McCormick v. Commissioner of Internal Revenue
| Decision Date | 20 September 1928 |
| Docket Number | Docket No. 22731. |
| Citation | 13 BTA 423 |
| Parties | CYRUS H. McCORMICK, ANITA M. BLAINE, AND HAROLD F. McCORMICK, EXECUTORS, ESTATE OF NETTIE FOWLER McCORMICK, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Board of Tax Appeals |
Horace Kent Tenney, Esq., George T. Rogers, Esq., Henry F. Tenney, Esq., Robert N. Miller, Esq., John D. Watkins, Esq., and Ward Loveless, Esq., for the petitioners.
Frank T. Horner, Esq., for the respondent.
This is a proceeding for the redetermination of a deficiency in estate taxes under the Revenue Act of 1921, in the amount of $1,835,902.91.
The petition, as amended, alleges errors on the part of the respondent as follows:
1. Valuation and inclusion in gross estate of the property known as the Stanley McCormick School at Burnsville, N. C., at $44,000, thereby wrongfully increasing the gross estate in the amount of $44,000.
2. Inclusion in the gross estate of property owned and held by United States Trust Co. of New York as trustee under trust agreement dated July 27, 1918, generally spoken of as "Eastern Trust," and income accumulated thereon at decedent's death, thereby wrongfully increasing said gross estate in the sum of $7,399,306.32.
3. Disallowance of $269,955.56 of total amount of $382,342.09 deducted by petitioners as executors' commissions, attorneys' fees and miscellaneous administration expenses.
4. Disallowance of $6,000 of total amount of $1,076,402.49 deducted by petitioners as debts of deceased.
5. The respondent failed and refused to allow the petitioners a deduction of $2,500, attorneys' fees, paid to Lindabury, Depue and Faulks.
6. The respondent failed and refused to allow the petitioners deductions for expenses incurred subsequently to the filing of the return as follows: miscellaneous administration expenses, $49,730.52.
7. The respondent erred in that he failed and refused to hold that section 402 (c) of the Revenue Act of 1921, under color of which the Commissioner of Internal Revenue undertook to include the amount of $7,399,306.32 representing property held and owned by the United States Trust Co. of New York under trust agreement, dated and effective July 27, 1918, as the property of Nettie Fowler McCormick, deceased, at the time of her demise, is in contravention to the Fifth Amendment to the Constitution of the United States and is and was wholly void.
8. The respondent erred in that he failed and refused to hold that section 402 (c) of the Revenue Act of 1921, under color of which the Commissioner of Internal Revenue undertook to include the amount of $7,399,306.32 representing property held and owned by the United States Trust Company of New York under trust agreement, dated and effective July 27, 1918, as the property of Nettie Fowler McCormick, deceased, at the time of her demise, is in contravention of the Fifth Amendment to the Constitution of the United States and is and was wholly void in so far as it attempts to authorize the inclusion in the gross estate of a decedent of property transferred prior to the enactment of the Revenue Act of 1921.
9. The respondent erred in that he failed and refused to hold that sections 400 to 411, inclusive, of the Revenue Act of 1921, under color of which the Commissioner of Internal Revenue seeks to assert the taxes here involved as a liability against the estate of Nettie Fowler McCormick at the time of her demise, are in contravention of the Fifth Amendment to the Constitution of the United States and are and were wholly void.
10. The respondent erred in that he failed and refused to hold that sections 400 to 411, inclusive, of the Revenue Act of 1921, under color of which the Commissioner of Internal Revenue seeks to assert that the taxes here involved as a liability against the estate of Nettie Fowler McCormick at the time of her demise, are unconstitutional and void for the reason that there was and is no provision in the Constitution authorizing the levying or collection of such taxes.
In the answer the respondent denies that the taxes in controversy amount to $1,835,902.91.
FINDINGS OF FACT.
Mrs. Nettie Fowler McCormick died on July 5, 1923, at the age of 88 years, and the petitioners in this proceeding are individual executors of her estate, having principal office at 30 North La Salle St., Chicago, Ill.
Mrs. McCormick's death was caused by acute bronchial infection and probably bronchial pneumonia, although the doctors were never able to pick out any areas of bronchial pneumonia. Her last illness lasted only four or five days.
