author: Mellott:

text:
    Alice A. Bigelow, Executrix of the Estate of Herbert M. Bigelow, Deceased, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 82659.
    Promulgated August 23, 1938.

      Thomas R. Dempsey, Esq., A. Colder Maclcay, Esq., Arthur Mc-Gregor, Esq., and James L. Patten, Esq., for the petitioner.

      L. H. Rushbrooh, Esq., for the respondent.
   OPINION.

Mellott:

The Commissioner determined a deficiency in estate tax in the amount of $9,244.19. The petitioner alleges that she has overpaid the estate tax in the sum of $402.11. The proceeding was submitted upon the pleadings and a short stipulation of facts. The issue may be succinctly stated: Should all, or only 50 percent, of the property of the decedent acquired prior to May 17, 1929, be included in his gross estate ?

The decedent, a resident of California, died testate April 24, 1983. TTia executrix, within the time prescribed by law, filed an estate tax return with the collector of internal revenue at Los Angeles, California. Therein she reported a gross estate of $142,970.36. The respondent made certain adjustments and corrections, which are not now in controversy. He also added to the gross estate $136,481.66.

The petition alleges that the executrix, in filing the estate tax return, “included therein one-half of the community property as part of the gross estate subject to Federal estate tax” and that the respondent erred in including the other half. In this connection an agreement executed by decedent and his wife on May 17, 1929, is relied upon, which is as follows:

This agreement, made this 17th day of May, 1929, between Herbert M. Bige-low, first party, and Alice A. Bigelow, second party, both residing at Los Angeles, California.
Witnesseth, whereas, the parties hereto intermarried on or about September 6, 1888, and since that time have been and now are husband and wife and living together as such; and
Whereas, said parties, since the date of their marriage have acquired certain property which by virtue of the laws of the State of California and/or written agreement between the parties hereto is the community property of the parties hereto; and the parties hereto are desirous that th,e rights and interests of the respective parties hereto in and to all their community property be expressly defined and established in accordance with the terms and provisions hereof;
Now, therefore, in consideration of the love and affection which each of the parties hereto bears unto the other and of other good and valuable consideration moving from each of the parties unto the other, it is hereby agreed as follows :
1. That all property now owned by the first party shall be and the same is hereby declared to be community property of the parties hereto.
2. That the respective interests of the parties hereto in their community property during continuance of the marriage relation are and shall be present, existing and equal interests under the management and control of the husband, first party hereto, as is provided in Sections 172 and 172 (a) of the Civil Code of the State of California.
3. That this agreement is intended and shall be construed as defining the respective interests and rights of the parties hereto in and to all community property, and the rents, issues and profits thereof, heretofore or hereafter acquired by the parties hereto during the continuance of said marriage relation.
First party does hereby assign, transfer and convey unto second party such right, title and interest in and to said community property as may be necessary to carry into full force and effect the terms of this instrument.
In witness whereof, the parties hereto have hereunto set their hands the day and year first above written.
[Signed] Herbert M. Bigelow
Alice A. Bigelow

At the bearing it was stated that the above instrument was similar in form to one executed by W. A. Sampson and his wife, the force and effect of which, was then under consideration by the United States District Court for the Southern District of California, Central Division. Since the filing of briefs herein the court has entered its decision in the Sampson case (Sampson v. Welch, 23 Fed. Supp. 271). Our attention was also called to a decision by the United States District Court for the Southern District of California, Central Division, entered July 10, 1937, in Goodyear v. United States. The last mentioned case is now pending on appeal to the Circuit Court of Appeals for the Ninth Circuit.

The Goodyear case, although the memorandum opinion does not clearly so indicate, apparently holds that an agreement somewhat similar to that executed by decedent and his wife, vested in the wife such an interest in the decedent’s property as to require the exclusion from his gross estate of one-half of the property formerly owned by him. Such conclusion, however, is at variance with that reached by the court in the Sampson case, which is on all fours with the instant proceeding. Its discussion of the questions raised is quite complete and persuasive. It summed up its conclusions as follows:

1. As to community property of tlie Sampsons acquired before July 29, 1927: The agreement operated to bestow upon Mrs. Sampson such an interest therein as to permit the inclusion under Sections 302 (a) and (b) of only one-half of the property in this category in the gross estate of her deceased husband. The agreement was however such a transfer as to come within the terms of Sections 302 (c) and (d) and the property interest bestowed thereby on Mrs. Sampson was includible in Mr. Sampson’s gross estate.
2. As to the separate property of William O. Sampson, acquired before December 28, 1930: The agreement operated to bestow upon Mrs. Sampson such an interest therein as to permit the inclusion under Sections 302 (a) and (b) of only one-half of the property in this category in the gross estate of her deceased husband. The agreement was however such a transfer as to come within the terms of Sections 302 (e) and (d) and the property interest bestowed thereby on Mrs. Sampson was includible in Mr. Sampson’s gross estate.
3. As to real property owned in joint tenancy, acquired before May 23, 1929: The agreement operated to bestow upon Mrs. Sampson such an interest therein as to permit the inclusion under Sections 302 (a) and (b) of only one-half of the property in this category in the gross estate of her deceased husband. The agreement was not however such a transfer as to come within the terms of Sections 302 (e) and (d) and the property interest bestowed thereby on Mrs. Sampson was not includible in Mr. Sampson’s gross estate.
4. As to community property acquired after July 29, 1927 but before May 23, 1929: Mrs. Sampson, by virtue of Section 161 (a) of the California Civil Code, enjoyed such an interest in property in this category as to permit the inclusion under either Sections 302 (a), (b), (e) or (d) of only one-half of such property in the gross estate of her deceased husband. As to property in this category the agreement did not operate as a transfer within the terms of Sections 302 (c) and (d).
5. As to community property acquired after May 23, 1929 but before Mr. Sampson’s death on December 28, 1930: Mrs. Sampson, by virtue of Section 161 (a) of the California Civil Code, enjoyed such an interest in property in this category as to permit the inclusion under either Sections 302 (a), (b), (c) or (d) of only one-half of such property in the gross estate of her deceased husband. As to property in this category the agreement did not operate as a transfer within the terms of Sections 302 (c) and (d).

The dates referred to in the above holding are (1) the date section 161 (a) of the California Civil Code became effective (July 29,1927); (2) the date the agreement between Sampson and his wife was executed (May 23, 1929); and (3) the date of the death of the decedent (December 28, 1930).

Inasmuch as no evidence was introduced in the instant proceeding to show that any property was acquired by the decedent, his wife, or the community subsequent to the execution of the agreement, and inasmuch as apparently none of the property was owned by the community or held in joint tenancy, tenancy in common, or tenancy by the entirety prior to the execution of the agreement, we are concerned only with the property which was owned by the decedent when the agreement was executed. It will be noted that the court in Sampson v. Welch, supra, held that such property, though not includible in the decedent’s estate under sections 302 (a) or (b) of the Revenue Act of 1926, was includible in the gross estate under sections 302 (c) and (d). We show in the margin the sections referred to, as amended.

We think the court’s conclusion that such property should have been included in Sampson’s gross estate is correct and that a similar holding should be made here. As pointed out by the court, the husband retained in himself the possession, management, and control of the property for his lifetime, withholding from the wife “precisely those fructifying attributes of ownership, which Congress felt should not be retained by the grantor, unless the transfer was to be considered as testamentary in character.” Accordingly it held that the property was includible under section 302 (c), supra, as being an interest “of which decedent has * * * made a transfer, * * intended to take effect in possession or enjoyment at or after his death.”

Kespondent argues, with considerable force, that the property is taxable as a part of decedent’s gross estate under section 302 (a), as being an “interest therein of the decedent at the time of his death.” In this connection he points out that the tax is “measured by the value at death of the interest which is transferred” (Reinecke v. Northern Trust Co., 278 U. S. 339)—the rights or interests that are cut off — the “economic benefits and burdens” which cease. He points out that the decedent, so long as he lived, possessed substantial rights and interests in the wife’s share of the community, even though full effect be given to the agreement and to section 161 (a). Some of these were: management and control of the community property, absolute and exclusive power to dispose of the personalty, qualified power to dispose of the real estate, power to contract debts upon the wife’s share, and the practical power to dissipate all of it. Notwithstanding the existence of such rights, however, the court concluded that the wife had “a legal and present share in the ownership [of the property], coexistent with and equal to the share belonging to her husband.” That “such a one-half interest — even though undivided and essentially dissimilar from all recognized common law estates — cannot be ignored, or treated as if it were the husband’s, when clearly it is not.” It therefore held that it was not taxable as a part of the husband’s estate under section 302 (a), supra.

The question admittedly is not free from doubt. It may be, as respondent contends, that the wife, so long as the husband lived, had a' “mere contingent, conditional future interest created solely by statute.” If so, then perhaps the property should have been included in the husband’s gross estate under section 302 (a). But we are of the opinion that her interest — whatever it was — can not be so classified. It was sufficient to entitle her to make a separate return of her share of the income, United States v. Malcolm, 282 U. S. 792; Poe v. Seaborn, 282 U. S. 101, even though the legislature did not see fit to designate it a “vested” interest; and, as the court pointed out in Sampson v. Welch, supra, it is significant that, under section 201 of the Probate Code of California, “one-half of the community property does not go to the wife upon her husband’s death, but belongs to her.” It has been held that to be included in the gross estate of a decedent under section 302 (a) three conjunctive requirements must be present: (1) an interest of the decedent at the time of his death, (2) subject to the payment of administration and charges against his estate, (3) subject to distribution as a part of his estate. Crooks v. Harrelson, 282 U. S. 55; United States v. Field, 255 U. S. 257; Hernandez v. Becker, 54 Fed. (2d) 542. The second requirement is undoubtedly present in the instant proceeding; but the existence of the other two, and especially the third, is, to say the least, quite questionable. We are of the opinion, and hold, that the wife’s share of the community property was not includible in the husband’s estate under section 302 (a).

