Baltimore National Bank v. United States

• Decision Date: 12 December 1955
• Docket Number: 7421.,Civ. No. 7439
• Citation: 136 F. Supp. 642
• Parties: BALTIMORE NATIONAL BANK and Zanvyl Krieger, Executors u/w Harry Goldberg, deceased, v. UNITED STATES of America Abraham KRIEGER v. UNITED STATES of America.
• Court: U.S. District Court — District of Maryland

136 F. Supp. 642

BALTIMORE NATIONAL BANK and Zanvyl Krieger, Executors u/w Harry Goldberg, deceased, v. UNITED STATES of America Abraham KRIEGER v. UNITED STATES of America.

Civ. Nos. 7439, 7421.

United States District Court D. Maryland, Civil Division.

December 12, 1955.

Richard W. Case, Baltimore, Md., for plaintiffs.

Donald P. Hertzog, Atty., Dept. of Justice, Washington, D. C., for defendant.

THOMSEN, Chief Judge.

These consolidated cases involve the valuation, for estate tax and gift tax purposes respectively, of deposit receipts for voting trust certificates for shares of Gunther Brewing Company common stock. The Goldberg case also raises the question whether the division by the decedent and his wife equally between themselves of such a deposit receipt and of stock certificates issued by other companies which they had formerly held as tenants by the entireties constituted a transfer in contemplation of death within the meaning of sec. 811(c) of the Internal Revenue Code of 1939.¹

The Goldberg Case

Dr. Harry Goldberg died on June 23, 1947. The estate tax return filed by his executors showed a tax of $14,474.41, which was paid to the Collector at Baltimore. Later, a statement in the nature of an amended return was filed, listing additional assets and showing an additional tax of $5,886.23, which was paid, with interest. Following negotiations, a notice of deficiency was sent to the executors, and on June 7, 1951, they paid to the Collector an estate tax deficiency in the amount of $53,469.63, plus $8,446.00 interest, the full amount claimed in the deficiency notice. Most of the deficiency was based upon the inclusion in the gross estate of the following securities, valued by the Commissioner at the amounts listed: 100 shares First National Bank Baltimore, $4,950; 50 shares General Electric Company, $1,790.50; 150 shares McCrory Stores, Inc., $4,200; 26 shares Mercantile Trust Company of Baltimore, $7,852; 250 shares Pepsi Cola Company, $8,077.50; 50 shares Gunther Brewing Company, common v.t.c. @ $2,500 per share, $125,000.

It is stipulated that these securities were included in the gross estate upon the determination by the Commissioner that they had been transferred by Dr. Goldberg to his wife on or about April 11, 1946, in contemplation of death. The balance of the deficiency came from increasing the value of another depository receipt representing a voting trust certificate for 50 shares Gunther Brewing Company common stock, admittedly includable in the estate, from $1,509.64 per share, at which it had been returned, to $2,500 per share.

On or about June 4, 1953, the executors filed a claim for refund of the deficiency and interest so paid, but have never received notice from the Commissioner in accordance with sec. 3772(a) (2), I.R.C., that their claim has been granted or denied.

The Krieger Case

On December 10, 1946, Abraham Krieger made a gift to Zanvyl Krieger, Trustee for Jane Krieger, of a non-negotiable depository receipt for voting trust certificates for 50 shares of Gunther Brewing Co., Inc., common stock. Abraham Krieger filed a gift tax return, in which he valued the certificate at $1,305.30 per share, a total of $65,265, and paid a gift tax of $14,684.62 thereon. He received a letter determining a deficiency in gift taxes in the amount of $29,797.32, based upon the determination by the Treasury Department that the fair market value of the depository receipt was $189,620, equivalent to $3,792.40 a share for Gunther common stock. On May 2, 1953, he paid to the Collector at Baltimore the deficiency claimed, with $5,024.32 interest, and on May 16, 1953, filed a claim for refund of said deficiency and interest. He has never received notification under sec. 3772(a) (2), I.R.C., that his claim for refund has been granted or denied.

The Collector to whom the payments were made was not in office when these actions were commenced.

The Contemplation of Death Issue

Facts

Dr. Harry Goldberg, born in 1885, married Bertha Krieger, the sister of Abraham and Zanvyl Krieger and two other brothers now deceased. Dr. Goldberg started practice as a general practitioner, his wife acting as his nurse and secretary. In the 1920's he began to specialize in pediatrics, but never charged more than $2 for an office visit and $3 for a house visit. His earnings reached a peak of about $9,000 in 1927, and dropped to a level of $4,000 to $6,000 in the years 1936 to 1946. He was cheerful, interested in people and in his practice, eccentric in his eating habits, careless in his business affairs, a speculator in stocks and a gambler on the races. He was devoted to his wife and two sons, and was especially interested in the medical education and career of his son Herman, who has become a well-known ophthalmologist.

