GUARANTEE TRUST CO. OF NEW YORK v. Commissioner of Internal Revenue, Docket No. 16038.
| Decision Date | 30 April 1929 |
| Docket Number | Docket No. 16038. |
| Citation | 16 BTA 314 |
| Parties | GUARANTY TRUST CO. OF NEW YORK, EXECUTOR UNDER THE LAST WILL AND TESTAMENT OF ROXY M. SMITH, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Lee McCanliss, Esq., Theodore Kiendl, Esq., and Otis T. Bradley, Esq., for the petitioner.
Louis S. Pendleton, Esq., for the respondent.
This proceeding is for the redetermination of a deficiency in estate tax asserted by the respondent in the amount of $568,891.18. Five issues are raised by the pleadings. As to three of these issues the parties have entered into a stipulation which has been duly filed herein, leaving for consideration and decision only the question of (1) whether the estate of the decedent is subject to the Federal estate tax, and, (2) if so, whether the respondent erred in including in the gross estate the commuted value at the time of the decedent's death of certain refund annuity contracts issued to her by the Equitable Life Assurance Society.
FINDINGS OF FACT.
The petitioner is the duly appointed, qualified and acting executor of the last will and testament of Roxy M. Smith, who died August 8, 1921, a resident of the State of New York.
On March 12, 1919, December 18, 1919, and February 21, 1920, the Equitable Life Assurance Society of the United States, a New York corporation, upon applications theretofore made by Roxy M. Smith, and in consideration of the amounts of $150,000, $350,000, and $500,000 by her paid, executed and delivered to her at its home office in the City of New York, three so-called Refund Annuity contracts numbered respectively, 2424580, 2535148, and 2568239. Contract No. 2424580 provided that the Equitable Life Assurance Society would pay to Roxy M. Smith on June 12, 1919, and each three months thereafter during her lifetime, the amount of $5,485.50; contract No. 2535148 provided that the Equitable Life Assurance Society would pay to Roxy M. Smith on March 18, 1920, and each three months thereafter during her lifetime, the amount of $12,799.50, and contract No. 2568239 provided that the Equitable Life Assurance Society would pay to Roxy M. Smith on May 21, 1920, and each three months thereafter during her lifetime, the amount of $18,285. Each of the three contracts also provided that:
GUARANTEE.
It is hereby expressly agreed that, upon the death of the Annuitant, if the sum of the annuities previously paid is less than the aforesaid Capital invested, the Society will continue the payment of the Annuity to her son, WILLIAM E. SMITH, beneficiary (with the right on the part of the Annuitant to change the beneficiary), until the total amount of the annuities paid hereunder shall equal the amount of the aforesaid Capital invested. If the Annuitant and beneficiary should both die before the sum of the annuities paid equals the amount of the Capital invested, subsequent payments as they fall due hereunder shall be made to the executors, administrators or assigns of the last survivor of the Annuitant and beneficiary.
If, upon the death of the Annuitant, the sum of the Annuities already paid equals, or exceeds, the amount of the aforesaid Capital invested, then this contract shall terminate with the payment of the last quarterly Annuity preceding the death of the Annuitant.
Each Annuity will be paid by check to the order of the person entitled to receive the same, which check will require the personal endorsement of the payee as proof of survival.
BENEFICIARY. If the right to change the beneficiary has been reserved, and there is no written assignment of this contract on file with the Society, the Annuitant may from time to time change the beneficiary or beneficiaries by a written request (upon the Society's blank) filed at its Home Office; but such change shall take effect only upon the endorsement of the same hereon by the Society.
SURRENDER VALUE. If this contract, after having been in force for two full years, should be surrendered before the sum of the annuities paid equals the Capital invested, the commuted value (at 3% compound interest) of the annuities necessary to complete the Capital invested will be allowed as a surrender value.
AGE. If the age of the Annuitant has been mis-stated, the amount payable hereunder shall be such as the Capital invested would have purchased at the Society's annuity rates in use at the register date of this contract at the correct age; any overpayment or overpayments by the Society, with interest thereon, shall be charged against the payments to be made after adjustment.
THE CONTRACT. This agreement, and the application therefor, a copy of which is endorsed hereon or attached hereto, constitutes the entire contract between the parties. All statements made by the Applicant shall, in the absence of fraud, be deemed representations and not warranties, and no such statement shall avoid this contract or be used in defense of a claim thereunder unless contained in the written application therefor and a copy of such application is endorsed hereon or attached hereto, when issued.