Respondent’s contention that the interest of the wife is includible in the husband’s gross estate under section 302 (b) as an interest created by statute in lieu of dower is, we think, untenable. This question was fully considered by the court in Sampson v. Welch,, supra. Its discussion leaves little to be said. The conclusion reached accords with our views. Accordingly we pass this question without discussion.

Finally, says the respondent, even assuming that an irrevocable, vested legal title to her share in the property was transferred by the agreement to the wife, still it was includible in the gross estate of the husband because the enjoyment of it by the wife was subject, during the lifetime of the decedent, to changes through his exercise of the retained power to alter materially, or even revoke, the enjoyment of it by the wife. Thus, he argues, it is taxable in the decedent’s gross estate under section 302 (d).

In Sampson v. Welch, supra, it was stated that, while the courts have not yet passed upon the question whether an agreement involving community property falls within section 302 (d), they had “dealt with situations closely analogous.” The court then analyzed the holdings in Porter v. Commissioner, 288 U. S. 436; Holderness v. Commissioner, 86 Fed. (2d) 137; Commissioner v. Chase National Bank, 82 Fed. (2d) 157; Mead v. Welch, 13 Fed. Supp. 981; and Prederick Foster et al., Executors, 31 B. T. A. 769; adverted to the numerous rights retained by the decedent, most of which we have referred to above; and concluded that the transfer was clearly within the act.

We are of the opinion that the cited cases and the reasoning of the court justify the conclusion reached. There is no difference between the agreement before us and that considered by the court in the cited case. We are of the opinion and hold that the respondent did not err in including the property in the gross estate of the decedent.

Judgment will he entered for the respondent.

       161a. Interest in Community Property: The respective interests of the husband and wife in community property during the continuance of the marriage relation are present, existing and equal interests, under the management and control of the husband, as is provided in Sections 172 and 172a of the Civil Code. This section shall be construed as defining the respective interests and rights of husband and wife in community property.

       Section 302. The value of the gross estate of the decedent shall be determined by including the value at the time of bis 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 ;
      (b) To the extent of any interest therein of the surviving spouse, existing at the time of the decedent’s death as dower, curtesy, or by virtue of a statute creating an estate in lieu of dower or curtesy;
      (c) To the extent of any interest therein of which decedent has at any time made a transfer, by trust or otherwise, 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 an adequate and full consideration in money or money’s worth * * * ;
      (d) To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power, either by, the decedent alone or in conjunction with any person, to alter, amend or revoke, or where the decedent relinquishes any such power in contemplation of his death, except in ease of a bona fide sale for an adequate and full consideration in money or money’s worth * * *.


source: Caselaw Access Project

author: Leech:

license: Public Domain

text:
    The T. K. Harris Company, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 78711.
    Promulgated August 24, 1938.

      John G. Ketterer, Esq., and O. R. Coas, C. P. A., for the petitioner.

      Elmer Corbin, Esq., for the respondent.
   OPINION.

Leech:

The respondent determined a deficiency in income taxes against the petitioner for the fiscal year ended March 31,1932, in the amount of $1,455.01, together with a delinquency penalty of $656.33. The returns of petitioner were filed with the collector of internal revenue at Cleveland, Ohio.

The proceeding was submitted on a stipulation of facts. We find the facts as stipulated.

For present purposes, the essential facts follow. On September 29, 1930, the petitioner contracted with the East Ohio Gas Co., hereinafter called Gas Co., to drill completed gas wells upon the property of the petitioner. This contract provided in the preamble, inter alia:

Whereas, tlie * * * [Gas Co.] is engaged in the business of selling gas and desires to procure whatever natural gas that can he procured from the land hereinbefore described, and
Whereas, the * * * [petitioner] desires that there be taken from said land and marketed as soon as possible all the natural gas, oil, casing head gasoline and any other products that may be obtained from said land incidentally in drilling for gas * * *.

The contract named no definite sum of money as the cost of any well nor was there any limitation as to the depth to which any of the wells was to be drilled. The wells were to be “deemed completed when gas turned into pipe lines.” All the wells were to be drilled “at * * "* [Gas Co.’s] sole expense, including labor and material.” The petitioner assumed no personal liability for the same but it was agreed that the Gas Co. should be reimbursed for its “exact cost without overhead” solely from the proceeds of the sale of gas from the particular well. If there was any deficit as to any well that loss was to be sustained by the Gas Co. “The wells and all the material in connection with the same shall become and be the property of * * * [the petitioner] after * * * [Gas Co.] has been reimbursed for the cost thereof as aforesaid, except that if a dry hole is struck, then the ⅜ * * [Gas Co.] shall remove the pipe, fixtures and derrick from the premises within thirty (30) days after it appears that the hole is dry and all the material removed shall remain the property of * * * [Gas Co.].”

Until the cost of each completed well was paid, the Gas Co. was to sell the production therefrom and credit the petitioner’s drilling account therewith. After the cost of each completed well was paid, the Gas Co. agreed, to operate the well and buy the production from petitioner under specified conditions.

Pursuant to this contract, the Gas Co. drilled six wells upon the property of the petitioner, the proceeds of the gas produced from none of which was sufficient to pay the drilling, development, and operating costs prior to the end of the fiscal year ended March 31, 1932, but three of them had been completed and put into production prior to the end of that fiscal year. All these wells, before 1935, produced sufficient gas, the proceeds from which completely reimbursed the Gas Co. for its drilling, development, and operating costs.

During the túne these wells were being drilled and after drilling, the Gas Co. furnished the petitioner with detailed invoices of the exact amounts expended in the development, drilling, and operation of the wells. After the first well was completed and put into production, the Gas Co. started a ledger account in its records against tlie petitioner in wliich the items appearing upon the invoices rendered to the petitioner for the cost of drilling, developing, and operating the wells, were charged as an account receivable against the petitioner.

Periodically, as these invoices were submitted by the Gas Co. to the petitioner, while the wells were being drilled, the items of expense therein were allocated between tangible and intangible drilling costs by the petitioner “in accordance with the regulations of the Commissioner of Internal Revenue.” In the original return filed by the petitioner for the fiscal year ended March 31,1932, the petitioner returned no income from the wells completed and put into production during that year. The taxes due under this return were paid. By amended return it reported, as income, the proceeds of gas sold from the three completed wells in the fiscal year in question, charged to expense certain amounts as intangible costs of drilling and developing all the wells, and claimed depreciation on certain amounts as tangible costs, in conformity with an allocation by petitioner. The respondent, in determining the deficiency, included in the petitioner’s gross income for the fiscal year, the amounts credited to the petitioner by the Gas Co. during that year for gas produced on completed wells on the petitioner’s property, in the total amount of $15,136.86, from which operating expenses of $21.50 and percentage depletion of $4,327.61 were deducted, leaving a net income of $11,387.72. The penalty of $656.36 was added because of petitioner’s failure to file its income tax return within the statutory period. That penalty is not in controversy.

The petitioner now claims its taxes for the taxable year were overpaid.

The only issues pleaded are: (1) Whether petitioner received income in the amounts credited to petitioner by the Gas Co. as proceeds of the gas produced from its three gas wells completed during the fiscal year ended March 31,1932; (2) if it did receive such income, has it the right to deduct from that gross income, as an expense, the intangible drilling and development costs, during that period, of all the wells, under article 236, Kegulations 77? (3) is petitioner entitled to a deduction for depreciation on the physical property in the three completed gas wells, under the provisions of article 238, Regulations 77 ?

The first two contentions of petitioner are without merit.

Petitioner owned the leases on which the wells were drilled. It did not transfer any interest in them nor the mineral in place to the Gas Co. That company merely agreed to and did drill wells for petitioner on petitioner’s property. Cf. Edwards Drilling Co., 35 B. T. A. 341; affd., 95 Fed. (2d) 719; Cook Drilling Co., 38 B. T. A. 291. Petitioner agreed to pay for these wells in the future by assignment of its income from a particular source. If none of the drilling resulted in commercial wells, there would have been no capital improvement in fact, and no obligation of petitioner to pay therefor, and consequently no income to it. Bliss v. Commissioner, 57 Fed. (2d) 984. However, when such drilling did result in commercial wells, there was a capital improvement which accrued to petitioner and income to it from its leases resulted.

The proceeds of the production from the three wells, completed in the taxable year, collected by the Gas Co. and applied to the payment of the cost of these wells, in accordance with the contract, was income, constructively received by petitioner, and taxable to it, before that income could pass to the Gas Co. by virtue of the assignment of that income in the contract. Reynolds v. McMurray, 60 Fed. (2d) 843; certiorari denied, 287 U. S. 664.

Petitioner’s right to charge any amount to expense as intangible drilling and developing costs, under Regulations 77, article 236, depends upon whether such costs were incurred in a “footage drilling” contract or under a “turn-key” contract for the purchase of completed wells. G. W. Titus, Inc., 32 B. T. A. 1222.

