Fair v. United States

• Decision Date: 07 February 1945
• Docket Number: No. 2986.,2986.
• Citation: 59 F. Supp. 801
• Parties: FAIR v. UNITED STATES.
• Court: U.S. District Court — Western District of Pennsylvania

59 F. Supp. 801

FAIR v. UNITED STATES.

No. 2986.

District Court, W. D. Pennsylvania.

February 7, 1945.

John A. McCann and Artemus C. Leslie, both of Pittsburgh, Pa., for plaintiff.

James P. Garland, Sp. Asst. to the Atty. Gen., and Charles F. Uhl, U. S. Atty., of Pittsburgh, Pa., for defendant.

McVICAR, District Judge.

This is an action for the recovery of federal estate taxes and interest paid thereon, alleged to have been erroneously assessed and collected from the plaintiff. The court, after hearing, makes the following findings of fact and conclusions of law:

Findings of Fact.

1. This is an action for the recovery of federal estate taxes with interest thereon. The plaintiff is a citizen of the United States, a resident of Allegheny County, Pennsylvania, and was duly appointed, qualified and is acting as the executrix of the estate of Minna D. Lorch, deceased.

2. Minna D. Lorch died testate, July 19, 1938, while a resident of Allegheny County, Pennsylvania. She was survived by her only child, Margaret Lorch Fair, the executrix of her estate, her daughter's husband, Robert J. A. Fair, and her daughter's two sons, Robert J. A. Fair, Jr., and Frederick Maul Fair, with whom the decedent resided.

3. September 6, 1939, plaintiff filed a federal estate tax return for the above estate with Walter L. Miller, Collector of Internal Revenue for the Twenty-third Collection District of Pennsylvania, at Pittsburgh, Pennsylvania; that said return disclosed a net estate of $146,370.64 and a total tax due of $10,536.78, which she paid to the Collector of Internal Revenue.

4. That upon the audit of said federal estate tax return, the Commissioner of Internal Revenue assessed a deficiency in estate tax against the plaintiff in the amount of $23,188.21. After notice and demand from the Collector, plaintiff paid, March 3, 1942, the said deficiency and interest thereon in the amount of $3,280.65.

5. May 15, 1942, and on November 20, 1942, plaintiff duly filed claims for refund of the above amounts with interest thereon, according to law. June 9, 1942, the Commissioner of Internal Revenue disallowed the claim filed May 15, 1942. More than six months have elapsed since the filing of the claim for refund November 20, 1942. The Commissioner has never allowed or disallowed the claim and has taken no action thereon.

6. The plaintiff is the sole owner of said claim. No action thereon has been taken in Congress or by any of the departments. Plaintiff has, at all times, borne true allegiance to the Government of the United States and has not in any way aided, abetted or given encouragement to any rebellion against said Government. No part of the above payment has been abated, refunded or credited to the plaintiff or to the said estate.

7. The Commissioner of Internal Revenue increased the value of decedent's estate from the returned amount of $193,079.12 to the amount of $357,541.37, by adding to it the aggregate amount of gifts made to Margaret Lorch Fair, daughter, Robert J. A. Fair, son-in-law, Frederick Maul Fair and Robert J. A. Fair, Jr., grandchildren, which gifts the Commissioner valued at $164,462.25.

8. Decedent did make gifts to the above-named persons December 24, 1935 (which was about two years and seven months before her death). The aggregate amount of said gifts was $151,662.25. The gifts of stock valued at $146,167.25 made to Margaret Lorch Fair was subject to the assumption of the obligation in the amount of $12,800 which the decedent owed to the Union Trust Company of Pittsburgh and which Margaret Lorch Fair assumed and paid, which reduced the value of the gift of stock to her to the amount of $133,367.25.

9. Of the total gifts made by the decedent, approximately $5,000 was given to the son-in-law, Robert J. A. Fair, and $5,000 was given to each of the two grandchildren.

10. Decedent in her last will dated January 12, 1938, bequeathed certain property to her two grandchildren and the residue of her estate to her daughter, Margaret Lorch Fair.

