Fillman v. United States

• Decision Date: 21 January 1966
• Docket Number: No. 541-58.,541-58.
• Citation: 355 F.2d 632
• Parties: Henry I. FILLMAN, Ancillary Administrator of the Estate of Johann Heinrich Karl Wehrli, also known as Charles Wehrli v. The UNITED STATES.
• Court: U.S. Claims Court

355 F.2d 632 (1966)

Henry I. FILLMAN, Ancillary Administrator of the Estate of Johann Heinrich Karl Wehrli, also known as Charles Wehrli v. The UNITED STATES.

No. 541-58.

United States Court of Claims.

January 21, 1966.

Henry I. Fillman, New York City, attorney of record, for plaintiff.

Edna G. Parker, Tax Div., Dept. of Justice, Washington, D. C., with whom was Acting Asst. Atty. Gen. Richard M. Roberts, for defendant. C. Moxley Featherston, Lyle M. Turner, and Philip R. Miller, Washington, D. C., of counsel.

Before COWEN, Chief Judge, and LARAMORE, DURFEE, DAVIS and COLLINS, Judges.

COWEN, Chief Judge.

Plaintiff is the Ancillary Administrator of the estate of Charles Wehrli, deceased, who was a citizen and resident of Switzerland and who died on November 2, 1948. Plaintiff brought this action for the refund of Federal estate taxes and interest which were imposed pursuant to the provisions of Sections 811, 861, and 862 of the Internal Revenue Code of 1939, 26 U.S.C. §§ 811, 861, and 862 (1952 Ed.).¹ The question for decision is whether at the time of his death the decedent owned certain securities which were then in the physical possession of the Guaranty Trust Company of New York.

The facts are set forth in detail in our findings of fact and will be summarized only to the extent needed to explain the basis for the result we have reached. The decedent owned and operated a bank in Zurich, Switzerland, and from 1937 until his death, his son, Peter Wehrli, was associated with him in business and investments. Beginning in 1939 and continuing throughout the period involving the transactions in this case, Peter Wehrli was fully authorized to act for his father.

In 1939, two corporations were organized under the laws of Argentina. The first was named Stella S.A. Argentine Commercial Industrial y Financiera, hereinafter Stella, and the second was named San Juan Sociedad Anonima Commercial Financiera and Industrial, hereinafter San Juan. The Argentine corporations were formed with the assistance of decedent's nephew, who acted as nominee for decedent and his associates, Max Reutter and Karl Kessler. Funds and securities belonging to decedent and his associates were transferred to the two corporations because of fear that the German Army might invade Liechtenstein and Switzerland and seize any assets found there. Both corporations engaged in the purchase and sale of securities in South America, New York, and London.

San Juan and Stella opened securities custody accounts with the Guaranty Trust Company of New York in 1939 and 1942, respectively. Both companies designated Peter Wehrli, decedent's son, solely, or Cordova Moyano and Robert J. J. Lagier, signing jointly, as the sole persons whose instructions on behalf of the two corporations should be recognized and complied with by Guaranty Trust Company. Their powers included the power to withdraw securities free of payment.

From time to time, securities held in the Guaranty Trust custody accounts in the names of San Juan and Stella were sold and other securities were purchased. At the time of decedent's death, the securities upon which the estate taxes were levied consisted of stocks in United States domestic corporations, Republic of Uruguay bonds, and six-percent debentures of Liebmann Breweries, Inc. The shares of stock and debentures were registered on the books of the various corporations in the name of the nominee of the Guaranty Trust Company, and this was also true of the Uruguay bonds.

In connection with the settlement of decedent's estate, an inventory was prepared for Swiss tax purposes. The Swiss tax authorities discussed with Peter Wehrli the assets to be included in the inventory and all of the securities in issue here were listed in the inventory. All of the securities, plus cash in the custody accounts of Stella and San Juan, were ultimately distributed either to the heirs of the decedent or were used in payment of administration expenses.

On May 1, 1950, plaintiff, as Ancillary Administrator, filed a nonresident alien estate tax return and paid $86,606.16, the tax shown to be due thereon, plus interest. On November 14, 1952, the Collector of Internal Revenue corrected the total value of the securities and assessed a deficiency estate tax of $6,030.65, and on December 5, 1952, the deficiency, plus interest thereon, was paid. Thereafter, plaintiff filed a timely claim for refund of the total amount of the estate tax so paid and filed this suit after the claim was disallowed in its entirety.

In Burnet v. Brooks, 288 U.S. 378, 53 S.Ct. 457, 77 L.Ed. 844 (1933), the Supreme Court construed Sections 302(a) and 303(b) of the Revenue Act of 1924 which, in pertinent part, are the same as Sections 811(a) and 861(a) of the Internal Revenue Code of 1939. As a result of that decision, there is no longer any question that bonds of foreign governments and of foreign and domestic corporations, as well as stocks of foreign corporations and domestic corporations, belonging to a nonresident alien but physically within the United States at the time of his death are includible in his estate for Federal estate tax purposes. It is undisputed that all the securities in issue here were situated in the United States at the time of decedent's death. Therefore, they were subject to the Federal estate tax if he owned them at the time of death.

Plaintiff's basic contention is that Stella and San Juan had all of the privileges of ownership in the securities in the custody accounts in the Guaranty Trust Company and, therefore, that decedent was not the owner and holder of the securities at the time of his death within the meaning of Section 862(a) of the Internal Revenue Code of 1939, 26 U.S.C. § 862(a) (1952 Ed.).²

In support of his contention, plaintiff points to our findings 12(c) and 14(b), which state that after the securities had been acquired and subject only to restrictions resulting from the blocking of the custody accounts, pursuant to wartime regulations, San Juan and Stella had complete power to deal with the securities, including the power to sell them, to vote the stock, and to collect the dividends on the stock and the interest on the bonds. Guaranty Trust Company collected the interest and dividends for the account of San Juan and Stella. It is true that such findings, standing alone and isolated from the remainder of the record, lend support to plaintiff's theory of the case. However, the indicia of ownership in San Juan and Stella are shown to be entirely superficial when matched against the solid array of evidence as to the capacity in which each corporation acted. In our view, the following summarized facts demonstrate quite conclusively that every action which San Juan and Stella took with respect to the securities throughout the period pertinent to this action was performed in a capacity which each corporation accurately characterized as that of a mere depositor and custodian for the decedent, the real owner:

(a) On April 21, 1942, the Secretary of the Treasury issued General Ruling No. 12 (5 F.R. 1400), which, as a part of the wartime restrictions on blocked accounts, provided that no transactions involving securities in blocked accounts could be effected unless the person with whom the account was maintained was in...