UNITED STATES OF AMERICA, APPELLANT V. WELLS FARGO BANK, ET AL.

   UNITED STATES OF AMERICA, APPELLANT V. HARRY ROSENBERG AND ARTHUR
ROSEN, ETC.

   No. 86-1521

   In the Supreme Court of the United States

   October Term, 1987

   On Appeal from the United States District Court for the Central
District of California

   Brief for the United States

                       PARTIES TO THE PROCEEDING

   Crocker National Bank, Lew R. Wasserman and Ruth S. Cogan were all
plaintiffs in District Court No. CV 85-7614 as Executors of the Will
of Jules C. Stein.  Wells Fargo Bank is the successor in interest to
Crocker National Bank.  Harry Rosenberg and Arthur Rosen were
plaintiffs in District Court No. CV 85-3465 as co-trustees of the
Morris and Tillie Folb Trust, FBO Tillie Folb.

            TABLE OF CONTENTS
   Parties to the proceeding
   Opinion below
   Jurisdiction
   Constitutional and statutory provisions involved
   Questions presented
   Statement
   Summary of argument
   Argument
      I. The Housing Act of 1937 did not exempt testamentary
         transfer of Project Notes from the federal estate tax
         A. General principles of estate taxation establish that
            Project Notes have never been exempt from the
            federal estate tax because no statutory provision
            expressly confers such an exemption
         B. The legislative history of the Housing Act of 1937
            does not evince congressional intent to exempt
            Project Notes from the federal estate tax
     II. Section 641 of the Deficit Reduction Act of 1984
         subjects appellees' Project Notes to the federal estate
         tax and it does not violate the Fifth Amendment
         A. The application of Section 641 to appellees does
            not violate the Due Process Clause
         B. The application of Section 641 to appellees does
            not violate the equal protection component of the
            Fifth Amendment
   Conclusion
   Appendix

                             OPINION BELOW

   The opinion of the district court (J.S. App. 1a-18a) is
unofficially reported at 86-2 U.S. Tax Cas. (CCH) Paragraph 13,703.

                             JURISDICTION

   The judgments of the district court (J.S. App. 19a-20a) were
entered on October 20, 1986.  The notices of appeal to this Court were
filed on November 19, 1986 (J.S. App. 21a-24a).  On January 12, 1987,
Justice O'Connor extended the time for docketing the appeals to and
including March 19, 1987.  The jurisdictional statement was filed on
that date, and probable jurisdiction was noted on May 18, 1987.  The
jurisdiction of this Court rests on 28 U.S.C. 1252.

           CONSTITUTIONAL AND STATUTORY PROVISIONS INVOLVED

   The relevant constitutional and statutory provisions are set forth
in a statutory appendix (App., infra, 1a-2a).

                          QUESTIONS PRESENTED

   1. Whether obligations of public housing agencies owned by the
decedents were excludable from their gross estates for purposes of the
federal estate tax by virtue of the United States Housing Act of 1937,
as amended.

   2. If the first question is answered in the affirmative, whether
Section 641(b)(2) of the Deficit Reduction Act of 1984 (98 Stat. 939)
violates the Fifth Amendment in making such obligations includible in
the gross estates of decedents who died before that provision's
effective date, but whose representatives reported those obligations
on their estate tax returns as subject to estate tax.

                               STATEMENT

   1. These appeals are taken from judgments in two cases that were
consolidated in the district court.  They present identical legal
issues relating to the estate tax treatment of certain short-term
obligations of state and local public housing agencies ("Project
Notes").  The interest paid on Project Notes is exempted from federal
income tax by the Housing Act of 1937, as amended.  The question here
is whether the testamentary transfer of Project Notes is exempt from
federal estate tax.

   Appellees in the Wells Fargo case are the executors under the will
of Jules C. Stein, who died on April 29, 1981.  /1/ At the time of his
death, Stein owned Project Notes in the aggregate face amount of
$9,550,000, which matured on various dates in 1981 subsequent to his
death.  On January 29, 1982, appellees filed a federal estate tax
return for Stein's estate.  On that return, appellees included these
Project Notes, plus accrued interest, in the gross estate.  The return
showed as due, and appellees paid, estate tax in the amount of
$10,874,767, a sum that reflected appellees' understanding that
transfers of the Project Notes were subject to tax.  Two and a half
years later, on June 29, 1984, appellees filed a claim for refund of
$1,320,097 in estate tax, plus interest.  This refund claim was
premised on the assertion that the Project Notes in fact were exempt
from estate tax and should not have been included in the gross estate.
 The Commissioner denied the refund claim.  J.S. App. 3a.

   Appellees in the Rosenberg case were co-executors of the estate of
Morris Folb, who died on July 1, 1982, and are co-trustees of a trust
to which Folb's net estate was distributed.  At the time of his death,
Folb owned Project Notes in the aggregate face amount of $250,000,
which matured on various dates in 1982 subsequent to his death.  On
March 30, 1983, appellees filed a federal estate tax return for Folb's
estate.  On that return, appellees included these Project Notes, plus
accrued interest, in the gross estate.  The return showed as due, and
appellees paid, estate tax in the amount of $221,519, a sum that
reflected appellees' understanding that transfers of the Project Notes
were subject to tax.  More than a year later, on August 15, 1984,
appellees filed a claim for refund of $84,596 in estate tax, plus
interest.  This refund claim was premised on the assertion that the
Project Notes were exempt from estate tax and should not have been
included in the gross estate.  The Commissioner denied the refund
claim.  J.S. App. 2a-3a.

   2. The refund claims in these cases were triggered by the district
court decision in Haffner v. United States, 585 F. Supp. 354 (N.D.
Ill. 1984), aff'd. 757 F.2d 920 (7th Cir. 1985), which held that
comparable Project Notes were not includible in a decedent's gross
estate for federal estate tax purposes.  The district court in Haffner
bottomed its decision on what is now 42 U.S.C. 1437i(b), enacted in
its original form as Section 5(e) of the United States Housing Act of
1937 (Housing Act of 1937 or 1937 Act), ch. 896, 50 Stat. 890.  That
section provides that Project Notes "shall be exempt from all taxation
now or hereafter imposed by the United States." The Haffner court
acknowledged the "general rule * * * that an exemption from all
taxation * * * generally does not affect the imposition of estate and
other excise taxes" (585 F. Supp. at 356-357).  It viewed Section 5(e)
as different, however, because of what it found to be a "strong
indication" (id. at 357) that Congress in 1937 intended to exempt
Project Notes from federal estate taxation.

   The Haffner court relied primarily on the difference in language
between Section 5(e) of the 1937 Act and Section 20(b) of that law.
The latter section (50 Stat. 898) provided that obligations of the
United States Housing Authority "shall be exempt * * * from all
taxation (except surtaxes, estate, inheritance, and gift taxes) now or
hereafter imposed by the United States or by any State * * * or local
taxing authority" (emphasis added).  The court reasoned that the
absence from Section 5(e) of a similar parenthetical phrase indicated
a congressional intent to exempt Project Notes from estate tax (585 F.
Supp. at 357-360).  The court also relied on a discussion of the 1937
legislation on the Senate floor by Senator Walsh, who stated that the
obligations of public housing agencies would be tax-exempt, "which
means they are free from income tax, surtax, estate, gift, and
inheritance taxes" (81 Cong. Rec. 8085 (quoted in 585 F. Supp. at
359)).  And the court noted that an alternate version of Section 5(e)
submitted to the Senate Committee had expressly subjected Project
Notes to the estate tax (585 F. Supp. at 358).  Hence, the Haffner
court concluded that Project Notes had been exempt from estate and
gift taxation continuously since 1937, inasmuch as Congress had never
acted to change that supposed tax-exempt status.

   Congressional reaction to the unprecedented holding of the district
court in Haffner was swift.  "(E)xtremely concerned" by the decision
(Staff of the Joint Comm. on Taxation, 98th Cong., 2d Sess., General
Explanation of the Revenue Provisions of the Deficit Reduction Act of
1984, at 971 (Joint Comm. Print 1984)), Congress enacted legislation
within three months to overturn the Haffner decision.  Section 641(a)
of the Deficit Reduction Act of 1984 (DEFRA), Pub. L. No. 98-369, 98
Stat. 939, entitled "Clarification of Treatment" provides:

         General Rule.  -- Nothing in any provision of law exempting
      any property (or interest therein) from taxation shall exempt
      the transfer of such property (or interest therein) from Federal
      estate, gift, and generation-skipping transfer taxes.

   Section 641(b)(1) makes this provision applicable to the estates of
decedents dying, and to gifts and transfers made, on or after June 19,
1984, which appears to be the date on which the legislation was
approved by the Conference Committee.  /2/ Section 641(b)(2) also
makes the provision applicable to estates of decedents dying, and to
gifts and transfers made, prior to June 19, 1984, "if at any time
there was filed an estate or gift tax return showing such transfer as
subject to Federal estate or gift tax." Under Section 642, taxpayers
were required to report all transfers of Project Notes occurring after
December 31, 1983, and before June 19, 1984 (98 Stat. 939-940).

   Thus, the effect of the 1984 amendments was to overturn the result
of Haffner (1) prospectively and (2) for any case in which a taxpayer
or his estate had filed a tax return treating the transfer of Project
Notes as subject to estate or gift tax.  The DEFRA provisions do not
address the gift and estate tax treatment of Project Notes
transferred, or held by persons dying, before June 19, 1984, in
circumstances where no tax return was filed showing the Project Notes
as being subject to tax.  Section 641(b)(3) provides, however, that
"(n)o inference shall arise from paragraphs (1) and (2) that any
(such) transfer * * * is exempt from federal estate and gift taxes"
(98 Stat. 939).

