Howe v. Comm'r of Internal Revenue (In re Estate of Nevin)

• Decision Date: 20 July 1948
• Docket Number: Docket No. 15218.
• Citation: 11 T.C. 59
• Parties: ESTATE OF WILLIAM L. NEVIN, DECEASED, FRANCES N. HOWE, ADMINISTRATRIX, D.B.N.C.T.A., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

11 T.C. 59

ESTATE OF WILLIAM L. NEVIN, DECEASED, FRANCES N. HOWE, ADMINISTRATRIX, D.B.N.C.T.A., PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 15218.

Tax Court of the United States.

Promulgated July 20, 1948.

Rodman Wanamaker died in 1928, the owner of the stock of the three Wanamaker corporations. By his will a testamentary trust was created to hold this stock for certain purposes and the decedent was designated by the will as managing trustee. The trust provided that the managing trustee should serve as president of the three corporations. Decedent occupied these four offices until November 22, 1937. At this time, although of clear mind and attending daily to the duties of his offices, decedent was thought by his fellow trustees and the directors of the corporations to be too old-fashioned in his method of operation and it was desired if possible, to secure his retirement. At this time decedent was receiving an annual salary of $106,000. Decedent, upon being approached by the other trustees, agreed to resign his offices in consideration of the payment to him of a stated annual sum for a period of 10 years with the further proviso that in case of his death within that term the payment would be continued to the widow for the remainder of the time or until her death if before its expiration. A formal contract embodying these conditions was executed by the parties. The decedent died in 1943. Held, that the value as of the death of the decedent of the remaining payments provided by the agreement to be made to his widow is includible in his gross estate under section 811(c) of the Internal Revenue Code; held, further, that the decedent's estate is entitled to an additional deduction, as representing claims against the estate, of $1,955.84 for income taxes paid by the estate for the year 1943. C. Walter Randall, Jr., Esq., for the petitioner.

William H. Best, Jr., Esq., for the respondent.

Respondent has determined a deficiency in estate tax in the amount of $55,393.18. The issues presented are: (a) Whether the commuted value of future payments under a contract between the decedent and John Wanamaker Philadelphia, a corporation, which payments were to be made to decedent's wife after his death, is includible in decedent's gross estate under section 811(c) of the Internal Revenue Code, and (b) whether decedent's estate is entitled to additional deductions as claims against the estate for income taxes in the amounts of $6,722.35 for 1942 and $15,554 for 1943.

FINDINGS OF FACT

The decedent, William L. Nevin, was born August 9, 1857, and died April 13, 1943. The estate tax return was filed with the collector of internal revenue at Philadelphia, Pennsylvania. From July 1, 1890, to November 22, 1937, the decedent was associated with the department store business of John Wanamaker. In 1909 he assisted in the organization of the Wanamaker corporations namely, John Wanamaker Philadelphia, John Wanamaker New York and the A. T. Stewart Realty Co.

Rodman Wanamaker died in 1928, owning the stock of the three corporations. By the terms of his will this stock was placed in trust for certain purposes and the decedent was, by will, designated as managing trustee, The will further provided that the managing trustee should serve as president of all three of the corporations. Decedent thereupon became managing trustee of the aforementioned trust and president and director of each of the three corporations, serving as such until November 22, 1937.

In November 1937 the other trustees of the Rodman Wanamaker trust had become dissatisfied with the decedent's administration of the three corporations. The decedent was then 80 years of age and, although his mind was clear and he was engaged in actively carrying on the businesses, it was thought by the other trustees that he had outlived his usefulness. His operation of the three corporations was not considered by the other trustees to be up to date. He was thought by them to be living in the past rather than in the present and getting into a frame of mind where he was judging employees of the corporations according to his personal likes and dislikes rather than their abilities.

The trustees thought it was advisable in the interest of the corporations that the decedent be replaced as managing trustee. It was decided that to effectuate this purpose the decedent be approached and some arrangement made with him, if possible, to secure his retirement. Robert H. Montgomery, a fellow trustee and close friend of the decedent, was selected to interview the decedent and discuss the matter with him and make some arrangement, if possible, to secure his retirement. At this time the decedent was receiving an annual salary of $106,000, all of which was paid by John Wanamaker Philadelphia.

In furtherance of the plan of the other trustees, Colonel Montgomery called upon the decedent at his home and discussed the matter with him and secured his agreement to resign as managing trustee and as president and director of the three corporations.

