440 F.2d 949 (6th Cir. 1971), 20526, Byrum v. United States

Docket Nº:20526.
Citation:440 F.2d 949
Party Name:Marian A. BYRUM, Executrix under the Last Will and Testament of Milliken C. Byrum, Deceased, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.
Case Date:April 08, 1971
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit
 
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Page 949

440 F.2d 949 (6th Cir. 1971)

Marian A. BYRUM, Executrix under the Last Will and Testament of Milliken C. Byrum, Deceased, Plaintiff-Appellee,

v.

UNITED STATES of America, Defendant-Appellant.

No. 20526.

United States Court of Appeals, Sixth Circuit.

April 8, 1971

Page 950

Kenneth L. Gross, Atty., Dept. of Justice, Washington, D.C., for defendant-appellant; Johnnie M. Walters, Asst. Atty. Gen., Meyer Rothwacks, Loring W. Post, Attys., Dept. of Justice, Washington, D.C., on brief; William W. Milligan, U.S. Atty., Alvin J. McKenna, Asst. U.S. Atty., Columbus, Ohio, of counsel.

Larry H. Snyder, Columbus, Ohio, for plaintiff-appellee; Chamblin, Snyder & Henry, Columbus, Ohio, on brief.

Before PHILLIPS, Chief Judge, BROOKS, Circuit Judge, and O'SULLIVAN, Senior Circuit Judge.

BROOKS, Circuit Judge.

This is an appeal by the United States from an adverse ruling of the District Court, 311 F.Supp. 892, on the issue of whether certain assets transferred into an irrevocable trust could be included in decedent-grantor's estate by operation of 26 U.S.C. § 2036. 1 The action arose by a claim for refund of taxes paid and was decided on motions for summary judgment with a stipulated set of facts. We affirm the judgment of the District Court.

That portion of the trust agreement 2 that the Government contends made the

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assets transferred into trust includable in the grantor's estate under 26 U.S.C. § 2036 relates to the grantor's retained powers to: 1) vote the shares of unlisted stock in the trust corpus; 2) veto the transfer by the trustee of any of these shares of stock; and 3) to remove and appoint a successor corporate trustee at will. It should be noted that the shares of unlisted stock transferred into trust

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were those of a closed corporation, and the grantor's retaining of the right to vote the stock in trust combined with the stock he personally retained kept him in voting control of the corporation.

The Government's principal argument is that the powers retained by grantor made the value of the shares of stock transferred into trust includable in his estate because the grantor retained for his life 'the possession or enjoyment of * * * the property * * *.' 26 U.S.C. § 2036(a)(1). The District Court properly concluded that the retaining of the power to veto the sale of these shares of stock by the trustee did not, under present interpretation of the statute, make the value of the shares transferred includable in the grantor's estate, see Reinecke v. Northern Trust Company, 278 U.S. 339, 49 S.Ct. 123, 73 L.Ed. 410 (1929); Michigan Trust Company v. Kavanagh, 284 F.2d 502 (6th Cir. 1960); Hays' Estate v. Commissioner of Internal Revenue, 181 F.2d 169 (5th Cir. 1950); Jennings v. Smith, 161 F.2d 74 (2nd Cir. 1947); Estate of Budd, 49 T.C. 468 (1968); Estate of Pardee, 49 T.C. 140 (1967); Cf., State Street Trust Company v. United States, 263 F.2d 635 (1st Cir. 1959). Nor, for that matter, did the grantor's retaining of the power to replace the trustee by another corporate trustee make the value of the shares includable. See Estate of Budd, supra and cf. Rev.Reg. 20.2036-1(b)(3) with n. 2 Trust Agreement, Article VIII.

The only power retained by the grantor which may possibly have made the transferred assets includable in his estate was the power to vote the unlisted shares of stock. The District Court concluded that this did not make the assets includable and we agree. Several cases have considered this aspect of retained control and have concluded that it is not sufficient to make the value of shares transferred in trust includable in the grantor's estate. See Estate of Willard V. King, 37 T.C. 973 (1962); Yeasel v. Coyle, 2 CCH Fed.Estate and Gift Tax Rep. (68-1 U.S. Tax Cas.) P12,524. The Government's attempt to distinguish these cases is without substance. In addition, the Government's reliance on United States v. O'Malley, 383 U.S. 627, 86 S.Ct. 1123, 16 L.Ed.2d 145 (1966) and Joy v. United States, 404 F.2d 419 (6th Cir. 1968) is inappropriate under the facts of the present case. In O'Malley the crucial factor making the value of the transferred assets includable in the grantor's estate was that the grantor retained the power to regulate or allocate the distribution of income. Similarly, in Joy v. United States, supra, it was the grantor's retained power to accumulate and distribute income which proved fatal. This was not the situation under the present trust agreement. See n. 2 Trust Agreement, Pars. 5.13, 5.15, 6.02, 9.02. The Government contends that since the grantor remained in voting control of the corporation he could, by electing the Board of Directors, determine dividend policies and thus the grantor could indirectly regulate or control who enjoyed the income from the property. However, the...

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