   3. Against this statutory background, appellees brought these
refund suits in the United States District Court for the Central
District of California.  Relying on Haffner, /3/ appellees urged that
the testamentary transfer of Project Notes has always been immune from
estate tax and hence that the Notes should not have been included in
their decedents' gross estates.  With respect to DEFRA, appellees
argued that it should not be construed to apply retroactively to the
estates in this case and, if it did so apply, that such application
was unconstitutional because violative of the Fifth Amendment.  The
government argued that Haffner was wrongly decided and that the
testamentary transfer of Project Notes has always been subject to
estate taxation.  In the alternative, if Haffner were held to have
been correctly decided, the government argued that DEFRA required
appellees to include the Project Notes in the decedents' gross estates
because appellees had shown those securities as being taxable on their
estate tax returns.

   The district court granted appellees' motions for summary judgment.
 Adopting the reasoning and analysis of the district court opinion in
Haffner, the district court here held that the Project Notes were
exempt from federal estate taxation under the Housing Act of 1937
(J.S. App. 18a).  The court further held that Section 641(a) of DEFRA
was intended to make the estate tax applicable to Project Notes owned
by the estates involved here (J.S. App. 5a-8a).  Finally, the district
court concluded that such a retroactive application of the 1984
statute was unconstitutional (id. at 9a-17a).

   The court identified two constitutional infirmities in the DEFRA
provision.  First, the court concluded that the retroactive
application of Section 641(a) violates the Due Process Clause of the
Fifth Amendment (J.S. App. 9a-14a).  The court recognized that
"(t)here is nothing unusual about retroactive tax laws" (id. at 9a).
It found, however, that "the retroactive removal of the exemption from
estate tax equals the imposition of a wholly new tax." It therefore
concluded that this Court's decision in Untermyer v. Anderson, 276
U.S. 440 (1928), which invalidated the retroactive application of the
first gift tax, "compels the court to find that retroactive
application of Section 641 is arbitrary and invalid under the due
process clause of the Fifth Amendment" (J.S. App. 13a).

   Second, the court ruled that the application of DEFRA in this case
violates the equal protection component of the Fifth Amendment (J.S.
App. 14a-17a).  The court noted that the statute draws a distinction
between two otherwise identical estates that differ only in whether
they had listed Project Notes as assets includible in their taxable
estates.  The court said that there was "absolutely no rational basis"
for this distinction (id. at 16a).  The court did not deny that the
evident purpose of the distinction drawn in the statute was to prevent
persons from "join(ing) the bandwagon in the wake of Haffner in
anticipation of a windfall." But the court found such a legislative
purpose to be inadequate to justify the statutory distinction because
"(t)o deny persons those windfalls based on speculation about the
legal position that they have taken is impermissible" (ibid.).

                          SUMMARY OF ARGUMENT

                                  I.

   The Internal Revenue Code provides that all property held by the
decedent on the date of his death is includible in the gross estate
and hence subject to the federal estate tax.  Therefore, the
testamentary transfer of Project Notes, like the testamentary transfer
of any other property, is subject to the estate tax unless those
securities are specifically exempted by some other statute.  And this
Court has stated on numerous occasions that such an exemption must be
express, not implied.  See, e.g., United States Trust Co. v.
Helvering, 307 U.S. 57, 60 (1939).

   This rule against implying tax exemptions is particularly weighty
in the case of an estate tax exemption.  Whereas the income tax
provisions of the Code have long exempted certain types of income from
gross income, an exemption for a particular type of asset from the
gross estate is almost unprecedented in our history.  That is because
such an exemption would provide a means by which an individual might
defeat the tax by converting his assets into another form shortly
before death.  Thus, it is well established that a "general" tax
exemption, providing that property "shall be exempt from all
taxation," does not operate to exempt the transfer of that property
from estate tax, gift tax, or other excise taxes.  See, e.g., Murdock
v. Ward, 178 U.S. 139 (1900).  Accordingly, it is beyond dispute --
and the court below did not dispute -- that Project Notes are not
exempted from estate taxation on the face of Section 5(e) of the
Housing Act of 1937, which uses the phrase "exempt from all taxation"
and makes no reference to transfer taxes.

   Appellees' basic contention is that Congress's intent to create an
estate tax exemption for Project Notes can be deduced from the
legislative history of the Housing Act of 1937.  This contention is
flawed in two respects.  First, as noted above, such a tax exemption
must be express, and cannot be implied from ambiguous scraps of
legislative history.  Second, the legislative history relied upon by
appellees in no way supports the proposition that Congress intended in
1937 to create an estate tax exemption for Project Notes.  Appellees
rely on a debatable inference from an unrelated statutory provision,
on an isolated statement by a single Senator during floor debate, and
on the fact that a committee of Congress did not report out a
different version of a bill.  In our view, the reasons underlying
these items of legislative history do not suggest that Congress
intended, or even considered, granting an unprecedented estate tax
exemption for Project Notes.  At a minimum, it is apparent that all
three pieces of legislative evidence are open to varying
interpretations;  neither separately nor in conjunction can they
demonstrate the unambiguous intent to create a tax exemption that is
required by this Court's decisions.

   Finally, common sense counsels against acceptance of appellees'
contention that Project Notes have been exempt from estate taxation
continuously since 1937.  No such exemption was ever acknowledged by
the IRS, recognized by practitioners, or claimed by taxpayers until a
few years ago.  Generally speaking, tax exemptions of such magnitude
do not lie dormant for a period in excess of 40 years.

                                 II.

   A. Section 641 of DEFRA does not violate due process in preventing
appellees from obtaining a refund of estate taxes on the ground that
Project Notes should not have been included in the taxable estate.
Tax legislation regularly contains some element of retroactivity, and
retroactive application of a tax is unconstitutional only if it is
found to be "harsh and oppressive." See, e.g., United States v. Hemme,
No. 84-1944 (June 3, 1986).  That is plainly not the case here.  The
statute is designed solely to prevent taxpayers who have already paid
their estate taxes from obtaining a windfall refund as a result of an
intervening judicial decision that discerned a previously-unrecognized
tax exemption -- one that Congress thought should not be available.
The statute upsets no settled expectations since it applies only to
taxpayers who viewed Project Notes as taxable when their tax returns
were filed.  There is nothing "harsh or oppressive" about holding a
taxpayer to his own treatment of items on a tax return that he himself
prepared.

   B. Section 641 of DEFRA does not violate the equal protection
component of the Fifth Amendment in limiting its retroactive
application to those taxpayers who treated Project Notes as taxable on
their estate tax returns.  The classification drawn by Congress
plainly is a rational one.  It eliminates any possible perception of
unfairness by preventing DEFRA from operating retroactively against
any taxpayer who might reasonably be thought to have acted in reliance
on the assumption that Project Notes were exempt from transfer taxes.
In essence, all the statute does is to preserve the status quo ante by
allowing those taxpayers who had determined to challenge the
taxability of Project Notes to continue to pursue the issue in
litigation, while preventing taxpayers who had accepted the taxability
of Project Notes on their estate tax returns from changing their
position in a refund suit.

                               ARGUMENT

   Appellees paid their estate taxes on the assumption, unchallenged
for more than 40 years, that the testamentary transfer of Project
Notes is subject to the federal estate tax.  Appellees have now sued
for a refund of estate taxes, adopting the view of an intervening
lower court decision, Haffner v. United States, 585 F. Supp. 354 (N.D.
Ill. 1984), aff'd. 757 F.2d 920 (7th Cir. 1985), that Project Notes
are exempt from estate tax.  Their claim must fail for two independent
reasons.

   First, the contention that Project Notes were ever exempt from
estate tax, which was accepted by the Haffner courts, is incorrect.
Estate-tax exemptions covering a particular species of property --
especially property that is easily transferable, like the securities
involved here -- are almost unprecedented.  That is because such an
exemption would allow individuals to defeat the estate tax completely,
simply by converting their property into holdings of the exempt type
of property before death.  This Court therefore has held that a tax
exemption of the sort appellees posit can be established only by
unambiguous statutory language.  The language of the 1937 Housing Act,
in and of itself, concededly does not establish such an exemption.  It
provides only that Project Notes themselves, and the interest paid
thereon, shall be exempt from taxation;  it does not say that the
transfer of such securities shall be immune from tax.  Nothing in the
legislative history of the 1937 Act, moreover, provides a basis for
inferring a congressional intent to create such an unprecedented
loophole in the estate-tax scheme.

   Second, even if one assumes arguendo that Project Notes at one time
were exempt from estate taxation, that exemption was removed by
Section 641 of the DEFRA, 98 Stat. 939.  That provision was enacted
with the specific intent of overruling the Haffner decision.  The
DEFRA Amendment applies to appellees, because they filed estate tax
returns showing their decedents' transfers of Project Notes as being
subject to estate tax.  And appellees' challenges to the
constitutionality of the 1984 enactment are without merit.

   Because the district court held Section 641 of DEFRA
unconstitutional, this Court's jurisdiction over this direct appeal
rests upon 28 U.S.C. 1252.  It is well established, however, that such
an appeal brings the entire case before the Court.  See United States
v. Locke, 471 U.S. 84, 92 (1985) (citing cases).  Thus, the underlying
statutory question decided by the district court -- whether Project
Notes in fact were exempted from federal estate taxation by the
Housing Act of 1937 -- is properly presented here.  If this Court
holds that the district court, in following the Haffner courts, erred
in resolving that threshold question, then appellees' refund claims
must fail irrespective of DEFRA.  It is this Court's usual practice to
confront in the first instance statutory issues whose resolution may
obviate the need to consider constitutional claims.  See, e.g., United
States v. Locke, 471 U.S. at 92;  Ashwander v. TVA, 297 U.S. 288, 347
(1936) (Brandeis, J., concurring).  We accordingly begin by addressing
the pre-DEFRA tax status of appellees' Project Notes.  /4/

 I. THE HOUSING ACT OF 1937 DID NOT EXEMPT THE TESTAMENTARY TRANSFER
OF PROJECT NOTES FROM THE FEDERAL ESTATE TAX

 A. General Principles Of Estate Taxation Establish That Project Notes
Have Never Been Exempt From The Federal Estate Tax Because No
Statutory Provision Expressly Confers Such An Exemption

   The provisions of the Internal Revenue Code /5/ that govern this
case are straightforward.  They unambiguously provide that all
property owned by a decedent at the time of his death, such as the
Project Notes involved here, are subject to the estate tax.  Nothing
in the Housing Act of 1937 calls for a different conclusion.

