author: LaNSdox : SteRNHAGEN,

text:
    H. D. Shelden, Petitioner, v. Commissioner of Internal Revenue, Respondent. Allan Shelden, Petitioner, v. Commissioner of Internal Revenue, Respondent. Alger Shelden, Petitioner, v. Commissioner of Internal Revenue, Respondent. Henry Shelden, Petitioner, v. Commissioner of Internal Revenue, Respondent. Annette S. Stackpole, Petitioner, v. Commissioner of Internal Revenue, Respondent. Allan Shelden, Alger Shelden and Henry Shelden, Trustees, Robinson Trust, Petitioners, v. Commissioner of Internal Revenue, Respondent.
    Docket Nos. 33067, 41823-41828.
    Promulgated December 30, 1931.

      Ferris D. Stone, Esq., Maxwell E. Fead, Esq., G. Bowdoin Craighill, Esq., and Caesar L. Aiello, Esq., for the petitioners.

      L. A. Luce, Esq., and F. L. Van Haaften,Esq., for the respondent.
   OPINION.

LaNSdox :

Section 202 (a) (2) of the Eevenue Act of 1921 provides that gain or loss from the sale or other disposition of property acquired by gift after December 31,1920, shall be computed upon the same basis which the property would have had in the hands of the donor or the last preceding owner by whom it was not acquired by gift.. If the petitioners’ contention that II. D. Slielden made a valid gift of the Eosedale Park property to his children on or before November 3, 1920, is correct, the basis for computing gain or loss upon sale of the property is the fair market price or value at the date acquired by the donees. Art. 1562, Begulations 45. The respondent contends, however, that no valid gift was made prior to May 31, 1923, when deeds to the property were executed, delivered and recorded.

The principal elements of a gift are: (1) An intention on the part of the donor to absolutely and irrevocably divest himself of the title, dominion and control of the subject at the very time he undertakes to make the gift; (2) the irrevocable transfer of the present title, dominion and control of the thing given by the donor; and (3) the delivery, by the donor to the donee, of the subject of the gift or of the most effectual means of commanding the dominion of it. Allen-West Commission Co. v. Grumbles, 129 Fed. 287. We have found, in the instant case, that on October 1, 1919, H. D. Shelden secured consent of the Grand Eiver Avenue Development Company to assign his interest in the land contract of June 18, 1919. On August 3, 1920, he executed and delivered an assignment to each of his four children covering a portion of his interest in the land contract with the Grand Eiver Avenue Company. The four assignments together covered his entire interest under such contract. Thereafter, and prior to December 31,1920, he executed assignments of his interest as vendor in contracts covering lots sold, attached them to the particular contract and delivered it to the donee child. The purchaser’s contract was then stamped to show the assignment and the lot book, ledger sheet, etc., were stamped with the name of the donee child. On November 3,1920, Shelden executed and delivered to his children an instrument referred to in the record as the family agreement, in which he conveyed his interest in the Grand River Avenue contract, the Bradley and Burger tracts and the 6-foot strip. On that date he also transferred the bank account for the enterprise to his children.

It is well settled in Michigan that a vendor’s interest under a land contract is personal property, a mere chose in action, while the interest of the vendee is real property. Hull v. Hostettler, 224 Mich. 365; 194 N. W. 996; Brown v. Lansing, 129 Mich. 117; 88 N. W. 384. The claim of the vendor is an ordinary money debt, secured by the contract, and while he holds the legal title, the vendee is the owner in equity. Walker v. Cosgrain, 101 Mich. 604; 60 N. W. 291. In Michigan a valid gift of a chose in action, evidenced by an instrument in writing, may be made by a manual delivery of the instrument itself without any further writing, or by the delivery of a written assignment of the chose in action. Hoyt v. Gillen, 181 Mich. 509; 148 N. W. 163; and Shepard v. Shepard, 164 Mich. 183; 129 N. W. 201. All that was necessary to constitute a valid transfer of Shel-den’s interest as vendor in contracts covering lots sold was an expression by him to that effect, accompanied by a delivery of the thing to the donee.

As to the portions of Bosedale Park subdivisions which had not been sold under contract, we must determine whether the assignments of August 3,1920, transferred the vendee’s interest under the contract with the Grand River Avenue Development Company. A vendee under a land contract may transfer his equitable interest in the land by the delivery of an instrument of assignment. Such assignment would, of course, be subject to all the defenses which the vendor might make against the assignor. Cutler v. Lovinger, 212 Mich. 272; 180 N. W. 462; Hickman v. Chaney, 155 Mich. 217; 118 N. W. 993; and Hull v. Hostettler, supra.

The assignments of August 3, 1920, and the numerous assignments of particular lot contracts effectively transferred to the children all of Shelden’s interest in the subdivision property, except the 10 acres which had not been platted, and that portion of the 6-foot strip and the Bradley and Burger tracts which remained unsold. The instrument of November 3, 1920, was a blanket conveyance to the children of every interest in the property which H. D. Shelden had, including the properties covered in the previous instruments. On November 3, 1920, Shelden also changed the New York bank account so that he could no longer check against the funds belonging to the subdivisions. On November 3, 1920, Shelden had irrevocably divested himself of all title, dominion and control' of the subdivision property, with the expressed intention of making a gift thereof to his children and he had made delivery of the subject to the donees. We think the gift was complete on November 3, 1920. Cf. Burt v. Second National Bank of Saginaw, 241 Mich. 216; 217 N. W. 71; and Fischer v. Union Trust Co., 138 Mich. 612; 101 N. W. 852.

