Old Colony Trust Co. v. United States

• Decision Date: 16 June 1936
• Docket Number: No. 5958.,5958.
• Parties: OLD COLONY TRUST CO. et al. v. UNITED STATES.
• Court: U.S. District Court — District of Massachusetts

15 F. Supp. 417

OLD COLONY TRUST CO. et al. v. UNITED STATES.

No. 5958.

District Court, D. Massachusetts.

June 16, 1936.

William H. Gulliver, Jr., John T. Noonan, and Phillips Ketchum (of Herrick, Smith, Donald & Farley), all of Boston, Mass., for plaintiff.

Francis J. W. Ford, U. S. Atty., of Boston, Mass., for the United States.

SWEENEY, District Judge.

This is an action at law, commenced May 25, 1934, to recover estate taxes and interest alleged to have been illegally assessed and collected by the respondent.

The facts are as follow: The Old Colony Trust Company and Cornelius A. Wood, petitioners, qualified as executors under the will of William M. Wood on March 8, 1926. Their testate died on February 2, 1926. On or about July 28, 1927, the petitioners filed with the collector of internal revenue, then in office, a federal estate tax return, duly executed, and later paid sums aggregating $349,511.12 as estate taxes and interest thereon. On or about June 11, 1930, the petitioners, pursuant to an additional assessment of estate tax, paid to the collector additional principal in the sum of $58,644.75 and interest thereon in the amount of $23,653.38, making total payments of $404,108.50 in principal and $27,700.75 in interest, with respect to the estate tax upon the net estate of the decedent. In their tax return the petitioners claimed as deductions from the gross estate subject to tax the aggregate sum of $665,316.25. These deductions were allowed by the Commissioner of Internal Revenue as properly deductible, with the exception of one item for $90,000 listed as a debt of the decedent, and hereinafter referred to as the note of the decedent dated August 15, 1922. In addition to the deductions specifically claimed in the return, it referred to a disputed claim of the United States government for back income taxes and other matters not now pertinent. Subsequent to the filing of this return, the petitioners paid the sum of $2,080,309.30 as principal and interest on federal income taxes assessed against the estate with respect to taxable income received by the decedent during the years 1919 to 1925, inclusive (except 1921). Of the last-mentioned amount, $348,136.16 was paid to the government as interest accruing on the income taxes subsequent to the death of the decedent. On January 23, 1930, the petitioners seasonably filed a claim for refund of the estate taxes and interest thereon. This claim for refund was amended and supplemented by a claim for refund filed on January 30, 1931. Among the matters referred to in the claims for refund was the right to deduct from the gross estate subject to tax certain debts of the decedent which included $2,080,309.30 paid by the petitioners as income taxes and interest thereon. The claims for refund were rejected by the Commissioner of Internal Revenue, and the executors were so advised by letter dated June 7, 1934.

The decedent in 1899 was one of the founders of the American Woolen Company, and served as its treasurer until 1905, and thereafter until December 31, 1924, as its president and chief executive. He was a dynamic and aggressive individual, and an indefatigable worker. Much of the success of the American Woolen Company was, no doubt, due to his efforts. Between 1918 and 1924, when practically all the transfers hereinafter referred to, and claimed by the government to have been made in contemplation of death, occurred, he was, in addition to his work as the chief executive of the American Woolen Company, directing the creation of a model mill community, widely known as the Shawsheen Village at Andover, Mass. The Arden Trust, of which he was the sole trustee, and of which his children were the sole beneficiaries, participated with the American Woolen Company in this project, which cost millions of dollars. During that same period the decedent was a director of the Pierce Manufacturing Company and of the Kilburn Mills, both textile manufacturers of New Bedford, Mass., an officer or director of the Merchants' National Bank of New Bedford, and the National Association of Textile Manufacturers, and was a director of the Chase National Bank of the city of New York. During the same period he also took an active interest in the affairs of the Edington Company, a wool brokerage concern of which his son, William M. Wood, Jr., who died in 1922, was a part owner. Late in 1922, at the request of the Chase National Bank, the decedent undertook the reorganization of the Consolidated Textile Corporation, a large group of textile mills, and directed their management until November, 1924. During the years 1923 and 1924 the decedent purchased land at Palm Beach, Fla., and constructed a large and expensive residence for himself. He was a wealthy man, and his income from all sources for the years 1918 to 1925, inclusive, averaged more than a million dollars per year. His net worth as appearing on his books varied between 1915 to 1925, but at no time during that period was he worth less than $2,967,788.31, nor more than $5,000,000. At the time of his death his gross estate totalled $4,750,911.47, unless it can be found to be increased by certain claims of the defendant which will hereinafter be discussed. The decedent lived with his wife and four children, William M. Wood, Jr., Cornelius A. Wood, Rosalind Wood, and Irene Wood. From the time when the decedent first became a wealthy man he habitually made generous gifts to members of his family and to others. From 1915 to 1925 inclusive, his gifts to his family and others, and their totals, were as follows:

