18 T.C. 1134">*1135 The petitioner here seeks redetermination of an estate tax deficiency in the amount of $ 545,610.98, and claims overpayment of such tax in an unstated amount. Several issues raised1952 U.S. Tax Ct. LEXIS 90">*92 in the original petition filed have been disposed of by stipulation of the parties. The issues thus settled will be reflected in a Rule 50 recomputation. There remain in controversy two questions for our consideration and decision. Such questions are:

1. Whether a life insurance policy owned by a decedent on the life of another person who survived such decedent, should be valued in the decedent's gross estate at its cash surrender value or at its replacement cost, or, in the absence thereof, at its interpolated reserve value.

2. Whether petitioner's decedent met his death while in active service as a member of the military services of the United States as a result of wounds or other injuries suffered in line of duty by reason of a hazard to which he was subjected as an incident of military service within the meaning of section 939, Internal Revenue Code.

FINDINGS OF FACT.

This proceeding was submitted upon a stipulation of facts. The facts thus stipulated are so found and made a part hereof by reference.

The petitioner herein is the Estate of Richard C. du Pont, Deceased. Du Pont (hereinafter sometimes referred to as the decedent) died on September 11, 1943, at the age of 32 1952 U.S. Tax Ct. LEXIS 90">*93 years. He was survived by his wife and two small children. The estate tax return involved was filed by his executor, Wilmington Trust Company, with the collector of internal revenue for the district of Delaware.

At the time of his death, the decedent owned five single premium life insurance policies which he had taken out on the life of his father, A. Felix du Pont. The father survived the decedent. On the date of his death, decedent also owned a one-fifth undivided interest in a trust 18 T.C. 1134">*1136 which the decedent's mother and her four children, including the decedent, established on December 31, 1935. The sole assets of the trust were 17 life insurance policies on the life of decedent's father, which policies the mother and children had received in 1934 by gift from the father, and which they assigned in December 1935 to Wilmington Trust Company, trustee.

When the decedent died, the five policies owned by him, together with his one-fifth undivided interest in the 17 policies in trust, had a total face value of $ 604,882.67, a total cash surrender value of $ 378,506.43, and an interpolated terminal reserve value of $ 397,571.12. Immediately prior to decedent's death, insurance1952 U.S. Tax Ct. LEXIS 90">*94 companies were issuing new policies similar in all substantial respects to only three of the 22 policies. The cash surrender value of these three single premium policies was less than the replacement cost thereof, which replacement cost was $ 159,703.50. As to the other 19 policies, five thereof had cash surrender values in excess of their interpolated reserve values. The total of the highest of cash surrender value, interpolated reserve value or replacement cost of decedent's interest in each of the 22 policies, was $ 419,986.18. Fourteen of the policies required annual premiums totaling $ 33,640.45 to keep them in force. The eight other policies required no further premiums, three thereof having been paid up and five having been single premium policies.

On decedent's death the value of a remainder interest, computed in accordance with Regulations 105, sec. 81.10 (i), Table A, and based on life expectancy of the insured, A. Felix du Pont, in amount of the face value of each policy plus the paid-up additional insurance and dividend accumulations thereon, would be less than the cash surrender value of such policy or the interpolated reserve value thereof.

During his lifetime, 1952 U.S. Tax Ct. LEXIS 90">*95 the decedent had acquired fame as an expert glider pilot. He had studied aviation engineering and for some years prior to 1943 was engaged in the business of manufacturing glider aircraft. His experience and knowledge of the glider field resulted in his wartime appointment in April 1943 as a member of the staff of General H. H. Arnold, Commanding General of the United States Army Air Forces. He was appointed as Special Assistant to the Commanding General in charge of the Army's glider program for air transport of Army troops and cargo by gliders.