   1. Section 2001 of the Code imposes a tax "on the transfer of the
taxable estate of every decedent who is a citizen or resident of the
United States." Computation of the estate tax begins with the "gross
estate," which is defined to include "all property, real or personal,
tangible or intangible, wherever situated," that is owned by the
decedent, or in which he has an interest, at the time of death.
I.R.C. Sections 2031, 2033.  Certain property transferred by the
decedent during his life is also includible in the gross estate.  See,
e.g., I.R.C. Section 2036 (transfers with retained life estate);
I.R.C. Section 2038 (revocable transfers).  The value of the taxable
estate is then determined by subtracting from the gross estate certain
deductions specifically allowed by the Code.  I.R.C. Section 2051.

   Whereas the income tax provisions of the Code have long excluded
specified types of income from gross income (see, e.g., I.R.C. (&
Supp. III) Sections 101-128), the estate tax provisions do not exclude
any specified types of property from the gross estate of citizens and
residents.  Indeed, since the estate tax was first imposed in 1916
(Revenue Act of 1916, ch. 463, Sections 200-212, 39 Stat. 777), the
Internal Revenue Code has incorporated only two such exclusions -- one
for certain life insurance proceeds, the other for foreign real estate
-- and both were repealed long ago.  /6/ No securities of any sort
have ever been excluded from the gross estate of citizens or resident
aliens.  It is thus generally true that "(t)he transfer upon death is
taxable, whatsoever the character of the property transferred and to
whomsoever the transfer is made." Greiner v. Lewellyn, 258 U.S. 384,
387 (1922) (holding the testamentary transfer of municipal bonds
subject to federal estate tax, even though the interest paid on such
bonds is generally exempt from federal income tax).

   Congress, of course, has broad power to exempt property from any
kind of tax.  But this Court has been firm in holding that such
exemptions must be explicitly provided by statute.  "Exemptions from
taxation," the Court has repeatedly held, "do not rest upon
implication." United States Trust Co. v. Helvering, 307 U.S. 57, 60
(1939).  See Oklahoma Tax Comm'n v. United States, 319 U.S. 598, 606
(1943);  United States v. Stewart, 311 U.S. 60, 71 (1940);  Bank of
Commerce v. Tennessee, 161 U.S. 134, 146 (1896) ("There must be no
doubt or ambiguity in the language used upon which the claim to the
exemption is founded * * * ;  no implication will be indulged in for
the purpose of construing the language used as giving the claim for
exemption, where such claim is not founded upon the plain and clearly
expressed intention of the taxing power.").

   The need for careful adherence to this rule is particularly marked
in the case of transfer taxes, such as the federal estate tax and its
complement, the federal gift tax.  The purpose of these taxes would be
largely defeated if courts were free to discover implied exemptions
for assets, such as negotiable securities, that are readily
transferable and widely available to taxpayers.  Wealthy individuals
would then be able to circumvent the federal transfer tax regime by
temporarily converting their wealth into the exempt class of property
prior to death or prior to making an inter vivos gift.  This Court has
always held that an intent to permit such circumvention should not
lightly be imputed to Congress.

   2. Consistent with these principles, it has long been settled that
statutes exempting specified classes of property from "all taxation"
do not immunize the transfer of that property from estate, gift, or
inheritance taxes.  This is because these taxes represent an excise on
the privilege of transmitting property, rather than a direct tax on
the property itself or on the income that it produces.  See West v.
Oklahoma Tax Comm'n, 334 U.S. 717, 727 (1948).  Thus, for example,
this Court has held that the proceeds of an insurance policy payable
to a veteran's widow were includible in his gross estate, and hence
subject to federal estate tax, even though the governing statute
provided that the proceeds of such insurance "'shall be exempt from
all taxation.'" United States Trust Co. v. Helvering, 307 U.S. at 58
(quoting 43 Stat. 613).  And in Murdock v. Ward, 178 U.S. 139, 145
(1900), the Court held a federal inheritance tax applicable to the
testamentary transfer of United States bonds, notwithstanding "the
clauses contained in the United States statutes exempting such bonds
from state and federal taxation." /7/

   This well-established rule has long been embodied in the Treasury
Regulations.  See Art. 13 of Regulations 80 (1937 ed.).  Those
Regulations explain that the estate tax "is an excise tax on the
transfer of property at death and is not a tax on the property
transferred." Treas. Reg. Section 20.2033-1(a).  The Regulations
accordingly conclude that "(v)arious statutory provisions which exempt
bonds, notes, bills, and certificates of indebtedness of the Federal
Government or its agencies and the interest thereon from taxation are
generally not applicable to the estate tax." Ibid.

   3. These general principles are fatal to appellees' claim that the
testamentary transfer of Project Notes is exempt from estate tax.
Section 5(e) of the Housing Act of 1937 provided in pertinent part
that "(o)bligations, including interest thereon, issued by public
housing agencies * * * shall be exempt from all taxation now or
hereafter imposed by the United States" (50 Stat. 890 (emphasis
added)).  Section 5(e) provides only that Project Notes themselves,
and the interest paid thereon, shall be exempt from taxation;  it does
not say that the transfer of such securities shall be immune from tax.
 Indeed, the italicized language of Section 5(e) is indistinguishable
from the language involved in the cases just discussed, cases in which
this Court refused to find an estate-tax exemption.  Thus, as the
district court in Haffner conceded (585 F. Supp. at 356-357), the text
of Section 5(e) of the 1937 Act, in and of itself, cannot be read to
support the exemption for which appellees contend.

 B. The Legislative History Of The Housing Act of 1937 Does Not Evince
A Congressional Intent To Exempt Project Notes From The Federal Estate
Tax

   Because appellees cannot base their claim on the statute's text,
they necessarily rely on the contention that an intent to exempt
Project Notes from estate tax should be inferred from the legislative
history of the 1937 law.  That contention, of course, ignores this
Court's prescription that tax exemptions must be explicit, not
implied.  This prescription is particularly weighty here:  because
there have been many billions of dollars in Project Notes in
circulation at any given time, acceptance of appellees' implied tax
exemption argument would permit individuals to go far toward
frustrating the estate tax altogether.  /8/ In any event, appellees'
contentions are based on an incomplete and mistaken understanding of
the legislative history.  Viewed in the proper context, the "ambiguous
tidbits" (727 F.2d at 920 (Posner, J., dissenting)) of legislative
history upon which appellees rely provide no support for the view that
Congress intended to exempt Project Notes from estate taxation, much
less furnish the compelling evidence that would be needed to establish
such an extraordinary exemption in the absence of a statute expressly
providing therefor.

   1. Neither the Haffner court nor appellees have pointed to any
instance, apart from the present context, in which statutory language
like that contained in Section 5(e) of the 1937 Act -- language
stating simply that securities "shall be exempt from all taxation" --
has been held to exempt the transfer of such securities from estate
tax.  We for our part are aware of none.  Rather, appellees premise
their claim for tax exemption principally upon comparison of Section
5(e) with another section of the 1937 Act, Section 20(b), which does
not concern Project Notes at all.

   a. Section 20(b) of the 1937 Act, which has long since disappeared
from the statute, concerned obligations issued by the United States
Housing Authority, a federal instrumentality created by that Act.
Section 20(b) provided that "(s)uch obligations shall be exempt, both
as to principal and to interest, from all taxation (except surtaxes,
estate, inheritance, and gift taxes) now or hereafter imposed by the
United States or by any State * * * " (50 Stat. 898 (emphasis added)).
 Appellees contend that the italicized parenthetical phrase in Section
20(b) shows that the 1937 Congress knew how to exclude estate taxes
from a generalized tax exemption when it wanted to do so.  The absence
of such a parenthetical phrase from Section 5(e), appellees therefore
conclude, proves that Congress must have intended Section 5(e) to make
Project Notes exempt from all federal taxes, including estate taxes.

   This reasoning is fallacious because it ignores the completely
different purposes of the two Sections of the 1937 Act.  Section 5(e)
created an exemption from federal taxation for Project Notes issued by
state and local agencies.  Section 20(b), by contrast, created a more
limited exemption from federal taxation, as well as an exemption from
state taxation, for the obligations of a federal agency.  These
differences in purpose fully explain the different language used by
the 1937 Congress in the two Sections, as an examination of the
statute as a whole makes clear.

   The stated purpose of the Housing Act of 1937, often called the
Wagner Housing Act, was to help the States "remedy the unsafe and
insanitary housing conditions and the acute shortage of decent, safe,
and sanitary dwellings for families of low income" (50 Stat. 888).
/9/ Section 3 of the Act established the United States Housing
Authority, a federal instrumentality designed to assist the States in
this endeavor (50 Stat. 889).  /10/ Section 5(e) established the
tax-exempt status of the Authority, providing that its income and
property were to be exempt from both state and federal taxation.
Section 5(e) also set forth the exemption at issue here -- an
exemption from federal taxation for the obligations and income of the
state and local housing agencies /11/ that would be working with the
Authority in furthering the statute's housing-improvement goals.
Section 5(e) reads in full as follows (50 Stat. 890):

         The Authority, including but not limited to its franchise,
      capital, reserves, surplus, loans, income, assets, and property
      of any kind, shall be exempt from all taxation now or hereafter
      imposed by the United States or by any State, county,
      municipality, or local taxing authority.  Obligations, including
      interest thereon, issued by public housing agencies in
      connection with low-rent-housing or slum-clearance projects, and
      the income derived by such agencies from such projects, shall be
      exempt from all taxation now or hereafter imposed by the United
      States.

