Bristol v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 96289.

• Citation: 42 BTA 263
• Decision Date: 28 June 1940
• Docket Number: Docket No. 96289.
• Parties: BENNET B. BRISTOL, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

42 B.T.A. 263 (1940)

BENNET B. BRISTOL, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 96289.

Board of Tax Appeals.

Promulgated June 28, 1940.

D. H. Blair, Esq., and George D. Brabson, Esq., for the petitioner.

Ralph D. Smith, Esq., for the respondent.

In this proceeding petitioner asks redetermination of a deficiency in gift taxes asserted against him for the year 1937 in the sum of $2,056.92. An alleged overpayment of gift tax for the year 1937 in the amount of $4,641.60 is also involved.

The sole issue before the Board is whether or not certain properties transferred by petitioner to his wife upon marriage were gifts subject to gift tax.

FINDINGS OF FACT.

Petitioner is an individual residing in Foxboro, Massachusetts. He was born May 3, 1868.

Since the organization of the Foxboro Co., hereinafter referred to as the company, in 1914, petitioner has been treasurer of the company. The company is engaged in the manufacture of indicating, recording, and controlling instruments for industrial purposes. Most of its capital stock has been owned by petitioner's family since its inception. It was organized as the successor of a corporation engaged in a similar business and having the same ownership.

At one time substantially all the capital stock of the company was owned by petitioner's father, petitioner, and his brother. Three-fifths of the shares owned by the family were owned by the father. Petitioner and his brother each owned a fifth portion of the stock.

Before the father died, he transferred title to one of his fifths of the capital stock to petitioner, another to petitioner's brother, and one to petitioner's two sisters. The voting rights to the fifth part given to the sisters were granted to petitioner and his brother, or the survivor of them. The father received the dividends on the shares formerly owned by him as long as he lived. After his death, the dividends on the fifth portion transferred to the sisters were paid to them.

In 1937, petitioner and his brother controlled more than 85 percent of the company's stock. The remainder of the shares was owned in small amounts by employees of the company. In August 1937 petitioner was the owner of 130,230 shares of the company's stock, which he valued at $6 a share. He owned a winter residence in Foxboro, Massachusettts, worth $15,000, and a summer residence in Falmouth, Massachusetts, valued at $19,000. He also owned certain other real estate and securities of much less value than his stock in the company.

Petitioner's first wife died in 1930. Six children were born of petitioner's first marriage, all of whom were married, had families, and were living at the date of the hearing.

Petitioner's only son is now assistant treasurer of the company. Petitioner's brother also has a son, who is now vice president and general manager of the company.

Petitioner became engaged to marry Agnes S. Thompson. Miss Thompson was born December 18, 1884. In 1937, during the period of their engagement but before their marriage, petitioner consulted his personal attorney, who was acquainted with petitioner's various properties and knew the value of his real estate holdings. It has always been the intention of petitioner and his brother to keep the control of the company within their family. With this in mind, petitioner obtained his attorney's advice concerning the effect of his intended marriage upon the family plan to retain control of the company. The attorney informed petitioner that in the event of his death, under the laws of Massachusetts, his widow would acquire a one-third interest in all his property.

Petitioner's personal attorney informed him that it would be possible to transfer other property to his wife in lieu of her statutory interests. The attorney advised him that the desired result could be accomplished by a will executed by him and assented to by Agnes S. Thompson, plus a transfer of certain other property to her. Petitioner and his attorney discussed the matter with Agnes S. Thompson. She agreed to accept two annuities and an interest in two pieces of real estate as tenant by the entirety in lieu of any interest which she might have otherwise acquired in the company's stock.

Petitioner's attorney, accordingly, prepared a will for petitioner which contained the following provisions:

* * * in contemplation of marriage to the below named AGNES S. THOMPSON do make, publish and declare this my LAST WILL, * * *

* * * * * * *

* * * I hereby give, bequeath, devise and appoint all of my estate * * * as follows:

FIRST: All my own stock in THE FOXBORO COMPANY, a corporation organized under the laws of Massachusetts, and also any other stock of said corporation over which I may at my decease have any power of appointment or disposal enabling me so to do, I hereby give, bequeath and appoint to my son REXFORD A. BRISTOL and to THE FOXBORO NATIONAL BANK OF FOXBOROUGH, of said Foxborough, jointly; but in trust, nevertheless, upon those terms and conditions of trust which are hereinafter set forth in the "FIFTH" clause of this will.

