Willcuts v. Stoltze

• Decision Date: 05 November 1934
• Docket Number: No. 9916.,9916.
• Citation: 73 F.2d 868
• Parties: WILLCUTS, Collector of Internal Revenue, v. STOLTZE.
• Court: U.S. Court of Appeals — Eighth Circuit

73 F.2d 868 (1934)

WILLCUTS, Collector of Internal Revenue, v. STOLTZE.

No. 9916.

Circuit Court of Appeals, Eighth Circuit.

November 5, 1934.

Carlton Fox, Sp. Asst. to Atty. Gen. (Frank J. Wideman, Asst. Atty. Gen., and J. L. Monarch and Walter L. Barlow, Sp. Assts. to Atty., Gen., on the brief), for appellant.

Francis D. Butler, of St. Paul, Minn. (William Mitchell, of St. Paul, Minn., on the brief), for appellee.

Before BOOTH, Circuit Judge, and MUNGER and BELL, District Judges.

BOOTH, Circuit Judge.

This is an appeal from a judgment in favor of plaintiff, appellee, in an action brought against appellant to recover, with interest, an amount paid by appellee and his coexecutor, under protest, as estate taxes upon the estate of Fred H. Stoltze.

A jury was duly waived and the case was tried to the court.

Fred H. Stoltze, a resident of Hennepin county, Minn., died May 21, 1928, testate, leaving an estate admittedly subject to probate, amounting to over $1,425,000 in value at the date of his death.

On or about February 1, 1929, the executors of the will of deceased duly made return for federal estate taxes.

Prior to his death, said Fred H. Stoltze had made four alleged gifts of property as follows:

"Item (1). On March 30, 1927, he gave forty-nine (49) shares of the capital stock of F. H. Stoltze Securities Co. (a corporation) to John R. Stoltze. John R. Stoltze is the only son of Fred H. Stoltze. The value of said stock at the date of death of Fred H. Stoltze was $972,670.58.

"Item (2). On March 30, 1927, he gave two (2) shares of the capital stock of F. H. Stoltze Securities Co., to Grace B. Stoltze. Said Grace B. Stoltze is the wife of John R. Stoltze. The value of said stock at the date of death of Fred H. Stoltze was $39,700.84.

"Item (3). On April 15, 1927, he gave to John R. Stoltze two hundred fifty thousand dollars ($250,000) face amount of accounts receivable due him from State Lumber Company, a corporation. The value of said accounts at the date of death of Fred H. Stoltze was $250,000.00.

"Item (4). On May 5, 1927, he and the other stockholders of F. H. Stoltze Securities Co., caused said corporation to transfer to Mrs. Maud A. Chadwick five hundred (500) shares of the preferred stock of United States Steel Corporation owned by it. Mrs. Maud A. Chadwick is the sister of the deceased wife of Fred H. Stoltze. The value of said stock (ex-dividend) at the date of death of Fred H. Stoltze was $72,125.00, and a dividend amounting to $875.00 had theretofore been declared on it, making a total value, including said dividend of $73,000.00."

The executors of the will of said Fred H. Stoltze, in making their said return, did not include the value of the four gifts above stated in the gross estate or in the net estate, but they reported that said gifts had been made and said:

"These transfers were absolute. No money payment in return for them was made. It is, however, the position of the representatives that they were not made in contemplation of death or to take effect on death, and opportunity is requested to present evidence in support of this claim. It is further the position of the representatives that the provision of the revenue act of 1928, to the effect that all transfers made within two years are conclusively presumed to have been made in contemplation of death, is unconstitutional and void."

The Commissioner of Internal Revenue determined that the value of the four gifts should be included in the gross estate; and the proper procedure having been taken, the executors paid, under protest, the estate taxes upon the increased assessment as fixed by the Commissioner; and duly filed a claim for refund of said amount, with interest. This claim being rejected, the present suit was brought.

Several of the matters in issue set out in the pleadings and litigated in the trial court have either been expressly or tacitly agreed upon by the parties, and are not pressed in this court: (1) The amount which should be recovered by plaintiff in case a recovery is allowed; (2) the validity of the several gifts in question so far as concerns the requisites for a valid gift inter vivos; (3) the unconstitutionality of that part of section 302 (c) of the Revenue Act of 1926 (26 USCA § 1094 (e) which provided that all gifts of over $5,000 in value, made within two years prior to death, "shall be deemed and held to have been made in contemplation of death within the meaning of this chapter." See Heiner v. Donnan, 285 U. S. 312, 52 S. Ct. 358, 76 L. Ed. 772.