   The federal tax exemption set forth in the second sentence of
Section 5(e) thus covered the income derived by public housing
agencies from housing projects, the obligations ("Project Notes")
issued by those agencies, and the interest paid thereon.  /12/ This
exemption, of course, was important to those agencies' successful
operation.  In particular, tax exemption for the interest paid on
Project Notes enhanced the marketability of those obligations, putting
them on a par with other state and municipal obligations, the interest
on which was generally exempt from federal income tax.  Of course,
there was no intent expressed by Congress -- and nothing on the face
of the statute to support the proposition -- that Project Notes should
be treated more favorably than other state and municipal obligations,
the transfer of which for many years had been subject to federal
estate and gift tax.  Rather, the formula that Congress used in
Section 5(e) -- "exempt from all taxation" -- was the formula
generally understood and routinely used to confer an exemption from
all direct taxes, but not from transfer taxes.

   Section 20(b) of the 1937 Act, on the other hand, was addressed to
a different matter -- the treatment of the obligations of the United
States Housing Authority.  Section 20(a) authorized the Authority to
issue obligations, such as notes or bonds, to obtain funds for the
purposes of the Act.  Section 20(b) then delineated the scope of the
tax exemption for these federal obligations (50 Stat. 898 (emphasis
added)):

         Such obligations shall be exempt both as to principal and
      interest, from all taxation (except surtaxes, estate,
      inheritance, and gift taxes) now or hereafter imposed by the
      United States or by any State, county, municipality, or local
      taxing authority.

   Congress inserted the parenthetical phrase into Section 20(b) -- a
phrase that, as appellees emphasize, is absent from Section 5(e) --
because it wished to make clear that interest on federal Housing
Authority obligations, unlike interest on state and local Project
Notes, was to be subject to the federal income tax "surtax." From 1913
until 1954, the income tax was composed of two parts.  There was a
so-called "normal tax" on net income, usually at a fixed rate.  There
was also a "surtax," at graduated rates, on a differently-computed
amount of income, referred to as "surtax net income." /13/ In 1937,
the normal tax was levied at a rate of 4% on an individual's net
income, and the surtax was levied at graduated rates of up to 75% on
an individual's "surtax net income." See Revenue Act of 1936, ch. 690,
Sections 11, 12, 49 Stat. 1653.

   Of particular relevance here, the tax law as it existed in 1937
provided that interest on federal obligations was exempt from income
tax "only if and to the extent provided in the respective Acts
authorizing the issue thereof." Revenue Act of 1936, ch. 690, Section
22(b)(4), 49 Stat. 1657.  Most of those authorizing Acts provided that
such interest income was exempt from the normal tax, but not from the
surtax, which generally applied to higher-income taxpayers.  /14/
Congress determined in 1937 that the tax treatment of Federal Housing
Authority obligations should follow this common pattern.  To achieve
that objective, Congress incorporated in Section 20(b) a proviso
stating that "surtaxes" were not within the statutory exemption.
Congress, of course, had no need to incorporate such a proviso in
Section 5(e), since Congress intended that state and local Project
Notes should be exempted altogether from the federal income tax, both
from the normal tax and from the surtax.

   b. What we have said thus far makes clear that no inference
supportive of appellees' position can be drawn from the presence in
Section 20(b), without more, of a parenthetical phrase containing the
words "except surtaxes." Appellees' argument thus reduces to the
contention that Congress could have closed the Section 20(b)
parenthesis immediately after the word "surtaxes," and that it had no
need to include "estate, inheritance, and gift taxes" therein.  As we
have previously explained (pages 18-20, supra), generalized exemptions
from "all taxation" have typically been read to include an automatic
proviso putting transfer taxes outside their scope.  Thus, appellees'
argument runs, Congress had no reason to include in Section 20(b) an
explicit proviso to that effect, unless it meant to qualify, by
negative implication, the meaning of the generalized exemption in
Section 5(e).  In essence, appellees argue that, unless the words
"estate, inheritance, and gift taxes" in Section 20(b) are to be
deemed surplusage, the phrase "exempt from all taxation" in Section
5(e) must be read, in defiance of its ordinary meaning, to incorporate
an exemption for transfer taxes.

   Appellees' argument -- that the well established meaning of one
statutory provision should be ignored because of an inference drawn
from a completely unrelated statutory provision -- would be strained
in almost any circumstances.  The short answer to their argument,
however, is that there is a perfectly logical reason why Congress,
having found it necessary to insert in Section 20(b) a proviso
covering surtaxes, went on to specify the other taxes that were
likewise meant to be outside the exemption's scope.  Once an exemption
has been drafted specifically to exclude one type of tax, it makes
sense for the draftsman to forestall an expressio unius est exclusio
alterius argument by specifically excluding all the taxes not covered
thereby.  To put it concretely, if the parenthetical phrase in Section
20(b) had simply said "except surtaxes," it would have opened the door
for a litigant to argue that the Section 20(b) exemption covered all
other taxes, including transfer taxes, in defiance of Congress's
intent.  See, e.g., Phipps v. Commissioner, 91 F.2d 627, 631-632 (10th
Cir.), cert. denied, 302 U.S. 742 (1937) (Phillips, J., dissenting)
(arguing that a statutory exemption from "all taxation, except estate
or inheritance taxes," should be read to exempt property from gift
taxes, on expressio unius est exclusio alterius theory).  In short,
once Congress found it necessary to have a proviso in Section 20(b) at
all, it wisely drafted the proviso to enclude all the taxes meant to
be excluded, thereby heading off any possible misconstruction.

   The reference in Section 20(b) to "estate, inheritance, and gift
taxes" thus followed naturally as a matter of sensible draftsmanship
from the need to refer to "surtaxes";  the two exclusions, one might
say, are an inseparable couple.  This mode of draftsmanship was in
fact quite common at the time.  Numerous statutes designed to exempt
the interest paid on federal obligations from the normal income tax,
but not from the surtax, used the same formula as Section 20(b),
providing that the obligations at issue "shall be exempt, both as to
principal and interest, from all taxation (except surtaxes, estate,
inheritance, and gift taxes)." See, e.g., Home Owners Loan Act of
1933, ch. 64, Section 4(c), 48 Stat. 129.  /15/ And it is significant
that such explicit exceptions for estate, inheritance and gift taxes
largely disappeared from statutes enacted after 1941, when Congress
made the interest on federal obligations fully subject to the federal
income tax, and hence eliminated the need for any "except surtaxes"
provisos.  See note 14, supra.

   In sum, there is no basis for drawing any inference about the
proper interpretation of Section 5(e) by referring to the text of
Section 20(b).  The two sections are addressed to entirely different
subjects, and there is no reason why inferences about the one should
be drawn from the text of the other.  See, e.g., Tooahnippah v.
Hickel, 397 U.S. 598, 606 (1970);  Nacirema Co. v. Johnson, 396 U.S.
212, 222 & n.18 (1969).  This is particularly so in light of the fact
that the two provisions were not drafted contemporaneously;  Section
20(b) appeared in the bill introduced in 1936, and Section 5(e)
appeared for the first time in 1937.  /16/ Each section was drafted
using the language commonly used by Congress to achieve the desired
legislative purpose.  To twist the language of Section 5(e) to give it
a meaning unlike that given to any other statute using the same
language would frustrate Congress's intent, not further it.  /17/

   2. The district court in Haffner also relied (585 F. Supp. at 359)
on a statement made by Senator Walsh during the debate on the bill
that was to become the Housing Act of 1937.  Toward the end of a
lengthy speech (81 Cong. Rec. 8076-8086 (1937)), parts of which were
critical of the bill, Senator Walsh made the following statement (id.
at 8085):

         Obligations, including interest thereon, issued by public
      housing agencies, and income derived by such agencies on such
      projects are to be exempt from all taxation now or hereafter
      imposed by the United States.  In other words, the bill gives
      the public housing agencies the right to issue tax-exempt bonds,
      which means they are free from income tax, surtax, estate, gift
      and inheritance taxes.

   For two reasons, this statement cannot be regarded as persuasive
evidence that Congress, contrary to the import of Section 5(e)'s
language, intended to establish an unprecedented estate tax exemption
for Project Notes.

   First, Senator Walsh did not directly state that Project Notes
would have the unusual tax exemption for which appellees contend.
What he said was that state housing agencies could "issue tax-exempt
bonds, which means they are free from income tax, surtax, estate, gift
and inheritance taxes" (81 Cong. Rec. 8085 (1937) (emphasis added)).
The logical construction of this statement is that Senator Walsh was
saying that Project Notes would have the same characteristics as other
tax-exempt bonds;  the appositional phrase beginning with "which
means" was simply an attempt to describe those characteristics.  Of
course, the appositional phrase does not correctly describe the
characteristics of tax-exempt bonds -- i.e., bonds "exempt from all
taxation" -- because such bonds ordinarily are not exempt from estate,
inheritance, and gift taxes.  One can only speculate, of course, about
the source of the Senator's error, which may have been caused by a
lack of familiarity with the principles enunciated in this Court's
decisions.  Whatever the source, however, Senator Walsh's statement is
most logically viewed, as Judge Posner concluded in his Haffner
dissent (727 F.2d at 922), as demonstrating a "misunderst(anding of)
the well-settled meaning of 'tax-exempt bonds.'"

   In any event, even if Senator Walsh actually had said that Project
Notes were intended to have an unprecedented exemption from estate
taxation, there is no reason why an isolated statement made by a
single Senator on the floor should override the well-settled meaning
of the words that Congress placed in the statute.  The sponsor of the
legislation was Senator Wagner, and it is not apparent why Senator
Walsh should be regarded as an authoritative expositor of its meaning.
 /18/ Indeed, although Senator Walsh did vote for the Housing Act of
1937, he was a vocal opponent of some of its provisions, particularly
government financing of home building.  See 80 Cong. Rec. 9558 (1936);
 81 Cong. Rec. 8079, 8080-8091 (1937);  see also T. McDonnell, supra,
at 184-185, 333-338.  It is well established that "(t)he remarks of a
single legislator, even the sponsor, are not controlling in analyzing
legislative history." Chrysler Corp. v. Brown, 441 U.S. 281, 311
(1979).  See Weinberger v. Rossi, 456 U.S. 25, 35 (1982);  Consumer
Products Safety Comm'n v. GTE Sylvania, Inc., 447 U.S. 102, 118
(1980).  No other statement in the congressional debates, and no
statement in the committee reports, provides a shred of support for
the proposition that Section 5(e) was meant to grant Project Notes a
degree of exemption from federal taxation greater than that accorded
in all other state and local obligations.  In these circumstances,
Senator Walsh's ambiguous and isolated remark carries little weight
when arrayed against the clear import of the statutory language chosen
by Congress.