Here, all the labor and material involved in the drilling of each Avell was furnished solely by the Gas Co. The contract was for completed wells, only. Petitioner was not liable in any event, except for a completed well. And, its obligation then was fixed, not upon any footage basis but by the “exact cost without overhead” of each well and the proceeds of production therefrom. We conclude, therefore, that the contract under which the wells were drilled was, in effect, a “turn-key” contract and petitioner purchased capital assets, thereunder, in the form of completed wells. It follows that respondent was correct in denying petitioner its asserted claim to charge intangible drilling costs in connection therewith, to expense. C. W. Titus, Inc., supra; O-W-R Oil Co., 35 B. T. A. 452. This conclusion is not disturbed by the stipulation that the items of expense incurred in the drilling of the wells were allocated as tangible and intangible drilling costs by the petitioner “in accordance with the regulations of the Commissioner of Internal Revenue.” In our judgment, that stipulation here has no more effect than the stipulation in O-W-R Oil Co., supra. In that case it was stipulated that the amounts thus allocated by the taxpayer were “reasonable and proper.” At all events, we do not think wo are bound by that statement in the stipulation in view of the drilling contract and expense invoices, likewise in the record. See Wm. Ernest Seatree, 25 B. T. A. 396; affd., 72 Fed. (2d) 67. Under that contract, an allocation of such expenses between tangible and intangible drilling costs is just as impossible as it was in O-W-R Oil Go., supra. In that case this Board said: “No actual segregation of tangible and intangible drilling expenses of the taxpayer, under such a contract, can be made. [Citations.]”

The petitioner’s third contention merely raises the question of when its right to depreciation begins.

The drilling of each well was the business of the Gas Co. Edwards Drilling Co., supra; Goole Drilling Co., supra. But, upon the completion of each well and its producing gas, the operation of that well became the business of petitioner. The proceeds from that business, as we have said, was the income of petitioner. The Gas Co. merely, operated such completed wells for petitioner and bought the production under the agreement. It is true, under its contract, the legal title to each completed well did not vest in petitioner until its cost was paid. However, legal title is not necessary to support a depreciation deduction. F. & R. Lazarus & Co., 32 B. T. A. 633 (on appeal C. C. A., 6th Cir.), and cases cited therein. The completion of each well resulted then in a capital improvement to petitioner for which petitioner was paying by assignment of its income therefrom. It then had a proprietary and equitable interest in that capital improvement. The Gas Co. held legal title only as security for the payment of the costs of the well, in conformance with the contract. From its completion, each well was used in petitioner’s business to produce its income upon which, as such, we have here sustained a tax. The claim for depreciation is sustained. See F. & R. Lazarus & Co., supra, and cases cited therein; Exolon Co. v. United States (not reported) (Dist. Ct., Mass., Sept. 3,1931).

Decision will be entered under Ride 50.


text:
    The George D. Harter Bank, Executor of the Last Will and Testament of Daniel P. Hoover, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 83745.
    Promulgated August 30, 1938.

      Homer E. Black, Esq., and Albert B. Arbaugh, Esq., for the petitioner.

      J. E. Marshall, Esq., for the respondent.
   OPINION.

Mellott:

The petitioner contests a deficiency in estate tax determined by the respondent in the amount of $220,179.09. The questions presented for determination are: (1) What was the value at the time of the death of the decedent of the preferred and class A common stock of the Hoover Co. ? (2) Should the value of the corpora of five trusts created by the decedent for the benefit of his wife and four children be included in his gross estate? (3) What was the value at the time of the decedent’s death of securities, other than the preferred and class A common stock of the Hoover Co., which should have been included in his gross estate?

Other issues which were raised by the pleadings have been stipulated. The parties now agree that, in addition to the deductions already allowed, the petitioner is entitled to further deductions of $4,040 for executor’s fees, $6,000 for attorneys’ fees, $5,721.84 for debts, and $7,000 on account of charitable and educational bequests. They also agree that petitioner is entitled to a deduction from the gross estate on account of “property previously taxed” as part of the estate of decedent’s father, William H. Hoover, who died in 1932; but the amount of this deduction is dependent upon our decision on the questions in issue. Effect will be given to the stipulations and agreements of the parties upon settlement under Bule 50.

General findings of fact will first be made, after which findings especially applicable to the question to be decided will be made. The questions will be discussed in the order stated.

GENERAL EINDINGS OF FACT.

Petitioner is the duly appointed, qualified and acting executor of the estate of Daniel P. Ploover, who died testate March 11, 1933. At the time of his death he was a resident of Canton, Ohio. He was survived by his wife, Clarice Schütz Hoover, three sons, Joseph Schütz, Daniel Philip, and Thomas Henry, and a daughter Margaret Ann.

Within the time prescribed by law petitioner filed an estate tax return with the collector of internal revenue at Cleveland, Ohio, reporting a gross estate of $682,559.83. The tax computed to be due in the amount of $24,496.95 was duly paid. The Commissioner determined that the value of the gross estate was $1,749,212.92 and, after crediting the amount of tax paid, that there was a deficiency in tax of $220,179.09.

I. — Value of the Preferred and Class A Common Stools of the Hoover Co.

FINDINGS OF FACT.

The Hoover Co., a corporation duly organized December 2, 1922, under the laws of the State of Ohio, on December 31, 1922, succeeded the Hoover Suction Sweeper Co. an Ohio corporation organized November 29, 1909. The original paid-in capital of the Hoover Suction Sweeper Co. amounted to approximately $70,000. Between January 1, 1911, and January 1,1922, preferred stock was issued for cash at $100 per share in the aggregate amount of $884,700, all of which was retired and redeemed at $104 per share on December 31, 1922.

On December 31, 1922, the Hoover Co. acquired the assets and assumed the liabilities of the Hoover Suction Sweeper Co., paying therefor 20,000 shares of its 7 percent preferred stock and 20,000 shares of its common stock, each of the stocks having a par value of $100 per share. On February 6, 1929, the 7 percent preferred stock was changed to 6 percent cumulative preferred, and the new stock was issued to the preferred stockholders on a share for share basis; the 20,000 shares of common stock were changed to 400,000 shares of class A no par common stock, and the new stock was issued to the common stockholders on a basis of 20 shares for one; and a new issue of class B common stock was created and made available for subscription by employees only. By December 31, 1929, 14,738 shares of the class B stock had been sold to employees at $50 per share. Class A and class B common stock participated equally in dividends and in distributions in liquidation.

On March 11, 1933, the total outstanding capital stock of the Hoover Co. consisted of 20,428 shares of 6 percent cumulative preferred, 400,000 shares of class A, and 13,849 shares of class B common stock.

The Hoover Co. is the parent company of a group of wholly owned domestic and foreign subsidiaries. The chief business of each is the manufacture, sale, and servicing of electric suction cleaners, dusting tools, and kindred appliances, and the manufacture and sale of parts therefor. The Hoover Co. is the principal manufacturing company, its plant being located at North Canton, Ohio. The products are manufactured in the United States, Canada, and England, and are sold throughout the United States and in many foreign countries. All of its sales are made through dealers by salesmen who are trained, furnished, and paid by the Hoover Co. or its subsidiary.

Assistance in selling is rendered to the dealers by the Hoover Co. through national magazine advertising, display advertising, radio advertising, and sales promotion campaigns. The company for many years has used the! slogan, “It beats as it sweeps as it cleans”, as a prominent feature of its advertising matter and sales promotion efforts. Service stations for the maintenance and repair of Hoover cleaners are maintained by the company in principal cities of the United States. The maximum number of such service stations was 153, in 1928, and the minimum number was 89, in 1932. The maximum number of dealers who sold Hoover pi’oducts was 5,328, in 1929, and the minimum number of dealers was 3,731, in 1935. The maximum number of salesmen employed by the Hoover Co. and by dealers selling Hoover products was 4,670, in 1935, and the minimum number was 2,059, in 1928.

The Hoover Suction Sweeper Co. was the first manufacturer of electric suction sweepers to develop the revolving motor driven brush by which a beating and sweeping action was combined with suction. The mechanical construction which made the use of a revolving brush possible was covered by United States patent numbered 1,147,307, granted July 20, 1915, and by patents in various foreign countries. The United States patent expired July 20, 1932. Following the expiration of this patent, several of the domestic competitors of the Hoover Co. started to use the revolving brush in their cleaners and copied the design of the Hoover machine. On March 11, 1933, the suction sweeper manufactured by the Hoover Co. and sold in the United States was protected by various other patents covering features of design and construction. It maintained a patent department and employed engineers and patent attorneys to develop and obtain patents upon new inventions and improvements in suction sweepers.

The Hoover Co. manufactured and sold various types of cleaners and dusting tools, some of which were sold separately as hand models, or “Dustettes,” and some of which were sold as attachments to the standard models. It usually sold three different models, which, during March 1933 were priced at $59.50, $79.50, and $90. In addition it sold factory rebuilt machines, called “Hoover Specials,” and later on it brought out a model which sold for $49.75. Of all Hoover cleaners sold, 40 percent were to “satisfied Hoover users,” 35 percent were to users who had previously owned other makes of cleaners, and 25 percent were to people who had never owned a cleaner or had given their old one away. The life of a cleaner varies from five to ten years.

William H. Hoover, founder of the Hoover Co., died in February 1932, and his brother, Frank K. Hoover, died in March 1931. Each had been active in the business of the company until his death. When they died the general policy of the company was not changed in any respect.