The remaining principal question which is presented to this court is whether the four gifts were made by the donor in contemplation of death, and, therefore, properly included by the Commissioner in the gross estate.

The statutes and the regulations of the Treasury which are deemed applicable are set out in the margin.¹

The Revenue Acts prior to 1926 had contained provisions that all gifts of a material amount made within two years of death should be deemed to have been made in contemplation of death "unless shown to the contrary."

A similar provision was also contained in section 302 (c) of the Revenue Act of 1926, but was limited to gifts made prior to the enactment of the act. The gifts involved in the case at bar were made after the enactment of the 1926 Revenue Act. It has been assumed, however, since the 1926 Revenue Act was, as to this particular point, an amendment of prior law, that the rebuttable presumption of the prior laws was still applicable; and the burden of proof has been assumed by the plaintiff.

At the close of all the evidence, defendant, by motion timely made, moved for judgment in his favor on the ground that there was no substantial evidence to support any other conclusion. This motion was overruled and exception taken.

The findings of the trial court which are specially involved are: The last sentence of finding III:

"Said gifts were in each case by outright conveyance and took effect in possession and enjoyment forthwith on their several dates."

And finding IV as follows:

"Said Fred H. Stoltze was not in contemplation of death at the time any of said four gifts were made.

"None of said four gifts was made by him in contemplation of death.

"The three gifts to John R. Stoltze and his wife (Items 1, 2 and 3) were made simultaneously with the return of John R. Stoltze to Minneapolis and with his assumption of important responsibilities in the conduct of his father's business, and were made on account of that return, to give the son an interest or stake in the business he was to manage, and to insure his continued interest in it. A subordinate purpose of these gifts was to divide the property and its income among three taxpayers and so to reduce the total income taxes payable on account of it.

"The fourth gift, to Mrs. Maud A. Chadwick, was made by Fred H. Stoltze in order to carry out the wishes of his wife, then recently deceased, who was Mrs. Chadwick's sister, and to insure to Mrs. Chadwick an immediate income."

Findings of fact made by the trial court in an action at law, a jury having been duly waived, have the force and effect of a verdict by a jury. Even where proper and timely motion has been made, as in the case at bar, such findings will not be set aside if the record contains substantial evidence in their support. United States v. Perry, 55 F.(2d) 819 (C. C. A. 8); White v. United States (C. C. A.) 48 F.(2d) 178; Blair v. United States, 47 F.(2d) 109 (C. C. A. 8); Federal Intermediate Credit Bank of Omaha v. L'Herisson, 33 F.(2d) 841 (C. C. A. 8); Akre v. Liberty State Bank of Minneapolis, 24 F.(2d) 816 (C. C. A. 8); 28 USCA §§ 773, 875 and 879.

The court, upon this appeal, is accordingly limited to the inquiry whether the record contains substantial evidence that the gifts in question were not made in contemplation of death.

The meaning of the phrase "in contemplation of death," as it is used in the federal taxing statutes, has received careful consideration by the courts.

The purpose of including gifts made in contemplation of death as part of decedent's taxable estate was to prevent the evasion of estate taxes. The legislation is directed at gifts made before death but which are testamentary in character or in purpose.

In the case of Milliken v. United States, 283 U. S. 15, 23, 51 S. Ct. 324, 327, 75 L. Ed. 809, the court said:

"It is sufficient for present purposes that such gifts are motivated by the same considerations as lead to testamentary dispositions of property, and made as substitutes for such dispositions without awaiting death, when transfers by will or inheritance become effective. Underlying the present statute is the policy of taxing such gifts equally with testamentary dispositions, for which they may be substituted, and the prevention of the evasion of estate taxes by gifts made before, but in contemplation of, death. It is thus an enactment in aid of, and an integral part of, the legislative scheme of taxation of transfers at death."

In United States v. Wells, 283 U. S. 102, 51 S. Ct. 446, 450, 75 L. Ed. 867, the meaning of the words "in contemplation of death" received careful analysis by the court, and helpful tests were laid down for determining whether a gift was made in contemplation of death. The court, speaking by Chief Justice Hughes, said (page 115 of 283 U. S., 51 S. Ct. 446, 451):

"While the interpretation of the phrase has not been uniform, there has been agreement upon certain fundamental considerations. It is recognized that the reference is not to the general expectation of death which all entertain. It must be a particular concern, giving rise to a definite motive. The provision is not confined to gifts causa mortis, which are made in anticipation of impending death, are revocable, and are defeated if the donor survives the apprehended peril. Basket v. Hassell, 107 U. S. 602, 609, 610, 2 S. Ct. 415, 27 L. Ed. 500. The statutory description embraces gifts inter...