Smails v. O'MALLEY

• Decision Date: 23 April 1942
• Docket Number: No. 12042.,12042.
• Citation: 127 F.2d 410
• Parties: SMAILS et al. v. O'MALLEY, Collector of Internal Revenue for District of Nebraska.
• Court: U.S. Court of Appeals — Eighth Circuit

127 F.2d 410 (1942)

SMAILS et al. v. O'MALLEY, Collector of Internal Revenue for District of Nebraska.

No. 12042.

Circuit Court of Appeals, Eighth Circuit.

April 23, 1942.

Alfred C. Munger, of Omaha, Neb. (Varro H. Rhodes, of Omaha, Neb., and A. R. Foss and KixMiller, Baar & Morris, all of Chicago, Ill., on the brief), for appellants.

J. E. Garvey, Sp. Asst. to Atty. Gen. (Samuel O. Clark, Jr., Asst. Atty. Gen., J. Louis Monarch, Sp. Asst. to Atty. Gen., and Joseph T. Votava, U. S. Atty., of Omaha, Neb., on the brief), for appellee.

Before GARDNER, THOMAS, and RIDDICK, Circuit Judges.

THOMAS, Circuit Judge.

This case arises under § 302(a) and (c) of the Revenue Act of 1926, c. 27, 44 Stat. 9, 26 U.S.C.A. Int.Rev.Code, § 811(a, c). The action was commenced by the appellants in the district court to recover from the Collector of Internal Revenue the sum of $16,008.43 paid on account of a deficiency in the estate taxes assessed by the Commissioner of Internal Revenue against the estate of Emma Allen, deceased. The deficiency was based upon the inclusion in the gross estate of the value of property found by the Commissioner to have been transferred to the appellant taxpayers by the decedent in contemplation of death. A claim for refund having been denied this action was instituted and recovery sought on the ground that the transfers were not made in contemplation of death. The case was tried to a jury. At the conclusion of the evidence a motion for a directed verdict was overruled and the jury brought in a special verdict: "That the gifts from Emma Allen to her nieces, the three plaintiffs herein, on May 1, 1930, were made in contemplation of death."

The plaintiffs filed a motion for judgment notwithstanding the verdict or in the alternative for a new trial. The motion was overruled and judgment was entered on the verdict for the defendant.

The appellants complain that the court erred (1) in overruling the motion for a directed verdict; (2) in failing to rule on the alternative motion for a new trial; (3) in the admission of evidence; and (4) in the instructions to the jury.

The contention that the court should have directed a verdict for the plaintiffs presents the question whether the evidence is sufficient to support the verdict of the jury. In reviewing the case to determine this problem we must be guided by certain well-settled rules.

One seeking recovery of a tax has the burden of proof that the property was not transferred in contemplation of death. Wickwire v. Reinecke, 275 U.S. 101, 105, 48 S.Ct. 43, 72 L.Ed. 184; Oliver v. Bell, 3 Cir., 103 F.2d 760. On a motion for a directed verdict by any party the court is required to consider the substantial evidence and all the inferences reasonably to be drawn therefrom in the light most favorable to his adversary, and if fair-minded men may draw different conclusions from such evidence the question is one of fact for the jury and not one of law for the court. Gunning v. Cooley, 281 U.S. 90, 94, 50 S.Ct. 231, 74 L.Ed. 720; Brinegar v. Green, 8 Cir., 117 F.2d 316, 319; Adams v. Barron G. Collier, Inc., 8 Cir., 73 F.2d 975, 977. A finding of fact by the trier of facts, if based upon substantial evidence, is not to be set aside upon appeal even if upon examination of the evidence the court might draw a different inference. Palmer v. Commissioner, 302 U.S. 63, 70, 58 S.Ct. 67, 82 L.Ed. 50; United States v. Gamble-Skogmo, Inc., 8 Cir., 91 F.2d 372. If the evidence is so overwhelmingly on one side as to leave no doubt what the fact is, the court should direct a verdict. Gunning v. Cooley, supra; Southern Pacific Company v. Pool, 160 U.S. 438, 440, 16 S.Ct. 338, 40 L.Ed. 485; Coen v. American Surety Co., 8 Cir., 120 F.2d 393, 397.

