Eagan v. COMMISSIONER OF INTERNAL REVENUE, Docket No. 26077.

• Decision Date: 28 September 1929
• Docket Number: Docket No. 26077.
• Citation: 17 BTA 694
• Parties: SUSAN YOUNG EAGAN AND MARION M. JACKSON, EXECUTORS, ESTATE OF JOHN JOSEPH EAGAN, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Board of Tax Appeals

17 B.T.A. 694 (1929)

SUSAN YOUNG EAGAN AND MARION M. JACKSON, EXECUTORS, ESTATE OF JOHN JOSEPH EAGAN, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 26077.

Board of Tax Appeals.

Promulgated September 28, 1929.

Robert C. Alston, Esq., for the petitioners.

Frank T. Horner, Esq., for the respondent.

This proceeding involves a deficiency of $113,171.61 in estate tax. The question is whether the amount of a bequest by decedent to certain trustees is deductible from the value of the gross estate under section 403 (a) (3) of the Revenue Act of 1921 as a bequest to trustees exclusively for charitable purposes.

FINDINGS OF FACT.

John Joseph Eagan died March 30, 1924, a resident of De Kalb County, Georgia. He was survived by his wife, Susan Young Eagan, and two minor children. The value of his gross estate was $1,990,547.43. This included $1,112,125 which was the undisputed value determined by respondent of 1,085 shares of common stock of the American Cast Iron Pipe Co., hereinafter called the Company. Decedent left a will dated April 22, 1922, and a codicil dated April 3, 1923. By the original will, he made certain specific bequests and bequeathed his residuary estate to his wife. No specific mention was made of the aforementioned 1,085 shares. The codicil follows:

Whereas I Jno. J. Eagan, did on the twenty second day of April 1922, sign, seal, declare and publish my last will and testament in the presence of A. E. Ramsaur, Nettie Catoe and H. A. Etheridge who signed said will and testament as witnesses:

And whereas, I desire to add an additional bequest and devise in said will and testament, I, therefore make, declare and publish this codicil to said will and testament, to wit

I hereby give, bequeath and devise ten hundred and eighty-five (1,085) shares of the common stock of the American Cast Iron Pipe Company, being all of my holdings of said common stock of said Company, to the members of the Board of Management and the members of the Board of Operatives of said American Cast Iron Pipe Company jointly, and their successors in office in said Boards, as trustees, in trust for the following purposes, and subject to the directions hereinafter set forth, to wit:

First: To receive all dividends paid upon said stock and use so much of the dividends thus received, as said trustees in their discretion may deem advisable in supplementing the salaries and wages of the employees of said American Cast Iron Pipe Company in amounts sufficient in the judgment of the said trustees to insure to each of said employees an income equivalent to a living wage, said trustees to be the sole judges of what constitutes a living wage, and of the amounts, if any, to be paid to each one or any of said employees of said Company.

Second: To use such sums from the dividends received upon said stock, as said trustees in their discretion may deem advisable, in paying an income to any employee, or to the wife and minor children of any employee of said American Cast Iron Pipe Company, at such times as the plant of said Company may shut down for any cause, or at such times as said employee through no fault of his or her own, but through accident, sickness, or other unavoidable causes, shall be unable to work and said trustees are hereby made the sole judges of the amounts, if any, which shall be paid by said trustees to any employee, or to the members of any employee's family under the provisions of this paragraph —

Third: To vote said certificates of stock in said American Cast Iron Pipe Company at all meetings of stockholders of said Company —

It is my will and desire, and I direct, that in determining all questions as to voting said stock, and as to carrying out the provisions of the trust created by this codicil, the members of the Board of Management, as Trustees, shall vote as a unit, and the members of the Board of Operatives, as trustees, shall vote as a unit, the vote of each group to be determined by the majority vote of the members of the respective boards; and that in the event of the failure of the respective groups of trustees to agree upon any question said question in dispute shall be referred to the Board of Trustees, whose decision shall be final —

Any member of either of said boards, who shall cease to be a member of either Board for any cause whatsoever shall thereupon cease to be a trustee under this codicil of my will, his or her successor upon either of said Boards, becoming, by virtue of his or her office, a trustee under this codicil, immediately upon his or her acceptance of said trust —