Witnesses who had known Mrs. McCormick for 25 to 40 years prior to her death never knew of her having any serious illness and never heard her complain of any ailment, or speak of any contemplation of imminent death. She was subject to colds but in the later years of her life they were very infrequent. She had one cold about 8 or 10 years before her death and another about 15 years before her death and these confined her to her bed for a few days. Mrs. McCormick would sometimes ask her physician for something to make her sleep better or would inquire whether he thought she was strong enough to "take this ride or have these people in to dinner." Periodical examinations were made of the decedent's kidneys and urine and it was almost certain that some albumin and occasionally a few casts would be found. She would feel an occasional, irregular heart beat and would comment upon it, but the doctor told her there was nothing serious about it. Her physician testified that these ailments were quite common with practically all people who have passed the middle age. He sometimes gave her cathartic pills or something to make her sleep better. She was active up to the time of her death, walked in her garden, took automobile rides and rode around her grounds in wheel chairs, one of which was equipped with a motor. She spent a great deal of her time out of doors. She walked up and down stairs unassisted and was seldom in need of a nurse, although she had one or two at all times. From 1916 on the doctor called upon her on an average of more than twice a week, but this was a precautionary measure taken at the insistence of Mrs. McCormick's children. For a number of years prior to her death she had gone to California upon the doctor's orders. This was also a precautionary measure, as the doctor wanted her to stay out of doors as much as possible and at her home in Lake Forest, Ill., this would have exposed her to catching cold.
She was very much interested in charities and made large contributions thereto. She had a managing agent but took an interest in her affairs herself.
In 1918 she leased a house in Coronado, Calif., for a period of 5 years and occupied this house in the following years, the last time being in 1923, the year of her death.
Shortly before her death she was interested in making certain changes in her home and was interested in the future.
On July 27, 1918, Mrs. McCormick executed the following trust agreement:
THIS INDENTURE, Made this Twenty-seventh day of July, in the year of our Lord, One thousand nine hundred and eighteen (A. D. 1918), by and between Nettie F. McCormick, of the City of Chicago, in the State of Illinois, the party of the first part, and the United States Trust Company of New York (hereinafter termed the Trustee), a corporation of New York, having its principal place of business in the City of New York, the party of the second part.
WITNESSETH:
ARTICLE FIRST.
The party of the first part, being desirous of establishing and creating the trust hereinafter mentioned, for the purposes and upon the terms set forth, in consideration of the premises and of one Dollar ($1.00) to her in hand paid, the receipt whereof is hereby acknowledged, does hereby sell, assign, transfer and set over unto the Trustee the following securities, to wit:
Thirty seven hundred and eighty-three (3783) shares of the capital stock of the McCormick Harvesting Machine Company, a corporation organized under the laws of the State of Illinois, together with all rights and interests now vested in the legal holder thereof, or which shall hereafter accrue to such holder under a certain indenture dated March 26, 1909, wherein Cyrus H. McCormick and Harold F. McCormick are parties of the first part, and Paul D. Cravath and George H. Sullivan are parties of the second part, — to be held and disposed of under and in pursuance of the terms of this agreement.
ARTICLE SECOND.
DISPOSITION OF INCOME DURING LIFE OF GRANTOR.
So long as the said party of the first part shall live the net income of said trust estate shall be accumulated and added to the principal of said trust estate except so much thereof as shall be required for the following purposes:
(1) If in any year the net income from the property and estate of said first party, retained in her own name and under her own control, after paying all income and other taxes, shall be less than two hundred and fifty thousand dollars ($250,000) said party of the first part shall have the right, within ninety (90) days after the expiration of such year, to request said Trustee to pay over such an amount of the net income of said trust estate as will, when added to her said net income from her property and estate retained within her control, equal the sum of two hundred and fifty thousand dollars ($250,000.00). And said Trustee, upon receiving any such request, shall pay over and deliver to said party of the first part the amount called for by such request. Said Trustee shall have the right to accept the statements contained in any such request, in regard to the amount required to bring the net income of said first party up to the sum of two hundred and fifty thousand dollars ($250,000.00), as true without inquiry or investigation.
(2) Said Trustee shall from time to time in each year pay out of said net income for charitable uses and purposes such sums and amount of money as said first par...
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