The selling method employed by the Hoover Co. at and prior to the death of the decedent was an essentially “high cost method.” Salaried employees were maintained in district headquarters, department stores, offices of public utilities, and similar places where “leads” or names and addresses of prospective purchasers were secured. The salesmen, working under a supervisor — five to ten constituting a group — then called upon the prospect and gave a demonstration in the home. Most sales were made as a result of the personal solicitation of a salesman, and sometimes house to house canvasses were made. The salesmen all worked on a commission basis. In 1933 certain towns and cities in the United States began to pass local ordinances requiring licenses and prohibiting door to door solicitation without previous invitations; and although such local ordinances in March 1933 were not a factor in the states in which the Hoover Co. made most of its sales, there was some apprehension that the movement might spread.

Prior to 1933, Hoover cleaners which were sold in Canada, the British Isles, Australia, New Zealand, the European Continent, and South America were manufactured by the Hoover Co., Ltd., a Canadian subsidiary corporation with a manufacturing plant at Hamilton, Ontario. Most of the products manufactured at that plant were sold to Hoover, Ltd., a British subsidiary corporation, for resale in Great Britain and other foreign countries. England went off the gold standard in 1931. About that time there arose in England a sentiment against the purchase of products manufactured elsewhere, known as the “Buy English Movement.” In 1932 the Hoover Co. decided that it would be advisable to manufacture cleaners for the British and foreign trade in England. It thereupon began the construction of a manufacturing plant at Perrivale, England, designed to produce 400 cleaners per day. The plant was completed, and manufacturing began in April 1933. It was later increased to a capacity of 800 cleaners a day.

The Hoover Co. abandoned its business in Australia and Germany in the years 1931 and 1932, respectively, because of the enactment of restrictive laws.

The total domestic unit sales of Hoover floor and hand-type cleaners, including rebuilt and reconditioned “Hoover Specials,” the total unit sales of all floor and hand-type cleaners in the United States as shown by the published official reports of the United States Department of Commerce, and the percentage thereof represented by Hoover cleaners were as shown in the following table.

The total net dollar sales of Hoover cleaners to dealers in the United States, the total estimated retail sales of all cleaners in the United States as shown by the published official reports of the United States Department of Commerce, and the percentage thereof represented by Hoover sales, were as shown in the following table.

On the books of account and balance sheets of the Hoover Co. subsequent to February 26, 1929, the outstanding preferred stock was carried at $100 per share, the no par class A common stock at $5 per share, and the no par class B common stock at $50 per share. The total net worth of the Hoover Co. as reflected by its books of account, including its stated capital, earned surplus, and reserve for contingencies, but after adjustment to market value of the marketable securities, was as shown in the following table, (1) with respect to the Hoover Co. and its domestic subsidiaries, and (2) with respect to the Hoover Co. consolidated with all of its domestic and foreign subsidiaries.

Dividends received by the Hoover Co. from its foreign subsidiaries were as follows:

Except as shown above, no dividends have been received from any foreign subsidiaries.

The total net earnings of the Hoover Co. and its domestic subsidiaries, including dividends received from foreign subsidiaries; the dividends paid or accrued on the outstanding preferred stock; the earnings available for common stockholders; and the earnings available per share of common stock for the fifteen-year period from 1922 to 1936, inclusive, were as shown in the following table.

The total net earnings of the Hoover Co. consolidated with its domestic and foreign subsidiaries; the dividends paid or accrued on the outstanding preferred stock; the earnings available for common stockholders; and the earnings available per share of common stock for the eight-year period from 1928 to 1935, inclusive, were as shown in the following table.

The earnings of the Hoover Co. and its domestic subsidiaries for the three-month period ended March 31, 1933, amounted to $254,-379.13, and the earnings of the Hoover Co. and its domestic and foreign subsidiaries for the same period amounted to $82,069.74. These earnings include a profit of $190,000 realized by the Hoover Co. in February 1933 from the sale of certain gas refrigeration patents.

Dividends were paid regularly on the preferred stock at the rate of $7 per annum on the 7 percent preferred stock outstanding prior to the February 1929 recapitalization. Thereafter dividends were paid regularly at the rate of $6 per annum on the 6 percent preferred stock, except for the quarterly payment of $1.50 per share due April 1, 1933, which was postponed and paid in 1934. Cash dividends on the common stock were paid as shown in the following table.

By executive decree of the President of the United States, all banks, stock exchanges, and security markets were closed from March 3 to March 15, 1933. There had been a number of banks closed in 1931 in the cities of Canton, Massillon, and Akron in Stark County, Ohio, and additional banks failed to reopen or were reorganized before reopening after the “bank holiday.” On October 1, 1931, the Hoover Co. reduced the salaries of its employees by 10 percent and on March 1, 1932, by an additional 15 percent. In March 1933, only 50 percent of the salary rate then in effect was paid. On April 1, 1933, salaries were established at 75 percent of the rates which were in effect prior to March 1933. During the depression, sales resistance increased because of increased competition for the housewife’s dollar and direct selling was more difficult. The Hoover Co. attempted to hold up its sales volume by employing more salesmen and by increased expert supervision over its salesmen. As a result there was a substantial increase in the selling cost of each machine sold. The Hoover Co. occupies a prominent position in the vacuum cleaner industry. Its management is good and it is strong financially.

The class A common stock of the Hoover Co. was closely held and was not listed on any exchange, and there were no purchases or sales thereof. The preferred stock was not listed on any exchange and there were no purchases or sales thereof at or near the time of the decedent’s death. On April 6, 1933, the Hoover Co. distributed 600 shares of class B common stock to about 50 executives of the company as bonuses and prizes. In the Federal income tax return of the corporation for the year 1933, said distribution was deducted from taxable income as an expense at $20 per share.

On March 11, 1933, the decedent, Daniel P. Hoover, owned directly 791 shares of the preferred stock and 30,750 shares of the class A common stock of the Hoover Co., of which 591 shares of the preferred and 17,750 shares of class A common are identified as “property previously taxed” as part of the estate of William H. Hoover, deceased. Included in the corpora of five trusts established by Daniel P. Hoover were 1,200 shares of preferred stock and 20,000 shares of class A common stock of the Hoover Co.

As of March 11, 1933, the fair market value of the Hoover preferred stock was $83 per share and the fair market value of the class A common stock was $9 per share.

OPINION.

Petitioner, in the estate tax return which was duly filed, reported a value of $50 per share for the preferred stock of the Hoover Co. and $5 per share for the class A common, and included in the gross estate only the shares owned directly by the decedent at the time of his death. [Respondent determined that the preferred had a value of $95 per share, that the class A common had a value of $15 per share, and that the value of the total number of each contained in the corpora of the five trusts established by the decedent should be included in his gross estate. Whether all, or any part of, the stock comprising the corpora of the five trusts should be included in decedent’s gross estate will be discussed under issue II. Neither party contends, however, that our decision on that issue will have any effect on the valuation issue being presently considered.

Admittedly there must be included in decedent’s gross estate “the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated, to the extent of the interest therein of the decedent at the time of his death.” (Sec. 302 (a), [Revenue Act of 1926.) What, then, was the value of the preferred and class A common stock in the Hoover Co. on March 11,1933?

We have found as a fact that the value of the preferred was $83 per share and the value of the common was $9 per share. No effort will be made to point out all of the factors which have been considered in arriving at these values, nor will any attempt be made to summarize all of the evidence. Suffice it to say that all of the evidence, whether hereinafter alluded to or not, has been considered. A brief statement of some of the evidence and factors considered, however, may not be amiss.

The generally accepted method of determining “value” for estate tax purposes is to “postulate the existence of a willing seller and a willing and able buyer, both familiar with the situation, reasonable in their views, acting for their own best interests and each willing to make such adjustments in his views upon value as might be necessary to bring about a sale at a reasonable amount, fair to both parties.Oahu Sugar Co., Ltd., 13 B. T. A. 404, 412. Cf. Adams Express Co. v. Ohio, 166 U. S. 185, 220; James Couzens, 11 B. T. A. 1040. The stock of the Hoover Co. has always been closely held and no sales of the preferred or class A common were made on, or near, the date of the death of decedent. The parties, conscious of this fact, have submitted, and we have given due consideration to, a detailed history of the company, its earnings and prospects; its unit and dollar sales year by year in comparison with its competitors; its position in the industry; the nature of its competition; the fact that its basic patent had expired and was being used by others; the probable effect of the maintenance of a capable research department and the development of other patents; its record of dividend payments; its balance sheets and statements of income and expenses; and the general economic conditions, including the fact that the banks and stock exchanges of the country were closed and it could not then be determined whether the depth of the depression had been reached or not. In addition, we have had the benefit of the testimony of nine witnesses, called by the respective parties as experts upon valuation, whose opinions and methods of valuation differed greatly. It would serve no useful purpose to set out their testimony in detail; but brief reference may be made to some of it.

Witnesses for the respondent stated that in their opinion the fair market value of the Hoover preferred stock as of March 11,1933, was $95 per share. One of them placed a value of $17.13 per share on the class A common stock, while another testified that in his opinion the value on the basic date was $17.50 per share. Petitioner’s witnesses valued the preferred at $32, $50, $55, and $57.50, and the class A common at $5.50, $6, $6.25, and $6.69.

