Oei Ing Tjhing v. Comm'r of Internal Revenue (In re Estate of Oei Tjong Swan)
| Citation | 24 T.C. 829 |
| Decision Date | 03 August 1955 |
| Docket Number | Docket No. 44690. |
| Parties | ESTATE OF OEI TJONG SWAN, OEI ING TJHING, EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | United States Tax Court |
OPINION TEXT STARTS HERE
1. Decedent was a citizen and resident of the Netherlands and died there on July 23, 1943. In 1939, the decedent transferred property to two foreign Stiftungs, organized as family foundations for the purpose of providing funds for the education and support of decedent's descendants, decedent retaining the power to amend or revoke the foundations. At the date of decedent's date, the assets, including cash and securities, were held in the names of the Yan and Kien Stiftungs. Held, in the circumstances of this case, that the transfers of property to the Stiftungs, which did not engage in business, were ‘by trust or otherwise,‘ subject to a power to amend or revoke, within the meaning of section 811(d) of the 1939 Code, and the assets so transferred are includible in the gross estate of the decedent as property within the United States under section 862(b) of the Code. Held, further, that cash on deposit in the names of the Stiftungs, including moneys transferred from the personal accounts of the decedent while the decedent was in enemy occupied territory, were not moneys on deposit for the decedent within the meaning of section 863(b) of the Code, and are not exempt from Federal estate tax. Held, further, that neither the assets belonging to the Stiftungs nor those belonging to the decedent personally were vested in the Netherlands at the date of death for Federal estate tax purposes.
2. The United States dollar value of securities owned by decedent and includible in the gross estate under section 862(a) of the Code, where such securities were located in Holland and subject to wartime foreign exchange restrictions, held, to be less than the value, at the date of decedent's death, of comparable unrestricted shares selling on the New York Stock Exchange. Value determined by converting the United States value of comparable unrestricted shares at the date of decedent's death into Dutch guilders at the last official rate of exchange, and by reconverting that value into United States dollar figures at $0.065 per guilder.
3. For the purpose of allowing deductions in accordance with section 861(a) of the Code, held, that an agreed guilder value of decedent's assets be converted into United States dollars for Federal estate tax purposes at $0.065 per guilder.
4. Held, that any delay in the filing of a Federal estate tax return was due to reasonable cause and not to willful neglect. Harry J. Rudick, Esq., and Mason G. Kassel, Esq., for the petitioner.
Ellyne E. Strickland, Esq., and Arthur L. Nims, Esq., for the respondent.
The respondent determined a deficiency in estate tax, in the amount of $758,649.32, and a delinquency penalty of $189,662.33. The petitioner claims that there has been an overpayment of tax and penalty.
The principal issue presented for consideration is whether assets located in the United States at the date of the decedent's death and held in the names of two foreign Stiftungs, including cash on deposit with two New York banks, are includible in the gross estate of the decedent for Federal estate tax purposes. The questions presented in this connection are: (A) Whether the transfers were ‘by trust or otherwise,‘ subject to the power to amend or revoke within the meaning of sections 811(d) and 862(b) of the Internal Revenue Code; (B) whether the moneys on deposit in the name of the Stiftungs, or any part thereof, are to be treated as on deposit for the decedent and exempt from Federal estate tax under section 863(b) of the Internal Revenue Code; and (C) whether the assets of the Stiftungs and of the decedent were vested in the State of the Netherlands at the date of the decedent's death and not includible in the gross estate. Other issues presented are: The value, on the date of decedent's death and not includible in the gross estate. Other issues presented are: The value, on the date of decedent's death, of certain shares in American corporations and Dutch certificates representing a beneficial interest in shares of United States Companies for Federal estate tax purposes; the fair market value of the Dutch guilder on the date of the decedent's death in terms of United States dollars; and whether there was reasonable cause for any delay in filing a Federal estate tax return on behalf of decedent's estate.
The facts are partly stipulated, and to the extent so stipulated are incorporated herein by reference.
An estate tax return for the Estate of Oei Tjong Swan (hereinafter sometimes referred to as the decedent), who died a citizen and resident of the Netherlands (hereinafter sometimes referred to as Holland) on July 23, 1943, was filed on August 10, 1949, with the then collector of internal revenue for the second district of New York.
