Mandels v. Comm'r of Internal Revenue (In re Estate of Mandels)
| Decision Date | 17 April 1975 |
| Docket Number | 8530-72.,8520-72,6903-70,Docket Nos. 4848-70 |
| Citation | 64 T.C. 61 |
| Parties | ESTATE OF WILLIAM MANDELS, DECEASED, ESTELLE MANDELS, DISTRIBUTEE, ET AL., 1 PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Gerald Rubin, for the petitioners.
Marion L. Westen, Warren W. Dill, and William Peltz, for the respondent.
In 1962, decedent created a trust in which he reserved many rights as to certain corporate stocks and provided that such stocks should go to his son and his daughter on his death. In addition, he made a number of outright gifts to them in the same year. In 1963, prior to the death of decedent's son, such son conveyed outright to his spouse certain of the items he had in turn received outright from his father the previous year. In addition, upon the son's death in late 1963, his spouse succeeded to his interest in the above-mentioned trust. Held, that decedent made no taxable gift to his children by virtue of the 1962 trust. Held, further, that respondent has failed to prove that such trust was a backdated agreement, and that the shares of stock allegedly transferred in trust had actually been given outright to the children in 1962. Held, further, deficiencies in decedent's gift taxes and penalties arising from his outright gifts in 1962 determined. Held, further, that decedent's daughter, but not his daughter-in-law, is liable as a transferee under sec. 6324(b) for such outstanding gift taxes and penalties.
Respondent has determined that petitioners are liable, as transferees, for the following deficiency in gift tax and addition to tax of the Estate of William Mandels who died on January 11, 1966.
+------------------------------+
¦ ¦Sec. 6651a 2 ¦
+------------+-----------------¦
¦Deficiency ¦addition ¦
+------------+-----------------¦
¦ ¦ ¦
+------------+-----------------¦
¦$42,921.25 ¦$10,730.31 ¦
+------------+-----------------¦
¦ ¦ ¦
+------------------------------+
Some of the facts have been stipulated and are so found.
Petitioner Estelle Mandels Smith (petitioner, Smith, or Estelle) resided in Jamaica, N.Y., at the time the petition in docket No. 4848-70 was filed, and she resided in Long Beach, N.Y., at the time of the filing of the petition in docket No. 8520-72. Petitioner Mollie Hoffman was a resident of Massapequa, N.Y., on the dates her petitions were filed.
On April 9, 1962, William Mandels (decedent), an officer and director of both Solar Building Corp. (Solar) and Chesbrook Realty Corp. (Chesbrook), made a transfer in trust of his entire one-third stock interest in such corporations to his children, Leslie Mandels (Leslie) and Mollie. Pertinent provisions of the trust instrument which was executed in New York, N.Y., are as follows:
1. The Trustor simultaneously with the execution of this agreement, agrees to and does hereby transfer and deliver to the aforesaid Trustees and Cest que trusts, to wit: Leslie Mandels and Mollie Hoffman, in equal amounts, the shares of stock hereinbefore described and set forth, IN TRUST, nevertheless, as hereinafter set forth.
2. The Said Trustees and Cest que trusts, Leslie Mandels, Mollie Hoffman, Estelle Mandels (petitioner Smith, Leslie's spouse) and Harry Hoffman (Mollie's spouse), hereby agree, irrespective of the fact that they may and are hereby permitted to transfer the said shares of stock into their names on the books of the said corporations, to hold the said shares of stock IN TRUST, for the sole use and benefit of the Trustor, during the lifetime of the Trustor, and only after the death of the Trustor; the said Trustees and Cest que Trusts, shall become the absolute and definitive owners of the said shares of stock.
3. During the lifetime of the Trustor, he shall be entitled to receive, without deduction of any kind, except for taxes as may be required by law, all the benefits, emoluments, dividends, payments, of every kind and nature that shall accrue or be paid by reason of the ownership of the said shares of stock and the said Trustees and Cest que trusts agree to arrange to have the said benefits, emoluments, dividends and payments as aforesaid, paid directly to the Trustor by the said corporations during his lifetime and to deliver and pay over to the Trustor any such payments aforesaid, that they may receive from the said corporations, in the event such payments be made to them and not to the Trustor.
4. Should Leslie Mandels pre-decease the Trustor, Estelle Mandels shall succeed to the said shares of stock as now transferred to Leslie Mandels and to all rights therein, subject, however, to all the terms of this agreement of Trust.
