First Western Bank & Trust Co. v. Comm'r of Internal Revenue

• Decision Date: 31 July 1959
• Docket Number: Docket No. 65147.
• Citation: 32 T.C. 1017
• Parties: FIRST WESTERN BANK AND TRUST COMPANY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

32 T.C. 1017

FIRST WESTERN BANK AND TRUST COMPANY, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 65147.

Tax Court of the United States.

Filed July 31, 1959.

William D. McKee, Esq., for the petitioner.

Nat F. Richardson, Esq., for the respondent.

Held, petitioner is liable under section 900(a)(1) of the Internal Revenue Code of 1939 as a transferee at law for the unpaid estate tax of the estate of William P. Baker, deceased.

ARUNDELL, Judge:

Respondent determined for assessment against petitioner the amount of $49,698.63, plus interest as provided by law, as constituting petitioner's liability as transferee and trustee of property of the estate of William P. Baker, deceased. Petitioner contests the entire determination. Errors have been assigned from (a) to (1). The assignments are grouped and summarized as follows:

1. Respondent erroneously included in the decedent's gross estate the undistributed corpus of an inter vivos trust dated September 12, 1941;

2. Respondent's determination is barred by the statute of limitations;

3. Respondent erred in determining that the transfer of a promissory note to Melba Baker in the amount of $10,000 was a transfer in contemplation of death;

4. Respondent erred in determining that petitioner is a transferee and trustee of any portion of the property included in the gross estate of the decedent, and in determining that petitioner is liable as a transferee and trustee for the alleged deficiency of estate tax in the amount of $49,698.63, or any other amount, or any interest thereon;

5. Respondent erred in failing to allow credit against the alleged estate tax for Federal gift taxes paid at the time of the creation of the inter vivos trust dated September 12, 1941;

6. Respondent erred in failing to allow the family allowance ordered by the California court as a part of the marital deduction from decedent's gross estate.

Respondent in his brief concedes that petitioner's transferee and trustee liability is $48,306.63 instead of $49,698.63 which is due to an additional credit for Federal gift taxes for the difference. This concession disposes of assignment 5 above.

FINDINGS OF FACT.

The stipulation of facts, together with the attached exhibits, is found as stipulated and is incorporated herein by reference.

Petitioner is a California banking corporation, the principal office of which is located in the city and county in San Francisco. The former name of petitioner was the San Francisco Bank.

The estate tax return of William P. Baker, deceased, was filed with the collector of internal revenue, now district director, for the first district of California, on October 7, 1952.

On September 12, 1941, William P. Baker entered into a written trust agreement with petitioner as trustee pursuant to which he transferred to petitioner 4,000 shares of the capital stock of Regal Amber Brewing Company for the benefit of his daughter, Patricia Marie Baker (now Patricia Baker Englert).

Under the terms of the trust the trust was to terminate and the property remaining in trust was to be distributed to the beneficiary on June 28, 1955, when the beneficiary reached the age of 30 years.

Baker died on July 11, 1951, at which time the value of the property remaining in trust was $162,000.

Melba D. Baker (now Melba Schuster), as executrix of the estate of William P. Baker, deceased, filed the Federal estate tax return for the estate.

A copy of the trust agreement between petitioner and Baker was filed with the estate tax return filed by the executrix and the position was taken in the return that the trust was not taxable.

In due course the Commissioner of Internal Revenue audited the Federal estate tax return of the estate of William P. Baker, deceased, and determined that the trust was not taxable but made certain other adjustments resulting in an increase in estate tax.

The additional estate tax as so determined by the Commissioner to be due was assessed and paid by the estate prior to the expiration of the statute of limitations.

The statute of limitations for the assessment of additional estate tax against the estate expired on October 7, 1955, without any further deficiency against the estate being assessed or asserted prior thereto or at any time thereafter.

Under date of December 10, 1954, petitioner informed the beneficiary, Patricia Baker Englert, that the trust would terminate on June 28, 1955, and requested information evidencing the payment of any applicable gift or estate taxes relating to the trust.

Under date of December 13, 1954, petitioner received information which reasonably satisfied it that applicable gift taxes had been paid at the time the trust was established.

Later, in the spring of 1955, petitioner received information which reasonably satisfied it that all estate taxes which were due had been paid.

On or before August 9, 1955, in accordance with the terms of the trust and in reliance upon the information which it had received concerning the payment of gift and estate taxes, petitioner distributed to Patricia Baker Englert the balance of the corpus and income of the trust in its hands and closed its files with respect thereto.

On September 6, 1956, more than a year following the distribution by petitioner of the trust corpus, the petitioners in this case and in the two cases¹ consolidated with it (for trial purposes only) received statutory notices of an additional deficiency in estate taxes determined to be due with respect to the estate of William P. Baker, deceased. In the statutory notice of deficiency petitioner was alleged to be liable ‘as transferee and trustee of property of the estate of William P. Baker, Deceased.’

The estate of William P. Baker, deceased, has not been finally distributed and at all times since the decedent's death has had and now has assets of many times the amount of the claimed deficiency.

Melba Schuster, the petitioner in Docket No. 65075, has received and presently owns in her individual capacity property includible in the gross estate of William P. Baker, deceased, of a value substantially in excess of the amount of the asserted deficiency.

Patricia Baker Englert, the petitioner in Docket No. 65073, has received and presently owns the property constituting the corpus of the trust alleged to be includible in the gross estate of William P. Baker, deceased, which is of value substantially in excess of the amount of the asserted deficiency.

Petitioner in this case does not now have and at no time subsequent to August 9, 1955, has had any assets at any time belonging to Baker or his estate.

The correct credit for gift taxes allowable in computing the asserted deficiency in estate tax, if any, is $4,120.13 instead of...