Coolidge v. Nichols
| Decision Date | 28 January 1925 |
| Docket Number | No. 2236.,2236. |
| Citation | 4 F.2d 112 |
| Parties | COOLIDGE et al. v. NICHOLS, Collector of Internal Revenue. |
| Court | U.S. District Court — District of Massachusetts |
Storey, Thorndike, Palmer & Dodge and Harold S. Davis, all of Boston, Mass., for plaintiffs.
United States Attorney, for defendant.
This is an action of contract brought by the plaintiffs, as executors under the will of Julia Coolidge, late of Brookline, in this commonwealth, against Malcolm E. Nichols, as collector of internal revenue for the district of Massachusetts. The suit is brought to recover a sum of money paid to the collector by the executors under protest, in response to a demand for an additional tax assessed upon the estate of Julia Coolidge. The plaintiffs claim the estate is not liable for this additional tax.
In this case the only evidence before you is that included in the agreed statement submitted by counsel. None of the material facts are in controversy; therefore no issue of fact is presented. Rather, this is a case where it becomes necessary for the court to determine as a matter of law whether, upon these facts, the plaintiffs are entitled to recover, and, if so, in what sum. The amount involved is considerable, and the questions of law calling for consideration involve the construction and validity of an act of Congress. I have therefore given much thought to the arguments and brief of counsel; have examined the authorities submitted; and have reached certain conclusions which I will undertake to state as clearly as I may.
Since the disposition of this case depends upon the determination of questions of law rather than issues of fact, I shall depart somewhat from my usual practice in jury trials and elaborate somewhat the reasons upon which these conclusions are based.
From the undisputed evidence it appears that on July 29, 1907, Julia Coolidge joined with her husband, J. Randolph Coolidge, in an instrument of transfer whereby she and her husband transferred and conveyed to trustees named certain real and personal property. The trustees on the same day duly executed a declaration of trust respecting the property so conveyed, together with all accumulations and accretions and all property substituted for the original fund, which trust provided that the trustees should pay the net income — three-sevenths to Julia Coolidge and four-sevenths to J. Randolph Coolidge "so long as they both live and to pay the whole of said net income to the survivor; and upon the death of the survivor to distribute equally the trust property among the following persons, who are children of said J. Randolph Coolidge and Julia Coolidge, viz.: J. Randolph Coolidge, Jr., John Gardner Coolidge, Archibald Carey Coolidge, Harold J. Coolidge, and Julian L. Coolidge; and, should any of said persons predecease the survivor of the said J. Randolph Coolidge and Julia Coolidge, to pay the share of the person so predeceasing to those who would be entitled to take his intestate property under the statute of distribution in effect at the time of the death of said survivor, provided that in no case shall a surviving widow take as distributee more than one-half of said share."
On April 6, 1917, Julia Coolidge and J. Randolph Coolidge joined in another written instrument whereby they transferred, conveyed, and assigned to J. Randolph Coolidge, Jr., John Gardner Coolidge, Archibald Carey Coolidge, Harold J. Coolidge, and Julian L. Coolidge, in equal shares, all their interest in said trust fund, and all their right to receive the income therefrom, including additions thereto and any accrued income which had not already been paid over to them, and the trustees by said instrument were requested and directed to pay the income to said five children in accordance with the assignment.
On May 18, 1917, Julia Coolidge executed two deeds whereby she conveyed to the five sons already named two certain parcels of real estate, one situated in Boston and the other in Brookline. The deeds were in statutory short form of deeds with warranty covenants obtaining in Massachusetts, and were recorded on May 18 and May 19, 1917, respectively.
At the time these deeds were given the grantees named therein executed and delivered to grantors a lease covering each of the properties conveyed which, in all material respects, were identical except as to description. Each lease was for the term of one year, and the rent reserved was at the annual rate of $1. Each lease contained the usual covenants found in the form commonly used in Massachusetts and contained also these pertinent provisions:
"This lease shall be taken to be renewed for the term of one year from the end of the specified term, and thereafter shall be taken to be renewed from year to year unless written notice is given by either party to the contract at least one month before the end of the original term or any renewal thereof."
Both parcels of real estate conveyed by the deeds were for many years owned by the decedent in her own right and occupied by her and her husband as places of residence. When the leases were made, it was understood by the parties that, should the lessees desire to continue to occupy the residences on the leased premises for the purpose of residing therein themselves, the leases would continue to be renewed from year to year during the life of the lessees or either of them.
The conveyance to the trustees and the conveyances of the Boston and Brookline real estate were not bona fide sale for a fair consideration in money or moneys' worth within the meaning of the provisions of acts of Congress to which your attention will be presently directed.
Julia Coolidge died January 6, 1921, leaving a will duly admitted to probate in the county of Norfolk in this commonwealth. The plaintiffs are executors of that will. Mrs. Coolidge left a gross estate, exclusive of the property to which I have called attention, of over $180,000, and a net estate of over $100,000. The commissioner of internal revenue increased the gross estate by adding thereto $432,155.35, the value as of the date of the death of Julia Coolidge of that part of the trust property which was deemed to have been conveyed by her in trust, although, as a result of changes in investment, much of the property originally received by the trustees was not held by them in specie at the time of her death. The Commissioner of internal revenue also included in her gross estate $272,300, being the value at the time of her death of the property conveyed by the two deeds already referred to.
As a result of this action on the part of the commissioner of internal revenue an additional tax was assessed against the estate, with interest amounting to $36,799.38, which sum the plaintiffs paid under protest June 8, 1923, and, plaintiffs' claim for a refund having been duly filed and having been denied by the commissioner of internal revenue, this suit is brought to recover the sum paid with interest from June 8, 1923.
The ultimate questions to be determined are these: Did the Commissioner of Internal Revenue have a right to include in the gross estate of the decedent:
(a) The value at the time of her death of the property held by the trustees under the declaration of trust heretofore mentioned, and
(b) The value of the Boston and Brookline real estate conveyed by the decedent to her five sons by the two deeds aforementioned?
In the Revenue Act of 1918 (40 Stat. 1096) Congress imposed a graduated estate tax upon the transfer of the net estate of every decedent dying after the passage of the act. The tax was to be measured by the value of the net estate, which was to be determined by deducting from the gross estate certain sums and charges not now necessary to enumerate. The important provisions of the law are those which define and limit the value of the gross estate for the purposes of the tax. These provisions are as follows:
Comp. St. Ann. Supp. 1919, § 6336¾c.
It is claimed by the government that the value of both the property conveyed in trust and the real estate conveyed outright came within the scope of this section as transfers made or trusts created with the intention that they should take effect in possession or enjoyment at, or after, the death of Mrs. Coolidge. I do not understand that it is claimed here that there was any completed gift inter vivos made in contemplation of death, and, if there was such a claim, the transfers having been made more than two years prior to the death of Mrs. Coolidge, you would not be justified in finding that they were made in contemplation of death in the absence of any affirmative evidence tending to show that they were so made.
It follows, therefore, that, if the value of this property, or any of it, is to be included in the gross estate, it is because the facts support the contention of the government that the transfers were intended to take effect in possession and enjoyment at or after the death of the decedent.
It becomes necessary, therefore, to...
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