Wells v. United States, H-321.

• Decision Date: 07 April 1930
• Docket Number: No. H-321.,H-321.
• Citation: 39 F.2d 998
• Parties: WELLS et al. v. UNITED STATES.
• Court: U.S. Claims Court

39 F.2d 998 (1930)

WELLS et al. v. UNITED STATES.

No. H-321.

Court of Claims.

April 7, 1930.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

W. W. Spalding, of Washington, D. C. (Mason, Spalding & McAtee, of Washington, D. C., on the brief), for plaintiffs.

Wm. T. Sabine, Jr., of Washington, D. C., and Herman J. Galloway, Asst. Atty. Gen. (Fred K. Dyar, of Washington, D. C., on the brief), for the United States.

Before BOOTH, Chief Justice, and GRAHAM, GREEN, LITTLETON, and WILLIAMS, Judges.

WILLIAMS, Judge.

This is a suit brought by the executors of the estate of John W. Wells, deceased, to recover the sum of $83,683.62, with interest thereon, which amount, it is alleged, was illegally assessed and collected as federal estate taxes by the Commissioner of Internal Revenue under the Revenue Act of 1918.

The decedent was a resident of the state of Michigan. He was a man of strong character who had by his own efforts and industry accumulated a considerable fortune. When a young man he moved from Iowa to Michigan, where he became interested in the business of acquiring and selling timber lands and manufacturing lumber, in which business he continued up until the time of his death and out of which he accumulated his fortune.

The decedent was the father of five children, three sons and two daughters, who survived him. In 1901 he began to make advancements of money and other property to his children. He kept a set of books in which the transfers of property and money to his children were recorded.

The decedent often expressed the opinion that the proper thing for a man of wealth to do was to give his children substantial sums of money while he was yet living that they might have the experience in handling it while they had a father to counsel with and give advice.

The decedent and the late Senator Stephenson, of Wisconsin, who died about the year 1918, were associated together in the lumber business and were close friends. It seems that Senator Stephenson was not so liberal in the matter of making gifts to his children as was the decedent. Decedent often discussed the policy pursued by Senator Stephenson with his children and expressed the opinion that he was making a great mistake in not giving property to his children while he was living to help them handle it properly and said, "That is not my policy."

Between the time decedent began making advancements to his children in 1901 and the date of his death, August 17, 1921, he had transferred to them in money and property, including interest accrued on such gifts, $1,397,814. Of this amount $782,903 had been transferred within two years prior to his death as follows:

(1) In December, 1919, he transferred and delivered to his sons, Daniel Wells and Artemus C. Wells, 416 shares of the capital stock of the J. W. Wells Lumber Company. By reason of a stock dividend, subsequently declared, these shares were increased to 1,280 shares at the date of decedent's death. Their stipulated value is $103,808.

(2) On January 1, 1921, he transferred and delivered to his children 68,985 shares of the Girard Lumber Company of the agreed value of $344,925.

(3) On January 26, 1921, he placed in trust 3,713 shares of the capital stock of the Lloyd Manufacturing Company to the end that this stock might be exchanged for stock in the Heywood-Wakefield Company and then the Heywood-Wakefield shares received might be delivered to his wife and children. The agreed value of the property transferred as aforesaid is $782,903.

After the death of decedent the plaintiffs as executors of his estate filed with the Bureau of Internal Revenue an estate tax return wherein the shares of stock transferred as aforesaid were not included in the net estate subject to Federal estate taxes. Upon an audit of the return by the bureau, the commissioner determined and held that the shares of stock so transferred, within two years prior to the death of decedent, were transfers in contemplation of death and were subject to the tax. Consequently $782,903, the value of said stocks, was added to the taxable estate, upon which plaintiff paid an additional tax in the amount of $83,683.62, which tax is the basis of this suit.

The taxes in question were assessed under the revenue act of 1918. The relevant part of which provides as follows:

"Sec. 401. That * * * a tax equal to the sum of the following percentages of the value of the net estate (determined as provided in section 403) is hereby imposed upon the transfer of the net estate of every decedent dying after the passage of this Act. * * *

"Sec. 402. 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. * * *

"(c) 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 at any time created a trust, in contemplation of or intended to take effect in possession or enjoyment at or after his death (whether such transfer or trust is made or created before or after the passage of this Act), except in case of a bona fide sale for a fair consideration in money or money's worth. Any transfer of a material part of his property in the nature of a final disposition or distribution thereof, made by the decedent within two years prior to his death without such a consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this title."

The gifts in question were undoubtedly a material part of decedent's property and were in the nature of a final distribution or disposition of such property, without a fair consideration in money or money's worth, and having been made within two years prior to decedent's death, a presumption arises under the statute that such gifts were made in contemplation of death. The presumption created is one of fact, to overcome which the burden of proof is on the plaintiff.

The words "in contemplation of death" have been construed many times in both state and federal courts and have come to have a distinctive meaning. In Spreckels v. State, 30 Cal. App. 363, 158 P. 549, 551, the court said: "A reasonable and just view of the law in question is that it is only where the transfer of property by gift is immediately and directly prompted by the expectation of death that the property so transferred becomes amenable to the burden; or, as counsel for the respondents with singular aptness states the proposition: `It is only when contemplation of death is the motive without which the conveyance would not be made that a transfer may be subjected to the tax.' That is, the expectation of death must be the direct, specific, and immediate animating cause of the transfer."

In Schwab v. Doyle, 269 F. 321, 328, the Circuit Court of Appeals said: "On principle, and without present reference to authority, the ultimate question concerns the motive which actuated the grantor; that is to say, whether or not a specific anticipation or expectation of her own death, immediate or near at hand (as distinguished from the general and universal expectation of death some time), was the immediately moving cause of the transfer."

This court, in the case of Meyer v. United States, 60 Ct. Cl. 474, construed the words "contemplation of death" as follows:

"A review of the authorities is scarcely necessary to sustain the proposition that the contemplation of death referred to in the statute is not that contemplation of death which must be present with all of us, mindful of its certainty at some time, we know not when, but it is that state of mind which by reason of advanced age, serious illness, or other producing cause induces the conviction that death in the near future is to be anticipated. If it be said that there need not be a conviction that death is imminent, there must at least be a belief that it is to be expected in the very near future rather than in the usual course of events. And in this state of mind, in this belief in the near approach of death, must be found the motive for the conveyance if it is properly to be characterized as made in contemplation of death.

"The question necessarily involves the determination of a mental state, and that, too, the mental state at a given time of one who, at the time the question is for determination, has passed from life. The difficulties are therefore apparent. In the absence of proof as to express declarations of the decedent — seldom, we may assume, available to the Government — the burden of affirmative proof could but rarely, if ever, be successfully assumed; and wisely, therefore, and perhaps of necessity also, the law has relieved the Government, under the condition stated, of the burden and created the presumption.

"But what is the result? Can it go further than to shift the burden of proof, leaving the presumption to prevail in the Government's favor in the absence of a reasonable showing to the contrary? Taxing statutes, when of doubtful interpretation, are always to be construed in favor of the taxpayer, and the spirit of this rule must be completely ignored if, in determining a question of fact as between the Government and the taxpayer, rigorous rules as to the proof required to overcome the presumption of the law are to be applied. For if the Government was deemed entitled to a presumption in its favor because of the difficulties of proof, it is to be borne in mind that even though a conveyance was in fact not in any degree made in contemplation of death, the personal representatives might and frequently would be beset by many difficulties in proving that negative fact. Circumstances must largely be relied upon, and these should be fairly — indeed, we think liberally —...