## Facts

- William Nelson Cromwell, a New York attorney, died in 1948 leaving a will that distributed his residuary estate in 100 equal parts to several organizations, including three New York bar associations, a legal research foundation, Columbia Law alumni association, and Russian War Relief, Inc.
- The New York Surrogate’s Court ruled the Columbia Law alumni association and Russian War Relief were disqualified from taking under the will.
- Pursuant to discretionary authority in the will, the executors reallocated the five disqualified parts to the Trustees of Columbia University.
- The executors filed a federal estate tax return claiming charitable/educational deductions under Internal Revenue Code of 1939 § 812(d) for the residuary bequests and also claimed deductions for certain attorneys’ fees paid to counsel for individual legatees after estate-related litigation.
- The Commissioner disallowed deductions for the bar association bequests, disallowed the attorneys’ fees as administration expenses, and applied a different estate-tax computation, resulting in an assessed deficiency.
- The executors paid the deficiency, sought a refund, were denied, and sued the collectors in federal district court.
- The district court allowed deductions for the Cromwell Foundation and the contested administration expenses, but denied deductions for the bar association bequests; both sides appealed.

## Issues

1. Whether bequests to the New York County Lawyers’ Association, the Association of the Bar of the City of New York, and the New York State Bar Association were deductible under § 812(d) as transfers to organizations organized and operated exclusively for charitable or educational purposes.
2. Whether the bequest to the William Nelson Cromwell Foundation and the residuary shares reallocated to Columbia University qualified for the § 812(d) charitable deduction.
3. Whether attorneys’ fees paid to lawyers for individual legatees after litigation could be deducted as administration expenses for federal estate tax purposes.
4. What estate-tax computation should be used after determining the proper set of deductible items.

## Decision

- The Second Circuit reversed the denial of deductions for the three bar association bequests and held they qualified under § 812(d).
- The court affirmed allowance of the charitable deduction for the William Nelson Cromwell Foundation.
- The court affirmed allowance of the charitable deduction for the portions of the residue reallocated to Columbia University.
- The court affirmed allowance of the deduction for the disputed attorneys’ fees as administration expenses.
- The case was remanded for recalculation of the estate tax consistent with the expanded deductions.

## Legal Principles

- An organization may qualify for the federal estate-tax charitable deduction if its primary purposes and operations are charitable or educational; incidental benefits to members do not defeat qualification.
- Activities aimed at improving the law and the administration of justice, supporting law reform, maintaining professional ethics and discipline, and providing legal education can constitute charitable and educational purposes for § 812(d).
- A bequest for legal and historical research and related museum-type educational functions falls within charitable/educational purposes under § 812(d).
- Amounts redirected to a qualifying educational institution under a will’s valid discretionary reallocation power may be treated as deductible charitable transfers.
- Administration expenses are deductible when they are necessary and reasonable expenses of settling the estate and effectuating distribution under applicable law, including fees arising from litigation that facilitates proper administration.

## Conclusion

The Second Circuit held that the three New York bar associations were operated primarily for charitable and educational ends related to law and the administration of justice, making the bequests deductible under § 812(d), and it also upheld deductions for the legal-research foundation, the reallocated shares passing to Columbia University, and certain litigation-related attorneys’ fees as administration expenses, requiring a recomputation of the estate tax.


Dulles v. Johnson, 273 F.2d 362 (2d Cir. 1959)