Bixby v. Comm'r of Internal Revenue (In re Estate of Reynolds)
| Decision Date | 29 October 1970 |
| Docket Number | 1605-67,Docket Nos. 1577-67— 1579-67,1606-67. |
| Citation | 55 T.C. 172 |
| Parties | ESTATE OF PEARL GIBBONS REYNOLDS, DECEASED, WALTER EDWIN BIXBY, EXECUTOR, ET AL.,1 PETITIONERS V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
55 T.C. 172
ESTATE OF PEARL GIBBONS REYNOLDS, DECEASED, WALTER EDWIN BIXBY, EXECUTOR, ET AL.,1 PETITIONERS V. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
Docket Nos. 1577-67— 1579-67
1605-67
1606-67.
United States Tax Court
Filed October 29, 1970.
[55 T.C. 173]
Reece A. Gardner, George E. Gibson, and D. W. Gilmore, for the petitioners.
Bert L. Kahn, for the respondent.
Decedents and their family owned virtually all of the unites in a voting trust which held a majority of the shares of a stock life insurance company. Under the terms of the voting trust the units could not be sold unless they were first offered to the other holders of units at a formula price based upon the dividends distributed by the company. If the other unit holders refused the offer, the units would have to be offered a second time to the company's board of directors at the same formula price. The unites could be gifted or devised but in the hands of any donee or devisee remained subject to the first offer restrictions of the voting trust. At all relevant dates the formula price was appreciably less than the over-the-counter price of the shares underlying the voting trust units. From 1947 through 1961 the decedents made several gifts of the voting trust units to members of their family and to the company's employees pension trust. They received promissory notes in partial consideration for some of the units they transferred. At their deaths the decedents also owned large blocks of these units. Held:
1. In determining the units' fair market value for gift and estate tax purposes, the first-offer restrictions were a relevant factor to be considered along with all of the other relevant valuation factors, and neither the over-the-counter price of the underlying shares nor the formula price represented the absolute index of fair market value.
2. Respondent was not arbitrary or unreasonable in determining that the value of the notes was substantially less than their face value.
3. Petitioner in docket No. 1578-67 is subject to an addition to tax for the year 1958 because decedent's failure to file a gift tax return for that year was not due to reasonable cause.
FORRESTER, Judge:Respondent has determined deficiencies in petitioners' estate and gift taxes and has also made additions to those taxes pursuant to section 6651(a) of the Internal Revenue Code of 1954 and section 291(a) of the Internal Revenue Code of 19392 for the years indicated as follows:
+------------------------------------------------------------------------+
¦Docket ¦Type ¦Petitioner ¦Year ¦Deficiency ¦Additions¦
+-------+--------+-----------------------+-------+-------------+---------¦
¦No. ¦of tax ¦ ¦ ¦ ¦to taxes ¦
+-------+--------+-----------------------+-------+-------------+---------¦
¦ ¦ ¦ ¦ ¦ ¦ ¦
+-------+--------+-----------------------+-------+-------------+---------¦
¦1577-67¦Gift----¦Estate of Pearl Gibbons¦(1947 ¦$36,171.57 ¦$9,042.89¦
+-------+--------+-----------------------+-------+-------------+---------¦
¦ ¦ ¦Reynolds, Walter Edwin ¦(1948 ¦1,147.50 ¦286.88 ¦
+-------+--------+-----------------------+-------+-------------+---------¦
¦ ¦ ¦Bixby, Executor. ¦(1953 ¦24,766.12 ¦6,191.53 ¦
+-------+--------+-----------------------+-------+-------------+---------¦
¦ ¦ ¦ ¦(1961 ¦765,462.92 ¦ ¦
+-------+--------+-----------------------+-------+-------------+---------¦
¦ ¦ ¦ ¦ ¦ ¦ ¦
+-------+--------+-----------------------+-------+-------------+---------¦
¦ ¦ ¦ ¦(1947 ¦725.25 ¦181.31 ¦
+-------+--------+-----------------------+-------+-------------+---------¦
¦ ¦ ¦ ¦(1948 ¦688.50 ¦172.13 ¦
+-------+--------+-----------------------+-------+-------------+---------¦
¦1578-67¦Gift----¦Estate of Angeline ¦(1950 ¦528.75 ¦132.19 ¦
+-------+--------+-----------------------+-------+-------------+---------¦
¦ ¦ ¦Reynolds Bixby, ¦(1953 ¦82,084.12 ¦20,521.03¦
+-------+--------+-----------------------+-------+-------------+---------¦
¦ ¦ ¦Deceased, Walter Edwin ¦(1958 ¦10,224.00 ¦2,556.00 ¦
+-------+--------+-----------------------+-------+-------------+---------¦
¦ ¦ ¦Bixby, Executor. ¦(1961 ¦370,912.39 ¦ ¦
+-------+--------+-----------------------+-------+-------------+---------¦
¦ ¦ ¦ ¦ ¦ ¦ ¦
+-------+--------+-----------------------+-------+-------------+---------¦
¦1579-67¦Gift----¦Walter Edwin Bixby ¦1961 ¦328,283.44 ¦ ¦
+-------+--------+-----------------------+-------+-------------+---------¦
¦1605-67¦Estate--¦Estate of Pearl Gibbons¦Year of¦11,322,504.16¦ ¦
+-------+--------+-----------------------+-------+-------------+---------¦
¦ ¦ ¦Reynolds, Deceased, ¦death: ¦ ¦ ¦
+-------+--------+-----------------------+-------+-------------+---------¦
¦ ¦ ¦Walter Edwin Bixby, ¦ ¦ ¦ ¦
+-------+--------+-----------------------+-------+-------------+---------¦
¦ ¦ ¦Executor. ¦ ¦ ¦ ¦
+-------+--------+-----------------------+-------+-------------+---------¦
¦ ¦ ¦ ¦ ¦ ¦ ¦
+-------+--------+-----------------------+-------+-------------+---------¦
¦1606-67¦Estate--¦Estate of Angeline ¦Year of¦9,649,991.03 ¦ ¦
+-------+--------+-----------------------+-------+-------------+---------¦
¦ ¦ ¦Reynolds Bixby, ¦death: ¦ ¦ ¦
+-------+--------+-----------------------+-------+-------------+---------¦
¦ ¦ ¦Deceased, Walter ¦ ¦ ¦ ¦
+-------+--------+-----------------------+-------+-------------+---------¦
¦ ¦ ¦Edwin, Bixby, ¦ ¦ ¦ ¦
+-------+--------+-----------------------+-------+-------------+---------¦
¦ ¦ ¦Executor. ¦ ¦ ¦ ¦
+------------------------------------------------------------------------+
[55 T.C. 174]
The proceedings have been consolidated because the principal issue in each docket is whether respondent erred in determining the fair market value for estate and gift tax purposes of certain voting trust certificates.