The evidentiary facts are not in dispute. On May 1, 1930, Emma Allen made a gift of bonds and stocks of the value of $131,925.63 to her three nieces, the plaintiffs, in equal shares. The transfer of the property was made by delivery of the bonds and by proper transfer of the stocks at the safe deposit vaults of the bank where the securities were kept. On the morning of the same day Miss Allen requested the husband of appellant Mabel Allen Smails to paste a document which she had prepared on the inside of the front cover of her personal account book at the office of the family investment corporation. This was done. The document in Miss Allen's handwriting, omitting the list of securities given to each niece, is as follows:

"To my nieces: —

"Mabel Allen Smails "Jacy Allen Dunham and "Katherine Allen.

"Being in good health but not wanting to be burdened looking after business matters and having other income sufficient for my needs, I hereby, give to each of you the following bonds and stocks listed under your names.

* * * * *

"My own free will and gift, from your Aunt

"Emma Allen".

Miss Allen was born July 1, 1853. She was never married. On May 1, 1930, she was 76 years and 10 months of age. She died suddenly of coronary occlusion on February 14, 1933, two years, nine months and fourteen days after the date of the transfers. At the time the gifts were made she was in good health for one of her age, and mentally alert. With few exceptions she had always had good health. Her habits were regular. She took walks in the early morning, read the papers, knitted, did church work, traveled some, and interested herself in the affairs of the family.

There is no evidence that she ever discussed tax matters with any one. She discussed the proper way to make the gifts with the accountant who took care of her tax matters, but did not discuss the subject of estate taxes with him. Prior to the transfers involved her property was in the form of tax exempt securities. She had not been required to file an income tax return for many years before her death.

The taxpayers are the only children of Emma Allen's brothers Arthur and Oscar Allen. She always regarded these nieces as if they were her own children and as the natural objects of her bounty. For many years she made her home with her brother Arthur. She often gave the children small presents. In January, 1923, she gave outright to the three nieces the sum of $150,000 in equal shares.

On July 6, 1927, she created a revocable trust in the amount of $300,000 for the benefit of the three taxpayer nieces, retaining the income of the trust fund for life, and providing that upon her death the corpus of the trust should be divided among the three nieces in equal shares.

On July 17, 1927, she executed her last will and testament. Except for a bequest of $1,000 she bequeathed her entire estate to her three nieces in equal shares. She named her two brothers as executors.

Her brother Oscar Allen died on March 31, 1930, at the age of 72 years. At that time her brother Arthur was 69 years of age and in poor health.

On April 9, 1930, she wrote, signed and attached to her will the following statement: "If at my death my brother, Arthur Allen, should not be able to act as administrator of my will I want my nephew, W. H. Smails, to act as administrator; and if he should not be able my niece, Mabel Allen Smails, to fill the place. No bond required."

The financial condition of the three nieces at the time the transfers were made on May 1, 1930, is shown in the evidence. Mabel Allen Smails received securities of the value of $145,000 from her father Arthur Allen on October 1, 1922, and $50,000 from Emma Allen in January, 1923. On July 6, 1927, her father created a $250,000 trust for the benefit of her mother and herself. Jacy Allen Dunham Busch received $50,000 in securities from Emma Allen in January, 1923, $50,000 from her father Oscar Allen in February, 1927, and under the will of her father who died March 31, 1930, she received $63,429.34. Katherine Allen Wadleigh, daughter of Oscar Allen, received from her aunt and her father gifts in the same amounts and at the same times as those given to her sister Jacy Allen Dunham Busch.

After the gifts were made on May 1, 1930, Emma Allen received an income, largely from the trust fund created in 1927, of more than $12,000 a year, and her living expenses would not average $100 a month. At the time of her death on February 14, 1933, there came into the hands of the executor cash, postal savings certificates, jewelry and personal effects aggregating $12,027.46. For estate tax purposes the executor returned the gross sum of $292,636.41. In this calculation the executor included the value of the trust fund and excluded the $150,000 of gifts made to the appellants in 1923 and the gifts of May 1, 1930.

Because of the contentions on appeal it is necessary to decide by what law the sufficiency of the evidence must be determined. The law is that "Where there are no exceptions to a statement as to the law in the charge, * * * such statement becomes the law of the case for purposes of an appeal." F. W. Woolworth Co. v. Carriker, 8 Cir., 107 F.2d 689, 692; Aetna Life Ins. Co. v. McAdoo, 8 Cir., 115 F.2d 369, 370. This situation calls for the consideration at this point of appellants' objections to the instructions. Upon the issue of contemplation of death the instructions to the jury are in the exact...