At the date of the decedent's death and until about June 1948, Oei Ing Tjhing, the decedent's oldest son and executor of the decedent's estate, was residing in Switzerland. Since he was not available to administer the decedent's estate in Holland, he executed a power of attorney in his capacity as executor of the decedent's estate, on August 9, 1943, to his brother, Oei Ing Hing, and K. Blom, authorizing these individuals to act for him in the administration of the estate. Both Oei Ing Hing and K. Blom were then and are presently residents of Holland. At that time K. Blom was a member of the Dutch firm of Kantoor H. J. Vooren which handled the administration of the estate. K. Blom had previously been an advisor to the decedent.
A United States estate tax return (Form 706) was executed in Holland on July 5, 1949, by Oei Ing Hing and K. Blom, acting as attorneys in fact for Oei Ing Tjhing. It disclosed a tax liability of $227,566.23, based on the inclusion in the gross estate of the value of United States securities held by two New York banks for the account affidavit in support of a request for a waiver by the Commissioner of Internal Revenue of delinquency penalties with respect to the tax shown by the return.
Thereafter, the respondent determined a deficiency in estate tax, in the amount of $758,649.32, and assessed a 25 per cent delinquency penalty.
The petitioner has made the following payments to the collector of internal revenue for the second district of New York on account of Federal estate tax liability, penalty, and interest:
+--------------------------+
¦Date ¦Payment ¦
+--------------+-----------¦
¦July 29, 1949 ¦$227,566.23¦
+--------------+-----------¦
¦Aug. 10, 1949 ¦78,737.92 ¦
+--------------+-----------¦
¦Apr. 21, 1952 ¦42,234.40 ¦
+--------------------------+
On May 27, 1952, Oei Ing Tjhing, as executor of the Estate of Oei Tjong Swan, filed Form 843 claiming a refund of Federal estate tax and delinquency penalty in the amount of $284,457.79.
A. Transfers to Yan and Kien Stiftungs.
The decedent was born in 1898 in Semarang in the Dutch East Indies (since renamed Indonesia, and so called hereinafter) and lived there until about 1931. While in Indonesia his occupation was that of an import and export merchant. In 1931, he left Indonesia with his family and established residence in Holland. His primary purpose for going to Europe was to give his children an education in European schools. After the decedent left Indonesia in 1931, his activities consisted mainly of attending to his person investments.
In 1931, when the decedent settled his family in Holland, he had four sons and one daughter, namely, Oei Ing Tjhing, born in 1917, Oei Ing Hing, born in 1918, Oei Ing Bian, born in 1920, Oei Ing Wan, born in 1923, and the daughter, Oei Tien Nio, born in 1930. In 1934, the decedent became the father of another girl, Djie Swan Nio, who was considered illegitimate under the law of Holland since she was born to a woman who was not the decedent's legal wife under Dutch law.
On March 10, 1939, the decedent, Oei Tjong Swan, through Dr. W. Stauffacher, a Swiss lawyer, caused to be organized under Swiss law, a Stiftung, or family foundation, under the name of Yan Foundation in Zug, having its seat in the Municipality of Zug, Switzerland.
The pertinent provisions of the articles of the Stiftung are as follows:
1. NAME AND SEAT. Under the name of Yan Foundation there exists a Family Foundation in accordance with article 80 etc. of the Swiss Civil Code. It has its Seat at Zug (Switzerland).
2. PURPOSE. The purpose of the Foundation is the management of the Foundation Fund and the use thereof to the best interests of the legitimate descendants of the Founder.
3. DURATION. The duration of the Foundation is not limited as to time.
4. FUND. The Founder allots to the Foundation a fund of s.Fr. 10,000.— (ten thousand Swiss Francs).
The Fund of the Foundation may be increased by taking over the fund of other foundations or by additional allocations on the part of the Founder or other persons. If the allocations are made conditionally or subject to a special stipulation, they may be added to the fund of the Foundation only subject to the charge that the condition or charge does not conflict with the provisions of the Articles of the Foundation.
The income of the Foundation is formed by the proceeds and revenues derived from the fund of the Foundation. Advantages or disadvantages entailed by increases or decreases in value of individual assets shall not be taken into consideration when computing the income.
5. INVESTMENT OF THE FUND. The fund of the Foundation is to be administered and applied in the manner to be determined by the Board of the Foundation.
The investment of the fund of the Foundation may only be made in the form of conservative participations in corporations, furthermore in the form of bonds, mortgage bonds, purchase of realty, and granting of loans, secured by first-class securities in rem.
6. BOARD OF THE...
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