                Year          Family            Others           Total
                1915      $   66,995.57     $68,472.90     $ 135,468.47
                1916         466,812.84      58,089.95       524,902.79
                1917         775,848.64      37,659.55       813,508.19
                1918         654,929.49      66,859.63       721,789.12
                1919         445,151.82      82,233.09       527,384.91
                1920         332,875.08      51,907.53       384,782.61
                1921       2,419,572.47        none        2,419,572.47
                1922         260,000.00        none          260,000.00
                1923         437,138.91        none          437,138.91
                1924         633,075.93        none          633,075.93
                1925          99,049.56        none           99,049.56
                

It is to be noted that, except for the year 1921, the year during which the Arden Trust was created, his gifts to his family were quite consistent, averaging about $417,186.78 per year.

Prior to January of 1922, the decedent's health had been normal, except that for a period of years he had suffered from a urethral stricture which occasionally needed sounding. Outside of this he suffered only the usual indispositions to which every one is subject. Early in 1922 he had an attack of Bell's palsy, which manifested itself in a slight and temporary paralysis of the muscles in his left cheek. This lasted but a couple of weeks, and the decedent made a complete recovery from it. He resumed his normal good health until the spring of 1924, when he suffered what was later diagnosed as a mild shock. He was at the time in Havana, Cuba, and the shock was not of a sufficient force to prevent his returning to his home in Palm Beach, Fla., within a day or two. On his return from the South in April, 1924, he had made a good recovery, and immediately resumed his duties as heretofore described. In no way was he incapacitated from resuming his former duties, and as early as May, 1924, attended the silver jubilee celebration of the American Woolen Company, and continued to attend social functions during the succeeding months. Late in August of the same year the decedent suffered another shock which was milder than the previous one. At that time he was advised by his physicians to give up some of the laborious work that he was doing, and as a result of this advice, and upon the insistence of his friends, he resigned his activities with the American Woolen Company on December 31, 1924. At that time he seriously considered remaining on as chairman of the board, but his friends and physicians prevailed upon him to sever all his connections with the woolen company. In the spring of 1925 he took a trip abroad which was uneventful. During 1925 he continued his activities with the Kilburn Mills in New Bedford, and with other concerns. So far as the evidence discloses, he gave no indication during this period that he was considering death, or that his condition worried him. In January of 1926 he went to Florida, as was his custom, and on February 2, 1926, died from a self-inflicted bullet wound. There was no evidence that this suicide was other than an impulsive and unpremeditated act. I find nothing in the conduct of the decedent during the period prior to his going to Florida, either from the mental or physical aspect, which would indicate at any time prior to the date of his death that he contemplated suicide or death. As previously mentioned, he had for more than ten years, and perhaps for a much longer period, had a urethral stricture which from time to time required sounding. This disability, while doubtless bothersome and annoying, was in no wise dangerous to life, and there is nothing in the evidence to indicate it had any particular effect upon the decedent, and I find that it is unconnected with his death.

In 1916 the American Woolen Company fixed the salary of the decedent at a certain percentage of the total gross sales of the company, and adopted the following resolution: "Voted, That this Company pay any and all income taxes, State and Federal, that may hereafter become due and payable upon the salaries of all the officers of the Company, including the President, William M. Wood; the Comptroller, Parry C. Wiggin; the Auditor, George R. Lawton, and the following members of the staff, to wit: Frank H. Carpenter, Edwin L. Heath, Samuel R. Haines and William M. Lasbury: — to the end that said persons and officers shall receive their salaries or other compensation in full without...