No person except an Executive Officer of the Society — President, a Vice-President, Secretary, Assistant Secretary, Comptroller, Deputy Comptroller, Treasurer, an Assistant Treasurer, or Auditor — has the power to modify this contract. This contract is issued on the basis of McClintock's Tables of Mortality Among Annuitants with 3½% interest, and does not participate in surplus.
Each of said Refund Annuity contracts was in force at the date of the death of Roxy M. Smith, and her son, William E. Smith, who was named as beneficiary in each contract, was living at that time. No change of beneficiary in any of the contracts was ever made by Roxy M. Smith. The present worth, or commuted value of said contracts at the date of the death of Roxy M. Smith, was $724,630.98.
The respondent, upon audit of the estate-tax return filed by the estate of Roxy M. Smith, determined that the present worth, or commuted values of the said refund annuity contracts at the date of the death of Roxy M. Smith, constituted a part of her gross estate, subject to the Federal estate tax; made other adjustments not material here, and determined that there is a deficiency in tax in the amount of $568,891.18.
On the threshold of this proceeding we are confronted with the basic question of whether there is now, as a matter of law, any liability on the part of the decedent's estate for estate tax. The petitioner admits that the Revenue Act of 1918 was in full force and effect at the date of the death of Roxy M. Smith, and that it imposed a tax on the transfer of her net estate, but it contends that the liability so imposed was extinguished when the Revenue Act of 1918 was repealed by the Revenue Act of 1921. In support of this contention the petitioner cites the case of Wilmington Trust Company v. United States, recently decided by the United States District Court for the District of Delaware and reported in 28 Fed. (2d) 205.
The Revenue Act of 1918 imposed a tax on the transfer of the net estate of every decedent dying after the passage of the Act, and also provided that "the tax shall be due one year after the decedent's death." On November 23, 1921, the Revenue Act of 1921 was approved by the President and superseded the Revenue Act of 1918. The Revenue Act of 1921 contained, among other things:
SEC. 1400. (a) That the following parts of the Revenue Act of 1918 are repealed, to take effect (except as otherwise provided in this Act) on January 1, 1922, subject to the limitations provided in subdivision (b): * * *
TITLE IV (called "Estate Tax") on the passage of this Act;
* * * * * * *
(b) The parts of the Revenue Act of 1918 which are repealed by this Act shall (unless otherwise specifically provided in this Act) remain in force for the assessment and collection of all taxes which have accrued under the Revenue Act of 1918 at the time such parts cease to be in effect, * * *.
It is clear from the provisions of law quoted that if the tax imposed on the transfer of the net estate of the decedent, Roxy M. Smith, had accrued on November 23, 1921, within the meaning of section 1400 (b) of the Revenue Act of 1921, it was not extinguished, but, on the other hand, could be assessed and collected under the parts of the Revenue Act of 1918 which were kept in force for that purpose. The petitioner, however, urges that estate taxes under the Revenue Act of 1918 did not accrue until they became due and payable, that is, one year after the death of the decedent, which in this case would not have been until August 8, 1922. The respondent takes the position that the tax accrued immediately upon the death of the decedent. The question is thus narrowed to whether the tax involved here had accrued on November 23, 1921. If it had not accrued, the decedent's estate is not subject to any estate tax, regardless of the amount of the net estate. If the tax had accrued, then we must hold the estate liable therefor and proceed to determine the amount of the tax.
It may be conceded here that the case of Wilmington Trust Co. v. United States, supra, directly supports the position taken by the petitioner, and if sound would be decisive of the question presented. However, we think that the weight of both logic and authority negatives the conclusion reached by the learned court in that case. In the case of Hertz v. Woodman, 218 U. S. 205, there was presented to the court for decision a question similar in many respects to the one we are now considering. The facts in that case were that a legacy tax was imposed by the Revenue Act of 1898 and was made due and payable one year after death. The testator, Woodman, died March 15, 1902. Effective July 1, 1902, the Revenue Act of 1898 was repealed, but taxes "imposed" prior to July 1, 1902, were saved by the repealing Act. In discussing the contention made by Woodman's executors and legatees that the...
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