this assignment of income by the decedent to her sons there was no discussion of income taxes, the eventuality of decedent's death, her will, her estate, or inheritance taxes.

At various times prior to 1942 and in addition to the assignment of $ 100 per month, the decedent gave her sons various sums of money. The parties anticipated that prices and taxes would increase and it was agreed therefore that the sons should pay the taxes on the amounts they were receiving of the trust income, which, at that time, was about $ 30,000 a year.

On January 31, 1942, the decedent signed a second assignment of the trust income, giving her sons an additional $ 500 a month each. In connection with this assignment of income there was no discussion relating to the decedent's death, her estate, or her will. Her only concern was that she would have sufficient income left to enable her to live comfortably.

Because of applicable exemptions, no Federal gift taxes were paid by decedent in connection with these assignments of income.

The decedent's gift return filed in March, 1937, contains the following paragraph:

The donor assigned the sum of $ 100 a month to each of the donees for a double purpose; first, 1950 U.S. Tax Ct. LEXIS 257">*270 to increase the incomes of the donees so that they might live in greater comfort and, second, to decrease the amount of her own income taxes.

A similar explanation was contained in her gift tax return filed in March, 1943.

The papers in connection with these assignments of income were prepared by the decedent's attorney, who had known her for many years. The attorney visited the decedent in connection with the assignment of income prepared in 1942 and at that time the decedent appeared to be in good physical condition.

Payments of income were made by the trustees as follows:

14 T.C. 390">*396 Each son included in his income tax returns the amounts so paid to him as of the time of the several payments. The decedent did not include in her income tax returns the amounts so paid to her sons. The trust terminated by its terms upon the death of the decedent.

After deducting debts and charges of $ 58,636.52, transfers of $ 156,432, Federal estate tax of $ 82,478.42 and before payment of specific legacies of $ 125,000 and before any transfer to the trust, the value of the estate of William J. Gray, husband of the decedent, was $ 571,212.69. The principal of the trust had a value as of the date of the death of the decedent of $ 688,891.39 (including the sum of $ 16,908.04 advanced to the trust by decedent). At the time of the death of the decedent she was entitled to receive net income of the trust in the hands of the trustees thereof and net income of the trust then accrued but uncollected by the trustees, aggregating the sum of $ 5,712.07.

As of the date of the death of the decedent, the corpus of the trust, except for capital conversions and net capital gains, was the same corpus distributed to the trustees, 1950 U.S. Tax Ct. LEXIS 257">*272 plus the sum of $ 16,908.04.

The Federal estate tax return filed by the petitioners reported a total gross estate of $ 73,705.45, deductions of $ 2,609.86, net estate for basic tax "nil," net estate for additional tax $ 11,095.59, and total tax due $ 620.51. In that tax return the executors elected to have the gross estate of the decedent valued as of the date of her death for Federal estate tax purposes rather than in accordance with values as of the date or dates subsequent to her death.

The respondent determined a deficiency of $ 112,372 in the Federal estate tax liability of the decedent's estate. This deficiency was based primarily on a determination by the respondent that the election by the decedent to accept the provisions in her favor under the will of her deceased husband constituted an effective contribution and transfer of her community share in her husband's estate, requiring the inclusion of the value of that share in the gross estate of the decedent under the provisions of section 811 (c) of the Internal Revenue Code.

The deficiency involved adjustments for expenses of administration and credits for California state inheritance taxes. It was stipulated that these1950 U.S. Tax Ct. LEXIS 257">*273 deductions will be settled under Rule 50 and in conformity with the decision on the primary issue.

OPINION.

The basic issue in this case is whether or not Selina J. Gray made a transfer of an interest in her deceased husband's 14 T.C. 390">*397 estate within the meaning of section 811 (c) of the Internal Revenue Code. ¹

1950 U.S. Tax Ct. LEXIS 257">*274 Gray and his wife, Selina J. Gray, had resided and had been domiciled in California since their marriage. Gray died testate in 1933. His will made specific bequests to his niece and his two sons. The residuary estate was left in trust. The wife, Selina J. Gray, was the beneficiary for life of the income of this trust, remainder to the testator's two sons.

Under California law, on the death of the husband and in the absence of a previously binding election, the wife could elect to take under the provisions of the will or to take her share of one-half of the community property. Selina J. Gray elected to take under the provisions of the will and trust.

The respondent contends that Selina J. Gray had a vested interest in her share of the community property, that hence by electing to take under the trust she transferred that vested interest in the community property back into the trust estate, from which she would receive the income for life, and that this was a transfer of an interest within the meaning of section 811 (c).

The correctness of the respondent's contention depends on the nature of Selina J. Gray's interest under California law in the community property.

Since its original1950 U.S. Tax Ct. LEXIS 257">*275 enactment in 1872 the California Civil Code has expressly defined the separate property and community property of a husband and wife in California. Civil Code, section 163, provided in 1872, and still provides, as follows:

§ 163. All property owned by the husband before marriage, and that acquired afterwards by gift, bequest, devise, or descent, with the rents, issues, and profits thereof, is his separate property.