A contract thereupon was drawn by Colonel Montgomery covering the agreement made by him with the decedent with respect to his resignation from the several offices in question. This agreement, executed the 22d day of November 1937, between John Wanamaker Philadelphia and the decedent, provides, inter alia, as follows:

AND WHEREAS, Rodman Wanamaker, late of the City and County of Montgomery died on the 9th day of March, 1928, having first made and published his last Will and Testament and Codicils thereto, duly probated in the Office of the Register of Wills in and for the County of Montgomery.

AND WHEREAS, in and by said Will it is provided that the capital stock of John Wanamaker Philadelphia should be held In Trust by certain Trustees for the uses and purposes set forth in said Will and Codicils.

AND WHEREAS, in and by said Will and Codicils it was provided that William L. Nevin should be the Managing Trustee of the Trustees of the Estate of Rodman Wanamaker holding said stock of John Wanamaker Philadelphia, and that said Managing Trustee should be President of John Wanamaker Philadelphia, John Wanamaker New York, and A. T. Stewart Realty Co.

AND WHEREAS, William L. Nevin has also acted as Director of John Wanamaker Philadelphia, John Wanamaker New York, and A. T. Stewart Realty Co. since the death of Rodman Wanamaker.

AND WHEREAS, William L. Nevin has signified his willingness to retire from his offices as Managing Trustee of the Estate of Rodman Wanamaker, Deceased; as Trustee of the Estate of Rodman Wanamaker, Deceased; as President of John Wanamaker Philadelphia; as President of John Wanamaker New York; as President of A. T. Stewart Realty Co.; as Director of John Wanamaker Philadelphia; as Director of John Wanamaker New York, and as Director of A. T. Stewart Realty Co., in consideration of the execution of this agreement.

AND WHEREAS, William L. Nevin has served the said John Wanamaker Philadelphia, and its subsidiaries, in various capacities since July 1st, 1890, and has agreed to give during his lifetime such advice and render such assistance as he may be called upon by the Board of Directors to give and render, provided in his sole and final judgment he is able so to give and render.

AND WHEREAS, the stockholders and Board of Directors, in recognition of the foregoing, have agreed to make certain payments to William L. Nevin and his wife, Mary Grace Nevin, until the death of the survivor, or October 1st, 1947, whichever event may first occur.

THEREFORE IT IS MUTUALLY AGREED by and between the parties hereto as follows, each party intending to be legally bound:

1. In consideration of the execution of this agreement, William L. Nevin does hereby resign (a) as Trustee of the Estate of Rodman Wanamaker; Deceased. (b) as Managing Trustee of the Estate of Rodman Wanamaker, Deceased; (c) as President of John Wanamaker Philadelphia; (d) as President of John Wanamaker New York; (e) as President of A. T. Stewart Realty Co.; (f) as Director of John Wanamaker Philadelphia; (g) as Director of John Wanamaker New York; (h) and as Director of A. T. Stewart Realty Co.. said resignations to take effect and all remuneration therefor to cease as of October 1, 1937.

2. In consideration of the execution of this agreement, John Wanamaker Philadelphia agrees to pay a pension to William L. Nevin, in equal monthly installments (the first payment to be made November 1st, 1937), at the rate of Fifty-five thousand Dollars ($55,000) per year until his death, or to Mary Grace Nevin, his wife, after his death, for a period of six (6) years from October 1st, 1937; and at the rate of Fifty thousand Dollars ($50,000) a year to William L. Nevin, or to his said wife after his death, for a further period of four (4) years; the said monthly payments to cease upon the death of the survivor of William L. Nevin and Mary Grace Nevin, his wife, or October 1st, 1947, whichever event shall first occur.

3. In consideration of the execution of this agreement, William L. Nevin agrees to remise, release, quitclaim and forever discharge John Wanamaker Philadelphia, John Wanamaker, New York, A. T. Stewart Realty Co., and the Estate of Rodman Wanamaker, Deceased, of and from any and all claims and demands whatsoever, excepting the payments hereunder.

4. In consideration of the execution of this agreement, William L. Nevin agrees to execute such other and further documents as may be necessary to carry out the intent and purpose of this agreement; and agrees during his lifetime to give and render such advice and such assistance as he may be called upon by the Board of Directors of John Wanamaker Philadelphia to give and render, provided in his sole and final judgment he is able so to give and render.

Following the execution of the above agreement the decedent received no further payments of salary from John Wanamaker Philadelphia, but was...