McCann v. Commissioner of Internal Revenue

• Decision Date: 11 January 1937
• Docket Number: No. 7031.,7031.
• Citation: 87 F.2d 275
• Parties: McCANN v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Sixth Circuit

87 F.2d 275 (1937)

McCANN v. COMMISSIONER OF INTERNAL REVENUE.

No. 7031.

Circuit Court of Appeals, Sixth Circuit.

January 11, 1937.

Laurence Graves, of Washington, D. C., G. W. A. Wilmer, of Middletown, Ohio, Ike Lanier, of Cincinnati, Ohio, and Pickrel, Schaeffer, Harshman & Young, of Dayton, Ohio, for petitioner.

Harry Marselli, of Washington, D. C. (Frank J. Wideman, Sewall Key, and Norman D. Keller, all of Washington, D. C., on the brief), for respondent.

Before MOORMAN, SIMONS, and ALLEN, Circuit Judges.

MOORMAN, Circuit Judge.

This is a proceeding to review an order of the Board of Tax Appeals sustaining a deficiency assessment of an estate tax made by the Commissioner of Internal Revenue against the estate of Lucy C. Shartle, who died in November of 1926. The facts found by the Board are: The decedent's husband, Charles Shartle, owned and operated a machine repair shop and was also engaged in perfecting inventions relating to machinery for the manufacture of paper. In 1911, being in debt and fearing litigation over patents which he held, he incorporated his business under the name of the Shartle Bros. Machine Company and issued the majority of the stock of the corporation to his wife, the decedent. The decedent paid nothing for the stock. In 1912 Shartle organized another company, to which he conveyed title to his patents. The capital stock of this company was issued to the holders of the stock of the machine company, and the decedent received her proportionate share. Later this company was taken over by the machine company and paid for by a new issue of the latter company's capital stock. The decedent, as holder of a majority of the stock of the selling company, received her proportion of the new issue of stock. None of the certificates for this or the original stock issued in her name was ever delivered to her. They were all placed in the office of the machine company under the control of her husband, who with her consent continued to control and operate the company as though he were the sole owner of it. Decedent was made a director of the company, but she attended none of the directors' meetings and took no part in the company's affairs. The dividends on the stock held in her name, when declared, were credited to her account on the books of the company and then transferred to her husband's account. This was done pursuant to her husband's instructions and with her approval. On November 6, 1926, Shartle sold the machine company without consulting the decedent. The buyer issued a check to the decedent for $1,070,086.11 in part payment for the stock standing in her name. The check was delivered to her husband, and the following day it was taken to the bank and the decedent, by direction of the husband, indorsed it in blank and delivered it to him. He placed it in the bank to his own credit, and later invested the proceeds in government bonds, which he held at the time of her death on November 26. After her death the deferred payments on the stock standing in her name, with payments for other assets of the company, were made to him as executor of her estate. In making an estate tax return as executor of her estate, he included neither these amounts nor the original payment of more than a million dollars in her taxable estate. The Commissioner held that all of these sums, together with dividends paid on the stock for the years 1925 and 1926, were a part of the decedent's estate, and assessed the estate tax accordingly. The ground on which he held that the amount represented by the check was a part of her estate was that the indorsement and delivery of the check to the husband was a transfer made in contemplation of death. The Board of Tax Appeals held that the check was not indorsed and delivered to decedent's...