Delaware Trust Co. v. Handy, 14.

• Decision Date: 28 October 1931
• Docket Number: No. 14.,14.
• Citation: 53 F.2d 1042
• Parties: DELAWARE TRUST CO. v. HANDY, Internal Revenue Collector.
• Court: U.S. District Court — District of Delaware

53 F.2d 1042 (1931)

DELAWARE TRUST CO. v. HANDY, Internal Revenue Collector.

No. 14.

District Court, D. Delaware.

October 28, 1931.

James H. Hughes, Jr. (of Ward & Gray), of Wilmington, Del., and Frank S. Bright, of Washington, D. C., for plaintiff.

Leonard E. Wales, U. S. Atty., of Wilmington, Del., and William T. Sabine, Jr., of Washington, D.C., for defendant.

NIELDS, District Judge.

This is an action at law brought by Delaware Trust Company, executor under the last will and testament of William Du Pont, deceased, to recover from Wallace S. Handy, collector of internal revenue for the district of Delaware, the sum of $283,130.20, with interest. This payment was made to the defendant as part of a deficiency tax assessed on the estate of the decedent aggregating $1,297,881.94, with interest thereon. William Du Pont, Jr., and Marion Du Pont Somerville, son and daughter of the decedent, were added as parties plaintiff. By stipulation filed, the case was tried by the court without the intervention of a jury. (References herein to "plaintiff" will be understood to refer to plaintiff executor.)

Findings of Fact.

(1) William Du Pont, a citizen and resident of Delaware, with a winter residence at Altamaha, Ga., died at the latter place January 20, 1928, aged seventy-two years, four months, and twenty-nine days.

(2) Plaintiff, Delaware Trust Company, is the duly appointed, qualified, and acting executor of decedent's estate.

(3) Defendant, Wallace S. Handy, at the time of the collection of the estate tax involved in this proceeding, was and still is collector of internal revenue of the United States for the district of Delaware.

(4) Decedent created four trusts in agreements between himself as settlor and Delaware Trust Company, as trustee; the first trust was created on May 25, 1926, for the benefit of his son William Du Pont, Jr.; the second, on May 25, 1926, for the benefit of his daughter Marion Du Pont Somerville; the third, on July 12, 1927, for the benefit of his daughter-in-law, Jean Liseter Du Pont; and the fourth, on September 1, 1927, for the benefit of his stepson, George Zinn. Each of these trusts was by its terms irrevocable and effective as of its date.

(5) At the time of the creation of the first of these trusts, decedent was over seventy years of age.

(6) Subparagraph (f) of item 6 of decedent's will reads as follows:

"To the person who may at my decease occupy the position of Vicar of the Episcopal Church located on Seventh Street near Church Street, in the City of Wilmington aforesaid, known as `Holy Trinity (Old Swedes) Church', during his occupancy of said position and to each successor in said position during his occupancy thereof, the sum of Three Thousand Dollars ($3,000.00) per annum, said annuity to be in addition to the present salary of such Vicar and to cease at such time as the last survivor of the above five annuitants mentioned in this Item of my will shall die.

"It is my intention that this annuity shall be in addition to the present salary of the position of Vicar of said Church and if said salary should be reduced or discontinued after my decease, then payment of this annuity is to be suspended during any such period of reduction or discontinuance, otherwise to be paid as hereinabove provided."

(7) Delaware Trust Company, as executor, duly filed an estate tax return, in accordance with the requirements of the Act of Congress of February 26, 1926, known as the Revenue Act of 1926, in which the property covered by the above-mentioned four trusts was not included as part of decedent's gross estate, and in which a deduction was taken for the value of the bequest to the vicar of Holy Trinity (Old Swedes) Church, as a charitable bequest.

(8) Counsel agree that on or about July 10, 1930, the Commissioner of Internal Revenue, after audit and review, finally determined the value of the securities transferred under these four trusts at the time of decedent's death (less $5,000 deducted from the value of the securities in each of the trusts) to be as follows:

                  William Du Pont, Jr. ............. $2,025,000.00
                  Marion Du Pont Somerville ........  3,313,518.46
                  Jean Liseter Du Pont .............    583,529.33
                  George Zinn ......................    511,319.78
                                                     _____________
                  Aggregating the sum of ...........  6,433,367.57
                

(9) Counsel agree that the Commissioner of Internal Revenue determined the value of decedent's gross estate as of the date of his death to be the sum of $43,125,151.33; the allowable deductions therefrom to be the sum of $1,206,603.55; and the net estate for tax the sum of $41,918,547.78.