By letter dated April 19, 1943, decedent informed General Arnold that the aviation corporation with which he was connected had granted him a temporary leave of absence and a complete release from other duties to enable him (decedent) to accept whatever duty the General might wish to assign him. The letter further read, in part, as follows:

In order to accomplish results in a minimum of time, authority necessary to short cut usual lines seem to indicate that I would be most effective if appointed as a Special Civilian Assistant on your staff, with no military rank * * *.

18 T.C. 1134">*1137 General Arnold designated the decedent as Special Assistant1952 U.S. Tax Ct. LEXIS 90">*96 to the Commanding General, Army Air Forces, "to serve in a civilian capacity." The General later explained the designation of decedent and would, if living, testify as follows:

* * * That clause, -- "to serve in a civilian capacity" --, was inserted, in his case, primarily to expedite the program for which he, because of his special qualifications, had been made responsible, and because of the urgent relation of that program to the effectiveness of United States Army Air Forces combat operations. In civilian clothes, Mr. du Pont was automatically relieved of the necessity of channeling his activities through numerous subordinate military offices: as a civilian he could deal direct with the Office of the Commanding General, Army Air Forces. This meant an invaluable saving of time; and time, at that period, was crucially "of the essence." In this sense, then, his being in civilian clothes was truly a military expedient. Factually, he was as much a member of our military establishment as though he held a commission. He gave his life in military service as actually as any officer in uniform, in actual military combat.

In designating the decedent as a Special Assistant, General1952 U.S. Tax Ct. LEXIS 90">*97 Arnold directed the decedent to report to him through the Chief of the Air Staff. Decedent was also authorized to deal directly with the Assistant Chief of the Air Staff and with the commanding generals of the various Air Forces. A directive issued concurrently with decedent's appointment "* * * created within Headquarters, Army Air Forces, the office of Special Assistant on the Army Air Forces Glider Program." The decedent, as the Special Assistant, was given "* * * with respect to the glider program the authority of an Assistant Chief of Air Staff." His duties and functions were to:

a. Plan and supervise the glider program necessary to fulfill the mission of the Army Air Forces,

b. Determine tactics and techniques and technical and tactical proficiency requirements with respect to the use of gliders and related equipment,

c. Determine policies, programs, standards, and doctrines for training individuals and units necessary to attain the approved Army Air Forces Glider Program,

d. Determine personnel and equipment tables which relate to the Army Air Forces Glider Program,

e. Determine and approve military characteristics for material used primarily in the Army Air Forces Glider1952 U.S. Tax Ct. LEXIS 90">*98 Program,

f. Determine policies, plans, and programs for the Army Air Forces Glider Program with respect to research and developmental engineering and procurement and production; determine the quantity and quality specifications and the performance aspects of proposed contracts for the procurement of gliders and related equipment; direct and coordinate the testing of gliders and related equipment; and expedite the glider procurement, production, and testing program.

To carry out and expedite the glider program to which he was assigned "* * * in a civilian capacity," the decedent did not at any time become a commissioned officer, a warrant officer, or a member of the enlisted personnel in the military service.

18 T.C. 1134">*1138 Prior to his official appointment, decedent completed and filed Civil Service Commission Form No. 57. He signed the oath of office of an employee of the Federal Government. On the Notification of Personnel Action form by the Administrative Assistant to the Secretary of War, decedent's position was stated as a "Special Consultant." His appointment on such form was stated to be for 90 days and later was extended to December 1943. His pay was to be $ 25 for each day1952 U.S. Tax Ct. LEXIS 90">*99 he worked. As Special Assistant to the Commanding General, Army Air Forces, the decedent performed all the duties and responsibilities assigned to him. Traveling under orders, he made many trips to various military air fields, stations, and camps for glider surveys, glider maneuvers, and glider tests. His travel applications and orders to cover such travel were issued from the civilian personnel division of the Office of Chief of Air Staff. He worked with Major General Ridgway and airborne troops in devising training techniques and tactics for the anticipated use of gliders in combat. Under his direction and supervision the utilization of large gliders for airborne operations was rapidly attained. From July 9 through July 27, 1943, decedent was on duty in the North African Theater of Operations during the campaign in Sicily. He went there at the request of the Theater Commander. During his duty in the Sicilian Campaign he personally observed the use of gliders in combat operations.