   3. The third and final "ambiguous tidbit" relied upon by the
Haffner courts was Congress's failure to enact a different version of
the bill that ultimately became the Housing Act of 1937.  During the
1937 hearings on the Wagner bill, Secretary of the Interior Ickes
submitted and supported a version "differ(ing) in many substantive
respects from the Wagner bill" (585 F. Supp. at 358).  The Ickes
proposal contained a variant of Section 5(e) that was explicit in
excepting estate taxes from the federal tax exemption for Project
Notes.  Most of the changes proposed by Secretary Ickes were never
reported out of Committee.

   The Committee's decision not to report out Secretary Icke's version
of the bill plainly creates no inference that Congress meant to exempt
Project Notes from estate taxation.  The Ickes version differed from
the Wagner bill in many important respects, and there is no reason to
believe that the variant draftsmanship of Section 5(e) entered into
the Committee's decision at all.  Indeed, the statement submitted to
the Committee by Secretary Ickes discussing the differences between
his bill and the Wagner bill made no mention of the differences in
language between the two versions of Section 5(e), and the Secretary
certainly did not state that the Wagner bill would have the
differential effect of exempting Project Notes from all federal
transfer taxes.  To Create a United States Housing Authority:
Hearings on S. 1685 Before the Senate Comm. on Education and Labor,
75th Cong., 1st Sess. 49-55 (1937).  Moreover, as Judge Posner pointed
out in his Haffner dissent (757 F.2d at 922), there is no indication
that the existence of the Ickes version was even known to most members
of Congress outside the Senate Committee.  Thus, the Committee's
failure to adopt the Ickes version is entirely irrelevant in answering
the question presented here.

   4. In view of this Court's repeated admonitions that "(e)xceptions
from taxation do not rest upon implication" (United States Trust Co.
v. Helvering, 307 U.S. at 60), the ambiguous legislative evidence on
which appellees rely is woefully inadequate to create the estate tax
exemption that they posit, an exemption that concededly cannot be
found in the language of Section 5(e) itself.  This conclusion is
supported, not only by sound principles of statutory construction, but
also by common sense.  The Haffner courts' discovery, in the early
1980s, of an estate tax exemption that had gone unclaimed by
taxpayers, unacknowledged by the IRS, and unrecognized by the courts
for some 45 years, is most implausible.  Generally speaking, tax
exemptions of such magnitude do not lie dormant for such an extended
period of time, invisible to the ever-watchful eyes of the private tax
bar.  Indeed, a 1979 study by the Tax Section of the ABA examined the
Housing Act of 1937 in great detail, and it discerned no such uniquely
favorable estate-tax treatment for Project Notes.  See Committee on
Tax Exempt Financing, Section of Taxation, ABA, Report on the Tax
Provisions of the United States Housing Act of 1937:  Beyond the
Looking Glass, 33 Tax Lawyer 71 (1979).  The district court thus
clearly erred in postulating an unprecedented exemption for those
securities.  /19/

 II. SECTION 641 OF THE DEFICIT REDUCTION ACT OF 1984 SUBJECTS
APPELLEES' PROJECT NOTES TO THE FEDERAL ESTATE TAX AND IT DOES NOT
VIOLATE THE FIFTH AMENDMENT

   Within three months of the district court's decision in Haffner,
Congress acted to overturn that decision in the Deficit Reduction Act
of 1984 (DEFRA), Pub. L. No. 98-369, 98 Stat. 494.  Section 641 of
DEFRA, 98 Stat. 939, entitled "Clarification of Treatment," provides:

         General Rule.  -- Nothing in any provision of law exempting
      any property (or interest therein) from taxation shall exempt
      the transfer of such property (or interest therein) from Federal
      estate, gift, and generation-skipping transfer taxes.

   Section 641(b) delineated the coverage of this rule.  Section
641(b)(1) makes it applicable to the estates of decedents dying, and
to gifts and transfers made, on or after June 19, 1984.  In addition,
Section 641(b)(2) provides (98 Stat. 939):

         Treatment of certain transfers treated as taxable.  -- The
      provisions of subsection (a) shall also apply in the case of any
      transfer of property (or interest therein) if at any time there
      was filed an estate or gift tax return showing such transfer as
      subject to Federal estate or gift tax.

   Section 641(b)(3) provides that "(n)o inference shall arise from
paragraphs (1) and (2) that any transfer of property * * * before June
19, 1984, is exempt from federal estate and gift taxes" (98 Stat.
939).

   It is undisputed in these cases that the federal estate tax returns
filed by appellees showed the Project Notes owned by the decedents as
subject to the estate tax (see J.S. App. 1a, 6a).  As the district
court correctly determined (id. at 5a-8a), therefore, the plain
language of Section 641(b)(2) dictates the conclusion that Congress
intended the provisions of Section 641(a) to prevent taxpayers like
appellees from bringing refund suits based on the contention that the
Project Notes owned by their decedents should not have been included
in the gross estate.  /20/

   The district court erred, however, in holding that application of
Section 641(b)(2) here would be unconstitutional, as violative of
either of the Due Process Clause or of the equal protection component
of the Fifth Amendment.

 A. The Application Of Section 641 To Appellees Does Not Violate The
Due Process Clause

   The district court clearly erred in concluding that Section
641(b)(2) of DEFRA violates the Due Process Clause because it prevents
taxpayers from seeking a refund of estate taxes on the theory
propounded by the Haffner court.  It is well established that the mere
fact that legislation has some retroactive application does not
establish a constitutional violation.  As this Court stated in Pension
Benefit Guar. Corp. v. R.A. Gray & Co., 467 U.S. 717, 729 (1984):

         (T)he strong deference accorded legislation in the field of
      national economic policy is no less applicable when that
      legislation is applied retroactively.  Provided that the
      retroactive application of a statute is supported by a
      legitimate legislative purpose furthered by rational means,
      judgments about the wisdom of such legislation remain within the
      exclusive province of the legislative and executive branches.

   These principles apply with full force to the tax laws;  indeed,
tax legislation regularly contains some element of retroactivity.
See, e.g., United States v. Darusmont, 449 U.S. 292, 296-299 (1981);
Welch v. Henry, 305 U.S. 134, 146-150 (1938);  Milliken v. United
States, 283 U.S. 15, 24 (1931).  The retroactive application of a tax
is unconstitutional only if it is found to be "harsh and oppressive."
United States v. Hemme, No. 84-1944 (June 3, 1986);  Welch v. Henry,
305 U.S. at 147.

   The district court did not point, and it could not point, to
anything suggesting that the retroactive application of Section 641 is
"harsh and oppressive." To the contrary, the statute is designed
simply to avoid giving taxpayers a windfall benefit as result of a
judicial decision that discerned a previously-unrecognized tax
exemption with major revenue implications -- an exemption that
Congress plainly thought should not be available.  And even with
respect to that narrow objective, the scope of the statute's
retroactive application is confined to those taxpayers who had already
reported the Project Notes as taxable on a tax return filed with the
IRS.  Hence, the statute does not affect any taxpayer who may have
invested prior to June 19, 1984, on the assumption that Project Notes
were immune from estate and gift taxation.  The statute therefore
upsets no settled expectations:  it does no more than restore the
status quo ante the district court's decision in Haffner.  There is
nothing "harsh (or) oppressive" about a statute that merely holds a
taxpayer to his own treatment of items on a tax return that he himself
prepared.  /21/

   The district court's reliance on Untermyer v. Anderson, 276 U.S.
440 (1928), is quite mistaken.  As the district court itself
recognized (J.S. App. 12a), Untermyer stands, at most, for the
proposition that a "wholly new tax" cannot be imposed retroactively on
transactions completed before the new tax is enacted.  See, e.g.,
United States v. Hemme, slip op. 9 (distinguishing Untermyer);  United
States v. Darusmont, 449 U.S. at 299-300 (same);  Milliken v. United
States, 283 U.S. at 21 (same).  /22/ The district court's assertion
(J.S. App. 12a) that Section 641 of DEFRA "amounts to" the imposition
of a "wholly new tax" is completely unsupportable.  The fact is that
DEFRA made at most a slight change (and we believe that it made no
change) in the existing estate tax regime.  The decedents here knew
that the transfer of their estates would be subject to estate tax, and
they knew that the value of property interests held at death generally
would be includible in the gross estate.  See I.R.C. Sections 2001,
2031 and 2033.  A legislative alteration of this scheme to eliminate a
supposed exemption for a particular type of property -- an exemption
that was completely unrecognized at the time of the decedents' deaths
-- is not the establishment of a "wholly new tax." Rather, it is
precisely the type of adjustment in the existing tax structure that
this Court repeatedly has held may be effected retroactively without
violating any due process rights.

   Even if one assumes that the decedents here would have acted
differently had they known that Congress would reject the exemption
discovered by the Haffner courts, which is most unlikely since there
is no reason to believe that the decedents even considered the
possibility that there was such an exemption.  Untermyer provides no
basis for a due process attack.  The possibility that Congress will
make a change in applicable tax exemptions is one that is always
present in our system, particularly since Congress now adjusts the
revenue laws almost annually.  As Judge Learned Hand observed shortly
after Untermyer was decided, the taxpayer "must be prepared for such
possibilities, the (estate tax) system already being in place" (Cohan
v. Commissioner, 39 F.2d 540, 545 (2d Cir. 1930)).