In the early days of the depression, Dr. Goldberg lost most of his savings except his life insurance; his wife had only a few thousand dollars, invested in stocks, an inheritance from a deceased brother.

Early in 1931 the Geo. Gunther, Jr., Brewing Co. went into receivership, and its brewery, located in Baltimore, which had been manufacturing ice during the prohibition era, was put up for sale at auction. Abraham Krieger was then a Vice President of the Finance Company of America, of which Louis Eliasberg was the President. Krieger, Eliasberg and Samuel Hoffberger decided to offer $200,000 for the property, and to take title in the name of a new corporation, in which Krieger would have a 25% interest, Eliasberg 25%, and Merchants Terminal Corp., a Hoffberger enterprise, the remaining 50%. Krieger was to devote full time to running the business, and the directors were chosen from the Krieger-Eliasberg group.

Abraham Krieger did not then have $50,000; so he asked Dr. Goldberg if he (the doctor) could raise some money. Dr. Goldberg agreed to borrow on his life insurance, under which his wife was beneficiary, but on which he had the right to borrow. He did in fact borrow $9,001.47 on the insurance, and on July 28-30, 1931, turned the checks over to Krieger, who for some reason returned $100 to him the next day. During 1932 Dr. Goldberg made six additional advances totaling $1,016.64 to Krieger, who entered them on his books as loans, in a ledger account standing in the name of Dr. Harry Goldberg.

A bitterly contested issue in the case is whether (a) Dr. Goldberg was purchasing stock, or (b) lending money to Abraham Krieger, or (c) whether the transaction was really neither one nor the other, but an advance by Dr. Goldberg which Krieger agreed to repay if the venture was not successful, but which would result in the delivery of stock to Dr. Goldberg and his wife if it was successful.

It is not disputed that Krieger subscribed for 25% of the capital stock of the new corporation, i. e. 500 shares of preferred stock at $100 per share and 500 shares of common at $1 per share; that all of these shares were issued in the name of Abraham Krieger; and that he received and kept $50,000 when the preferred stock was redeemed at par in December, 1933. In the meantime a voting trust had been created, under which the shares representing the Krieger-Eliasberg interest in the common stock had been deposited. A voting trust certificate for 500 shares of common stock was issued to Krieger, and all of the 500 shares were held in his name until July 19, 1935. At that time Krieger transferred 100 shares to Dr. Goldberg and his wife on the books of the voting trustees, and a voting trust certificate for 100 shares was issued in their names as tenants by the entireties. The disputed question is whether the issuance of this certificate in their names as tenants by entireties (a) represented a gift by Dr. Goldberg to his wife of an interest in stock which he had purchased with his own money, or (b) was a gift by Abraham Krieger of 100 shares to Dr. Goldberg and his wife, made or promised at the conversation in July, 1931, and confirmed when beer was legalized in April, 1933.

The evidence on this question is voluminous, confusing and confused. It includes: (1) testimony by Mrs. Goldberg, Abraham Krieger and Zanvyl Krieger about a conversation which occurred twenty-four years ago; (2) an account on the ledger of Abraham Krieger in the name of Dr. Harry Goldberg, but which Abraham Krieger testified was intended to be a joint or family account, and which I find as a fact started out as an individual account but became a joint account for Dr. and Mrs. Goldberg at some time which cannot be accurately determined, but which I find to have been in the latter part of 1935²; and (3) an affidavit of Abraham Krieger, prepared by Morton P. Fisher, now Associate Judge of the Tax Court of the United States, then counsel for Dr. Goldberg's executors in the estate tax controversy. That affidavit covered a number of disputed questions and was accompanied by a reconstruction or rationalization of the ledger account, but it contained no suggestion that the stock was a gift from Abraham Krieger to Dr. and Mrs. Goldberg. It stated, inter alia:

"I held 500 shares of the common stock of the company in my name, of which 100 shares were held by me for the account of Dr. Harry Goldberg and Bertha K. Goldberg, his wife. The consideration for the purchase of 100 shares of preferred and 100 shares of common stock of Gunther Brewing Company was furnished by Dr. Harry Goldberg through the proceeds of loans on insurance policies on his life. In November, 1932, Dr. Goldberg purchased 40 additional shares of Gunther Brewing Company common stock, which 40 shares were issued to him. In July of 1935, the entire 140 shares were registered in the names of Dr. Harry Goldberg and Bertha K. Goldberg as tenants by the entireties."

I find that the issuance of the 100 shares, as well as of the 40 shares, in the name of Dr. Goldberg and his wife as tenants by the entireties represented a gift by him to her of an interest in the shares, and did not represent a...