Ferguson v. Dickson

• Decision Date: 19 August 1924
• Docket Number: 3128.
• Citation: 300 F. 961
• Parties: FERGUSON, Collector, v. DICKSON et al.
• Court: U.S. Court of Appeals — Third Circuit

300 F. 961

FERGUSON, Collector, v. DICKSON et al.

No. 3128.

United States Court of Appeals, Third Circuit.

August 19, 1924

Walter G. Winne, U.S. Atty., of Hackensack, N.J., Walter H. Bacon Jr., Asst. U.S. Atty., of Bridgeton, N.J., and Thomas H Lewis, Jr., and Nelson T. Hartson, both of Washington, D.C for plaintiff in error.

Cullen & Dykman, of New York City (Thomas G. Haight, of Jersey City N.J., of counsel), for defendants in error.

Before WOOLLEY and DAVIS, Circuit Judges, and THOMPSON, District judge.

DAVIS Circuit Judge.

This is an action brought by the executors of the estate of Joseph B. Dickson, deceased, against the collector of internal revenue for the Fifth district of New Jersey, to recover $50,509.48, with interest, which they allege was erroneously assessed and collected as a federal estate tax under the provisions of section 402 (c) of the Revenue Act of 1918 (40 Stat. 1097 (Comp. St. Ann. Supp. 1919, Sec. 6336 3/4c)). In consideration of the marriage about to be entered into by them, Joseph B. Dickson and Johanna Rose Maran on April 5, 1917, made an antenuptial settlement or contract between themselves and the Central Trust Company of New York as trustee. Mr. Dickson was a widower, having four children, and Miss Maran was a maiden lady. The evident object of Mr. Dickson was to make provision for Miss Maran, for his four children, and for the management and disposition of his property free from the restraint of dower rights. Miss Maran released to her intended husband all the rights in his property, real and personal, which he then had or might thereafter acquire, and Mr. Dickson transferred and delivered bonds of the face value of $500,000 to the Central Trust Company of New York, trustee, upon certain trusts, the pertinent ones of which follow:

'(1) Until the solemnization of the intended marriage the securities were to be held to and for the use of the husband.

'(2) Thereafter the annual income was to be paid to the husband during his life in quarterly installments.

'(3) If the intended wife survived the husband, the income was to be paid to her during her life or so long as she remained his widow.

'(4) If upon the death of the wife without having remarried there was surviving her issue of the contemplated marriage, the corpus of the trust estate was to be distributed to such issue in equal shares; but, if there was no such issue, the corpus was to be distributed in equal shares amongst the husband's four children by a former marriage.

'(5) If the wife remarried and there was issue then living of her marriage to the founder of the trust one-fifth of the corpus of the trust estate was to be distributed to her and the remaining four-fifths in equal shares among such issue; but. if there were no issue, three-fifths of the corpus was to pass to her and the remaining two-fifths was to be distributed in equal shares amongst the founder's four children by a former marriage.

'(6) Should the death of the wife occur before that of the decedent then the living issue, if any, of the marriage were to receive the entire corpus; but if there were no such issue, then the whole corpus was to be paid over to and become the property of the husband.'

The marriage took place April 11, 1917, six days after the execution of the contract. Mr. Dickson died on December 12, 1919. After his death, the executors of his estate filed a federal estate tax return in which the securities transferred to the trustee were not included. The Commissioner of Internal Revenue, upon a review of the return, determined that the value of the securities at the time of the decedent's death was $407,459, and that they should have been included in the return. The inclusion of this amount in the gross estate increased the estate tax $68,209.78, which the executors paid under protest on July 27, 1922.

It is admitted that the value of Mrs. Dickson's life interest in the securities is $360,782.03, and the additional tax attributable to this amount is $50,509.48. The executors filed claim on January 13, 1923, for refund of this sum. The claim was rejected on March 22, 1923, and the executors brought this suit to recover it with interest. Defendant filed a motion to strike out the complaint. On the hearing the District Court entered an order denying the motion and allowing the defendant 15 days in which to file an answer, and further provided therein that, in default of filing an answer within that time, judgment would be entered for the plaintiffs. An answer was not filed, and so on August 13, 1923, judgment was entered for the plaintiffs for $53,540.05.

Section 402 of the act provides:

'That the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated--

' * * * (c) To the extent of any interest therein of which the decedent has at any time made a transfer, or with respect to which he has at any time created a trust, in contemplation of or intended to take effect in possession or enjoyment at or after his death (whether such transfer or trust is made or created before or after the passage of this act), except in case of a bona fide sale for a fair consideration in money or money's worth. * * * '

There is no question that Mr. Dickson made a transfer and created a trust in favor of his intended wife, the possession and enjoyment of which were to take effect after his death. The question is: Does this transaction come within the exception in that it was 'a bona fide sale for a fair consideration in money or money's worth'? It was bona fide. There is not a hint, or even a suspicion, that there was a purpose on the part of anybody to avoid the payment of taxes or to do anything questionable. It was a purely business transaction which was honorable and above-board. There are therefore...