   The district court's assertion that these cases "present far more
egregious factual situations than Untermyer" (J.S. App. 13a) is
similarly untenable.  This assertion appears to rest on the fact that
the taxpayer in Untermyer, because legislation to enact a gift tax was
pending in Congress at the time he made his gift, could have
anticipated that a gift tax would be enacted.  The decedents here, by
contrast, "could not have foreseen the enactment * * * of DEFRA's
provisions taxing the Project Notes" (J.S. App. 14a).  It has never
been suggested, however, that Congress's power to enact retroactive
tax legislation is limited to laws affecting the period during which
the legislation is pending;  such a rule would seriously curtail
Congress's legislative authority.  In any event, to the extent that
foreseeability or "personal notice" may sometimes be material in
assessing the constitutionality of a retroactive tax (see United
States v. Darusmont, 449 U.S. at 299), it is completely irrelevant
here.  For while it is true that the instant decedents, prior to their
death, could not have foreseen the enactment of DEFRA, it is also
evident that they did not foresee the opinion in Haffner either --
their executors, after all, included the Project Notes in their
taxable estates.  In assessing whether the effect of Section 641 is
"harsh and oppressive," therefore, it is irrelevant that these
decedents could not have anticipated Congress's decision to repeal the
supposed estate tax exemption for Project Notes, since these decedents
manifested no awareness that such an exemption existed to begin with.
Indeed, the published position of the IRS at the time was that Project
Notes were includible in the gross estate.  Rev. Rul. 81-63, 1981-1
C.B. 455.

   The power of Congress to act retroactively to correct judicial
interpretations of the Internal Revenue Code that it views as
erroneous is one that must exist if Congress is to protect the public
fisc.  Indeed, in another Section of DEFRA, Congress similarly acted
to forestall refund suits, where such suits would have produced
windfalls for taxpayers based on an intervening and unanticipated
court decision.  Pub. L. No. 98-369, Section 2662(g), 98 Stat. 1160
(clarifying law to the effect that employer contributions to "salary
reduction plans" had to be included in the social security (FICA) wage
base).  The courts have unanimously upheld the validity of Section
2662(g) against constitutional objections of the sort raised by
appellees here.  See, e.g., New England Baptist Hospital v. United
States, 807 F.2d 280 (1st Cir. 1986), Canisius College v. United
States, 799 F.2d 18 (2d Cir. 1986), cert. denied, No. 86-1187 (Apr.
20, 1987);  Temple University v. United States, 769 F.2d 126 (3d Cir.
1985), cert. denied, No. 85-1401 (June 16, 1986).  The First Circuit
explained why the retroactive application of the statute raised no due
process concerns as follows (807 F.2d at 285):

         Congress' 1984 enactment ratified longstanding Treasury
      policy.  The amendments, therefore, brought the tax code in line
      with the (taxpayer's) expectations at the time it withheld and
      paid the taxes.  Legislation that merely validates a prior tax
      collection is less likely to violate the principles of due
      process than legislation that retroactively imposes a tax that
      had not been anticipated.

   This reasoning is equally applicable here.

   Finally, even if the decedents had entertained a subjective
expectation that their Project Notes would be immune from estate tax,
that expectation would not have been reasonable since, as we have
explained, there was little basis for that view before (or, for that
matter, after) the district court's decision in Haffner.  Faced with
the decision in Haffner, it was not "harsh and oppressive" for
Congress to correct the error it perceived and close the enormous
loophole that the Haffner court opened, thereby implementing the
congressional intent that Project Notes be included in the gross
estate just like other forms of property.  Simply put, the Due Process
Clause does not confer on every taxpayer a constitutional right to
reap a windfall from a single erroneous court decision.

 B. The Application of Section 641 To Appellees Does Not Violate The
Equal Protection Component Of The Fifth Amendment

   The district court's holding that Section 641(b)(2) of DEFRA denies
to appellees the equal protection of the laws is equally
unsupportable.  It is well established that a statutory classification
is valid so long as it "bear(s) a rational relation to a legitimate
governmental purpose." Regan v. Taxation With Representation, 461 U.S.
540, 547 (1983).  And this Court has noted that the legislature is
accorded "especially broad latitude in creating classifications and
distinctions in tax statutes" (ibid.).  In the case of such tax
classifications "'the presumption of constitutionality can be
overborne only by the most explicit demonstration that (the)
classification is a hostile and oppressive discrimination against
particular persons and classes.  The burden is on the one attacking
the legislative arrangement to negative every conceivable basis which
might support it.'" Id. at 547-548 (quoting Madden v. Kentucky, 309
U.S. 83, 87-88 (1940)).  Appellees plainly did not meet that burden
here;  there can be no doubt that the distinction drawn in Section
641(b) of DEFRA -- between estates that treated Project Notes on their
estate tax returns as includible in the gross estate and those that
did not -- in fact bears a "rational relation to a legitimate
governmental purpose."

   The distinction in Section 641(b)(2) was designed to eliminate any
possible perception of unfairness in the statute's retroactive
application.  By limiting the retroactive effect of DEFRA to taxpayers
who had treated transfers of Project Notes as being subject to estate
or gift tax, Congress ensured that DEFRA would not operate
retroactively against any taxpayer who might reasonably be thought to
have acted in reliance on the assumption that Project Notes were
exempt from transfer taxes.  At the same time, Congress prevented a
rush to the courts by taxpayers who, having previously acted upon the
assumption that transfers of Project Notes were indeed subject to tax,
sought to secure a windfall based on Haffner.  /23/ Section 641(b)(2)
thus bears a rational relation to the legitimate government purpose of
preventing undeserved windfalls at Treasury expense, while not
operating retroactively on those who might have relied on what they
believed to be a tax exemption under the prior law.  /24/

   The district court stated (J.S. App. 17a) that "Congress may (not)
make * * * a distinction based on a taxpayer's expectations." But
since a taxpayer's expectations may be a relevant factor in
determining whether a particular retroactive enactment is consistent
with due process (see United States v. Hemme, slip op. 12), such
expectations can hardly be deemed an impermissible basis for drawing a
distinction for equal protection purposes.  As explained by the
district court in Estate of Bradford v. United States, 645 F. Supp.
476, 480 (N.D. Cal. 1986):

         The obvious purpose which the distinction in Section 642(b)
      furthers is to mitigate the consequences of which plaintiff
      complains in its due process argument.  A rational legislature
      could conclude that estates which have not included Project
      Notes on their returns are less likely to have had notice that
      the notes might be subject to taxation than estates which have
      included them.

   To the extent that due process contemplates consideration of a
taxpayer's expectations, it cannot be that a distinction rationally
drawn on the basis of a taxpayer's expectations violates equal
protection.  If the rule were otherwise, Congress would have little,
if any, latitude to act without violating one or the other of the
Fifth Amendment's proscriptions.

   Congress has often found it appropriate to draw distinctions akin
to that challenged here, i.e., excluding from the retroactive effect
of a clarifying tax provision taxpayers who had already taken action
indicating disagreement with the prior interpretation now ultimately
adopted by Congress.  See, e.g., Commissioner v. Fisher, 327 U.S. 512,
515 (1946);  see also Dixon v. United States, 381 U.S. 68, 79 (1965)
("rational" to draw line under which revocation of acquiescence is not
applied to a category of ratepayers whose reliance on prior
acquiescence was "more understandable").  Indeed, this Court itself
has drawn a similar distinction in delineating the retroactive effect
of Fourth Amendment decisions.  Such decisions apply retroactively to
cases pending on direct review at the time of the clarifying decision,
but cannot necessarily be invoked in a new action commenced later,
such as a petition for habeas corpus relief.  See United States v.
Johnson, 457 U.S. 537, 562 (1982).

   Appellee Wells Fargo criticizes the distinction drawn by Congress
here, stating that it "penalizes forthright taxpayers * * * and
rewards aggressive * * * taxpayers" (Mem. in Response to J.S. at 17).
In attempting to take account of taxpayers' reasonable expectations,
however, Congress was not obliged to set up a system in which
taxpayers' subjective assertions as to their expectations would be
dispositive.  Rather, Congress could rationally use the positions
staked out in taxpayer's returns as objective evidence of their
expectations, reasoning that "estates which have not included Project
Notes on their returns are less likely to have had notice that the
Notes might be subject to taxation than estates which have included
them" (Estate of Bradford, 645 F. Supp. at 480).  The line thus drawn
may not be a perfect one, but it is a rational one, and therefore it
satisfies the requirements of the Equal Protection Clause.

                              CONCLUSION

   The judgment of the district court should be reversed.

   Respectfully submitted.

   CHARLES FRIED

      Solicitor General

   MICHAEL C. DURNEY

      Acting Assistant Attorney General

   ALBERT G. LAUBER, JR.

      Deputy Solicitor General

   ALAN I. HOROWITZ

      Assistant to the Solicitor General

   MICHAEL L. PAUP

   ERNEST J. BROWN

   DAVID I. PINCUS

      Attorneys

   AUGUST 1987

   /1/ Appellee Wells Fargo Bank is the successor in interest to
Crocker National Bank, which was one of the original executors.

   /2/ The Conference Committee Report (H.R. Conf. Rep. 98-861, 98th
Cong., 2d Sess.) was issued on June 23, 1984.  The statute was passed
by both Houses of Congress on June 27, 1984, and was signed into law
on July 18, 1984.

   /3/ Subsequent to the enactment of DEFRA, Haffner was affirmed by a
divided panel of the Seventh Circuit, with the majority adopting the
district court's opinion with minor corrections (757 F.2d 920 (1985)).
 Judge Posner dissented (id. at 921-923).  He stated that the district
court's opinion relied entirely on "ambiguous tidbits" of legislative
history (id. at 922) that yielded an "unrealistic analysis of the
legislative process" (id. at 923).  Judge Posner found no support for
the conclusion that "Congress meant to grant extraordinary tax favors
to the holders of notes of public housing agencies" (id. at 922).

