Gillette's Estate v. Commissioner of Internal Rev., 12

• Citation: 182 F.2d 1010
• Decision Date: 14 June 1950
• Docket Number: 379.,No. 12,12
• Parties: GILLETTE'S ESTATE et al. v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Ninth Circuit

182 F.2d 1010 (1950)

GILLETTE'S ESTATE et al. v. COMMISSIONER OF INTERNAL REVENUE.

No. 12,379.

United States Court of Appeals Ninth Circuit.

June 14, 1950.

Edward H. McDermott, Wm. M. Emery and John S. Pennell, all of Chicago, Ill., for petitioner.

Theron Lamar Caudle, Asst. Atty. Gen., Ellis N. Slack, Melva M. Graney and Harry Marselli, Sp. Assts. to the Atty. Gen., for respondent.

Before MATHEWS, STEPHENS and ORR, Circuit Judges.

STEPHENS, Circuit Judge.

We are here petitioned to review a Tax Court redetermination of the federal estate tax liability of the Estate of Edwin F. Gillette, deceased.

The Commissioner of Internal Revenue determined that certain inter vivos transfers by decedent of interests in real property had been made in contemplation of death. See Section 811(c) of the Internal Revenue Code, 26 U.S.C.A. § 811(c).¹ The value of such interests was not returned in the estate tax return filed, and the Commissioner notified decedent's personal representative that a deficiency existed. The Tax Court was petitioned to redetermine the contemplation of death issue.

Upon stipulated facts and oral evidence put on solely by petitioner, the Tax Court ruled that petitioner had failed to show that the inter vivos transfers had not been made in contemplation of death, and thereupon a decision was entered that there was a deficiency in estate tax in the amount determined by the Commissioner.

It is not disputed but that the values placed by the Commissioner on the property interests involved are correct.

At the date of the property transfers in controversy in 1938, decedent, a widower, was 75 years of age and concededly in excellent health. His nearest relatives included four grown children and a sister. Decedent and his sister, among other property holdings, each owned through inheritance from their father undivided half interests in three pieces of real estate, which for sake of brevity will be referred to herein as the "Hartford Building", the "Michigan Avenue property" and the "Lake Beulah property." The Hartford Building and the Michigan Avenue property were business properties situated in Chicago. The Lake Beulah property located in Wisconsin consisted of a summer home frequented by family members and their individual families.

The substantial part of decedent's income came from the above mentioned business properties. Although a graduate engineer, decedent for many years had devoted himself exclusively to non-business activities and various hobbies (from languages and designing to expert handicraft and photography) and at no time showed any interest in the management by his sister's husband of such business properties.

Some months prior to the date of the subject transfers, through a French study group in which he was interested, decedent met and became enamored of a lady, a French teacher, who was 34 years his junior. She, although favorably inclined, was reluctant to accept his proposal of marriage for fear of being considered an "interloper" in decedent's well-knit family. Decedent unbeknown to her wrote each member of his family of his intentions to marry and quite eloquently and intimately supplied details as to his prospective wife, her background and her interests, suggesting that "Perhaps a reassuring letter from each might bring a solution" and professing that "I feel, in my inmost heart, that I cannot be truly happy again, alone."

The opposition of decedent's sister and her husband was immediate and determined. Their objections stemmed from knowledge of decedent's financial condition, his failure for many years to satisfy a sizable indebtedness to his sister on promissory notes or to pay the interest thereon, and his failure to contribute his half of the upkeep expense in maintaining the Lake Beulah property. Such opposition was sharpened by the possible impairment of title to the Michigan Avenue property. This property was subject at the time to a lease with option to purchase wherein the lessors had convenanted to convey a good title to the lessees if and when such option was exercised (as it later was) for the faithful performance of which the lessees had deposited a sizable sum with the lessors. Decedent's children voiced no objections to the proposed union and, if not all, all but one expressly approved of it.

Decedent's son, Hyde, together with a son-in-law who was an attorney, undertook to bring about a unanimity of the family in the matter. The husband of decedent's sister was adamant in his objections to the marriage and even uttered a threat to sue decedent on the promissory notes above mentioned. Hyde and the son-in-law worked out a plan and proposed it to decedent. It was testified by Hyde that his father's reaction to the plan after its explanation was "that if Howard the son-in-law and I thought it was all right and it met the problems that had arisen, for us to go ahead and draw up the instruments" Emphasis ours.

