Russell v. United States

• Citation: 38 F. Supp. 438
• Decision Date: 05 May 1941
• Docket Number: No. 44189.,44189.
• Parties: RUSSELL et al. v. UNITED STATES.
• Court: Court of Federal Claims

38 F. Supp. 438

RUSSELL et al. v. UNITED STATES.

No. 44189.

Court of Claims.

May 5, 1941.

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George D. Brabson, of Washington, D. C. (R. S. Doyle and Blair & Korner, all of Washington, D. C., on the brief), for plaintiffs.

Joseph H. Sheppard, of Washington, D. C., and Samuel O. Clark, Asst. Atty. Gen. (Robert N. Anderson and Fred K. Dyar, both of Washington, D. C., on the brief), for defendant.

Before WHALEY, Chief Justice, and LITTLETON, WHITAKER, JONES, and MADDEN, Judges.

WHALEY, Chief Justice.

Henry L. Russell, a resident of Holyoke, Massachusetts, died on March 5, 1935, from an acute infection of the kidneys. The Commissioner of Internal Revenue assessed additional estate taxes upon the ground that certain transfers, prior to his death, were made in contemplation of death and should be included in the taxable estate under Section 302 of the Revenue Act of 1926, c. 27, 44 Stat. 9, 26 U.S.C.A. Int.Rev. Acts, page 227. The amount of the additional tax was paid by the executors and claim for refund was filed. The refund claim was rejected by the Commissioner and the executors brought this suit to recover the amount paid.

The decedent died at the age of seventy-three years, leaving surviving him his wife and three children, two sons and one daughter, his oldest son having died in 1934.

When a young man, Henry L. Russell and his father established a hardware and machinery business and through hard work and diligent efforts they built up the business to one of the largest hardware and machinery businesses in New England. Decedent had his sons trained in electrical courses at engineering colleges. He was extremely industrious and conscientious and expected the same sort of conduct in his family and everyone associated with him. Decedent's desire was to have his three sons enter the business which he had so strenuously built up and successfully established. One of the sons worked for his father and the other two sons went to war, returning from France in 1919 when they resumed work with their father. The business, stimulated by war transactions, grew enormously. The decedent expressed the desire, time and time again, to his sons to have them go into business with him, if they showed a capacity to manage it, as he wanted them to work together. After the sons had been working with him for a short time, in January 1920, the decedent organized a partnership of the business of J. Russell & Company and transferred to each of his sons a 3/20 interest in the business and retained the balance of 11/20. Decedent required his sons to give him notes in the amount of $60,000 each, bearing interest at 6 per cent. The amount of the notes was fixed by the father and there was no negotiating or bargaining between them. In 1923 the partnership was incorporated and each son received 3/20 of the stock, or 750 shares, totalling 2,250 shares for the sons and the decedent received 2,750 shares. In 1924 decedent made to each of his sons a Christmas gift of $25,000 by way of canceling that amount from each of the three $60,000 notes which they had given to him. In October 1925 the decedent established a trust for his daughter of certain stocks and bonds having a value of $40,000. The daughter was not to receive the principal, but only the interest, until she reached the age of thirty-five years.

Decedent was a vigorous and strong man who had always led an active life. On July 1, 1928, he suffered a stroke of paralysis resulting from a cerebral hemorrhage and was unconscious for a week or more. After a month he was able to stand and walk a little with support, and in about two or more months he was able with support to go downstairs in his home. The effect of the stroke was the paralysis of the right arm, right leg, and the loss of the power of speech. A registered nurse remained with him, day and night, sleeping in his room and accompanying him wherever he went. Until his death, a registered nurse was always with the decedent.

After the decedent had made some small progress in recovering from the first stroke he had a second stroke on October 8, 1929, which rendered him unconscious for several hours and required that he be confined to his bed for a week. Decedent never regained the full use of his right arm or leg, nor his power of speech other than to make articulate sounds after months of coaching. In July 1929 the decedent cancelled $14,000 from each of the $60,000 notes heretofore referred to and required the sons to liquidate the balance on the notes and to pay the interest which remained due thereon.

After his second stroke in October 1929 the decedent established four trusts for his daughter and his three daughters-in-law, each trust consisting of securities in the value of $3,112.50. In February 1930, decedent gave to each of his three sons 800 shares of stock in J. Russell & Co. The result of these gifts was that each son had 1,550 shares of the capital stock of 5,000 shares, leaving only 350 shares to the decedent which he retained until his death. In November 1930 decedent created a realty trust known as the Henry L. Russell Realty Trust for the benefit of his wife and four children. In March 1931 he transferred to his wife certain securities valued at $252,658.25.

We have only to consider the transfers made by the decedent after the second stroke in October 1929. The Commissioner of Internal Revenue has not included in the decedent's gross estate the $14,000 which was given to each of the three sons and applied to their notes in July 1929, the Commissioner having found that only the transfers to the daughter and the daughters-in-law, the transfers of 800 shares of stock to each of the sons, the realty trust to his wife and four children, and the transfer of securities to his wife were made in contemplation of death. The burden is on the plaintiffs to establish by the preponderance of evidence that the decision of the Commissioner of Internal Revenue is erroneous.

In our judgment, the plaintiffs have failed to overcome this presumption. It...