## Facts

- Federal housing “Project Notes” were issued under the Housing Act of 1937; § 5(e) stated the Notes were “exempt from all taxation … imposed by the United States.”
- Executors of multiple estates (including Wells Fargo Bank) included Project Notes in the gross estates and paid federal estate tax.
- After a separate 1984 district court decision suggested Project Notes were exempt from federal estate tax, the executors filed refund claims with the IRS.
- Congress enacted § 641 of the Deficit Reduction Act of 1984 (DEFRA), which eliminated any claimed estate-tax exemption for Project Notes and barred refunds based on that theory for taxpayers who had already paid.
- The IRS denied the refund claims; the executors sued for refunds and, alternatively, sought to invalidate DEFRA § 641 as unconstitutional insofar as it foreclosed refunds.

## Issues

1. Whether § 5(e) of the Housing Act of 1937 exempted Project Notes from federal estate taxation.
2. If an estate-tax exemption existed, whether DEFRA § 641’s removal of the exemption and refund bar violated the Fifth Amendment.

## Decision

- The Supreme Court reversed the district court.
- The Court held that § 5(e) did not exempt Project Notes from federal estate taxation.
- Because no estate-tax exemption existed, the Court found it unnecessary to decide the Fifth Amendment challenge to DEFRA § 641.

## Legal Principles

- Claimed federal tax exemptions are construed narrowly; there is a strong presumption against implied tax exemptions, and any exemption must be clearly expressed.
- A statutory exemption of property from “all taxation” is not presumed to reach excise taxes (including the federal estate tax), which tax the transfer at death rather than the property itself, absent clear congressional direction.
- Broad Internal Revenue Code provisions defining the taxable estate include property interests unless Congress provides a specific exemption.
- Courts should avoid constitutional rulings when a case can be resolved on nonconstitutional statutory grounds.

## Conclusion

Project Notes were not exempt from federal estate tax under the Housing Act’s “exempt from all taxation” language, so the refund claims failed and the Court did not reach the constitutionality of DEFRA’s retroactive refund bar.


United States v. Wells Fargo Bank, 485 U.S. 351 (1988)