Well qualified witnesses testified for both parties. Their opinions differed, partially at least, because of the methods adopted in arriving at the fair market value. Witnesses for the respondent based their opinions on book value plus an additional sum for good will. In determining the value of $95 per share for the preferred stock one of the witnesses was influenced by the fact that the company had never missed the payment of dividends on its preferred stock, except for the postponement of a quarterly dividend in 1933, and that the stock was callable at $100 plus accrued dividends at any time. The other witness stressed the earnings of the company over the 10-year period prior to 1933. In valuing the class A common stock, one witness determined that the value of the assets and good will behind the preferred and common stock amounted to $9,031,904; that $1,940,-600 should be deducted from this amount to cover the value of the preferred stock at $95 per share; and that the remainder, or $7,091,-304, represented the value of the 414,000 shares of common outstanding. This resulted in establishing a value of $17.13 per share for the class A common. Another witness took the book value of $8,870,127.65 shown on the consolidated balance sheet of the company on December 31, 1932, deducted the value of the preferred stock at $95 per share, and divided the remainder of $6,929,467.65 by the number of shares of common stock outstanding, 414,000, which gave him a value of $16.50 per share. To this he added $1 per share for good will, and thus arrived at a fair market value for the class A common of $17.50 per share. The figures used were taken from the consolidated statements of assets and earnings of the Hoover Co. and its domestic and foreign subsidiaries.

Witnesses for the petitioner arrived at their values by taking into account the assets, earnings, and dividend record of the company and comparing them with, the assets, earnings, and. dividend record oí other companies. Taking the market prices of the preferred and common stocks of the other companies as a criterion of value, they formed and expressed their opinion as to the value of the Hoover stock. One of them selected companies in the same line of business, another chose companies located in Cleveland or northern Ohio, while others selected corporations seemingly without regard to whether the business in which they were engaged was or was not similar to that of the Hoover Co. We shall not discuss at length the weakness of this type of expert testimony. Some of it is “too speculative to form the basis for the levying and collecting of taxes.” Estate of Jacob Fish, 1 B. T. A. 882; but while its probative value is small, it has been duly considered.

The valuations returned by the executor were, in our opinion, too low; but those determined by the respondent were too high. Petitioner overemphasizes the effect of the “bank holiday” and the decline in the prices of listed securities. Unlisted stocks, and particularly those of a very closely held corporation, are not subject to many of the factors which cause fluctuations in the prices of listed stocks. Respondent and his witnesses, on the other hand, did not give sufficient weight to the downward trend in the earnings and sales of the company from 1928 to 1932; and, while the petitioner erred in overemphasizing the effect of the general economic conditions, respondent erred in ignoring them entirely. We have weighed all factors; and, although we recognize the fact that valuation of property has not yet become an exact science, we believe that the value we have determined is approximately the amount which a willing seller, not compelled to sell, would accept, and which a willing and able buyer would pay, each being reasonable and entirely familiar with the situation then existing.

The Hoover Co. has always occupied an outstanding position in the vacuum cleaner industry. Its management has been exceptionally good. From an initial investment of approximately $70,000 in 1910, it, by 1933, had accumulated a net worth of over $9,000,000 and has distributed more than $15,000,000 in dividends to its stockholders. It had manufacturing plants in the United States, Canada, and England and its products were sold throughout the United States and hi many foreign countries. It sold about 18 percent of the total number of cleaners which were sold annually in the United States, and its dollar volume of retail sales was more than 25 percent of the total United States sales. During the depression years, 1930, 1931, and 1932, its proportion of both unit sales and dollar sales, as compared with its competitors, had been substantially increased. Notwithstanding the depression, Hoover dealer sales in 1932 declined to only 63 percent of the dealer sales in 1929, whereas the total United States retail sales in 1932 were only 30 percent of those in 1929. The expiration of the Case patent in July of 1932 does not seem to have had any appreciable effect on the volume of sales, although its competitors had begun to manufacture and sell cleaners similar in design to the Hoover cleaner, using the revolving brush in the nozzle.

The total United States sales of all types of cleaners averaged in excess of 1,000,000 per year for the eight years preceding 1933, and there were more than 11,000,000 cleaners in use at the time of the hearing. The life of a cleaner varies from five to ten years, so that in normal times a forecast of replacement sales of $1,000,000 per year would be conservative. In addition the “new customer” field contained many potential buyers. In 1933 there were approximately 21,000,000 houses in the United States wired for electricity. The market for cleaners was, therefore, far from saturated. Judging from its experience in prior years, the Hoover Co. in 1933 could reasonably have expected to participate strongly in both the replacement and new business. In addition to its domestic business the Hoover Co. had a very substantial foreign business, which averaged approximately 50,000 cleaners annually from 1929 to 1933. While net earnings of the company declined from 1928 to 1932, this decrease was chiefly due to two factors, a reduction in the number of cleaners sold and a steady increase in the cost of sales. We have not overlooked the fact that its net sales declined from approximately $15,-000,000 in 1928 to $9,000,000 in 1932 and that it would have sustained an operating loss of $165,708.53 in January and February 1933 if it had not realized a profit of $190,000 in February from the sale of certain gas refrigeration patents. Nor do we ignore, or unduly minimize, the general economic conditions. The outlook was, as argued by petitioner, “quite gloomy”; but it was not, in our opinion, quite as bad as petitioner now paints it.

We have set forth in our findings tabulations showing the earnings of the Hoover Co., its net worth, and dividends paid on its preferred and common stock prior to March 11, 1933. It would serve no useful purpose to discuss at length the various implications which might be drawn from these figures. They tend to support the contentions made by both parties. We have carefully considered and weighed all of this evidence in the light of conditions as they existed on March 11, 1933, and believe, as stated above, that it, together with all of the other evidence and factors, justifies the conclusion we have reached that the value of the preferred, on March 11, 1933, was $83 per share and the value of the class A common was $9 per share.

II. — Inclusion in Gross Estate of Corpora of Trusts.

FINDINGS OF FACT.

On November 12, 1925, the decedent executed four separate declarations of trust for the benefit of his wife and three children, one being the beneficiary in each trust. On April 26, 1929, he executed a declaration of trust for his youngest child. The terms and conditions of the trust instruments were substantially identical. Personal property and various securities were transferred to the George D. Harter Bank of Canton, Ohio, as trustee. The entire net income from the trust for the benefit of the wife was to be paid to her from time to time as requested, and upon her death the entire trust then remaining was to pass, in equal shares, to the other three trusts first created for the benefit of his children. In each of the children’s trusts, the entire net income was to “accumulate and be invested and reinvested” until the child named therein as beneficiary should attain the age of 21 years, when the entire net income should then become payable to the child. Distributions of principal were to be made when the child attained the ages of 25, 30, and 35, at which last mentioned age the trust was to terminate. During minority so much of the income was to be expended by the trustee for the support and education of the beneficiary as was directed by the trustor during his lifetime or by his wife or any guardian of the minor after the trustor’s death. Each trust contained a reservation in the trustor to vote or direct the voting of the shares of stock during his lifetime, and provided:

The trust hereby created is and shall be irrevocable during and throughout the remainder of the calendar year 1925, and shall likewise be irrevocable during and throughout each calendar year thereafter, unless between the 1st and 31st days of December of the year 1925 or of any subsequent year, the same shall, by the Trustor, by written notice to the Trustee, be revoked, such revocation to be effective on and after but not prior to the 1st day of January next succeeding, or unless said Trustor shall between said 1st and 31st days of any year, by like written notice revoke, alter or modify this trust or any of the terms hereof for the next succeeding and/or any subsequent calendar year or years; the right to effect such revocation, alteration or modification of this trust or any of the terms hereof, in the manner and subject to the conditions aforesaid, being hereby reserved to the Trustor, to be exercised without any consent of the Trustee or of any beneficiary or beneficiaries hereof; but whenever any calendar year shall have commenced without any such notice of revocation, alteration or modification having been given as aforesaid, this trust and all of its terms and provisions shall be and continue irrevocably in force throughout the calendar year so commenced. To whatever extent this declaration of trust, and the trust hereby created, shall be so revoked, altered or modified, the Trustee shall thereupon transfer, deliver or convey to the Trustor such part or all of the trust property then in the hands or under the control of the Trustee as may have been withdrawn from the trust by such revocation, alteration or modification, subject, however, to the payment by the Trustor of all expenses and charges of the Trustee and the repayment of all advances or loans made or procured by the Trustee, and upon the satisfactory indemnification of the Trustee against any liability by it incurred in the execution of this trust.

On December 27,1929, the trustor signed and delivered to tlie trustee instruments modifying each of the trusts by declaring that on and after January 1980 the clause set out, supra, should be null and void and substituting in lieu thereof two clauses, reading as follows:

(A) This Trust is and shall be irrevocable and shall continue in force until all the purposes expressed in the Declaration of Trust shall have been accomplished ; provided, that if the Trustor shall be living on the 1st day of January, 1933, then this Trust shall terminate upon said date and all the principal of this Trust Estate then in the hands of said Trustee shall be delivered and/or paid to and become the property of the Trustor.
(B) If this Trust terminates as provided in Subdivision (A) above, then any accumulated income, even though invested, shall be paid, transferred and delivered in equal shares or proportions to the four trusts which I have created for my four children, Joseph Schütz Hoover, Margaret Ann Hoover, Thomas Henry Hoover and Daniel Phüip Hoover.

