Richardson v. Smith, 190.

• Decision Date: 10 March 1939
• Docket Number: No. 190.,190.
• Citation: 102 F.2d 697
• Parties: RICHARDSON v. SMITH, Collector of Internal Revenue.
• Court: U.S. Court of Appeals — Second Circuit

102 F.2d 697 (1939)

RICHARDSON v. SMITH, Collector of Internal Revenue.

No. 190.

Circuit Court of Appeals, Second Circuit.

March 10, 1939.

White & Case, of New York City (Charles E. Hughes, Jr., Joseph M. Hartfield, Josiah Willard, and Holt S. McKinney, all of New York City, of counsel), for plaintiff.

James W. Morris, Asst. Atty. Gen., and Sewall Key, J. Louis Monarch, and James E. Murphy, Sp. Assts. to Atty. Gen., Robert P. Butler, U. S. Atty., and Louis Y. Gaberman, Asst. U. S. Atty., both of Hartford, Conn., for appellee.

Before L. HAND, AUGUSTUS N. HAND, and CHASE, Circuit Judges.

L. HAND, Circuit Judge.

This case comes up on an appeal from a judgment for the defendant in an action for money had, brought by a taxpayer against a collector of internal revenue. It was tried by consent to a judge who made findings of fact, and decided that the taxes paid had in fact been due; that is the only question before us, and in deciding it we shall not go behind the findings. The Commissioner of Internal Revenue included within Richardson's income for the year 1933 the income from five trusts, set up by his wife on May 16, 1932, the res in each being shares of the Piedmont Financial Company which he had earlier transferred to her. Unless these shares continued to be Richardson's after the transfer, the tax was improperly assessed: it is the position of the defendant that they did so continue. The supposed invalidity of the transfer resulted from the continued dominion of Richardson over the shares, which is thought to have been evidenced, not only by his wife's obedience to his directions as to these particular shares, but by her general complaisance towards him in the case of several other transactions, nearby in time. It will be clearest to describe the challenged transfer first; and then the others which are invoked to throw light upon the implicit understanding of the spouses at the time when the first was made.

On July 6, 1931, Richardson, who with his brother and their wives owned all of the 100,000 shares of the Piedmont Financial Company, surrendered a certificate for 25,000 shares, standing in his name, and took back one of 19,000 in his wife's name and another of 6,000 in his own. He put both of these in his safe, and it may be assumed, though it does not definitely appear, that she did not then learn of the transfer: she had no separate safe of her own, or even a bank account, both spouses drawing upon a common account as need was. These shares remained undisturbed until May 15, 1932, when the wife transferred 15,300 of them back to Richardson, upon the five separate trusts whose income is the subject of this action: for the remaining 3,700 shares she took, and has kept, a certificate in her own name. The couple had five children, and one trust was set up for each child; though the number of shares differed, the limitations were the same in each trust. The trustee was empowered to use so much of the income as in his discretion he thought wise for the child's maintenance, until he came of age; thereafter until he was 35 the trustee was to pay him as much as — again in his discretion — he might "determine"; at 35 the child was to receive the accumulations, and thereafter the income for life, with remainders over not necessary to describe. The trustee was given a power to revoke the trust at pleasure and take over the res as his own. The commissioner did not hold that Richardson was the owner of the res by virtue of the power last mentioned, or for any other reason except that by the apparent transfer to his wife he had not parted with the shares. For this conclusion he relied, not only upon the fact that Richardson had received back 80% of them upon trusts which he might terminate; but also upon four other transactions which evinced, he thought, the same purpose, and, taken with the trusts and the wife's general impotence financially, proved the unreality of the transfer. The substance of these four transactions was as follows. (1) On December 23, 1930, Richardson gave his wife 9,000 shares of the Vick Financial Corporation, which she sold three days later to the Piedmont Company, at once turning over all the proceeds to him. (2) On June 23, 1931, he gave her 20,000 other shares of Vick stock which she sold on the next day to the Piedmont Company for $107,000, directing that $93,000 should be used to expunge a debt of Richardson to that company, and retaining the remainder of the credit as her own. (3) On May 27, 1932, Richardson transferred to her 53,000 more shares of Vick stock, 9,800 of which she sold on December 28, of that year, to the ...