Purvin v. Commissioner of Internal Revenue

• Decision Date: 19 May 1938
• Docket Number: No. 6474.,6474.
• Citation: 96 F.2d 929
• Parties: PURVIN v. COMMISSIONER OF INTERNAL REVENUE.
• Court: U.S. Court of Appeals — Seventh Circuit

96 F.2d 929 (1938)

PURVIN v. COMMISSIONER OF INTERNAL REVENUE.

No. 6474.

Circuit Court of Appeals, Seventh Circuit.

May 19, 1938.

Isaac B. Lipson, of Chicago, Ill., for petitioners.

James W. Morris, Asst. Atty. Gen., and J. Louis Monarch and F. E. Youngman, Sp. Assts. to Atty. Gen., for respondent.

Before SPARKS and MAJOR, Circuit Judges, and LINDLEY, District Judge.

LINDLEY, District Judge.

The petitioners, executors of the estate of Frederick C. Austin, deceased, seek to reverse a decision of the United States Board of Tax Appeals, affirming the Commissioner's determination that the value of certain annuities to relatives and friends of the decedent should be included in the latter's gross estate on the ground that they grew out of a contract constituting a transfer made "in contemplation of death" within the language of the act of Congress taxing such a transfer as part of a decedent's gross estate. Section 302 (c) of the Revenue Act of 1926, c. 27, 44 Stat. 9, 70, as amended by section 803 (a) of the Revenue Act of 1932, c. 209, 47 Stat. 169, 279, U.S.C. title 26, §§ 411 (c); Revenue Act of 1926, c. 27, §§ 313 (c), 315 (a, b), as amended, 26 U.S.C. § 427, 26 U.S.C.A. §§ 411(c), 427. The only question presented, then, is whether the Board was justified in finding that the transfer mentioned was made in contemplation of death.

The cause was tried upon stipulated facts. The Board found that Mr. Austin, the deceased, formerly a manufacturer of heavy road machinery, aged 78, died on June 11, 1931, as a result of paralysis and pneumonia, after an illness of some 18 months. He was a widower and had no children.

Some 11 years prior to his death, the decedent sold his business for $1,000,000. Thereafter he confined his activities to dealing in stocks and bonds and operation of an office building and warehouse, which he owned. The building he had purchased in 1922 and its fair market value in January, 1929, was from 2½ million to 3 million dollars, less, however, a mortgage for $1,000,000.

On January 23, 1929 Mr. Austin entered into an agreement with Northwestern University, as a result of which he conveyed the real estate to the University and it agreed to pay to him an annuity of $160,000 until the time of his death and, beginning three months after his death, to pay annuities of various amounts to some twenty-six of his relatives and friends. The property transferred was set up as the "F. C. Austin Scholarship Foundation," an endowment fund for the purpose of providing scholarships for students wishing to prepare for executive positions in industrial enterprises. It was provided that so much of the principal transferred as might be necessary to satisfy the annuities should be used for that purpose. The $160,000 payable annually to decedent was some $50,000 in excess of the average net income of the property. The annuitants were to have no power of assignment of the payments to be made to them.

On the same day the decedent executed his will, whereby he devised and bequeathed all of his estate, after payment of his debts, to Northwestern University as a special endowment fund to be added to the F. C. Austin Scholarship Foundation and to be used for the same purposes as the fund created by the contract. He added further that he was making no bequests or devises to friends and relatives, as he had "already made provision for them in another manner during his life time." "In making such provisions," he added, he had sought "not unduly to enrich any one but to bestow such amounts as would insure their reasonable maintenance for life," and to his relatives and friends who were "well provided for in this world's goods," he "left his love and good wishes."

The decedent had been, prior to said time, a man of good health, experiencing no necessity for medical services for some 12 or 15 years prior to the illness resulting in his demise. He had never discussed death or its imminence with Purvin, who was his closest associate and managed the financial, clerical, and office details of his business. In 1927 he purchased a home in Pasadena, Cal., for some $45,000, at which he thereafter spent about half of his time.

Immediately after executing his will and the contract with the University, he left Chicago for California and about November 1, 1929 experienced a slight stroke of paralysis. This, however, was not serious enough to interfere with a trip to Honolulu. He returned to the United States in December. On or about the 10th of that month he suffered a severe stroke which culminated in his death on June 11, 1931.

Under the terms of the agreement he transferred property having a gross value of from 2½ million to 3 million dollars to the University and made provisions for annuitants of the then present cash value of $377,829.02. By his will he devised the remainder of the estate to the University.

The Board of Tax Appeals found that the two instruments, under the particular facts and circumstances disclosed, constituted a final scheme of complete distribution of his entire estate; that they were such as to put his house in order against the time of his death, making any further action with reference to the disposition of his property, unnecessary.

The Board concluded that the decedent was contemplating his own death when he made the will and the agreement; that the provision for annuities was of the type ordinarily contained in a will; that the absence of specific bequests and devises in the latter apparently called for an explanation, which he made. The Board found as a fact that the provision in the agreement for the payment of the annuities, beginning after the death of decedent, was a substitute for testamentary disposition, made in contemplation of death. In doing so the Board relied upon United States v. Wells, 283 U.S. 102, 51 S.Ct. 446, 75 L.Ed. 867.

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