Brown v. Commissioner of Internal Revenue

• Decision Date: 28 November 1934
• Docket Number: No. 1124.,1124.
• Citation: 74 F.2d 281
• Parties: BROWN et al. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Tenth Circuit

74 F.2d 281 (1934)

BROWN et al. v. COMMISSIONER OF INTERNAL REVENUE.

No. 1124.

Circuit Court of Appeals, Tenth Circuit.

November 28, 1934.

Lewis A. Dick, of Denver, Colo. (Robert G. Bosworth and Pershing, Nye, Bosworth & Dick, all of Denver, Colo., on the brief), for petitioners.

Warren F. Wattles, Sp. Asst. to the Atty. Gen. (Frank J. Wideman, Asst. Atty. Gen., and Sewall Key, and F. E. Youngman, Sp. Assts. to the Atty. Gen., on the brief), for the Commissioner.

Before McDERMOTT and BRATTON, Circuit Judges, and POLLOCK, District Judge.

McDERMOTT, Circuit Judge.

On April 10, 1930, David Brown, without consideration, transferred to his wife 3,487 shares of stock of the value of $266,163.75. He was 73 years old; the Mayo Clinic, in the summer of 1929, advised him that, except for a high blood pressure, he was in excellent health; they advised him to forget his blood pressure except to be moderate in exercise and eating. In September he passed a kidney stone, which laid him up for part of a day. Indigestion bothered him, and in January, 1930, he went to a sanitarium in California, where he dieted and rested for three weeks, but was not confined to his bed. Upon his return to Denver his indigestion continued and upon his doctor's insistence he went to a hospital for a few days for examination and observation. Upon coming out, he made the gift in question and revised his will in a minor particular. He returned to the hospital for one day to complete the examination. This examination disclosed the cause of the indigestion, an obstruction of one kidney remedied by dilation. He died June 29, 1930, of interstitial nephritis, uremia and arterial sclerosis as contributing causes.

The statute applicable (Revenue Act 1926, § 302 (c), 26 USCA § 1094 (c) taxes transfers "in contemplation of or intended to take effect in possession or enjoyment at or after his death." That section contained a clause conclusively presuming that gifts within two years were in contemplation of death, but this was held to be unconstitutional. Heiner v. Donnan, 285 U. S. 312, 52 S. Ct. 358, 76 L. Ed. 772. The transfer here being absolute and presently effective, but one question exists, unaided by statutory presumption, Was the transfer made in contemplation of death? The exhaustive opinion of the Supreme Court of the United States in United States v. Wells, 283 U. S. 102, 51 S. Ct. 446, 75 L. Ed. 867, further narrows the inquiry. The case then, as we see it, is this:

Was the idea of death, thought by the donor to be near or distant, the impelling motive of the gift? Or did the motive find its source in purposes associated with life? Was it an effort to provide for his family after his death, or to protect them from poverty during his life? If the record leaves the answer to these questions in fair doubt, then the order must be affirmed; for if there is dispute in the testimony, or if reasonable men may differ as to the conclusion to be drawn from undisputed testimony, the finding of fact of the Board may not be reviewed by the courts. The evidence in this case is undisputed; moreover no suspicion is directed at the integrity of the facts related by the witnesses; and much of the most significant evidence is a matter of record or stipulated. Our inquiry is thus limited to the query of whether the motive for the gift unmistakably was one associated with continued life.

The Board found that the motive for the transfer came into being in March, 1930, when "he told his wife that he proposed to give her some stock of substantial value," and that he carried out his intent in the interval between visits to the hospital. If the record bore out that fact, together with those heretofore narrated, and no more, a more difficult case would be presented. But the uncontradicted evidence, by unimpeachable witnesses, proves that Mr. Brown formed a general plan to distribute his property more than twenty years before his death, and decided to make the particular gift in question long before March, 1930, which was the date upon which he decided upon what stock to transfer, and that the reason for it was to protect his wife against the vicissitudes of stock market speculations in which he was engaging, and which he realized might wipe out his own fortune. For support of this statement, we look to the record:

In 1907 he gave his wife rental real estate then valued at $42,000; in 1910 real estate in Aspen, Colorado, valued at $12,800; in 1917 a residence in Denver valued at $50,000; in 1929, $141,000 in cash. In 1919 he gave each of his two daughters $70,000 in cash, and in 1923 $50,000 in cash. These gifts total $485,000. Mrs. Brown testified as to a conversation in 1919: "Mr. Brown also repeated what he had often said, that he wanted me to be independent, to have my own income so that if anything happened to his investments I would not be affected." In 1917 he told his lawyer he wanted to provide for his wife "so that she would be entirely independent in the event that anything happened to his estate or his property." The Board laid this evidence to one side with the observation that they were no more than gifts which any wealthy and generous man would make to his wife and daughters. The record does not disclose his wealth when these gifts were made, so we do not know whether they were a substantial part of his then holdings.

Such gifts cannot be treated as presents only. During the same years he gave his wife a set of sables, valued at $5,000; diamonds worth $12,500; a tea set which cost $1,250 and a wrist watch worth $500. These were presents in the colloquial sense; the gifts of money and real estate were not; they were provisions for their support during his lifetime, prompted by the motive instanced by Chief Justice Hughes in the Wells Case as one peculiarly associated with life rather than death, that the objects of his bounty might be "independently established with competencies of their own." Not only is this motive apparent from the nature of the gifts, but the Board so found in its findings of fact. The finding is:

"For many years prior to his death it was the custom of the decedent to make substantial gifts to his wife and other members of his family in order that they might have property and incomes of their own."

The decedent's general plan, reaching back to middle age, was to provide his family with independent incomes during his life. In arriving at its conclusion on the ultimate fact, the Board in its opinion gave but scant consideration to its own finding of fact in this regard.

That the particular gift in question was but a carrying on of this general plan, and was determined upon long prior to the date set by the Board, is likewise indisputably proven. Again we turn to the record:

The stock market crash occurred in October, 1929. Mr. Brown was dealing actively in stocks. Being a man of wide experience and much sense, he realized his fortune might be lost in that vortex; but while willing to stake his own future on the turn of the wheel, he was not willing to risk his wife's comfort in her declining years. In the late fall of 1929 he so told Mr. George L. Nye, his confidential counsel for many years. Mr. Nye testified:

"He stated to me at that time that he intended to make a direct gift to Mrs. Brown and referred to it as the matter which he had previously discussed with me on various occasions, intending thereby, by making the gift, to make her entirely independent, to give her enough of a personal estate so that she would be independent and so that through her and her property his minor children would be amply protected `even if he lost his shirt' on the stock market, as he used to express it."

He discussed it again with Mr. Nye shortly prior to the transfer of the stock:

"The substance of what he said was this: `You know I told you that I was going to settle' — I think that is the word he used — `some property definitely on Ruth. At first I thought I would use a certain stock' — mentioning it — `and then I concluded that I would use a certain other stock. Now I have made up my mind what I want to do.' That was practically all that he said about the matter at that time. He did tell me, when I was actually drawing the will the latter part of March, that he proposed to give her the Electric Bond and Share stock."

Mr. Nye was for many years prior to his death, a lawyer of irreproachable standing at the bar of this court. There is not, and could not fairly be, a breath of suspicion that this testimony is not true. His testimony is fully corroborated by Mrs. Brown.

The record clearly discloses, therefore, that Mr. Brown decided upon this transfer in the fall of 1929, and not in March, 1930, as the Board found. What happened in March, 1930, was that at that time he decided what stock he would use in making the provision which he had determined upon late in 1929. This testimony was overlooked. Since the motive for the gift dates back of the time it was consummated, the circumstances of April, 1930, are not so important. Stress is laid on the fact that he made a new will about the time the transfer was made. The Board found "he made a new will disposing of his entire estate." But the principal change made was to substitute individuals for a trust company as executor, a change readily referable to the uneasiness then existing concerning banks and trust companies. The Board did not find, as the evidence disclosed, that Mr. Brown changed his will so often that his propensity in this regard had become a joke in his lawyer's office. Nor was his physical condition such as to alarm him, but quite the contrary. He was an outdoors man, impatient of disease and doctors. He had gone through the Mayo Clinic at his wife's insistence, who was there for her own health. The report of the doctors there was encouraging. The doctors in California told him "he had many years before him." He was impatient of his indigestion, remarking that it was "a...