The respondent objects to the validity of the instruments of August and November, 1920, because they were not recorded and were not entitled to record. He argues that Shelden did not divest himself of all dominion and control over the property as long as he could have conveyed it to an innocent purchaser for value, who would have taken good title upon recording his deed.

Section 11770 of the Compiled Laws of Michigan (1915) provides:

Section 1. TRe People of the State of Michigan enact, That contracts for the sale of land or any interest therein, shall be executed in the presence of two witnesses, who shall subscribe their names thereto as such, and the vendor named in such contract, and executing the same may acknowledge the execution thereof, before any judge, or commissioner of a court of record, or before any notary public or justice of the peace within this state; and the officer taking such acknowledgment shall endorse thereon a certificate of the acknowledgment thereof, and the date of making the same under his hand.

Section 11773 provides that any contract executed and acknowledged according to the above provisions shall be entitled to be recorded in the office of the register of deeds of the county where the lands lie. The assignments of August 3, 1920, were subscribed by two witnesses, but were not acknowledged. The sticker assignments which were attached to the specific lot contract to be assigned were subscribed by one witness, but were not acknowledged. The family arrangement • of November 3, 1920, was neither witnessed nor acknowledged.

Title to real estate, however, may be transferred in Michigan by instruments which are neither witnessed nor acknowledged. In Kerschtensteiner v. Northern Michigan Land Co., 244 Mich. 403; 221 N. W. 322, the court stated:

Deeds of real estate, to be entitled to record, must be acknowledged, but an acknowledgment is not a part of the conveyance, Brown v. McCormick, 28 Mich., 219; Livingston v. Jones, Har. 165. Title to real estate may be transferred by conveyances not acknowledged. Price v. Haynes, 37 Mich., 487. Deeds in order to be recorded should he witnessed, but a deed not witnessed is good between the parties. Fulton v. Priddy, 123 Mich., 298, 82 N. W. 65; 81 Am. St. Rep. 201; Carpenter v. Carpenter, 126 Mich. 217, 85 N. W. 576; Baker v. Clark, 52 Mich. 22; 17 N. W. 225; King v. Carpenter, 37 Mich. 363; Brown v. King, 172 Mich. 355, 137 N. W. 729.

Cf. Solomon Mier Co. v. Hadden, 148 Mich. 488; 111 N. W. 1040; Stamp v. Steele, 209 Mich. 205; 176 N. W. 464.

An unrecorded land contract is not unusual and is not particularly significant in the instant proceeding. In many cases tbe record of title would be unnecessarily complicated by tbe recording of contracts, assignments and subcontracts where tbe relation of tbe parties insures safety and inspires confidence. We have found that tbe deeds executed and delivered in 1923 by Shelden and bis -wife to their children were part of a plan whereby a deed to the Rosedale property would be delivered by the Grand River Avenue Development Company directly to the children, without having the record title pass through H. D. Shelden and wife. At some time in the near future the petitioners knew that they would be required to furnish abstracts of title for each of the 1,041 lots which had been or would be sold. The record would be greatly shortened by not recording the contracts of sale, assignment, etc. When the balance of the purchase price was paid to the Grand River Company, they could then record the single deed from that company to the children which would give them a clear record title. The quitclaim deed from Shelden and his wife to the children eliminates any possibility of a cloud on the title in them.

The respondent alleges that if any transfer was effected by the instruments of August 3, 1920, it was by purchase and not by gift. He contends that the following language in each of the four instruments recites a valuable consideration which is sufficient to support a sale:

* * * in consideration of One Dollar ($1.00) and love and affection, I do hereby grant, sell and convey to * * * all my right, claim and interest in and to the annexed Land Contract bearing date the 16th day of June A. D. 1919 * * *
* * * And said [child’s name], in consideration of the premises, hereby assumes and agrees to perform and carry out all parts of said annexed Land Contract (not already performed) therein provided to be performed by the party of the second part thereto so far as the same relates to the above described premises. * * *

We are not impressed with the respondent’s argument. Reading the instrument as a whole, it is clear that a gift was intended by H. D. Shelden of his equity in the contract with the Grand River Avenue Development Company. That the donees in the instant case agreed to pay the balance of the purchase price does not change the character of the transfer from that of gift to that of purchase. Certainly one may make a gift of whatever interest he may have in property. And neither does the recital of “ One Dollar ($1.00) and love and affection ” determine whether the transfer was by gift or by purchase. See Fischer v. Union Trust Co., 138 Mich. 612; 101 N. W. 852; Harry F. Robertson, 5 B. T. A. 748.