Civil Code, section 162, similarly defines the wife's separate property. Also, since 1872 section 164 of the Civil Code has provided as follows: 14 T.C. 390">*398 "§ 164. All other property acquired after marriage by either husband or wife, or both * * * is community property * * *."

In 1923 by amendment to the California code, the wife was first given the power of testamentary disposition over half the community property if she predeceased her husband. ² This change did not apply to property acquired before the effective date of the amendment or to income therefrom or investments thereof. As to all such property the wife had no power of testamentary disposition because the husband had a right under the prior law to have her not dispose of any such property by her will1950 U.S. Tax Ct. LEXIS 257">*276 if she predeceased him. Boyd v. Oser (1944), 23 Cal. 2d 613">23 Cal. (2d) 613; 145 Pac. (2d) 312; McKay v. Louriston (1928), 204 Cal. 557">204 Cal. 557; 269 P. 519; In re Bruggemeyer's Estate, 115 Cal. App. 525">115 Cal. App. 525; 2 Pac. (2d) 534.

In 1927, by amendment to the California Civil Code, section 161a, the "respective interests of the husband and wife in community property during continuance of the marriage relation" were made "present, existing and equal interests under the management and control of the husband * * *." The California cases arising after the effective date of this amendment hold that it applies only to community property acquired after July 29, 1927. These cases are to the effect that the wife has no vested interest1950 U.S. Tax Ct. LEXIS 257">*277 in the community property of the pre-1927 type, but only an expectancy. Stewart v. Stewart (1928), 204 Cal. 546">204 Cal. 546; 269 P. 439; Henry v. Hibernia Savings & Loan Society (1935), 5 Cal. App. 2d 141">5 Cal. App. (2d) 141; 42 Pac. (2d) 395; Rogan v. Delaney, 110 Fed. (2d) 336; certiorari denied, 311 U.S. 660">311 U.S. 660.

The nature of the interest for Federal tax purposes of a surviving wife in this type of California community property is not a new problem. In Estate of Alfred S. Gump, 42 B. T. A. 197; affd. (CCA-9), 124 Fed. (2d) 540; certiorari denied, 316 U.S. 697">316 U.S. 697, we said:

This question has been considered many times by the Board and courts. It has been repeatedly held that the interest of a surviving wife in community property acquired prior to July 29, 1927, is under the laws of California no more than a mere expectancy, although her interest may be more definite than that of an ordinary heir, and that her share in the community property passes1950 U.S. Tax Ct. LEXIS 257">*278 to her by succession and, therefore, is includable in the gross estate of the deceased husband and subject to the Federal estate tax. [Citations omitted.]

Among many other citations, the Gump case relied on the definitive authority of United States v. Robbins (1926), 269 U.S. 315">269 U.S. 315:

* * * the settled opinion of the Supreme Court of California, at least with reference to the time before the later statutes, is that the wife had a mere expectancy while living with her husband. * * *

It appears, therefore, that since all of Gray's estate was acquired either directly by his earnings and efforts before his retirement in 14 T.C. 390">*399 1922, or as income therefrom or proceeds of reinvestment thereof, it all constituted pre-1927 community property and also pre-1923 community property under the California authorities.

This theory of a mere expectancy in the wife has generally been applied so as to tax the entire income of pre-1927 community property to the husband or the entire estate at his death. Cf. 1 Paul, "Federal Estate and Gift Taxation," 58, 59, 206, et seq. Accordingly, on the death of the husband, Gray, estate taxes were paid on 100 per cent1950 U.S. Tax Ct. LEXIS 257">*279 of the community property. ³ The respondent now seeks to tax 50 per cent of the same transfer and same estate on the theory that the wife had a vested interest in one-half of the community property which she "transferred" to the trustees when she took under the will.

The respondent anticipated an objection to the tax on 150 per cent of the same estate, but states in his brief that "such objection is quickly disposed of. Following 269 U.S. 315">United States v. Robbins, supra, and Treasury Decision 3891, 1950 U.S. Tax Ct. LEXIS 257">*280 C. B. V-2 (1926), p. 232, the Bureau in taxing California estates has included in the gross estate of the husband the surviving widow's one-half of the community property acquired prior to July 29, 1927." This is what respondent did in taxing 100 per cent of the community property on the death of the husband in this case, but respondent justifies his present additional tax on 50 per cent of the same estate on the ground that because "taxation of the entire community in the previous estate of the husband was more than five years prior to the death of this decedent, no deduction is allowable under section 812 (c) of the Internal Revenue Code. Consequently, there is no valid ground of complaint, since the estate of the surviving spouse here is in no different status than any similar estate adversely affected by the lapse of more than five years from the taxation of the estate of the husband. Cf. Fernandez v. Wiener, (1945) 326 U.S. 340">326 U.S. 340, 326 U.S. 340">364."

Regardless of the inability of the wife to claim a deduction under section 812 for the value of a transfer previously taxed, due to the five-year rule, we can not agree with the respondent in his statement that1950 U.S. Tax Ct. LEXIS 257">*281 there is no valid ground of complaint.

