Commercial Nat. Bank of Peoria v. United States, P-CIV-76-78.

• Court: U.S. District Court — Southern District of Illinois
• Writing for the Court: ROBERT D. MORGAN
• Citation: Commercial Nat. Bank of Peoria v. United States, 436 F.Supp. 935 (S.D. Ill. 1977)
• Decision Date: 08 September 1977
• Docket Number: No. P-CIV-76-78.,P-CIV-76-78.
• Parties: COMMERCIAL NATIONAL BANK OF PEORIA and Genevieve M. Wilson, Plaintiffs, v. UNITED STATES of America, Defendant.

436 F. Supp. 935

COMMERCIAL NATIONAL BANK OF PEORIA and Genevieve M. Wilson, Plaintiffs, v. UNITED STATES of America, Defendant.

No. P-CIV-76-78.

United States District Court, S. D. Illinois, N. D.

September 8, 1977.

Edward F. Sutkowski, Peoria, Ill., for plaintiffs.

Terry G. Harn, Asst. U. S. Atty., Peoria, Ill., Richard G. Birchall and Vicki G. Cheikes, Trial Attys., Tax Division, Dept. of Justice, Washington, D. C., for defendant.

DECISION AND ORDER

ROBERT D. MORGAN, District Judge.

This suit was filed by the Commercial National Bank of Peoria and Genevieve M. Wilson, as executors under the Will of John Mahler Wilson, deceased, against the United States, to recover the sum of $30,643.54, which theretofore the plaintiffs had paid, upon their receipt of a deficiency assessment, for federal estate taxes. That assessment followed a determination by the Internal Revenue Service that certain gifts made by the decedent, in his lifetime, were made in contemplation of death. Following a bench trial, the cause is before the court for determination of the single issue whether such gifts, which were made less than three years prior to the decedent's death, were made in contemplation of death, within the meaning of Section 2035 of the Internal Revenue Code of 1954.

There is no dispute as to any part of the factual background of this controversy. Mr. Wilson, who died August 7, 1972, at the age of 71 years, left surviving him his spouse, Genevieve M. Wilson, and his daughter, Marilyn Skelly. He was also survived by two grandchildren.

Between the dates of June 8, 1970, and January 17, 1972, the decedent made several gifts of property to his spouse, his daughter and his grandchildren. The aggregate value of such gifted property was $345,836.31, based upon the alternative evaluation date elected by the executors. The plaintiffs timely filed an estate tax return reporting an estate of $2,405,406.77, with which they paid estate taxes in the amount of $326,983.21. The Internal Revenue Service imposed a deficiency assessment, based upon its determination that such gifts were presumed to have been made in contemplation of death. Plaintiffs did, on July 15, 1975, pay that assessment in the aggregate amount of $30,643.54. Thereafter, they filed this suit to recover that payment.

At all material times, the decedent was in reasonably good health. He was suffering from no terminal illness and he had no knowledge of any infirmity which could reasonably be expected to lead to his imminent death. He led an active life, which included extensive travels during some five years just prior to his death.

The single issue before the court entails a factual determination whether the dominant motivation for the stipulated gifting was life oriented, as opposed to death contemplative. E. g., Cleveland Trust Co. v. United States, 421 F.2d 475, 479 (6th Cir. 1970). The legal principles imposed by the statute have long been settled by judicial decisions. The statute is designed to reach substitutions for testamentary disposition which are designed to avoid federal estate taxes. E. g., United States v. Wells, 283 U.S. 102, 116-117, 51 S.Ct. 446, 75 L.Ed. 867 (1931); Estate of Compton v. Commissioner of Internal Revenue, 532 F.2d 1086, 1087 (6th Cir. 1976). It creates a rebuttable presumption that any transfer of property made within three years prior to death without full consideration therefor was made in contemplation of death. E. g., Cleveland Trust Co. v. United States, supra at 478. The motive for any transfer coming within the presumption is placed in issue by the complaint. The taxpayer assumes the burden of proving by a preponderance of the evidence that the dominant motive for the transfer was life-oriented and designed to accomplish some lifetime purpose of the decedent. E. g., Estate of Compton v. CIR, supra at 1088; Berman v. U. S., 487 F.2d 70, 72 (5th Cir. 1973). In Landorf v. U. S., 408 F.2d 461, 472, 187 Ct.Cl. 99 (1969), the court said that the premises imposes the burden of coming forward with affirmative evidence of motives associated with life, as opposed to a purpose to avoid death taxes. The inquiry must be whether any life motives shown by the evidence were the dominant, impelling reasons for the transfers which the decedent made. E. g., Allen v. Trust Co. of Georgia, 326 U.S. 630, 635, 636, 66 S.Ct. 389, 90 L.Ed. 367 (1946); Bel v. United States, 452 F.2d 683, 687 (5th Cir. 1971). The apparent state of the health of the decedent at the time when the transfers were made is evidentiary only, not proof sufficient to show that a transfer was not in contemplation of death. E. g., Berman v. U. S., supra at 73; Bintliff v. U. S., 462 F.2d 403, 406 (5th Cir. 1972).

Mrs. Wilson, Mrs. Skelly, Joseph Skelly, and attorney Edward F. Sutkowski testified as witnesses for the plaintiff. Mr. Warren M. Webber, an officer of the Commercial National Bank, was the only witness called by the government. Additionally, there are before the court certain stipulated exhibits and certain government exhibits. The latter are comprised of certain correspondence and memoranda between Mr. Sutkowski, Mr. Webber and Mr. Wilson, which are contemporaneously related to the gifting program in issue.

Plaintiffs assert that the evidence adduced by them does prove that the gifting program begun by Mr. Wilson in June, 1970, was life oriented. They suggest that such evidence reveals that he desired the recipients of the gifts to have the income and enjoyment thereof in decedent's lifetime. More strongly they suggest that Mr. Wilson was concerned that his son-in-law, Joseph Skelly, had exhibited no interest in participation in financial management, and that the gifts, in trust, to Mrs. Skelly and to the grandchildren were designed to encourage an interest by Mr. Skelly in assuming a role in management of Mr. Wilson's property.

The government's position is that the evidence supports a finding that the gifting was a part of an overall scheme of estate planning which was designed to lessen the impact of death taxes.

Certain evidentiary comment seems desirable before the delineation of express findings of fact. There is no relevant pattern of gifting prior to the time of the operative facts herein. In 1954, decedent did make a gift, in trust, to his daughter in the approximate amount of $90,000. Additionally, he made annual wedding anniversary gifts in the amount of $500 to his daughter and son-in-law, commencing with the daughter's marriage in...