The modification of the trust for the benefit of the wife, in addition to (A) and (B), supra, contained the following clause:

Inasmuch as Daniel Philip Hoover, another son of the Trustor, has been born since the making of said Declaration of Trust, and the Trustor desires to make provision for said son equally with his other children named in said Declaration, Clause 2 of the provisions of said Declaration concerning disposal of the Trust Estate, which Clause 2 provides for transfer of shares out of the Clarice Schütz Hoover Trust to trusts in favor of children of the Trustor, is hereby amended as foüows:
At the death of Clarice Schütz Hoover, the Trust Estate shall be divided into four equal shares instead of three such shares, and one of said shares shall be paid over and transferred to the trust, designated as the “Daniel PhUip Hoover Trust”, created by a Declaration of Trust dated April 26, 1929, of which the Trustee herein is Trustee, and shall become a part of the principal of said trust in the same manner and upon the same terms as the Declaration of Trust hereby amended provides concerning trusts for the Trustor’s other three children. The remaining three shares shall be made over to the trusts of the Trustor’s other children in the same manner and upon the same terms as are now provided by the Declaration.
Said Declaration of Trust is hereby reaffirmed in each and every other respect.

On December 27, 1929, the decedent created four income trusts, one for the benefit of each child, to receive the net income and capital gain from such child’s principal trust and to hold and invest the same until the child should arrive at 21 years of age, when the income was thereafter payable to the child until the child became 25 years of age, at which time the trust was to be terminated and the principal distributed to such child, with the further provision that while the child was a minor such parts of the principal and income of the trust could be used for its support and maintenance as the decedent’s wife or any guardian of the child should designate. These four income trusts contained no provision for revocation. No part of the income or principal of the five principal trusts or of the four income trusts was at any time delivered to the beneficiaries of said trusts, or used or expended for the maintenance, support, or education of any of the four children, prior to the death of the decedent on March 11,1938.

On May 26,1932, the decedent executed and served upon the trustee of each principal trust, a notice of intention to continue each trust “irrevocably in force until all the purposes expressed in the declaration of trust shall have been accomplished”, with the further proviso that if the trustor should be living on the first day of January, 1938, then the trust should terminate, “and all the principal * * * shall be delivered and/or paid to and become the property of the Trustor.” This instrument also conveyed to the trustee all of the trustor’s right, title, and interest in the existing trust property and directed that any accumulated income be paid over to the companion income trust.

Eespondent included the assets of the five principal trusts in the gross estate of the decedent.

OPINION.

The respondent states his “basic position” to be that each of the five trusts was intended to take effect in possession or enjoyment at or after the decedent’s death, and that the property contained therein was therefore taxable under section 302 (c) of the Eevenue Act of 1926. This is the only contention urged by him in his brief. The parties have stipulated “that none of said trusts or the modifications or extensions thereof was made by the decedent in contemplation of death within the meaning of section 302 (c) of the Eevenue Act of 1926.”

In the statement attached to the deficiency notice the respondent stated, as some of the grounds for including the value of the trust property in the decedent’s estate, that: (1) The property was owned by the decedent at the date of his death and under the provisions of section 302 (a) of the Eevenue Act of 1926 should have been included in his gross estate; (2) the value of the trust property should have been included in the gross estate under the provisions of section 302 (d) as property the enjoyment of which was subject at the date of death to a change through the exercise of a power to alter, amend or revoke; and (3) under the amendment to section 302 (c) of the Eevenue Act of 1926, contained in the joint resolution of March 3, 1931, the value of the trust property was includable in the gross estate.

The pertinent provisions of section 302 of the Revenue Act of 1926 and the Joint Resolution of March 3, 1931, are set forth in the margin. Petitioner alleged in its petition that respondent erred in including, as part of the gross estate of the decedent, the property constituting the corpora of the trusts created by the decedent for the benefit of his wife and children. The petitioner’s allegation of error, which was denied by respondent, is sufficiently broad to cover all of the grounds stated by the respondent for including the value of the corpora of the trusts in the decedent’s gross estate. While it might be inferred from the respondent’s brief that the sole ground upon which he now relies is that the trusts were intended to take effect in possession or enjoyment at or after the decedent’s death, in the absence of any definite statement that the other grounds have been abandoned, we feel that they should not be ignored. We shall therefore discuss them briefly before taking up respondent’s basic contention.

In our opinion there is no justification for including the value of the trust property in the gross estate of the decedent under the provisions of section 302 (a), supra. The decedent did not own the trust property at the time of his death, all of his right, title and interest therein having been conveyed to the trustee. The possibility that title to the trust property might have reverted to him if he had lived until January 1, 1938, will be discussed later. Nor do we think that the property should be included in his gross estate under section 302 (d), supra. This section provides that the property may be included “where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power, either by the decedent alone or in conjunction with any person, to alter, amend or revoke” the trusts. The only provision which possibly could be considered as “a power to alter, amend or revoke” is the provision in the decedent’s notice of intention to continue in force, executed in May 1932, wherein it is provided, in substance, that if he be living on January 1, 1938, then the trust should terminate. This provision, in our opinion, is not a power to alter, amend or revoke, nor is it equivalent thereto. Helvering v. Helmholz, 296 U. S. 93. All that the decedent had at the time of his death was the mere possibility that the trust property would revert to him on January 1, 1938, if he were then alive. This was a contingency over which he had no control. Helvering v. St. Louis Union Trust Co., 296 U. S. 39.

The Joint Resolution of March 3, 1931, amended section 302 (c) of the Revenue Act of 1926 by adding thereto a provision for including in the gross estate of the decedent any interest of which he had, at any time, made a transfer, by trust or otherwise, under which he retained for his life, or for any period not ascertainable without reference to his death, or for any period which does not end before his death, (1) the possession or enjoyment of, or the right to the income from, the property; or (2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom. The income from the trusts now under consideration irrevocably passed to the irrevocable income trusts, in which the decedent had no title or interest and over which he could exercise no control. Moreover he retained no right at the time of his death, either alone or in conjunction with any other person, to designate who should possess or enjoy the trust property or its income. We see no merit in respondent’s contention that the property is includable in decedent’s gross estate under this section.

The remaining and “basic” contention of the respondent is yet to be considered. He says: “Each of these trusts was intended to take effect in possession or enjoyment at or after the decedent’s death and are therefore taxable under Section 302 (c) of the Revenue Act of 1926.” He argues that under the rule enunciated and applied by the Supreme Court in Burnet v. Guggenheim, 288 U. S. 280, no completed gift of the property had been made by the decedent during his lifetime; that the trusts were for a fixed period, with a full remainder “vested” in the decedent; that only his death prior to January 1, 1938, would divest him of that interest; that the, phrase “to take effect in possession at or after his death” includes such an interest as the decedent retained in the trust property, citing Reinecke v. Northern Trust Co., 278 U. S. 339; that there was a “shifting of the economic benefits and burdens of property” (Saltonstall v. Saltonstall, 276 U. S. 260) by Ms death; and that his death was the “indispensable and intended event which brought the larger estate into being for the grantee” (Klein v. United States, 283 U. S. 231).

Petitioner contends that full title to the trust assets was passed by the trust instruments to the trustee in trust for the beneficiaries; that the trusts were to continue irrevocably in force until all the purposes expressed in the declarations were accomplished; that the trust created for the benefit of the wife was to continue during her natural life and upon her death the trust estate was to be divided into equal shares to be paid over to the trusts created by the decedent for his children; that the trusts for the children were to continue until each should reach the age of 35 years, when they should terminate, with partial distributions of principal at the ages of 25 and 30 years; that all the decedent had was a reversionary interest in the trust assets, subject to the condition precedent that he should be alive on January 1, 1938; and that his death merely cut off the possibility of the propeity reverting to him and did not result in any enlargement of the interests of the beneficiaries.

It is well settled that, if a decedent has “a mere possibility of a reverter”, the value of the property in which only such interest exists is not includable in his gross estate. The reason is obvious. Cf. Becker v. St. Louis Union Trust Co., 296 U. S. 48; Helvering v. St. Louis Union Trust Co., 296 U. S. 39; Mary Q. Hallock et al., Trustees, 34 B. T. A. 575 (on appeal C. C. A., 6th Cir.); Estate of Waldo C. Bryant, 36 B. T. A. 669 (on appeal C. C. A., 2d Cir.); and Florence Scofield Stone et ad., Executrices, 38 B. T. A. 51. The death of one having such an interest merely extinguishes the possibility — converts it into an impossibility; but it can not be said to be the “generating source” of passing title to, or enlarging an interest in, property. If, however, under a trust instrument, the decedent has or retains a vested remainder interest in the trust assets which passes to another at his death, the passing of that interest comes squarely under section 302 (a) or 302 (c) and its value must be included in his gross estate. Klein v. United States, supra; Sargent v. White, 50 Fed. (2d) 410; Chemical Bank & Trust Co. et al., Executors, 25 B. T. A. 1153 (on appeal, C. C. A., 2d Cir.); and W. H. Holderness, Administrator, 33 B. T. A. 155; affd., 86 Fed. (2d) 137.

Burnet v. Guggenheim, supra, dealt with a trust in which the donor specifically reserved a power of revocation. It was held that no completed gift was made when the trust was created but that one was made when the deed became absolute through the cancellation of the power. But here the decedent retained no power of revocation after the modification of the trusts. The substituted clauses, incorporated in the trusts December 27, 1929, specifically provided that each should be “irrevocable and * * * continue in force until all the purposes * * * shall have been accomplished.” This was followed by a proviso that the trust should terminate on January 1, 1933, if the grantor were then living. Before that time arrived the grantor executed other instruments, continuing each trust “irrevocably in force until all the purposes * * * shall have been accomplished”, and providing that if he should be living on January 1, 1938, the trust should terminate and the principal should “be delivered and paid to and become” his property.

