Olsen's Estate v. CIR

• Decision Date: 04 May 1962
• Docket Number: No. 16884.,16884.
• Citation: Olsen's Estate v. CIR, 302 F.2d 671 (8th Cir. 1962)
• Parties: ESTATE of W. R. OLSEN, Deceased, Kenneth M. Owen and First National Bank of Minneapolis, Co-Executors, and Hazel D. Olsen, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: U.S. Court of Appeals — Eighth Circuit

302 F.2d 671 (1962) ESTATE of W. R. OLSEN, Deceased, Kenneth M. Owen and First National Bank of Minneapolis, Co-Executors, and Hazel D. Olsen, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 16884.

United States Court of Appeals Eighth Circuit.

May 4, 1962.

Robert J. Johnson, of Dorsey, Owen, Barber, Marquart & Windhorst, Minneapolis, Minn., made argument for petitioners, and John W. Windhorst and Paul G. Zerby, Minneapolis, Minn., were with him on the brief.

Daniel K. Mayers, Atty., Dept. of Justice, Washington, D. C., made argument for respondent, and Louis F. Oberdorfer, Asst. Atty. Gen., and Lee A. Jackson, John B. Jones, Jr., and Earl J. Silbert, Attys., Dept. of Justice, Washington, D. C., were on the brief.

Before SANBORN and MATTHES, Circuit Judges, and GRAVEN, District Judge.

SANBORN, Circuit Judge.

The petitioners seek a review and reversal of an unreported decision of the Tax Court, filed May 31, 1961, holding that a $5,000 payment made October 27, 1955, to Hazel D. Olsen, the widow of W. R. Olsen, by Super Valu Stores, Inc., the corporation of which he was an officer and director, was not a nontaxable gift to the widow within the meaning of Section 102(a) of the Internal Revenue Code of 1954, 26 U.S.C. 1958 ed. § 102(a).¹

The evidentiary facts are undisputed. W. R. Olsen died September 12, 1955, at the age of 67. He was then secretary-treasurer of Super Valu Stores, Inc. He had been in its employ for more than 23 years. Compensation for his services was paid in full by the corporation up to the time of his death. He owned 3,338 of the 181,479 shares of the common capital stock of the corporation. His wife owned 336 shares, and his son 150. There was no promise or agreement between Mr. Olsen and the corporation that his wife should, upon his death, receive any payment from it. It had no plan or policy of making payments to widows of deceased officers or employees. It had on one prior occasion made a payment to a widow of a vice-president. Mrs. Olsen was not an employee of the corporation, and performed no services for it in connection with the payment in suit.

The resolution authorizing the payment was adopted at a special meeting of the Board of Directors of the corporation held on October 25, 1955, and reads as follows:

"WHEREAS, the death of William R. Olsen constitutes a severe loss to the best interests of this Company; and

"WHEREAS, the Board of Directors of this Company recognize the valuable services which W. R. Olsen has rendered to it during the last several years apart from the usual duties and responsibilities of his position;

"NOW, THEREFORE, BE IT RESOLVED that the officers of this corporation, and each of them, in the name and on behalf of this corporation, hereby are authorized to pay to the widow of W. R. Olsen, namely, Mrs. Hazel Dart Olsen, $5,000.00 by reason of his death, said amount to be payable forthwith in cash."

Russell W. Byerly, president of the corporation, a witness at the trial, upon being asked his reason for favoring the payment to Mrs. Olsen, testified:

"Mr. Olsen\'s death was quite sudden, he had long, distinguished and faithful service with our company. We felt that this payment to his widow at that time was in order and felt that she probably could use the money under those circumstances."

The corporation, in its income tax return for 1955, deducted the $5,000 payment to Mrs. Olsen under "Other Deductions." The petitioners in their joint income tax return for 1955 did not include the payment as income, and made the following statement in their return:

"In 1955 Hazel D. Olsen, the widow of W. R. Olsen, received from Super Valu Stores, Inc., Hopkins, Minnesota, the former employer of said W. R. Olsen, the sum of $5,000.00 as a gratuity in recognition of past services of said W. R. Olsen. It is the position of taxpayer that said amount is not taxable to her."

The Commissioner determined that the payment was income, and assessed a deficiency.

The Tax Court, on review, sustained the Commissioner, in reliance upon Estate of Mervin G. Pierpont v. Commissioner, 35 T.C. 65, and what it considers to be the teachings of Commissioner of Internal Revenue v. Duberstein, 363 U.S. 278, 80 S.Ct. 1190, 4 L.Ed.2d 1218. On petition to review the decision of the Tax Court in the Pierpont case that donations made to the widow of Mervin G. Pierpont by the Loewy Drug Company, of which he had, for many years, been president and the majority stockholder, were income, the Court of Appeals for the Fourth Circuit,² on March 21, 1962, vacated the decision of the Tax Court and remanded the case, saying (p. 292 of 301 F.2d):

"Nevertheless, none of the facts stipulated in the present case touches upon those additional factors which since Duberstein have been important. The stipulations were made before Duberstein and covered only the criteria which had up to that time been formulated and treated by the Tax Court and this circuit as decisive. It would be unfair now to allow findings to stand, which are adverse to the taxpayer, because of her silence on matters never deemed pertinent in earlier litigation. While, as we have indicated, it is perfectly proper for the court to broaden the field of inquiry beyond that previously established, this should not be done without affording an opportunity to the taxpayer, and to the Government as well, to amplify the record. Of course, we do not undertake to dictate the result to be reached upon the broadened inquiry. Additional data which the parties will be free to produce may have the effect of confirming or overcoming the result which the five Luntz Florence S. Luntz v. Commissioner, 29 T.C. 647, 650 (1958) factors,³ standing alone, were held to require in the earlier cases."

The Court of Appeals for the Sixth Circuit, in Estate of Kuntz, Sr. v. Commissioner, 300 F.2d 849, decided April 4, 1962, reviewed and reversed a decision of the Tax Court that a donation made to the widow of Martin Kuntz, Sr., upon the death of her husband, by the Peter Kuntz Company, by which he had been employed for many years and of which he was president at the time of his death, was not excludable from gross income as a gift. The last sentence of the resolution of the Board of Directors of the Kuntz Company was: "This payment is made as additional compensation and in consideration of services heretofore rendered to this corporation by the late Martin C. Kuntz, Sr." There was evidence to the contrary. The Court of Appeals said (page 852 of 300 F.2d):

"We hereby adopt the reasoning and rationale of the Kasynski case United States v. Kasynski (284 F. 2d 143, 10 Cir., 1960) in relation to the merits of the instant case. In that opinion the court found that the finding of the lower court — that the intent of the transferor was to make a gift — was a reasonable inference from the `factual pattern\' there present. We here hold that such a finding is the only reasonable inference from the `factual pattern\' here present, and that the contrary factual finding by the Tax Court leaves us with `the definite and firm conviction that a mistake has been committed.\' * * *"

If the payment made to Mrs. Kuntz upon the death of her husband was a gift, so was the payment to Mrs....