   /4/ In addition to this Court's usual practice of endeavoring to
decide cases, where possible, on non-constitutional grounds, there are
other reasons for beginning with an analysis of the statutory issue
here.  As we noted in our jurisdictional statement (at 11 n.6), a
number of the pending cases involving the taxability of Project Notes
are not covered by the DEFRA amendment and hence involve only the
statutory issue.  These cases typically involve situations where the
decedent died before DEFRA's effective date, but the estate tax return
was not due until after the Haffner decision was issued.  In such
circumstances, the executor is not likely to have included Project
Notes on the estate tax return, so that Section 641(b)(2) of the DEFRA
does not apply;  and, because the decedent died prior to June 19,
1984, Section 641(b)(1) of DEFRA does not apply either.  Thus, this
Court's resolution of the statutory issue would provide guidance to
the lower courts in a significant number of cases that would otherwise
be litigated.  As we also pointed out in our jurisdictional statement
(at 8 n.4), litigation over the statutory question has produced highly
disparate results in the lower courts thus far, and further litigation
could well generate a conflict in the courts of appeals.  See, e.g.,
Netsky v. United States, 652 F. Supp. 783 (E.D. Pa. 1986), appeal
pending, No. 86-1616 (3d Cir.) (holding that Haffner was correctly
decided and that DEFRA was not intended to apply retroactively to
estates that had filed claims for refund before DEFRA's effective
date);  Shackelford v. United States, 649 F. Supp. 1347 (E.D. Va.
1986), appeal pending, No. 87-2512 (4th Cir.) (holding that Haffner
was wrongly decided and hence not reaching DEFRA issues);  Estate of
Bradford v. United States, 645 F. Supp. 476 (N.D. Cal. 1986), appeal
pending, No. 96-2634 (9th Cir.) (holding that Haffner was correctly
decided, but that DEFRA applies to make Project Notes taxable).  We
understand that these appeals are all being held in abeyance pending
this Court's resolution of this case.

   /5/ Unless otherwise noted, all statutory references are to the
Internal Revenue Code (26 U.S.C.), as amended (the Code or I.R.C.).

   /6/ Section 402(f) of the Revenue Act of 1918, ch. 18, 40 Stat.
1098, which first included in the gross estate the proceeds of life
insurance policies taken out by the decedent, excluded up to $40,000
receivable by beneficiaries other than the decedent's estate.  That
exclusion, however, was removed by Section 404 of the Revenue Act of
1942, ch. 619, 56 Stat. 944.  Section 404 of the Revenue Act of 1934
(1934 Act), ch. 277, 48 Stat. 754, excluded from the gross estate
"real property situated outside the United States." That exclusion was
repealed by Section 18 of the Revenue Act of 1962, Pub. L. No. 87-834,
76 Stat. 1052.  To the best of our knowledge, these two exclusions are
the only ones ever established for property owned by a citizen or
resident alien (if, indeed, the proceeds of life insurance can
properly be characterized as "owned" by the decedent.  Cf. I.R.C.
Section 2042 (specifically including life insurance proceeds in the
gross estate)).  In Crooks v. Harrelson, 282 U.S. 55 (1930), this
Court held that the reference in Section 202(a) of the Revenue Act of
1916, ch. 463, 39 Stat. 777-780, to property which was "subject to
distribution as part of (the decedent's) estate," precluded inclusion
in the gross estate of real property in States where such property
passed directly to the heir or devisee and was not administered by the
estate.  The language in question, however, had been eliminated by
Section 302(a) of the Revenue Act of 1926, ch. 27, 44 Stat. 70, which
removed any basis for the future application of the holding of Crooks.
 In sum, exclusion from the gross estate of specific types of property
owned by the decedent have been extremely rare, and there have been
none at all in existence for more than 20 years.

   /7/ These cases are only two links in an unbroken chain of
decisions, both in this Court and in the lower courts, holding that
broad general exemptions from federal or state taxation do not apply
to transfer taxes.  See Greiner v. Lewellyn, supra (federal estate tax
on testamentary transfer of municipal bonds is not "on" the bonds and
hence is not inconsistent with tax exemption for interest paid
thereon);  Orr v. Gilman, 183 U.S. 278 (1902) (application of state
inheritance tax to tax-exempt state bonds does not impair obligation
of contract);  Plummer v. Coler, 178 U.S. 115, 116, 134-135 (1900)
(state inheritance tax on testamentary transfer of United States bonds
upheld despite federal statute declaring that such bonds "shall be
exempt from taxation in any form by or under state, municipal or local
authority");  Phipps v. Commissioner, 91 F.2d 627, 628 (10th Cir.),
cert. denied, 302 U.S. 742 (1937) (federal gift tax applicable to gift
of First Liberty Loan Bonds despite statutory provision declaring that
such bonds "shall be exempt * * * from all taxation, except estate or
inheritance taxes, imposed by authority of the United States");
Igleheart v. Commissioner, 77 F.2d 704 (5th Cir. 1935) (Federal Farm
Loan bonds includible in gross estate despite provisions in
authorizing statute that bonds should be exempt from federal and state
taxation);  Greene v. United States, 171 F. Supp. 459 (Ct. Cl.), cert.
denied, 360 U.S. 933 (1959) (Panama Canal Loan Bonds includible in
gross estate although authorizing act (36 Stat. 117) provided
exemption "from all taxes");  Hamersley v. United States, 16 F. Supp.
768 (Ct. Cl. 1936), cert. denied, 300 U.S. 659 (1937) (gift tax
applicable to gift of U.S. Treasury Bonds of 1933, which were exempt
from all taxes with exceptions that did not include gift tax).  See
also Willcuts v. Bunn, 282 U.S. 216 (1931) (gain on the sale of state
and municipal bonds subject to the federal income tax, even though the
bonds themselves were assumed to be constitutionally exempt from
federal taxation).  See generally C. Lowndes, R. Kramer and J. McCord,
Federal Estate and Gift Taxes Section 1.1, at 1-2, Section 4.7, at 44
(3d ed. 1974).  Indeed, it was on the basis of such taxes were on the
transfer of property, rather than on the property itself, that this
Court upheld the constitutionality of the federal gift tax (Bromley v.
McCaughn, 280 U.S. 124 (1929)), the federal estate tax (New York Trust
Co. v. Eisner, 256 U.S. 345 (1921)), and the federal inheritance tax
(Knowlton v. Moore, 178 U.S. 41 (1900)), against challenges in each
instance that the tax was an unapportioned "direct tax."

   /8/ For example, in Shackelford v. United States, supra, the estate
is seeking a refund of more than $22.5 million in estate taxes
attributable to the inclusion of Project Notes in the taxable estate
(649 F. Supp. at 1348).

   /9/ T. McDonnell, The Wagner Housing Act, A Case Study of the
Legislative Process (1957).  The study contains a detailed account of
"(t)he long and complicated struggle for the enactment of this law"
(id. at vii).

   /10/ See generally Tretter, Public Housing Finance, 54 Harv. L.
Rev. 1325 (1941).  The assistance to be provided by the Authority was
principally set forth in Section 9 ("Loans for Low-Rent-Housing and
Slum-Clearance Projects"), Section 10 ("Annual Contributions in
Assistance of Low Rentals"), and Section 11 ("Capital Grants in
Assistance of Low Rentals") of the 1937 Act.  The Authority ceased to
exist as a separate body in 1947, though it was recreated in 1967;
its functions are now performed by the Department of Housing and Urban
Development.

   /11/ Section 2(11) of the 1937 Act defined "public housing agency"
to mean "any State, county, municipality, or other government entity
or public body * * * authorized to engage in the development or
administration of low-rent housing or slum clearance" (50 Stat. 889).

   /12/ It was necessary for the 1937 Act to include an explicit
exemption for the "interest thereon," even though interest on
"obligations of a State, Territory, or any political subdivision
thereof" was generally exempt (then as now) from federal income tax.
See Revenue Act of 1936, ch. 690, Section 22(b)(4), 49 Stat. 1657.
This was because many public housing agencies at that time would not
have been considered "political subdivisions" within the meaning of
the general exemption in the Revenue Act.  See Haffner v. United
States, 757 F.2d at 922 (Posner, J., dissenting).  See also Tretter,
supra, 54 Harv. L. Rev. at 1326 n.4;  Commissioner v. Shamberg's
Estate, 144 F.2d 998 (2d Cir. 1944), cert. denied, 323 U.S. 792
(1945).

   /13/ For example, Section 25(a) of the Revenue Act of 1936, ch.
690, 49 Stat. 1662, listed a category of "credits for normal tax only"
that were "allowed for the purpose of the normal tax, but not for the
surtax." These included an "earned income credit" and, prior to 1936,
also included a credit for corporate dividends (see Section 25(a)(1)
of the Revenue Act of 1934, ch. 277, 48 Stat. 692)).

   /14/ Congress acted in 1941 to provide a uniform rule for the
taxability of interest on federal obligations.  Section 4 of the
Public Debt Act of 1941, ch. 7, 55 Stat. 9, generally provided that
interest on obligations of the United States and its instrumentalities
should be fully subject to the federal income tax, and it amended
existing authorizing statutes to that effect.  Prior to 1941, however,
there was a patchwork of different approaches.  Most federal
obligations were exempted only from the normal tax, and not from the
surtax.  But there were several variations from this pattern.  For
example, Section 7 of the Second Liberty Bond Act of 1917, ch. 56, 40
Stat. 291, exempted the obligations authorized thereunder from the
normal tax only for the first $5,000 face amount of such obligations
held by the taxpayer.  And Section 8 of the Banking Act of 1933, ch.
89, 48 Stat. 168, amended the Federal Reserve Act to exempt from both
the normal tax and the surtax the Federal Deposit Insurance
Corporation obligations authorized to be issued thereunder.  A tabular
listing of the federal obligations outstanding in 1941 with a summary
of the applicable exemption provisions consumes six pages (1144-1149)
of Volume 1 of the 1941 edition of the CCH Standard Federal Tax
Service.