Respondent apparently takes the position that the decedent conveyed only an estate for years in the trust property, which was to terminate on January 1, 1938, and that the decedent retained a vested remainder interest which was subject to be divested if he died prior to that date; but we can not accept this view. In our opinion the decedent made a conveyance to the trustee of all his interest in the trust property. In the event of his death prior to January 1, 1938, no other act was required to vest the title to such property in the trustee or to continue the trust in full force and effect. On the other hand, it required an affirmative act of the trustee to revest the title to the property in the grantor. This was to be done only in the event he lived until January 1, 1938.

In the law of real property, such a conveyance as we are now considering creates what is commonly designated a determinable or qualified fee, or fee simple determinable. “An estate in fee simple determinable is created by any limitation which, in an otherwise effective conveyance of land (a) creates an estate in fee simple; and (b) provides that the estate shall automatically expire upon the occurrence of a stated event.” Restatement of the Law of Property, vol. 1, p. 121. “The word ‘remainder’ does not include a future interest which becomes a present interest, if ever, upon the expiration of an estate in fee simple determinable, or of an analogous interest in a thing other than land, or of an estate in fee simple conditional.” (Italics ours.) Restatement of Law of Property, vol. 2, p. 535. The possibility of again having the fee, which exists in a grantor after the grant of a fee simple determinable, and the possibility of again acquiring the title to personal property, which exists where an individual has parted with an analogous interest in personalty, is known as a possibility of reverter. 21 C. J. 1017.

We think it is quite doubtful that the interest which the decedent bad in the trust property can properly be characterized as a “remainder.” All that he had was a possibility that the property might revert to him in the event that he should be alive on January 1, 1938. His interest was more in the nature of a future interest, to come into being only in the event of the happening of an event over which he had no control. Like the grantor in Helvering v. St. Louis Trust Co., supra, he, “by the trust instrument, left in himself no power to resume ownership, possession, or enjoyment, except upon a contingency in the nature of a condition subsequent, the occurrence of which was entirely fortuitous so far as any control, design, or volition on his part was concerned.”

The respondent erred in including in decedent’s gross estate the value of the property comprising the corpora of the trusts created by him for the benefit of his wife and children.

III. — Value of Securities Other Than, the Hoover Oo. SiocJe.

FINDINGS OF FACT AND OPINION.

The petitioner and respondent have submitted for our consideration six lists of securities. One is labeled “Estate of Daniel P. Hoover, Securities in Estate.” The others list securities which formed part of the corpora of the five trusts discussed under issue II. In each list is shown the mean selling price, or mean bid and asked price, of each security on March 3, 1933, and on March 15, 1933, according to the quotations on the New York Stock Exchange, New York Curb Exchange, or other recognized markets for such securities. There is no record of any trading in such securities in any of the markets between the end of March 3, 1933, and the beginning of March 15, 1933.

The issue is the fair market value, as of March 11, 1933, of the securities properly includable in the gross estate of the decedent. Having decided that the value of the securities which formed the corpora of the five trusts should not be included in the gross estate, it would serve no useful purpose to decide what their fair market value was as of March 11, 1933. Our decision is therefore directed only to the securities contained in the list labeled “Estate of Daniel P. Hoover, Securities in Estate.”

Article 10 of Regulations 80, relating to estate tax, provides as follows:

If tliere were no sales on tlie valuation date, the value shall be determined by taking the mean between the highest and lowest sales upon the next date either before or after the valuation date if within a reasonable period thereof.

Respondent determined that the market quotations on March 15, 1933, were more nearly representative of the fair market value of the securities as of March 11, 1933, than were the quotations on March 3, 1933. Petitioner contends that the quotations on March 3, 1933, should be used. The March 15 quotations were higher than those of March 3.

Two witnesses testified that in their opinion the March 3, 1933, quotations more clearly reflected the value of the securities on March 11, 1933, than did the quotations of March 15. One witness testified that the quoted prices on American stocks contained in the London papers showed no perceptible change from March 3 to March 11. The other testified that nothing happened between March 4 and March 11 that would have encouraged anyone to make an investment in stock or securities, and that the first encouragement occurred on March 12, when the President made his first “fire-side” talk to the public. Respondent relies upon the prima facie correctness of his determination, upon certain articles contained in the Wall Street Journal of March 11, 1933, and upon an editorial from the March 13, 1933, issue of the same paper which, he says, indicates that the events which caused the increase in the market quotations on March 15,1933, over those of March 3, 1933, occurred during, and not after, the week ended March 11, 1933.

We have given careful consideration to all of the evidence and the arguments and suggestions of counsel. We are of the opinion, and find as a fact, that the quotations of March 3, 1933, more nearly reflect the fair market value of the securities owned by the decedent at the time of his death than do those of March 15, 1933.

Judgment will be entered under Rule 50.

         Sec. 302. 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; *******
      (e) To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, except in case of a bona flde sale for an adequate and full consideration in money or money’s worth. * * *
      *******
      (d) To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power, either by the decedent alone or in conjunction with any person, to alter, amend, or revoke, or where the decedent relinquished any such power in contemplation of his death, except in case of a bona flde sale for an adequate and full consideration in money or money’s worth. * * *

         Resolved, * * * That the first sentence of subdivision (c) of section 302 of the Revenue Act of 1926 Is amended to read as follows:
      (c) To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, including a transfer under which the transferor has retained for his life or any period not ending before his death (1) the possession or enjoyment of, or the income from, the property or (2) the right to designate the persons who shall possess or enjoy the' property or the income therefrom; except in case of a bona flde sale for the adequate and full consideration in money or money’s worth.


author: Opper :

text:
    Estate of Mary Adele Morris, Deceased, Evan Morris Wilson, Executor, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 89458.
    Promulgated August 30, 1938.

      ~Wm. Morris Maier, Esq., for the petitioner.

      Harold F. Noneman, Esq., for the respondent.
   OPINION.

Opper :

The question here is whether anything “passed” to Evan Morris Wilson by virtue of any general power of appointment exercised by Mary Adele Morris by will or by deed executed in contemplation of or intended to take effect in possession or enjoyment at or after her death. Petitioner contends in effect that the question must be answered in the negative for two reasons — first, because decedent never exercised her power of appointment, and, second, because even if she did the beneficiary took under the will creating the power and no property passed by virtue of the exercise thereof.

It seems to us neither of these contentions can be sustained. Petitioner asserts that it is our duty to resolve the questions of property law in accordance with the principles adopted by the courts of decedent’s domicile. Union & People’s National Bank of Jackson et al., Administrators, 30 B. T. A. 1277. In this position we concur and accordingly, although with some reluctance, we feel obliged in the present posture of this proceeding to interpret the respective relevant instruments according to our understanding of the law of the State of Pennsylvania. We regard this as unfortunate, particularly since the circumstances giving rise to the question before us were ascertained as early as 1935 and could readily have been litigated long-ago had the parties so desired. But we see no alternative, in the absence of submission of the question to the Pennsylvania courts, to an attempt on our own part to forecast what their determination will be should the question ever be presented in that forum.

We conclude that by the instrument of November 16,1931, decedent effectively exercised the power of appointment conferred upon her by her father’s will. She purported to dispose in that instrument of rights to income and corpus not only during the period of her life but specifically and in a fundamentally different manner after her death. Had she been dealing only with her life estate this would of course have been impossible. The instrument was subscribed with all formality. It was executed under seal and apparently before two witnesses. It specifically describes decedent as the donee of the power of appointment and purports to deal with “any remainder or other interest of whatsoever nature that the Grantor has or may hereafter become entitled to under the Will of the said Evan Morris.” Most significantly of all perhaps it confers upon the transferees the power to sell any securities or other personal property “and to make good transfers and assignments therefor to the purchaser or purchasers thereof.” Had the instrument been effective to transfer only decedent’s life interest it seems elementary that the transferees could have disposed of no greater interest in the personal property than they were receiving, that is, an interest for decedent’s life. The reference to the transfer of good title would have been futile. To borrow the language of Judge (later Chief Justice) Taft, discussing a power of sale in Smith v. McIntyre, 95 Fed. 585, 591:

⅜ ⅜ ⅜ ⅞⅛6 deeds were, on their face, conveyances of the fee simple. They purported to convey, therefore, an interest which the grantor, as owner, had no power to convey. She had power to convey that interest only by virtue of the power conferred in the will. There can be no question, therefore, that the grantor intended to exercise, and was exercising, the power conferred by the will.

Petitioner contends that in Pennsylvania the donee of a power coupled with a life estate does not thereby obtain a fee. Warren’s Estate, 320 Pa. 112; 182 Atl. 396. But that case merely held that the donee does not actually have a fee for purposes of the application of the rule against perpetuities. It does not follow that the donee can not create the equivalent of a fee in some third person — that the original disposition of the estate has not “placed it for all practical purposes as completely within the control of the donee of the power as though a fee had been created in” her. Lyon v. Alexander, 304 Pa. 288; 156 Atl. 84, and see cases thei’e cited; Baker v. Wilmert, 288 Ill. 434; 123 N. E. 621; Atkinson v. Dowling, 33 S. C. 414; 12 S. E. 93.