5. Should Mollie Hoffman pre-decease the Trustor, Harry Hoffman shall succeed to the said shares of stock as now transferred to Mollie Hoffman and to all rights therein, subject, however, to all the terms of this agreement of Trust.
6. During the lifetime of the Trustor, the said Trustees agree, that although the said shares of stock may be in the names of the said Trustees, to vote the said shares of stock in such manner as the Trustor William Mandels shall direct and instruct to vote.
7. During the lifetime of the Trustor, the Trustees agree not to vote the said stock or to take any steps whatever, to remove or displace the Trustor as an officer, director and employer of the said corporations, nor to interfere with or object to the payment to him during his lifetime of salaries and wages paid to him from the said corporations.
8. During the lifetime of the Trustor, the Trustees agree not to sell, transfer, pledge, encumber nor hypothecate the said shares of stock, nor to take any actions or proceedings with respect to the said shares of stock but to continue during the lifetime of the Trustor to hold the said shares of stock in their names IN TRUST, solely and only for the use and benefit of the Trustor as herein set forth.
9. During the lifetime of the Trustor, the Trustees will in no way interfere with the powers and duties of the Trustor as an officer, director and employee of the said corporations; and Trustees will always vote the stock to retain the Trustor as an officer, director and employee of the said corporations and will in no way interfere or prevent the Trustor from acting as a required signatory on all the bank accounts of the said corporations and the Trustor will be allowed to continue during his lifetime to be active in the management of the said corporations in every respect, as prior to the execution of this agreement and transfer of the said shares of stock and the Trustees will cooperate in every way with the Trustor in order that the Trustor may be able to effectively function as aforesaid.
10. The Trustees agree to hold IN TRUST, for the sole benefit of the Trustor, any dividends, stock or otherwise, they may receive from the corporations, all as set forth in this agreement.
11. In the event, all the said Trustees and Cest que trusts, shall pre-decease the Trustor, all the shares herein transferred shall revert to the Estate of the Trustor; in the event one of the Trustees and Cest Que trusts and his or successor (sic) shall both predecease the Trustor, the said shares of stock given to the said Trustee and Cest que trust and his or her successor, shall revert to the Trustor.
On February 21, 1962, consents to these transfers were obtained by decedent from the other shareholders of Chesbrook and Solar. Such consents were required because agreements dated September 1, 1958, and signed by Mandels and the other two shareholders of Solar and Chesbrook prohibited sales of such stock by any of the three shareholders— each of whom had identical one-third stock interests in both corporations. Such agreements were to terminate in 5 years, and there is no evidence that they were renewed after the 5-year period had run in September of 1963. On May 16, 1962, each corporation issued a certificate indicating that Leslie and petitioner Hoffman were the owners of 16 2/3 shares of stock in each corporation. There was no mention of the April 9 trust agreement on such certificates.
The same day on which the above-described trust agreement was signed, decedent made outright gifts to Leslie of 2 shares of 63 Rego, inc. (63 Rego) stock, and of a 50-percent interest in funds owed decedent by 63 Rego. Decedent made identical gifts to petitioner Hoffman on the same day.
Just prior to his death, in late December of 1963, Leslie made two conveyances to his wife, Estelle. He transferred to her his 50-percent interest in the amounts owed decedent by 63 Rego. What the amount of such loan was on date of the transfer is not disclosed in the record before us. Also transferred to Estelle were the 8 1/3 shares of Solar and Chesbrook stock which were held under the 1962 trust agreement. As provided by article 4 of the agreement, Estelle succeeded to Leslie's interest in the trust immediately upon his death. The record is silent as to what became of the 2 shares of 63 Rego stock which Leslie received from decedent in April of 1962.
On October 15, 1965, Solar agreed to sell its only asset— an apartment building in New York City— to Swellington Realty Corp. (Swellington) and the 590 Corp. (590). The purchase price was $450,000, an amount which included the assumption of certain debts of Solar. On the same day Chesbrook contracted to sell its only asset— also an apartment building in New York City— to the same two above-mentioned corporations. The sale price was $385,000, which again included the assumption of certain debts of Chesbrook by Swellington and 590.
Between the time of the signings of these agreements and the actual closings which occurred on January 31, 1966, decedent was involved in an auto accident, the injuries from which resulted in his death on January 11, 1966. On decedent's Federal estate tax return, the following item valued at $195,158.52 was...
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