Such plan as was thereafter accomplished included a prenuptial agreement and the following conveyances (we emphasize only the salient features of each): As to decedent's interest in the Hartford Building, an irrevocable trust in favor of his four children as life beneficiaries and remaindermen was created, with Hyde as trustee. It was provided that the conveyance in trust was in consideration of the trustee's assumption of and agreement to pay, out of trust assets only, decedent's indebtedness (capital and interest) to his sister which was the basis of the disagreement.

Decedent's interest in the Michigan Avenue property was conveyed to his son Hyde in trust ultimately for the benefit of decedent's four offspring. Trust income was to be paid to decedent's four offspring. Trust income was to be paid to decedent for his life except that his sister was to receive during her life $1000 per year (approximately one-half of the annual interest due on decedent's indebtedness to her) or such part thereof as was necessary to pay her $1000 a year whenever the trust covering the Hartford Building did not pay her that much interest on such indebtedness (this never happened). Provisions were made for a life estate of $1500 per year in favor of decedent's widow if he should marry and predecease the wife. Decedent retained the right to terminate, alter or modify this trust in any respect at any time.

The Lake Beulah interest was conveyed outright by warranty deed to decedent's children.

In a pre-nuptial agreement executed by decedent and his prospective wife shortly after the above conveyancing occurred, the properties belonging to decedent, including those just conveyed, and the fact of such transfers were recited, and decedent's prospective wife in consideration of marriage and the payment of $1500 per year to her for life after decedent's death waived any dower, homestead or other statutory rights in decedent's properties whenever acquired.

The marriage took place and some seven months after the above related transfers, decedent, without the knowledge of his wife or any other member of his family, executed a will wherein he left all his properties to his wife.

At the age of 81 years (over 5 years after the date of the subject transfers) decedent died unexpectedly after a short illness.

It is the value of decedent's interest in the Hartford Building and the Lake Beulah property which the Commissioner determined should have been included in decedent's gross estate at death. The value of the Michigan Avenue interest was included in the estate tax return and the propriety thereof is not before us.

Petitioner contends (1) that the uncontradicted evidence clearly discloses that the inter vivos transfers in question were not made in contemplation of death and (2) that the Tax Court erroneously treated as evidence the general presumption of correctness which attaches to the commissioner's determination.

Since the former "Tax Board" is now the "Tax Court," although it always has been and is continued "as an independent agency in the Executive Branch of the Government" see 26 U.S.C.A. § 1100, and since the "review" of Tax Court "decisions" by the United States Courts of Appeals is taken and treated "in the same manner and to the same extent as decisions of the district courts in civil actions tried without a jury" see 26 U.S.C.A. § 1141(a), it would seem desirable for the Tax Court to voluntarily conform to Rule 52(a) of the Rules of Civil Procedure, 28 U.S.C.A., wherein it is provided that in non-jury cases district courts "shall find the facts specially and state separately its conclusions of law * * *."

Had such been the practice in the instant case (and it was not) we would have been able more readily and more certainly to ascertain the findings of fact upon which the decision is based.

Under the district court practice, there most probably would be no issue in the case as to whether the trial court herein erroneously failed to follow the rule laid down in Hemphill Schools, Inc. v. Commissioner, 9 Cir., 1943, 137 F.2d 961,² to the effect that the presumption of correctness of the Internal Revenue Commissioner's determination does not constitute evidence in the case. There are some expressions in the "Memorandum Findings of Fact and Opinion" which also includes conclusions of law which seems to indicate that the court arrived at its decision through the process of off-setting evidence in the case by the presumption of correctness rather than merely applying the burden of proof rule. However, after observing the court's hearing member's analysis of the several crucial events in the case, we are left with little or no doubt but that the court applied the correct rule. Compare quotation in the margin.³

It is to be noticed that the Tax Court's statement of the evidence in its "Memorandum" incorporates the material evidence adduced by petitioner and that the respondent introduced no evidence. The error complained of is asserted to exist in the inferences or...