(10) On July 19, 1930, under the provisions of section 606 of the Revenue Act of 1928 (26 USCA § 2606), a closing agreement was entered into between the plaintiff and the Commissioner of Internal Revenue, as follows:

"Whereas, it has been determined that the estate tax imposed by the Revenue Act of 1926 upon the transfer of the net estate of the decedent is seven million, seven hundred twenty-three thousand, two hundred nine and 56/100 dollars ($7,723,209.56) said tax to be subject to a credit of not to exceed 80 per centum for State inheritance taxes paid, provided satisfactory evidence of payment is furnished within three years from Jan. 21, 1929, the date the return, Form 706, was filed by the estate; and

"Whereas, said taxpayer hereby agrees to this determination, except as to so much of the said estate tax as results from the inclusion in the gross estate of transfers of property made by the decedent within two years prior to his death but after the effective date of the Revenue Act of 1926, and from the disallowance as a deduction under `Charitable, Public and Similar Gifts and Bequests' of the item `Annuity to the Vicar of Holy Trinity (Old Swedes) Church, Wilmington, Del., $56,042.10'.

"Now, this Agreement Witnesseth, that said taxpayer and said Commissioner of Internal Revenue hereby mutually agree that the said tax of seven million, seven hundred twenty-three thousand, two hundred nine and 56/100 dollars ($7,723,209.56), subject, as provided in the first `Whereas' clause hereof, to a credit of not to exceed 80 per centum for State inheritance taxes paid, so determined shall be, subject to the exceptions contained in the second `Whereas' clause hereof, final and conclusive if and when this agreement is approved by the Secretary of the Treasury or the Undersecretary."

The above agreement was approved July 19, 1930.

(11) July 30, 1930, defendant demanded payment of additional sums on account of estate taxes assessed. August 6, 1930, plaintiff paid $448,708.28 to defendant in response to this demand. This amount included the sum of $283,130.20 sued for in this action.

(12) August 13, 1930, plaintiff filed a claim for refund of the above-mentioned sum of $283,130.20. This claim was rejected by the Commissioner of Internal Revenue by letter of November 18, 1930. This action was brought December 6, 1930.

(13) As far back as 1917, the decedent was giving his son a monthly allowance. The amount of this monthly allowance increased from time to time as his son's needs increased, ranging from $200 a month in 1917, to $1,500 a month in 1926, the date of the trust in his favor.

(14) As far back as 1916, the decedent was giving to his daughter a monthly allowance. The amount of this monthly allowance increased from time to time from $150 a month in 1916, to $1,000 a month at the time of her marriage on December 28, 1925, and continued at $1,000 a month until 1926, the date of the trust in her favor.

(15) Decedent discontinued monthly allowances to his son and daughter after the creation of the trusts in their behalf.

(16) Payments from the four trusts have been regularly and continuously made to the beneficiaries, and the corpus of each trust is still held by the plaintiff.

(17) In or about November, 1925, the decedent overlooked drawing checks for the allowances to his son and daughter. This was called to his attention by his son. The fact that decedent had forgotten to draw the monthly checks for his children appeared to annoy him greatly. As to this circumstance, William Du Pont, Jr., testified: "* * * He called Mr. Edinger, who was his secretary, to get his check book, and remarked that he wished to create a fund of some character at the bank, and let them issue the checks monthly, so that we would have them on time without being inconvenienced, and at the same time if he happened to be away from home, or on a trip at any place, that we would not have to go without our usual monthly checks, which might possibly embarrass us." Later, in a conversation with his son, decedent stated that it was time he and his sister took care of all their "desired necessities." He also referred to the fact that his daughter was about to be married and would be living away from home, so that he would not be in a position to take care of her needs, as they arose. He desired her to be independent. At the time of these statements to his son, decedent was in good health, and was carrying on his ordinary and usual activities. He did not mention death in connection with the trusts, nor the saving of estate taxes.

(18) In the early part of 1926, while in Georgia, decedent told his daughter that he was going to create trusts for her and her brother so they would have money to buy the things they wanted without coming to him. At the time of this conversation, the decedent was well and attending to his business in his usual manner. He made no mention of death nor the saving of taxes through the creation of the contemplated trusts.

(19) One Sunday in 1927, the decedent visited at his son's home in Newtown Square, Pa., and was shown about the place by his grandchildren. The next day at his office decedent spoke to his son about his mother's death (which had occurred earlier that year), and her habit of buying Christmas, birthday, and other...