On September 10, 1943, the decedent went to March Field, California, on what General Arnold described in the above quoted letter as "* * * a military mission under direct orders from Headquarters1952 U.S. Tax Ct. LEXIS 90">*100 Army Air Forces, Washington, D. C. * * *." On September 11, 1943, at March Field, the decedent, while acting in his capacity as Special Assistant to the Commanding General, Army Air Forces, participated as an observer in the flights testing an experimental transport glider being developed for the Army Air Forces by a private manufacturer. While the glider, piloted by an Army colonel making a familiarization flight, was being towed in flight by an Army plane piloted by an Army captain, the glider became detached from the tow plane, stalled, and lost altitude. The decedent and other occupants were ordered by its Army pilot to leave the glider. Decedent's parachute opened but did not fill, as a result of which decedent sustained injuries resulting in his immediate death. The Army colonel, the civilian co-pilot and one of the civilian occupants of the glider were killed when it crashed.

President Franklin Delano Roosevelt awarded the Distinguished Service Medal to the decedent posthumously for exceptionally meritorious and distinguished service in displaying exceptional professional ability and inspiring leadership in planning and supervising the effective use of military gliders, 1952 U.S. Tax Ct. LEXIS 90">*101 directing their exploitation for 18 T.C. 1134">*1139 airborne operations, effecting important change in training techniques, and in other ways contributing materially to the successful accomplishment of a mission of the greatest importance to the war effort.

OPINION.

This case presents two questions of first impression, the first, involving the proper valuation for estate tax purposes of the insurance policies owned by decedent or in which he had an interest in trust at his death on the life of his surviving father. The pertinent portion of the statute is section 811 (a), Internal Revenue Code. ¹

On the date of his death, Richard C. 1952 U.S. Tax Ct. LEXIS 90">*102 du Pont owned five single premium life insurance policies which he had taken out on his father's life. Decedent also owned a one-fifth undivided interest in a trust, the sole assets of which consisted of 17 life insurance policies on the life of his father. The father survived the decedent.

The parties are not in dispute over the inclusion of decedent's interests in such policies within his gross taxable estate. They disagree only as to the proper method for evaluating the policies. It is respondent's position that the policies should be valued for estate tax purposes at the replacement cost of comparable contracts as at the critical date, or, in the absence of such replacement costs, at the interpolated terminal reserve values thereof, these latter values to be determined by application of the method used in gift tax cases.

Petitioner argues that the gift tax valuation method does not apply to estate tax, and that the cash surrender values of the policies represent the proper measures of value to be applied for estate tax purposes. We think respondent's position is correct.

In three opinions handed down the same day, the Supreme Court specifically rejected the cash surrender1952 U.S. Tax Ct. LEXIS 90">*103 value as representing the proper measure of value of a single premium policy for gift tax purposes and adopted the replacement cost thereof as the better criterion for such purposes. Guggenheim v. Rasquin, 312 U.S. 254">312 U.S. 254; Powers v. Commissioner, 312 U.S. 259">312 U.S. 259; United States v. Ryerson, 312 U.S. 260">312 U.S. 260. This rationale has subsequently been extended to include gifts of policies which were fully paid up. Houston v. Commissioner, 124 F.2d 518; Estate of James H. Lockhart, 46 B. T. A. 426. "It is now settled that for estate tax purposes a valuation of annuity contracts based upon 18 T.C. 1134">*1140 replacement cost at the date of death is proper and reasonable. Estate of Judson C. Welliver, 8 T.C. 165; Mearkle's Estate, et al. v. Commissioner, 129 F. 2d 386; affirming 45 B. T. A. 894. * * *." Estate of John L. Walker, 8 T.C. 1107, 1111.