11. The decedent was sixty-seven years, ten months and eighteen days old at the time of her death. She was sixty-five years of age when the gifts were made December 24, 1935.

12. The immediate cause of decedent's death, as disclosed on the doctor's certificate, was cardiac exhaustion and pulmonary oedema.

13. Decedent had cancer of the cervix uteri from the year 1931 to the date of her death. She had asthma during the same period and for a longer period of time. She also had other illnesses of a minor character from 1931 to 1935 and until the time of her death. She had been in the hospital for examinations and sometimes for treatments several times between 1931 and the date of her death. During the year 1935 she was in better physical condition than she had been for some time prior thereto. She was an intelligent woman and strong-minded. She was active socially and looked after her own business. She went to Atlantic City a number of times and went to Florida in the early part of 1936, shortly after making the gifts at Christmas in 1935.

14. The decedent had no knowledge that she had cancer until the Spring of 1938. When the doctor told her then, for the first time, it was a great shock to her and was the first knowledge that she had of any condition which was serious to her health. After being told concerning the cancer she wrote in her bible, "Yesterday, April 3, 1938, I met my Gethsemene; nothing harder can come, but God will see me through."

15. The decedent's motive in making the gifts was to give her daughter, grandchildren and son-in-law the gifts so that they could enjoy the property given during the lifetime of the decedent. A minor motive for making the gifts at that time was to avoid increased gift taxes in 1936, and also a minor motive for making the gifts at the time made was because it was Christmastime. She did not make the gifts in contemplation of death nor were they testamentary in character.

16. The gifts made were of securities inherited by the decedent from her mother.

17. Walter L. Miller, Collector of Internal Revenue at Pittsburgh, died September 14, 1942.

18. The persons to whom the gifts were made by the decedent were not in financial need, as the son-in-law had a sufficient income to support himself and his family. The total amount of the gifts made aggregated about one-half of decedent's estate at the time the gifts were made.

19. Among decedent's obligations outstanding at the time the gifts were made was a mortgage of $18,800 in favor of the Peoples-Pittsburgh Trust Company and a mortgage of $13,500 in favor of the Birmingham Fire Insurance Company. Decedent's income tax return for 1935 showed interest paid of $3,965.59 and for the year 1936, $3,065.14. Her net income for 1935 was $2,694.81 and for 1936 was $1,992.14. After making the gifts aforesaid, decedent had a sufficient estate to support her.

20. Decedent consulted with her attorney in regard to the gifts. She did not state that she was making the same in contemplation of death. She was advised by her attorney the rate of the gift taxes when the gifts were made; that an increase would be made in 1936. He also advised her the amount the estate tax would be and that gift taxes could be deducted from the estate taxes if paid.

Conclusions of Law.

I. The burden is on the plaintiff to show by the preponderance of the evidence that the gifts made were not made in contemplation of death.

II. The gifts made by the decedent were not made in contemplation of death, and therefore, are not properly includible in the gross estate of Minna D. Lorch, deceased, for federal estate tax purposes.

III. The alleged deficiency in federal estate tax in the amount of $23,188.21 and interest in the amount of $3,280.65, with interest thereon, was illegally collected.

IV. Plaintiff is entitled to judgment against the defendant in the amount of $26,468.86, with interest thereon from March 3, 1942.

Opinion.

This is an action for the recovery of federal estate taxes in the amount of $23,188.21 and interest paid thereon in the amount of $3,280.65, with interest on both amounts which plaintiff alleges were erroneously assessed and collected from her, representing the estate of Minna D. Lorch, deceased.

The question involved is, Were the gifts by the deceased to her daughter, her two grandchildren and her son-in-law made in contemplation of death within the meaning of Section 302(c) of the Revenue Act of 1926, now Section 811(c) of the Internal Revenue Code, 26 U.S.C.A. Int. Rev.Code, § 811(c). The facts fully appear in the foregoing findings of fact; a brief statement therefrom is as follows:

Decedent made the gifts at Christmastime, 1935. She died July 19, 1938. The value of the gifts was $151,662.25, which was approximately fifty per cent. of her estate. After the making of the gifts, decedent had a sufficient...