SECOND: One third part of all such of the rest, residue and remainder of my estate as may remain after and exclusive of the stock of THE FOXBORO COMPANY mentioned in and to pass under the "FIRST" clause of this will I give, bequeath, devise and appoint to my intended wife, the said AGNES S. THOMPSON, now of Norfolk in said County of Norfolk, absolutely and free of all trusts, as, and to be taken by her as, her full share (including what might otherwise be decreed to her by way of any so-called "widow's allowance") in or to my estate.

The "Fifth" clause of the will established a trust to continue during the life of the petitioner's son. Upon his death the corpus was to be distributed to the petitioner's children or their heirs.

The will was executed by petitioner on August 24, 1937. Agnes S. Thompson's signature appears on each page of the will for purposes of identification. She executed an acknowledgment of the will dated August 24, 1937, which was attached to the will and reads as follows:

Acknowledging that the foregoing will of BENNET B. BRISTOL has been made by him in contemplation of our intended marriage, each to the other, and that the provisions for my benefit contained in such will have been made in such contemplation, I, AGNES S. THOMPSON of Norfolk, Massachusetts, do hereby (1) consent to such will, and (2) except in the case of subdivisions (b) (c) and (d) hereof, subject to and conditioned upon the final allowance of such will, also agree with the said BENNET B. BRISTOL, and also with MARY LOUISE VINCENT, HELEN R. FULLER, REXFORD A. BRISTOL, PAULINE R. WALSH, MARGARET R. CARLETON and EVELYN R. BRABSON (they being the six children of the said Bennet B. Bristol), and with each of them and with their respective heirs, executors and administrators, that I will not (a) file in any probate court any waiver of the provisions for my benefit contained in such foregoing will, (b) file in any probate court any waiver of the provisions for my benefit contained in any future will made by the said BENNET B. BRISTOL in accordance with my written consent to such future will, (c) file in any probate court any waiver of the provisions for my benefit contained in any future codicil or codicils made by him in accordance with my written consent to such future codicil or codicils, (d) if the said BENNET B. BRISTOL die testate, except as expressly given to me or for my benefit either by such foregoing will or by any finally allowed future will or codicil made by him in accordance with my written consent, make in or to the estate of the said BENNET B. BRISTOL, upon his decease testate, either any claim other than to or for such part of said estate as may be expressly given to me for my benefit by such present foregoing will or by any such future will or codicil as may be made by him in accordance with my written consent, or (e) if the said BENNET B. BRISTOL die testate, except as expressly given to me or for my benefit by any finally allowed future will or codicil, make any claim to or respecting any of the capital stock, now or then owned by the said BENNET B. BRISTOL, of THE FOXBORO COMPANY, a corporation organized under the laws of Massachusetts.

The will and acknowledgment are the only written evidences of any agreement entered into between petitioner and his fiancée in contemplation of their marriage.

On August 26, 1937, petitioner and Agnes S. Thompson were married. On the same day, petitioner purchased two annuities, each costing $51,983, payable to his wife for her life and terminating at her death without remainder over.

On August 27, 1937, in accordance with his agreement with his wife, petitioner caused his Foxboro winter home and his Falmouth summer residence to be transferred to her and himself as tenants by the entirety.

Petitioner filed a timely gift tax return on Form 709 for the year 1937, in which he reported as taxable gifts the two annuities purchased for his wife on August 26, 1937. A gift tax in the sum of $4,641.60 was assessed against and paid by petitioner on the basis of this return.

In the same gift tax return, petitioner reported the transfer of the Foxboro and Falmouth real estate to himself and wife as tenants by the entirety. An addendum attached to the return, entitled "Details of Schedule A", states in part:

The two foregoing conveyances of real estate, items 3 and 4, by Bennet B. Bristol as donor to himself and his wife as tenants by the entirety, are reported for the information of the Treasury Department, but the said Bennet B. Bristol claims that such conveyances do not constitute taxable gifts, and in support of this claim refers to the decision of the Board of Tax Appeals, rendered December 28, 1937, in the case of Hart, Petitioner, v. Commissioner of Internal Revenue, 36 B. T. A. No. 176.

The gift tax return further states that the "value at date of gift"...