Petitioner apparently concedes, as it must, the force of the foregoing1952 U.S. Tax Ct. LEXIS 90">*104 decisions. But it argues that they have no application to the situation before us. Several examples are set forth in petitioner's brief to prove that the cash surrender values of the policies in controversy are the only practical, realistic, and reasonable criteria to use for estate tax purposes. These examples fail to impress us as being more than mere speculation. The statute involved here requires the inclusion in decedent's gross estate of the value of all property to the extent of decedent's interest therein. There can be no question that the value of decedent's interest in the controverted policies on the day he died exceeded, with few exceptions, the cash surrender values thereof, and had such policies been transferred on that date by gift rather than by death, that the replacement costs would be the proper measures of value applicable. While there might possibly be some differences in a case where, as here, the taxable transfer was by death, we see no cogent reasons, and none have been presented, why such mode of transmission should effect any marked alteration in the value of decedent's interest in the policies so transferred. We are of the opinion that cost is the1952 U.S. Tax Ct. LEXIS 90">*105 better of the suggested criteria to reflect the value of the policies to the extent of decedent's interests therein at the date of his death. Petitioner has not contested the accuracy of respondent's computations of such cost values. These computations, it appears, are in accord with the rules of evaluation laid down in the above cited cases as applied to the instant situation. Therefore, as to this issue, respondent is affirmed.

There remains the issue involving the proper interpretation to be placed upon section 939, Internal Revenue Code. ² So far as we have been able to ascertain, this is the first time any court has had the occasion to construe and apply this section since its addition to the Code in 1949. The specific question arising here is whether the provisions of such section are applicable to the estate of the decedent, Richard C. du Pont. The pertinent facts, none of which are in dispute, follow

1952 U.S. Tax Ct. LEXIS 90">*106 18 T.C. 1134">*1141 The decedent was recognized and well known as an expert in glider activities. In the spring of 1943 he was appointed to be a special assistant to General H. H. Arnold, who was then Commanding General of the United States Army Air Forces. Upon his own request and recommendation, decedent was appointed to serve in a civilian capacity. The reason ascribed to the request and subsequent appointment in such capacity was to relieve decedent from the necessity incumbent upon all military personnel, of using military channels and to enable his reporting directly to General Arnold. It is well known that the military departments had many civilian experts advisers. Prior to his actual appointment, a Civil Service Commission Form No. 57 was transmitted to, completed and filed by decedent. Such form is within our judicial notice as being the standard application form for employment of civilians by the Government. Likewise, the oath of office taken and subscribed by decedent was that taken by such civilian personnel. In all other respects all action taken with regard to decedent's employment and activities was handled through civilian personnel and on standard forms prescribed1952 U.S. Tax Ct. LEXIS 90">*107 for use incident to such personnel. On September 11, 1943, decedent participated as an observer in the testing of an experimental transport glider which was being developed for the Army Air Forces by a private manufacturer. The glider was piloted by a Colonel Gabel, who was at that time making a familiarization flight. While on such flight, decedent was forced to bail out and was killed when his parachute failed to fill.

It is respondent's position that the statute in question is one of exemption from tax and, therefore, requires strict construction. He argues on brief that such construction requires a person to come well within the words, as well as the reason, of the exception or proviso, and that decedent was not at any time a "member" of the military forces. On the other hand, petitioner argues for a broad construction of the term "military forces" and insists that the legislative history of the section in controversy plainly shows a congressional intent to relieve from the additional estate tax the estates of all those, whatever their technical status, who gave their lives during the war in performance of military functions, and not to limit such relief solely to those who1952 U.S. Tax Ct. LEXIS 90">*108 were formally commissioned officers, warrant officers, or enlisted men.

