Wemyss v. Comm'r of Internal Revenue

Decision Date14 October 1943
Docket NumberDocket No. 110419.
Citation2 T.C. 876
PartiesWILLIAM H. WEMYSS, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
CourtU.S. Tax Court

OPINION TEXT STARTS HERE

Pursuant to antenuptial agreement between petitioner and his intended wife, be transferred to her 13,139 shares of stock in consideration for her promise to marry him, and to compensate her for the loss of income under two trusts created by her former husband. Held:

(1) The transfer was made for less than an adequate and full consideration in money or money's worth and was subject to gift tax under section 503 of Revenue Act of 1932.

(2) Marriage, as a consideration, is not measurable in money or money's worth and the amount taxable as a gift is the value of the property transferred.

(3) Section 503, as construed, does not violate guaranty of due process of law under the Fifth Amendment to the Constitution.

(4) The amount of the taxable gift may not be reduced by the value of the wife's interest in two trusts, lost by her upon her marriage to petitioner. Cecil Sims, Esq., and James W. Allen, C.P.A., for the petitioner.

Charles P. Bagley, Esq., for the respondent.

Respondent determined deficiencies in a gift tax in the amount of $12,995.66 for the calendar year 1939 and $3,965.20 for 1940. The issue is whether the transfer on May 24, 1939, by petitioner to his prospective bride of 13,139 shares of common stock of General Shoe Corporation, having a value of $149,456.14, constituted a taxable gift.

FINDINGS OF FACT.

Petitioner is a resident of Davidson County, Tennessee. On January 1, 1919, he married Helen Peters. She died on April 1, 1934, leaving two children surviving. On June 20, 1939, petitioner married Ellen Stokes More, a widow.

The former husband of petitioner's second wife, E. L. More, died on February 9, 1934, leaving one son surviving. Prior to his death, E. L. More executed two trust indentures, one on June 6, 1927, and one on June 15, 1929, naming the Nashville Trust Co. as trustee. The corpus of the first trust was 650 shares of the capital stock of the Arcade Co., Nashville, Tennessee, and the corpus of the second trust was 20 shares of the capital stock of the same company. Each trust instrument provided that the entire net income of the trust estate should be paid to the grantor's widow during her lifetime or until her remarriage to be used for the maintenance and support of her and her son.

Ellen Stokes More was forty-four years of age on February 9, 1939. The amounts received by her from the trustee or successor trustee of the trusts referred to above from the date of the death of her husband until June 20, 1939 (the date of her marriage to petitioner), were as follows:

+--+
                ¦¦¦¦
                +--+
                
                   June 6,     June 15
                                   1927, trust 1929, trust
                1934 (from Feb. 9) $9,222.45   $283.81
                1935               11,034.14   337.25
                1936               9,411.50    289.75
                1937               9,253.32    285.00
                1938               11,211.92   342.00
                1939 (to June 20)  6,972.10    214.54
                Total              57,105.43   1,752.35
                

The trust instruments were construed to constitute separate and independent trusts for the grantor's widow and son. One-half of the above amount, or $29,428.89, was accordingly treated as received by the widow for her own use and an equal amount for the benefit of her child.

Some time prior to May 24, 1939, petitioner made a proposal of marriage to Ellen Stokes More. She told him she would not be willing to marry him and lose her life income under the trusts created by her first husband unless he would enter into a premarriage contract with her to make good the loss. On May 24, 1939, they entered into the following agreement:

This contract and agreement entered into by and between William H. Wemyss and Ellen Stokes More, both residents of Davidson County, Tennessee:

WITNESSETH THAT:

WHEREAS, the said Ellen Stokes More has promised to marry William H. Wemyss on June 20, 1939; and,

WHEREAS, upon the consummation of said marriage, under the terms of a trust now being administered by the Girard Trust Company of Philadelphia, Pennsylvania, the said Ellen Stokes More will be deprived of a large monthly income; and,

WHEREAS, it is the desire and intention of the said William H. Wemyss to compensate said Ellen Stokes More for her aforesaid loss and to provide for and maintain her so long as she may live in keeping with her station in life; and

NOW, THEREFORE, I, William H. Wemyss, have this day transferred in blank and delivered to the said Ellen Stokes More thirteen thousand one hundred and thirty nine (13,139) shares of the common stock of the General Shoe Corporation evidenced by the following certificates;

+--------------------------+
                ¦CERTIFICATE NO. ¦NO.SHARES¦
                +----------------+---------¦
                ¦6,001           ¦472      ¦
                +----------------+---------¦
                ¦6,495           ¦231      ¦
                +----------------+---------¦
                ¦844             ¦900      ¦
                +----------------+---------¦
                ¦840             ¦1,000    ¦
                +----------------+---------¦
                ¦839             ¦1,000    ¦
                +----------------+---------¦
                ¦837             ¦9,536    ¦
                +--------------------------+
                

In testimony whereof we, William H. Wemyss and Ellen Stokes More, have hereunto affixed our signatures.

This May 24th, 1939.

(Signed) WILLIAM H. WEMYSS ELLEN STOKES MORE

This contract was recorded on June 21, 1939, in the office of the registrar of Davidson County, Tennessee.