The respondent refuses to give weight to the recognized differences in California community property acquired before 1927 and that acquired after 1927. The respondent relies on the theory of cases involving cross trusts between husband and wife to show that the wife here furnished consideration for her renunciation of the right to succession to one-half of the community property. This is intended to show that this alleged consideration was the taxable interest transferred. 14 T.C. 390">*400 This line of reasoning does not shed any light on the question of the nature of the interest of the wife, but, on the contrary, assumes that the wife had a present interest capable of being consideration for its transfer.

It is significant that the respondent contradicts his theory of this case in his regulations promulgated in respect to the new section 812 (e) of the code, added by section 361 (a) of the 1948 Revenue Act. Section 81.471 (b) of Regulations 105 (T. D. 5699, C. B. 1949-1, pp. 181, 209) states that:

The surviving spouse is regarded as having merely an expectant interest in property held as community property under the law of any State, * * * (a) 1950 U.S. Tax Ct. LEXIS 257">*282 at the time of the decedent's death if the entire value of such property (and not merely one-half thereof) is includible in the decedent's gross estate. * * *

Section 81.47a (f) of the same regulations (T. D. 5699, C. B. 1949-1, pp. 181, 202) reads as follows:

(f) Effect of election by surviving spouse. -- The following rules are applicable where the surviving spouse may elect between a property interest offered to her under the decedent's will or other instrument and a property interest to which she is otherwise entitled (such as dower, a right in the decedent's estate, or her interest under community property laws) of which adverse disposition was attempted under such will or other instrument. If the surviving spouse elects to take against the will or other instrument, then (1) the property interest offered thereunder is not considered as having "passed from the decedent to his surviving spouse" and (2) the dower or other property interest retained by her is considered as having so passed only if it otherwise so qualifies under this section. If the surviving spouse elects to take under the will or other instrument, then (i) the dower or other property interest relinquished1950 U.S. Tax Ct. LEXIS 257">*283 by her is not considered as having "passed from the decedent to his surviving spouse" (irrespective of whether it otherwise comes within the definition stated in paragraph (b) of this section) and (ii) the interest taken under the will or other instrument is considered as having so passed only if it otherwise so qualifies under this section. As to the valuation of the property interest taken under the will or other instrument, see paragraph (b) of section 81.47c.

A reading of these regulations, although they are not by their terms applicable to this case because the husband's death occurred prior to 1948, clearly shows that the theory set forth therein is directly opposed to the respondent's contention that the wife had a vested interest which was transferable by her on the death of her husband.

The similarity between the wife's interest in California community property of the pre-1927 type and other interests, the transfer of which has not heretofore been considered taxable, effectively militates against a tax on the interest in this case. A renunciation of a legacy is not a transfer within the meaning of section 811 (c). Brown v. Routzahn, 63 Fed. (2d) 914.1950 U.S. Tax Ct. LEXIS 257">*284 Cf. Estate of Eleanor Hughes Beggs, 13 T.C. 131. An unexercised power of appointment is not considered an interest taxable at death. Helvering v. Safe Deposit & Trust Co. of Baltimore, 316 U.S. 56">316 U.S. 56. The relinquishment of dower or curtesy and election to take under a will is not construed historically as a taxable 14 T.C. 390">*401 transfer nor is it so construed by the respondent's new regulations cited above.

The respondent argues alternatively that, if the wife's interest did not vest during her husband's lifetime, but was merely an expectancy, at his death her interest in one-half of the property ripened into an interest that she was required to renounce in order to take under the will and that this renunciation by her formal election was a taxable transfer of her interest to the trustees. The gist of this argument involves the nature of the interest of Selina J. Gray in the property as of the time of this formal election and her rights at that time. Under the local law, no conveyance or transfer from the wife is necessary to have title to the entire community property pass under the will. The testamentary disposition1950 U.S. Tax Ct. LEXIS 257">*285 by the husband of more than one-half of the community property is only voidable as to the excess of one-half -- not void. If the wife elects to accept the provisions of the will, the disposition in excess of one-half is affirmed and made valid and the testamentary disposition then vests the property in the donee. Spreckels v. Spreckels, 172 Cal. 775">172 Cal. 775; 158 P. 537; Blethen v. Pacific Mutual Life Insurance Co., 198 Cal. 91">198 Cal. 91; 243 P. 431.

We think it is abundantly clear that the wife in this case had only the possibility of becoming an heir and succeeding to one-half of the pre-1927 community property and that in electing to take under the trust she removed this possibility. This was only an election as to which of the two interests she would receive -- not the receiving and the transfer of an interest.

In our opinion, Selina J. Gray did not receive an interest which she transferred within the meaning of section 811 (c) in electing to accept the provisions of the will, and we so hold. The decision in this respect is dispositive of the subordinate issues.

1950 U.S. Tax Ct. LEXIS 257">*286 The parties have stipulated to settle the amount of certain deductions under Rule 50.

Decision will be entered under Rule 50.