Petitioner cites numerous cases involving other legislation wherein such statutes were held to be applicable to persons who had served with or in the armed services though technically and formally not members thereof. The cases have been carefully studied and have been found inapposite to the case before us. In each instance the statute involved was dissimilar to the one here in question and the factual situation clearly distinguishable at critical and important points.

18 T.C. 1134">*1142 Petitioner points to the above quoted letter from General Arnold and the language of the District Court in Wilmington Trust Co. v. Mutual Life Insurance Co. of New York, 76 F. Supp. 560">76 F. Supp. 560, as supporting its further contention that decedent should, in substance, be treated as though he were concededly as much a member of the military forces as if he actually held a commission.

Although we have the greatest respect for the author of the aforementioned letter, we cannot agree entirely with the conclusions reached by him therein. While to his military mind, decedent may have been considered factually as1952 U.S. Tax Ct. LEXIS 90">*109 much a member of the military establishment as any military personnel, it does not necessarily follow that decedent may be legally so considered within the purview of section 939, supra.

We also feel that petitioner's reliance on the obiter dictum expressed in 76 F. Supp. 560">Wilmington Trust Co. v. Mutual Life Insurance Co. of New York, supra, is misplaced. That case is one involving the same decedent wherein the court said that decedent "* * * should be treated as if he were concededly in the military service." While it be true that for insurance and certain other purposes du Pont might possibly be so treated, we do not think the same to be true in all instances -- in particular, for the purposes of the tax statute in controversy. Nor do we understand the language of the District Court as meaning otherwise. If, however, it was intended to imply otherwise, then we must respectfully differ.

The section of the Code which is here under review, is clearly an exemption from tax and as such is to be strictly limited to the class of taxpayers designated. We have examined the legislative history of section 939 and have found nothing therein to indicate a contrary1952 U.S. Tax Ct. LEXIS 90">*110 interpretation. The section is unquestionably intended to embrace and be applicable only to the estates of those who were formally members of the armed forces and who died under the conditions specified. Such ambiguity as might possibly arise is resolved by the statement of the Chairman of the Senate Finance Committee relative thereto, made at the time the provisions contained in section 939 were offered and accepted as a Senate floor amendment to H. R. 5268, which bill was later enacted as Public Law 378, 81st Cong., 1st sess., or the Technical Changes Act of 1949. This statement is recorded at 95 Cong. Rec. 12997, and was, in material part, as follows:

* * * this amendment simply gives to the soldier who died in action or received disability or wounds from which he died within the year or more following the actual termination of the war, or to his estate, exemption from the so-called additional estate tax. It is an amendment which is intended to protect the estates of such veterans against the estate tax.

We gave to members of the armed services relief against income taxes; and at the time we extended to them relief against income taxes I offered an amendment, 18 T.C. 1134">*1143 1952 U.S. Tax Ct. LEXIS 90">*111 and strongly insisted that it be taken by the conferees exempting the estates of men killed in the service from the so-called additional estate tax. I am quite willing to take this amendment to conference. * * * [Emphasis added.]

In view of the foregoing unequivocal and lucid explanation, we feel that the arguments advanced by petitioner draw little support, if any, from the conference report, printed as H. R. No. 1412, the pertinent portion of which reads:

Amendment No. 12: The Senate amendment added a new section to the House bill amending subchapter B of Chapter 3 of the Internal Revenue Code to provide that the additional estate tax imposed by section 935 does not apply in the case of a citizen or resident dying between December 6, 1941, and January 1, 1947, while in military service of the United States or any of the United Nations, if the decedent was killed in action or died as the result of injuries or of disease "suffered in line of duty by reason of a hazard to which he was subjected as an incident of military or naval service." * * *

We, therefore, answer the question posed in the negative and sustain respondent as to this issue. See United States v. Popham, Jr., 198 F.2d 660,1952 U.S. Tax Ct. LEXIS 90">*112 reversing 97 F. Supp. 63">97 F. Supp. 63.

Decision will be entered under Rule 50.