Concessions having been made, the only other issues that remain for decision are whether respondent erred in his valuation of three promissory notes given in consideration for transfers of voting trust certificates and whether the failure to file gift tax returns in 1947, 1948, 1950, 1953, and 1958 was due to reasonable cause and not due to willful neglect so as to preclude imposition of the penalties provided in section 6651(a) and its analogue, section 3612(d)(1) of the 1939 Code.3
Many of the facts have been stipulated and are so found. The stipulation and exhibits attached thereto are incorporated herein by reference.
Petitioner in docket Nos. 1577-67 and 1605-67 is Estate of Pearl Gibbons Reynolds, deceased, Walter Edwin Bixby, executor. Petitioner in docket Nos. 1578-67 and 1606-67 is Estate of Angeline Reynolds Bixby, deceased, Walter Edwin Bixby, executor. Petitioner in docket No. 1579-67 is Walter Edwin Bixby.
For the years in issue, Pearl Reynolds (hereinafter referred to as Pearl) filed a gift tax return in 1961 but did not file gift tax returns in 1947, 1948, and 1953; Angeline Bixby (hereinafter referred to as Angeline) filed a gift tax return in 1961 but did not file gift tax returns in 1947, 1948, 1950, 1953, and 1958; and Walter Bixby (hereinafter referred to as Walter) filed a gift tax return in 1961.
At the time of filing of the petitions herein, Walter resided in Kansas City, Mo., where he also maintained his principal office as fiduciary of the two estates. The gift tax returns were filed with the district director of internal revenue at Kansas City, Mo. The estate tax returns were filed with the district director of internal revenue at St. Louis, Mo.
[55 T.C. 175]
Pearl was born in 1876 and died on December 7, 1962, of chronic myocardial failure. She was the surviving spouse of Joseph Reynolds. Angeline was born in 1900 and died on January 3, 1963, of lymphosar-coma. She was the sole child of Pearl and Joseph Reynolds. Walter was born in 1896 and is the surviving spouse of Angeline.4
The names and dates of birth of all of the descendants of Pearl and Angeline are as follows:
+----------------------------------------------+
¦Name ¦Date of birth ¦
+------------------------------+---------------¦
¦Sons of Walter and Angeline: ¦ ¦ ¦
+------------------------------+----+----------¦
¦Joseph Bixby ¦Apr.¦7, 1925 ¦
+------------------------------+----+----------¦
¦Walter Bixby, Jr ¦Feb.¦12, 1932 ¦
+------------------------------+----+----------¦
¦Daughters of Joseph Bixby: ¦ ¦ ¦
+------------------------------+----+----------¦
¦Kathryn Bixby ¦Nov.¦28, 1949 ¦
+------------------------------+----+----------¦
¦Nancy Bixby ¦May ¦23, 1952 ¦
+------------------------------+----+----------¦
¦Children of Walter Bixby, Jr.:¦ ¦ ¦
+------------------------------+----+----------¦
¦Angeline I. Bixby ¦Apr.¦28, 1952 ¦
+------------------------------+----+----------¦
¦Robert Bixby ¦May ¦12, 1953 ¦
+------------------------------+----+----------¦
¦Walter Bixby III ¦Dec.¦18, 1958 ¦
+----------------------------------------------+
The Kansas City Life Insurance Co. (hereinafter referred to as the company) is a legal reserve life insurance company founded by Joseph Reynolds and incorporated under the laws of Missouri. As of January 1, 1963, it did business in the District of Columbia and all 50 States except Alaska, Hawaii, and the New England States. Since the company's incorporation in 1895, the number of shares outstanding and the stated capital of the company have changed as follows:
+----------------------------------------------------+
¦ ¦Shares ¦Stated capital ¦
+----------------------+------------+----------------¦
¦ ¦increase ¦increase ¦
+----------------------+------------+----------------¦
¦ ¦(decrease) ¦(decrease) ¦
+----------------------+------------+----------------¦
¦1895 original issue ¦250 ¦$25,000 ¦
+----------------------+------------+----------------¦
¦1903 original issue ¦1,000 ¦100,000 ¦
+----------------------+------------+----------------¦
¦1904 capital reduction¦(250) ¦(25,000) ¦
+----------------------+------------+----------------¦
¦1918 stock dividend ¦1,000 ¦100,000 ¦
+----------------------+------------+----------------¦
¦1923 stock dividend...To continue reading
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