   /15/ See also, e.g., War Finance Corporation Act of 1918, ch. 45,
Section 16, 40 Stat. 511;  Reconstruction Finance Corporation Act of
1932, ch. 8, Section 10, 47 Stat. 9;  Federal Home Loan Bank Act of
1932, ch. 522, Section 13, 47 Stat. 735;  Farm Credit Act of 1933, ch.
98, Section 63, 48 Stat. 267.

   /16/ Section 20(b) appeared as Section 21(b) of a bill introduced
by Senator Wagner in 1936 (S. 4424, 74th Cong., 2d Sess. (1936),
reprinted at T. McDonnell, supra, at 428, 440).  Section 5(g) of that
bill was the analogue to what ultimately became Section 5(e) of the
1937 Act.  But Section 5(g) contained only the first sentence of that
latter provision, addressing the tax-exempt status of the United
States Housing Authority;  it did not contain any reference to Project
Notes.

   /17/ The district court in Haffner justified its method of divining
congressional intent by placing great weight (585 F. Supp. at 359-360)
on a court of appeals decision, Jandorf's Estate v. Commissioner, 171
F.2d 464 (2d Cir. 1948), which had recognized an exemption from
federal estate tax for certain bonds held by non-resident aliens.  The
court's reliance on Jandorf's Estate was misplaced, however, for that
case is distinguishable on several grounds.  Jandorf's Estate involved
a special provision relating to ownership by non-resident aliens,
which the court compared to the provision covering bonds owned by
domestic investors.  In reaching its conclusion that this provision
exempted the bonds in question from estate tax when held by foreign
investors, the court relied quite heavily on the fact that the
Treasury Regulations had recognized such an estate tax exemption since
1928 (see 171 F.2d at 467).  Indeed, the Jandorf litigation focused
upon whether the change in taxability of interest on federal
obligations effected by the Public Debt of 1941 (see note 14, supra)
justified a change in Treasury's position with respect to estate
taxation of bonds issued after March 4, 1941;  the government did not
contest the taxpayer's invocation of an estate tax exemption for bonds
issued prior to that date.  See id. at 464-465.  The court also
adverted to legislative history showing that Congress had specifically
considered the possibility of granting an estate tax exemption (id. at
465, 466 & nn. 1, 2).  Thus, Jandorf's Estate provides no basis for
inferring an estate tax exemption here, since there is no comparable
contemporaneous evidence indicating the Congress intended to enact, or
even considered, an estate tax exemption for Project Notes.  Cf.
Greene v. United States, 171 F. Supp. at 461.

   It should be noted that Congress acted quickly to overturn the
exemption recognized in Jandorf's Estate.  Section 604 of the Revenue
Act of 1951, ch. 521, 65 Stat. 566, provided specifically for the
prospective inclusion of federal bonds in the taxable estates of
non-resident aliens.  Congress explained that such obligations "are
and should be subject to the principle of Murdock v. Ward, and Plummer
v. Coler." H.R. Rep. 586, 82d Cong., 1st Sess. 139 (1951);  S. Rep.
781, 82d Cong., 2d Sess. Pt. 2, at 107 (1951).

   /18/ The district court in Haffner characterized Senator Walsh as a
"sponsor" of the legislation (585 F. Supp. at 359 n.5), but a printed
copy of the bill does not list him as a sponsor.  Senator Walsh was
the Chairman of the Senate Committee on Education and Labor in 1935,
and in that capacity he did preside over hearings on the housing bill
that was first introduced into Congress.  During these hearings,
Senator Walsh "provided for the testimony of those opposed to the bill
and those representatives of organizations who wished to present
substitute plans" (T. McDonnell, supra, at 105 (footnote omitted)).
The bill introduced in 1935, however, was never reported out of
committee.  By 1937, when the bill that eventually was enacted was
introduced.  Senator Walsh had been replaced as chairman of the
committee by Senator Black (id. at 221), although Senator Walsh did
subsequently serve as acting chairman at times, either because of
Senator Black's illness (id. at 317) or, later, because he had been
appointed to the Supreme Court (id. at 390 n.3).

   /19/ In any event, subsequent legislation has dissipated any
possible inference of an estate tax exemption for Project Notes that
could be drawn from the Housing Act of 1937.  That Act has been
amended on many occasions.  For example, Section 304(h) of the Housing
Act of 1949 (1949 Act), ch. 338, 63 Stat. 427, completely rewrote
Section 20 of the 1937 Act and, in particular, eliminated Section
20(b), which serves as the basis for appellees' effort to imply an
estate tax exemption in Section 5(e).  Subsequently, Section 201(a) of
the Housing and Community Development Act of 1974, Pub. L. No. 93-383,
88 Stat. 653, again rewrote and made changes in the statute;  the 1974
version likewise contained no provision analogous to Section 20(b) of
the 1937 Act.  There is no reason whatsoever to believe that the
legislators that enacted the 1949 and 1974 Acts intended thereby to
carry forward an implied estate tax exemption for Project Notes when
it had never been suggested that Project Notes had ever had any
greater exemption than other state or municipal obligations.  Thus,
there is no conceivable basis for applying such an exemption to
appellees' Project Notes, all of which were issued in the 1980s.  See
Wells Fargo Complaint Paragraph 5;  Rosenberg Complaint Paragraph 7.

   /20/ Appellee Wells Fargo Bank, disputes the proposition that DEFRA
applies to it (Mem. in Response to J.S. at 17-19).  It contends that
the phrase if "at any time" in Section 641(b)(2) means "at any time
after June 19, 1984" (id. at 19).  It offers no support for this
remarkable suggestion, which, if correct, would come close to making
Section 641(b)(2) a dead letter.  If anything beyond the plain
language of the statute is needed to refute this contention, it is
provided by the Joint Committee's explanation of the statute's
effective date, which states:  "The provisions also apply to transfers
occurring before June 19, 1984, if the transfers previously were
reported as subject to Federal transfer tax.  No claims for refund may
be filed, therefore, with respect to such transfers." Staff of the
Joint Comm. on Taxation, 98th Cong., 2d Sess., General Explanation of
the Revenue Provisions of the Deficit Reduction Act of 1984, at 972
(Joint Comm. Print 1984).

   /21/ Indeed, it is questionable whether a statute that does no more
than clarify the law in accordance with the longstanding view of the
Treasury Department and, apparently tax practitioners, can be said to
operate "retroactively" at all.  See Commissioner v. Fisher, 327 U.S.
512, 514, 515 (1946);  Commissioner v. Wheeler, 324 U.S. 542, 545
(1945).  What the statute does is to prevent taxpayers from obtaining
a refund of taxes already paid, where those taxes were paid on the
basis of what was at the time the universal understanding of the law,
and one that Congress subsequently ratified.  The only "retroactive"
effect of the statute is to prevent the taxpayer from changing his
position and arguing that, prior to the clarification by Congress, the
law was the opposite of what the taxpayer understood it to be when he
filed his return.

   /22/ Following this Court's lead, the courts of appeals, if not
questioning the continuing validity of Untermyer, have uniformly
viewed it as applying only to the retroactive application of a wholly
new tax.  See, e.g., Fein v. United States, 730 F.2d 1211, 1213-1214
(8th Cir.), cert. denied, 469 U.S. 858 (1984) ("the modern trend of
decisions has uniformly been to limit" Untermyer to the "narrow
situation" there involved);  Estate of Ceppi v. Commissioner, 698 F.2d
17, 21 (1st Cir.), cert. denied, 462 U.S. 1120 (1983) (collecting
cases and concluding that, in light of this Court's subsequent
decision in Milliken, "Untermyer at best remains good law only for the
proposition that a wholly new gift tax cannot be applied
retroactively");  Westwick v. Commissioner, 636 F.2d 291, 292 (10th
Cir. 1980) (limiting Untermyer to "wholly new types of taxes");
Buttke v. Commissioner, 625 F.2d 202, 203 (8th Cir. 1980), cert.
denied, 450 U.S. 982 (1981) (reading Untermyer to bar "retroactive
application of a wholly new tax");  Sidney v. Commissioner, 273 F.2d
928, 932 (2d Cir. 1960) (Friendly, J.) ("If Untermyer remains
authority at all, it is so only for the particular situation of a
wholly new type of tax.").  See generally Hochman, The Supreme Court
and the Constitutionality of Retroactive Legislation, 73 Harv. L. Rev.
692 (1960);  Ballard, Retroactive Federal Taxation, 48 Harv. L. Rev.
592 (1935).

   /23/ There can be little doubt that the appellees here were seeking
such a windfall.  The appellees in Wells Fargo, for example,
acknowledged in their complaint (Paragraph 6) that they had believed
the Project Notes to be includible in the gross estate when they filed
the estate tax return.  They stated in their refund claim that it was
being filed as a "protective" claim based upon the district court
decision in Haffner (Complaint Exh. A;  see also Complaint Paragraph
9).  The appellees in Rosenberg filed their estate tax return on March
30, 1983, but did not file their refund claim until August 15, 1984.
The reason given for the refund claim was the intervening district
court decision in Haffner, issued on April 25, 1984 (Complaint,
Exhibit A).

   /24/ It should be emphasized that all Congress did in drawing the
challenged classification in DEFRA was to permit certain estates to
continue to litigate the question of the taxability of the Project
Notes -- where they had already determined to take that course without
regard to DEFRA by deciding not to treat Project Notes as taxable on
the estate tax return.  Thus, DEFRA essentially preserved the status
quo ante in this respect.  Those estates that had accepted the well
established treatment of Project Notes were held to their decision;
those estates that had determined to contest that well established
treatment were permitted to go ahead and have their day in court.  In
short, the classification of which appellees complain is as much a
product of self-selection as it is of any affirmative action taken by
Congress.

   APPENDIX