Any employee of said American Cast Iron Pipe Company who shall die, or who shall voluntarily or involuntarily for any cause whatsoever, other than the temporary shutting down of the plant or plants of said Company, leave the employment of said Company, shall immediately thereupon cease to have any interest of any kind whatsoever in any income from, or in any part of the trust estate created by this codicil of my will. Any person, who may hereafter at any time enter the employment of said Company, shall immediately thereupon become a beneficiary of said trust estate with all of the rights and privileges enjoyed by the employees of said Company at the time of my death, and subject to the same conditions —

The provisions of the two paragraphs immediately preceding this paragraph shall apply to the wife, or child, or the wife and children, or children of said employee of said Company, if there be wife, or child, or children or both, provision having been made for them, in the event of the death of said employee leaving such, under the rules for the management of said Company of its Pension Fund —

By this codicil to my will and testament, it is my purpose, will and desire to create a trust estate both for the benefit of the persons actually in the employ of said American Cast Iron Pipe Company, and for such persons as may require the product of said Company.

The trustees, appointed by this codicil, in accepting the trust and acting hereunder, will be trustees both for said employees and said persons requiring the product of said Company.

It is my will and desire that said trustees in the control of said Company, through the control of said common stock, shall be guided by the sole purpose of so managing said Company as to enable said American Cast Iron Pipe Company to deliver the Company's product to persons, requiring it, at actual cost, which shall be considered the lowest possible price consistent with the maintenance and extension of the Company's plant or plants and business and the payment of reasonable salaries and wages to all of the employees of said Company, my object being to insure "Service" both to the purchasing public and to labor on the basis of the Golden Rule given by our Lord and Saviour Jesus Christ.

This third day of April 1923

(Signed) JOHN J. EAGAN.

The will and codicil were, on May 5, 1924, admitted to probate. Petitioners are the executors.

Thereafter, in August 1924, the executors as plaintiffs instituted a proceeding in the Superior Court of Fulton County, Georgia, against W. D. Moore and others, as trustees for the employees of the Company for the wives and children of said employees and for the general public, and as employees and representatives of all employees of the Company. The petition prayed for an order (1) construing the bequest of 1,085 shares "to be a charitable bequest within the meaning of the law of Georgia, thereby creating a perpetual trust for charitable purposes," (2) construing the words "Boards of Trustees" in the codicil to mean the board of directors of the Company, and (3) directing petitioners to deliver the shares to defendant members of the "Board of Management" and "Board of Operatives" of the Company as trustees. Answer was filed substantially admitting the facts and acceding to the prayer of the petitioners. The jury, on December 15, 1924, found for petitioners as requested, and decree in accordance therewith was on the same day entered.

In January, 1925, Susan Young Eagan, as executrix, delivered the 1,085 shares to the trustees.

The American Cast Iron Pipe Co. is a Georgia corporation organized in 1905, and its powers, as shown by its original charter and subsequent amendments thereto, are those of a business corporation with the object of "pecuniary gain to the stockholders," with the right to issue common and preferred shares. The original capital stock was fixed at $150,000 divided into shares of $100 each, either common or preferred, or both, with the right to increase the capital to $1,000,000 or to reduce it to $50,000.

Decedent was one of the original organizers of the Company. In December, 1921, he became president. In a letter to the stockholders dated January 20, 1922, he stated that he had "accepted the position with the understanding that the teachings of Jesus Christ should be the controlling principles in the business."

In December, 1921, decedent announced the creation of an executive committee, authorized by article IV, section 11, of the Company's by-laws, as follows:

The Board of Directors may appoint an executive committee consisting of not less than three (3) of its members, to whom it may delegate such of its duties as may seem proper.

The name of this committee was changed to the "Board of Management" on March 15, 1922. At the time of its creation decedent announced:

It is the hope of our Directors to make our organization thoroughly democratic and cooperative. We have begun by a distribution of our responsibilities. This has been divided under four heads: Sales, Manufacturing, Purchases and Employees, and Finance.

The "Board of Operatives" was created with the consent of the stockholders. The first steps were taken about the Christmas season of 1921. On March 1, 1922, a report on "Employee Representation" was submitted as follows:

The Board of Management of the American Cast Iron Pipe Company asks that...