Higley v. Commissioner of Internal Revenue, 9720.

• Citation: 69 F.2d 160
• Decision Date: 16 February 1934
• Docket Number: No. 9720.,9720.
• Parties: HIGLEY v. COMMISSIONER OF INTERNAL REVENUE.
• Court: United States Courts of Appeals. United States Court of Appeals (8th Circuit)

69 F.2d 160 (1934)

HIGLEY v. COMMISSIONER OF INTERNAL REVENUE.

No. 9720.

Circuit Court of Appeals, Eighth Circuit.

February 16, 1934.

Park Chamberlain, of New York City (Don Barnes, of Cedar Rapids, Iowa, and Simpson, Thacher & Bartlett, of New York City, on the brief), for petitioner.

J. Louis Monarch, Sp. Asst. to Atty. Gen. (Sewall Key, Sp. Asst. to Atty. Gen., and E. Barrett Prettyman, Gen. Counsel, Bureau of Internal Revenue, and Lewis S. Pendleton, Sp. Atty., Bureau of Internal Revenue, both of Washington, D. C., on the brief), for respondent.

Before STONE, SANBORN, and VAN VALKENBURGH, Circuit Judges.

STONE, Circuit Judge.

This is a petition to review a redetermination of taxes on the estate of Elmer A. Higley by the Board of Tax Appeals.

Elmer A. Higley died in September, 1926, leaving a wife and three adult children. There was no will and no administration of the estate. In November, 1927, Fred M. Higley (one of the children) made a return for federal estate tax on the departmental form. In the "jurat" of the return, he recites that the return is "for myself and all the beneficiaries named in schedule `E' hereto attached." Schedule E is "Transfers." Thereunder property valued at $465,398.85 is put down as "description is contained in the Schedule hereto attached" and as nontaxable. The schedule referred to as "hereto attached" was a lengthy document stating, in detail, the condition of the estate; the formation by decedent of a corporation sole to which he had transferred practically all of his property some years before death; the creation of four Separate trusts (one for the widow and one for each of the three children) by decedent shortly after formation of the corporation to which was distributed all but one share of the stock of the corporation; the value of the properties held by the corporation; an argument that the trusts were not in contemplation of death; and reasons for not seasonably filing an estate tax return. This attached schedule was under oath, and affiant "states that this return is made by him in behalf of the widow and all of the heirs at law of the said Elmer A. Higley, who are the beneficiaries of the trusts which are set out in this report." The only property scheduled in the return as belonging to the estate was one small piece of real estate valued at $1,520.

The Commissioner determined that the entire property in the four trust estates should be included in the estate and subjected to the tax. He assessed a deficiency of $18,229.06. Notice of this deficiency was addressed only to "Fred M. Higley, Beneficiary, Estate of Elmer A. Higley." Thereafter a petition for redetermination was filed with the Board by the widow and the three children. The substance of this petition was that the property in the trust estates was not subject to the estate tax, for various reasons set forth. There was an extended hearing before the Board resulting in findings that the trusts were in contemplation of death and taxable as determined by the Commissioner. Of its own motion, the Board examined its jurisdiction over the parties. As to that it held as follows: That neither a legal representative of the estate of the decedent nor the trustee (a bank) was a party; that the notice of deficiency was addressed only to Fred M. Higley, and therefore it had no jurisdiction over the widow and the two other children; that it had jurisdiction only of Fred M. Higley. The result of these views as to jurisdiction was that the petition was dismissed as to the widow and two children and retained as to Fred M. Higley. Then the Board examined his liability for the "estate tax" and determined that he was a "transferee," within section 315 (b) Revenue Act of 1926 (26 USCA § 1115 (b), and liable for the entire estate tax "to the extent of the value of the property received by such transferee." The Board found it unnecessary to determine whether he was a "beneficiary," within the meaning of the section. Since it was admitted that the value of the trust estate of which he was the beneficiary was much more than the tax against the entire estate, the Board determined that he was liable for the entire tax of $18,229.06, with the right to be reimbursed "by a just and equitable contribution from other persons who are subject to a liability for the estate taxes." In conformity with such determination, the Board entered an order of redetermination "that there is a deficiency in tax with respect to the petitioner Fred M. Higley, in the amount of $18,229.06." Fred M. Higley petitions for this review.

The contest here is along two lines: First, that this trust property is not subject to the estate tax; second, that there is no personal liability on this petitioner for any of the estate tax, if such be assessable. It seems so clear to us that the second of these propositions is sound that it is unnecessary to examine the liability of this property to the tax. For our purposes, we will assume, though not examining nor deciding, that this trust property is liable for the estate tax, and that the only question is whether this petitioner is personally liable to pay such tax.

The facts material to determination of this question are as follows: Some years before his death, decedent formed a corporation sole to which he transferred all of his property, with trivial exceptions. This corporation had 2,250 shares of par value $100. Within a month thereafter, he created four entirely distinct trusts with the same trustee (Merchants' National Bank of Cedar Rapids, Iowa); the beneficiaries being, separately, the widow and each of the three children. The trust for the widow was in 749 shares of the stock in the corporation (he having retained one share for himself). The trust for each of the children was in separate blocks of 500 shares each. The...