Petitioner transferred the 13,139 shares of General Shoe Corporation stock to Ellen Stokes More on May 24, 1939. Upon their marriage on June 20, 1939, the income she had been receiving for her own use under the trusts created by her first husband ceased and thereafter all of the income was paid to or for the benefit of her only child by her first husband. On the same date and immediately following the marriage petitioner executed a will, providing therein that his wife should have an estate for life or widowhood in a certain farm, and that one-third of his estate, less the value of 11,139 shares of common stock of General Shoe Corporation, should be held in trust for her.

Respondent determined that the transfer on May 24, 1939, of the 13,139 shares of General Shoe Corporation common stock was not made for a consideration in money or money's worth, and that the transfer constituted a gift of an amount equal to the value of the stock. He determined this value to be $149,456.13.

OPINION.

MELLOTT, Judge:

The sole issue is whether the transfer of the stock, the value of which is not controverted, constituted a taxable gift. The applicable provisions of the statute are shown in the margin.1

The parties agree that the transfer was made in consideration of the promise of marriage by petitioner's prospective wife and, as stated in the contract, to compensate her for the loss of income which she had been receiving under the trusts created by her first husband as well as ‘to provide for and maintain her for so long as she may live in keeping with her station in life.‘ We agree with petitioner's contention that the agreement to marry constituted valuable consideration for the transfer. Prewit v. Wilson, 103 U.S. 22; Barnum v. Le Master, 110 Tenn. 638; 75 S.W. 1045; hence no taxable gift was made if only section 501(a), supra, be considered. We pass at once, therefore, to the other contentions of the parties.

Section 503, supra, provides that where property is transferred for less than an adequate and full consideration in money or money's worth the amount by which the value of the property exceeds the value of the consideration shall, for the purpose of the tax imposed by the title, be deemed a gift and be included in computing the amount of gifts made during the year. Respondent has construed the section as authorizing the inclusion of the entire value of property transferred for ‘a consideration not reducible to a money value, as love and affection, promise of marriage, etc.‘2

Petitioner contends that respondent's interpretation is erroneous. He argues that section 501 imposes an excise only upon the transfer of property by gift; that section 503 is applicable only where property is transferred for a monetary consideration less than its actual value or is exchanged for property of less value; that the latter section is subordinate to the former and is to be applied only where there is a plain attempt at evasion through making a purported sale of property for less than its actual value: and that if section 503 be construed as taxing bona fide transfers for a valuable consideration it would be ‘contrary to the actualities * * *, unreasonably oppressive * * *, would arbitrarily ignore recognized rights to enjoy and convey individual property for a valuable and adequate consideration, and * * * violate the guaranty of due process of law * * * .‘ Finally and in the alternative he urges that even if the promise of marriage be wholly disregarded there was nevertheless an adequate and full consideration in money or money's worth for the transfer in the legal detriment which the wife agreed to suffer in surrendering an annuity valued at $77,550. Therefore, he says, the gift made by him could not exceed the difference between that amount and the value of the stock, or $71,956.13.3

We are not persuaded that respondent has erred in his interpretation of section 503. The legislative history4 indicates that Congress was endeavoring ‘to state with brevity and in general terms the provisions of a substantive character.‘ Referring to some of the terms used— property, transfer, gift, etc.— it is said that they ‘are used in the broadest and most comprehensive sense.‘ Cf. Robinette v. Helvering, 318 U.S. 184, and Smith v. Shaughnessy, 318 U.S. 176. There is nothing to indicate that Congress intended to make section 503 subordinate to section 501 or that it should be limited to instances where property is ‘sold or exchanged‘ for less than an adequate and full consideration in money or money's worth, as urged by...

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4 cases
  • Merrill v. Fahs
    • United States
    • U.S. Supreme Court
    • March 5, 1945
    ...United States, 6 F.Supp. 440, 79 Ct.Cl. 268. 4 Bristol v. Commissioner, 42 B.T.A. 263; Jones v. Commissioner, 1 T.C. 1207; Wemyss v. Commissioner, 2 T.C. 876, 881. ...
  • Commissioner of Internal Revenue v. Wemyss
    • United States
    • U.S. Supreme Court
    • March 5, 1945
    ...247, 26 U.S.C. §§ 1000, 1002, 26 U.S.C.A. Int.Rev.Code, §§ 1000, 1002. Accordingly, he assessed a deficiency which the Tax Court upheld, 2 T.C. 876, but the Circuit Court of Appeals reversed the Tax Court, 144 F.2d 78. We granted certiorari to settle uncertainties in tax administration enge......
  • Taurog v. Comm'r of Internal Revenue
    • United States
    • U.S. Tax Court
    • December 14, 1948
    ...the subsequent decisions of the Supreme Court in Commissioner v. Wemyss, 324 U.S. 303, and Merrill v. Fahs, 324 U.S. 308. This Court, in the Wemyss case, pointed out the difference between that case and the Jones case. The two Supreme Court cases just mentioned, as well as the Bristol case,......
  • CHASE NATIONAL BANK OF THE CITY OF NEW YORK v. Commissioner, Docket No. 31127
    • United States
    • U.S. Tax Court
    • April 28, 1953
    ...by arguing that donative intent is an unnecessary element under Commissioner v. Wemyss, 324 U. S. 303 45-1 USTC ¶ 10,179, affirming 2 T. C. 876 Dec. 13,539 and Merrill v. Fahs, 324 U. S. 308 45-1 USTC ¶ 10,180, it being enough that a transfer of property is made wherein the transferor does ......

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