Walker v. Grogan

• Decision Date: 26 August 1922
• Docket Number: 6370.
• Citation: 283 F. 530
• Parties: WALKER v. GROGAN, Collector of Internal Revenue.
• Court: U.S. District Court — Eastern District of Michigan

283 F. 530

WALKER v. GROGAN, Collector of Internal Revenue.

No. 6370.

United States District Court, E.D. Michigan, Southern Division.

August 26, 1922

Walker & Spalding, of Detroit, Mich., for plaintiff.

Earl J Davis, U.S. Atty., and Fred L. Eaton, Asst. U.S. Atty., both of Detroit, Mich., for defendant.

TUTTLE District Judge.

This is an action to recover a certain sum, with interest thereon paid by the plaintiff as a taxpayer, and under protest, to the defendant, collector of internal revenue, and claimed by the plaintiff to have been illegally imposed and collected by said defendant. Defendant has filed a pleading in the nature of a demurrer, the office of which is now performed, under the Michigan Judicature Act (Pub. Acts Mich. 1915, No. 314 (Comp. Laws 1915, Sec. 12004 et seq.)) and the federal Conformity Act (Comp. St. Sec. 1537), adopting such practice by a motion to dismiss or answer. Section 12456, Michigan Compiled Laws of 1915. The facts have been agreed upon between the parties to this action and set forth in a stipulation of facts filed in the cause substantially as follows:

Plaintiff is the duly qualified executor of the last will of Charles A Kent, deceased, who, while a resident of Detroit, in this district, died on May 7, 1917, testate. Previously, and on March 27, 1875, certain real estate situated in said city was conveyed by the owners thereof to said Charles A. Kent and Fanny C. Kent, who was his wife, parties of the second part to the deed of conveyance, which deed recited that--

'Said premises are to be held by the said parties of the second part, being husband and wife, as joint tenants, with the right of survivorship.'

Said deed was duly recorded on the day on which it was executed and delivered. Neither the said deceased nor his said wife had, prior to the time of such conveyance, held or owned any interest in the property covered thereby. On February 5, 1909, certain shares of stock in the Michigan Drug Company and in the Michigan Mutual Life Insurance Company, both Michigan corporations, were conveyed to said Charles A. Kent and his wife by certificates of stock certifying that Kent and his wife and the survivor were entitled thereto. No part of the purchase price of said real estate or of any of said stock was paid by such wife, but the whole of said purchase price was paid by the deceased. The title to the premises and stock so conveyed continued to be held by the said grantees thereof unchanged until the date of the death of Kent on May 7, 1917. The value of such property at said date was approximately $350,000. Shortly thereafter plaintiff paid to the predecessor in office of the defendant a certain sum as the federal estate tax on the transfer, effected at the death of plaintiff's decedent, of the estate left by the latter, including a one-half interest in the property, hereinbefore mentioned, owned by the latter and his wife as joint tenants. Said sum was computed, in part, on the basis of the value, at the date of such death, of a one-half interest in said jointly owned real estate and shares of stock. Thereafter, in compliance with the demand of the United States Commissioner of Internal Revenue, and under protest, plaintiff paid to the defendant a further sum as an additional estate tax, computed on the basis of the value of the other one-half interest in the last-mentioned property, which half had theretofore been disregarded by the plaintiff, on the ground that it formed no proper part of the property upon the value of which the tax should be computed. Subsequently plaintiff duly filed a claim for a refund of said sum, which was denied by the commissioner, and thereupon plaintiff commenced this action to recover from the defendant the amount so paid under protest. It was urged by the plaintiff in the said protest, as it is here, that no tax is legally due to the government in respect of the property so owned by the said Charles A. Kent and his wife as joint tenants at the death of said Kent, except as to an undivided one-half interest therein.

The question involved is whether the full value of this jointly owned property should be included in the value of the so-called gross estate used as a basis for the computation of the estate tax payable. The applicable statutory provisions are sections 201, 202, and 203 of the federal Estate Tax Act, being the Act of September 8, 1916, chapter 463, 39 Statutes at Large, 777-780, inclusive, as amended by the Act of March 3, 1917, chapter 159, 39 Statutes at Large, 1000. Section 201 of that act provides that a tax, amounting to certain specified percentages of the value of the 'net estate to be determined as provided in section 203' is thereby imposed 'upon the transfer of the net estate of every decedent dying after the passage of this act, whether a resident or nonresident of the United States. ' The material parts of section 202 are as follows:

'That the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated;

'(a) To the extent of the interest therein of the decedent at the time of his death which after his death is subject to the payment of the charges against his estate and the expenses of its administration and is subject to distribution as part of his estate.

'(b) To the extent of any interest therein of which the decedent has at any time made a transfer, or with respect to which he has created a trust, in contemplation of or intended to take effect in possession or enjoyment at or after his death, except in case of a bona fide sale for a fair consideration in money or money's worth. * * *

'(c) to the extent of the interest therein held jointly or as tenants in the entirety by the decedent and any other person, or deposited in banks or other institutions in their joint names and payable to either or the survivor, except such part thereof as may be shown to have originally belonged to such other person and never to have belonged to the decedent.'

Section 203 prescribes the deductions to be made from the value of the gross estate to determine the value of the net estate for the purpose of the tax; the nature and amount of such deductions not being pertinent here.

It will be observed that, in determining the value of the 'gross estate' of the decedent for the purpose of computing the tax, section 202 provides, in subdivision (c) thereof, for the inclusion of the value, at the time of the death of such decedent, of all of his property--

'to the extent of the interest therein held jointly or as tenants in the entirety by the decedent and any other person, or deposited in banks or other institutions in their joint names and payable to either or the survivor, except such part thereof as may be shown to have originally belonged to...