Commonwealth Trust Co. of Pittsburgh v. Driscoll

• Decision Date: 28 January 1943
• Docket Number: No. 1893.,1893.
• Citation: 50 F. Supp. 949
• Parties: COMMONWEALTH TRUST CO. OF PITTSBURGH et al. v. DRISCOLL, and as former Collector of Internal Revenue.
• Court: U.S. District Court — Western District of Pennsylvania

50 F. Supp. 949

COMMONWEALTH TRUST CO. OF PITTSBURGH et al. v. DRISCOLL, and as former Collector of Internal Revenue.

No. 1893.

District Court, W. D. Pennsylvania.

January 28, 1943.

Wm. Wallace Booth and Reed, Smith, Shaw & McClay, all of Pittsburgh, Pa., for plaintiffs.

Chas. F. Uhl, U. S. Atty., of Pittsburgh, Pa., Samuel O. Clark, Jr., Asst. Atty. Gen., and Andrew D. Sharpe and Jos. W. Burns, both of Washington, D.C., for defendant.

SCHOONMAKER, District Judge.

This is an action by plaintiffs, as executors of the estate of John W. Herron, deceased, for the recovery of alleged overpayment of Federal estate taxes, in the sum of $13,575.73, being $11,910.49 and $1,665.24 interest, making a total of $13,575.73.

The basis of this complaint is: (1) That there was erroneously included in the gross estate, interim income in the sum of $13,392.27, which is not taxable; (2) that there was erroneously included in the estate subject to tax, two parcels of real estate valued at $43,772, which had been conveyed to decedent's wife prior to his death; (3) that the Government failed to allow full credit for the gross amount of inheritance tax assessed against decedent's estate by the Commonwealth of Pennsylvania in the sum of $16,592.02, the estate having received a discount of $600 under the Pennsylvania law.

The Government admits that the interim income of $13,392.27 was erroneously included, on the authority of Maass v. Higgins, 312 U.S. 443, 61 S.Ct. 631, 85 L.Ed. 940, 132 A.L.R. 1035, but denies that the real estate which decedent caused to be conveyed to his wife was erroneously included in the value of decedent's estate. The Government also denies that the plaintiffs would be entitled to credit of the full amount of the Pennsylvania inheritance tax rather than the amount actually paid. The Government asserts that even though the value of this real estate were erroneously included in the estate subject to tax, and the plaintiffs were entitled to credit for the full amount of the Pennsylvania inheritance tax, there could be no recovery by plaintiffs, because the amount of tax attributable to these items is more than counterbalanced by the failure of plaintiffs to include in the estate subject to tax, the value of a trust estate conveyed by the decedent on November 18, 1922, to the Commonwealth Trust Company as trustee for the benefit of his daughters; that while the Government cannot now collect an assessment on account of this trust estate by reason of the lapse of the statute of limitations, the amount of the tax attributable thereto still is available to the Government as an offset to any valid claims for refund made in the instant case. See Lewis v. Reynolds, 284 U.S. 281, 52 S.Ct. 145, 76 L.Ed. 293.

We first consider plaintiffs' claim for refund, based on the inclusion in decedent's taxable estate of the family homestead and garage which had been conveyed by decedent to his wife. The title to the homestead property originally stood in the name of the decedent until April 14, 1924, when he caused the title thereof to be conveyed to himself and his wife as tenants by entirety. Title to the garage property originally stood in the name of the decedent until June 17, 1932, when he caused title thereof to be transferred to himself and his wife as tenants by entirety. Then, on June 20, 1932, the decedent caused these two properties to be transferred from himself and wife as tenants by entirety to his wife alone, so that these two properties thereupon vested in the wife.

Herron was born December 1, 1851, and at the time of the transfer of these two properties to his wife, he was eighty and one-half years of age. After that transfer he lived until February 13, 1937, which was five years after the date of transfer. His last will and testament was executed on March 27, 1933, which was about nine months after the date of the transfers of these properties to his wife.

It is the contention of the Government that these two properties should be included in the gross estate of decedent, subject to tax under Section 302(c) of the Revenue Act of 1926, 26 U.S.C.A. Int.Rev.Acts, page 227, as properties transferred in contemplation of death. There is no evidence as to the reason these transfers were made to the decedent's wife.

The plaintiff contends there is no evidence from which we could find that these properties were transferred in contemplation of death, because the decedent at the time was in good health and active in business affairs. He had been president of the Commonwealth Trust Company of Pittsburgh from 1902 to 1927, when he became chairman of the Board of that bank, which office he retained until his death. After he became chairman of the board, until his last illness, he maintained an office in the bank, going to his office almost daily. He was in constant contact with the officers of the bank, discussing with them its different activities. He was a member of the finance committee, attending meetings of the board and the finance committee with about the same average attendance as the other members. During the year 1936, the year before his death, he attended fifty-two out of the ninety-five meetings of the board. In December, 1936, two months before his death, he attended five meetings of the board. During the last four years of his life, he never spoke or complained of illness, was mentally and physically active. He was the active trustee of the Mary E. Schenley Estate, was a stockholder and director of two real estate companies. At no time did he discuss with business associates or relatives, so far as the evidence in this case shows, the reason or motive for making the transfer of this real estate from himself and his wife as tenants by entirety to his wife alone.

We cannot see that these facts prove that these particular properties were not transferred in contemplation of death. We can see no reason for the transfer of title from decedent and his wife as tenants by entirety, unless it be to escape the payment of estate taxes thereon. Under the Federal estate tax law, property held by a...