Petitioner contends that decedent did not purport to exercise her power, but only to relinquish it. He points to the language of the instrument: “releases, relinquishes and extinguishes any power of appointment or disposition she may have over the property above described.” We think those words must be construed in connection with their use and in the light of the other provisions of the document. They must be coupled with the following language: “and she further covenants and agrees with the Trustees that she will never under any circumstances or at any time exercise any such power of disposition or appointment or otherwise do any act or thing that will in any way cut down, detract from or affect the absolute indefeasible fee simple title to the property, which is hereby conveyed * * *.” The relinquishment and the covenant must, it seems to us, be read together and apply from and after the exercise of the power which by the same instrument the decedent intended to effect. Only by such an interpretation could all of decedent’s directions be consummated. “The general rule in determining the validity of the execution of powers is that the intention of the donee to execute is the turning point. * * * The reference to the will * * * is evidence * * * that the will and the donee’s power under it were in her mind when making the deed, and, in connection with the fact of conveyance in fee with general warranty, evinces the intent to execute the power.” Scott v. Bryan, 194 Pa. St. 41; 45 Atl. 135, 136 (referring to a power of sale). And only by such an interpretation can the action of the Orphans’ Court of Philadelphia County in the settlement of the Evan Morris estate be supported. For not only did the order of that court of December 2, 1931, confirm to decedent’s transferees the entire title, remainder as well as life interest, to that part of the Evan Morris estate, but the court characterized the November 16, 1931, transfer as “being in execution by said Mary Adele Morris of her power of testamentary appointment.” It is evident that the reference to that document “as an extinguishment of the power of appointment” is a recognition of the interpretation we have suggested for it is followed by the words “so the award will be made accordingly.” The award was to decedent’s transferees, although decedent was still living, presumably in acknowledgment of the fact that the power had not only been exercised, but irrevocably exercised and thereupon extinguished.

What has been said we think sufficiently disposes of petitioner’s further contention that decedent could not have exercised the power of appointment on November 16,1931, because the appointment could be made, under the will of the donor, only “by last Will and Testament, or any instrument of writing in the nature thereof.” We see no reason why the document executed November 16, 1931, was not, to some extent at least, decedent’s last will and testament, why it is impossible that “the instrument was valid as an inter vivos conveyance and also valid as a will” (Boal v. Metropolitan Museum of Art, infra) — “that the trust instrument, although executed to operate in praesenti as to property transferred to the trustee, was executed animo testandi as to the residue mentioned in the will.” Merrill v. Boal, 47 R. I. 274; 132 Atl. 721. It was in any event “any instrument of writing in the nature thereof”, being “a writing, if not with the formalities requisite for a will, at least containing a disposition of property to take effect at the death of the donee.” Trust under Deed of Levering et al., 9 D. & C. (Penn.) 328, 331. It could not otherwise have been regarded by the Orphans’ Court as an execution of the power of “testamentary appointment.” And as petitioner contends, and we have agreed, the views of the courts of Pennsylvania charged with the determination of these questions are the authorities we should follow wherever ascertainable; to say nothing of the further circumstance that the parties necessary to that accounting and the questions presented were such as, in all probability, to make the determination there res adjudieata.

To petitioner’s further contention that any instrument, and particularly that of November 16, 1931, can not be both a will and a deed, we make the same reply. See Merrill v. Boal, supra, and cases there cited; Taylor v. Wilder, 63 Colo. 282; 165 Pac. 766; In re Murphy's Estate (Wash.), 75 Pac. (2d) 916; Boal v. Metropolitan Museum of Art, 19 Fed. (2d) 454. And we have been referred to no Pennsylvania authority to the contrary. True, the instrument was apparently not probated. But it may none the less be either the “will or deed * * * intended to take effect in * * enjoyment at” her death by which decedent’s power of appointment was exercised. It was made effective by the action of the Orphans’ Court in the final accounting and distribution of the donor’s estate. By its terms it disposed of the estate over which decedent had the power and this disposition became, and was intended to become, operative as of her death. It is stipulated that her transferee continues to hold the corpus on the very trusts she established. Whatever its reasoning, the Orphans’ Court has, it seems to us, effectuated her exercise of the power; if by will, it must be assumed probate was unnecessary; if by deed, then it was “a substitute for * * a disposition by will” and took, and was intended to take, effect at her death. See Klein v. United States and Helvering v. St. Louis Union Trust Co., infra.

On October 15, 1934, decedent executed a “last will and testament.” In it she said: “I hereby revoke all former and other Wills by me at any time heretofore made, * * It is suggested that if the instrument executed November 16, 1981, was a prior will, it was revoked by the later instrument. Even if this were so, petitioner’s argument would not be advanced for then, presumably, the relinquishment of the power contained in that prior will would also be revoked, and decedent by the 1984 will bequeathed “an estate in which I may have an interest or over which I may have a power of appointment” to the chief beneficiary under the 1931 instrument. We prefer, however, to follow the authority cited by petitioner (Lyon v. Alexander, supra, and other cases cited) and to say, m the language of petitioner’s brief, “once having irrevocably extinguished her power to appoint she could not later exercise it by her will or any other instrument, there being none left to exercise.” No more could she by that later will revoke any testamentary disposition which she had, for a consideration, declared to be irrevocable. In re Cridge’s Estate, 289 Pa. 331; 137 Atl. 455; see In re McGonley’s Estate, 257 Pa. 478; 101 Atl. 807.

We come then to a consideration of the applicability of Helvering v. Grinnell, supra. In that case the beneficiaries expressly repudiated the appointment and elected to take under the original will. Since then we have held (James C. Webster et al., Executors, 38 B. T. A. 273), that a specific renunciation may not be necessary. But here the action taken by the beneficiary was the direct opposite of that in the Grmnell case, for in his letter of December 14, 1935, to the corporate trustee under the instrument of November 16, 1931, he said:

⅜ * * I expressly reserve and claim any and all property, rights and benefits that I may have:
First — under the provisions of the said Deed of Trust [of November 16, 1931], should the same be adjudicated to be valid in whole or in part, and
Second — under the Will of Evan Morris, deceased.

Since there was here an express election to take under the power, it cannot under the doctrine of the Grinnell case be said that its exercise was ineffective or that no property passed thereunder. Except where there is an express election to renounce the appointment it has, so far as we know, never been doubted that as a matter of property law an election remains with the beneficiary expressly to invoke the protection flowing from the appointment. In Helvering v. Grinnell, supra, the Supreme Court quoted with approval from the opinion of the New York Court of Appeals in Matter of Lansing Estate, 182 N. Y. 238; 74 N. E. 882, 884, as follows: “ ‘An appointee under a power’ the Court continued, ‘has the right of election, the same as a grantee under a deed. * * * He cam accept the title tendered or reject it in his discretion. * * His consent is necessary before the attempt to exercise the power becomes binding upon him * * ” (Italics added.) For this reason and regardless of subsequent pronouncements by the New York courts in litigation involving the construction of state taxing statutes (see e. g. Matter of Chauncey, 102 Misc. 378; 168 N. Y. S. 1019; affirmed without opinion, 175 N. Y. S. 897; In re Duryea's Estate (N. Y.), 14 N. E. (2d) 369), we regard the Grkmell case as recognizing the existence of the right of election and as establishing the exercise of that election as the test for purposes of estate taxation under the Federal revenue acts.

The absence of any election distinguishes our decision in James O. Webster et al., Executors, supra. One other difference in the facts in the two proceedings may be worth mentioning. The codicil in the Webster case gave decedent a power of appointment, following which the donor gave and bequeathed “the remainder of said trust fund from and after her death to her children to whom I now give a/rid begueath the same subject to such exercise of said fowerP (Emphasis added.) In the present proceeding the will provides “the above provision in favor of children or issue of my said daughters, so surviving their said mother, is only to take effect in case of failure to so appoint." (Emphasis added.) This may be a narrow distinction and one in all probability not always easy to apply. Nevertheless it can not be said to be without significance, for in the Lansing case a portion of the opinion not quoted in Helvering v. Grinnell, discussing Matter of Cooksey's Estate, 182 N. Y. 92; 74 N. E. 880, which was decided on the same day, reads as follows: “Moreover, title to the remainder was to vest in them only upon the failure of the mother to appoint. If she exercised the power, they could take under that source only, for they could not take under the will of the grandfather, as Judge Haight shows in his opinion.” Apparently then, although this principle was presumably not called to the Supreme Court’s attention and certainly is not discussed in its opinion in Helvering v. Grinnell, there is authority for distinguishing between an estate which is vested but subject to be divested by the appointment of the estate elsewhere, and a remainder or expectant interest which is destroyed by the condition specified, that is, the making of the appointment. In the latter case, the appointment having been the condition and the condition having been fulfilled, there is nothing left for the estate in expectancy; the beneficiaries must take under the power if they take at all; that is the “generating source of the title.” See Klein v. United States, 283 U. S. 231; and cf. Helvering v. St. Louis Union Trust Co., 296 U. S. 39. Whether this principle affords a further distinction from our decision in James O. Webster et al., Executors, supra, or whether in the absence of any election we should, on such facts, be compelled to follow the Grinnell case, it is not now necessary to determine. Suffice it to say that nothing that is said in the Webster case may be regarded as purporting to pass upon the questions here presented or as going beyond what we now indicate.

We therefore conclude that decedent validly exercised the power of appointment conferred upon her by the donor thereof, that the beneficiary specifically elected to accept its benefits, and accordingly that the property in question passed by the power and is includable in decedent’s gross estate.

Decision will be entered for the respondent.

         Stelvering v. Grinnell, 294 U. S. 153.

       [Revenue Act of 1926.] Sac. 302. 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—
      * * * * * * #
      (f) To the extent of any property passing under a general power of appointment exercised by the decedent (1) by will, or (2) by deed executed 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 an adequate and full consideration in money or money’s worth; and