The respondent alleges that if the Board should find there was a gift by H. D. Shelden to his children in 1920, and that the fair market value of the gift exceeded cost to the donor, then the difference between cost and the fair market value constitutes income to the petitioner, H. D. Shelden, for that year. He also alleges that if the Board should find there was a gift in 1920 of certain installment contracts receivable, then all of the unreported profit from the sale of lots under such contracts was realized at the effective date of the gift and is taxable to H. D. Shelden for 1920. Similar questions have been raised before this Board in Wallace Huntington, 15 B. T. A. 851; M. A. Milan, 16 B. T. A. 1112; and Charles F. Meagher, 20 B. T. A. 68. In the Huntington case, we considered at length the questions whether there was a realization of taxable income by a donor at the time he effected a gift of installment obligations, and whether a tax could be imposed upon the donor in years subsequent to the gift when the donees collected payments under the contract. We held that the donors were not taxable in 1922 and 1923 upon the profit contained in installments collected in those years by the donees. There the gift occurred in 1921, and while that year was not before the Board, we stated, after discussing the controlling statutes, “ that petitioners [the donors] were not in receipt of income when they received the notes in question and when they gave them to their children.” In the Milan case we held that a donor of an installment contract receivable realized no taxable income upon a gift to his wife and children of the installment obligation. In the Meagher case we stated:

* * * In the present case petitioner has disposed of his deferred payment obligations in an exchange -which, under the specific provision of the taxing statute, can not be considered as effecting a realization of a taxable gain. The situation here presented resembles more closely those cases in which certain deferred payment obligations under sales made upon the installment basis were by the owner disposed of by gift, and in which we held that, having disposed of such obligations and the collection thereof being by the donee and being his property when collected, the donor could not be considered as in receipt of income in respect thereof, either in the year in which the gift was made or when such installments were collected by the donee. R. L. Brown, 14 B. T. A. 609; Wallace Huntington, 15 B. T. A. 851; M. A. Milan, 16 B. T. A. 1112.
We can but conclude that the transfer by petitioner of these installment obligations in a transaction which under existing law is held not to result in taxable gain can not be considered as a present realization of income therefrom, and this conclusion is further strengthened by the fact that the determining of a taxable gain from such a transaction is first provided for by the Revenue Act of 1928, in section 44 (d), * * *

We think our conclusions in the above cases are applicable here and hold, accordingly, that EL D. Shelden realized no taxable income when he gave the installment contracts receivable to his children.

In determining the tax liability of the donee children, the respondent has computed profit upon the same basis the property had in the hands of the donor. He has, then, taxed the donees on the profit contained in each installment payment as computed for the donor. The basis for computing gain or loss in the hands of the donee children is the fair market price or value at the date of acquisition. Art. 1562, Regulations 45. The percentage of profit contained in each installment payment, as computed for the donor, is not income to the donee in so far as such profit is included in the fair market value of the property; it is part of the gift.

It remains for us to determine the fair market value of the gifts to the children at the effective date. The property transferred is of two general classes, namely, the vendor’s interest under land contracts covering lots sold, and the unsold lots. The petitioners contend that the contracts, which drew interest at 6 per cent, had a fair market value equal to the balance due thereon and that the fair market value of the unsold lots was the price at which they were offered for sale.

The petitioners, Alger and Henry Shelden, testified that in their opinion the property received from H. D. Shelden by the children had a total net value of $1,576,481.04, which value was arrived at by adding the total balance due on land contracts receivable of $1,556,-283.12, to the total selling price of the unsold lots in the amount of $1,333,919, plus the acreage value of the unsubdivided 10-acre tract, and deducting the balance of commissions due on lots sold of $135,120.51, 5 per cent of both the contracts receivable balance and the unsold lots price as a discount for cash, 15 per cent of the unsold lots figure as sales commission, 5 per cent of the contracts receivable balance and the unsold lots price for costs of collection, the cost of uninstalled improvements in the amount of $557,892.96, and the balance due on the land of $242,947.60. To such result they added cash on hand of $14,485.68, an account receivable of $150.79, and the cost to date of buildings under construction on the property of $83,754.74.

The petitioner’s witness, Clarkson Wormer, who had participated in the subdivision and sale of several properties similar to that involved herein, testified that while the Rosedale Park project had a value of $1,556,233.12 to the subdivider, who would hold the contracts and continue the sale of lots, the two subdivisions consisting of the unsold lots and the land contracts covering lots sold could have been sold for $1,000,000 in the latter part of 1920. Another expert witness called by the petitioner testified that in his opinion the Eosedale Park subdivisions were worth par, by which we understand that he meant that the sales contract and the unsold lots were respectively worth their face value and the asking prices.

The respondent called two expert witnesses who had been extensively engaged in the subdivision business in Detroit. Frank S. Pieper testified that a depression existed in the real estate subdivision business in 1920, and that in his opinion the Eosedale Park properties had a fair market value in the latter part of 1920 of no more than the acreage value of the underlying land. The respondent’s witness, Thomas Hinchman, testified that in his opinion the property had a fair market value of $2,000 per acre, plus the cost of improvements installed and less the balance due to the Grand Eiver Avenue Development Company on the purchase .price.

We think the Eosedale Park subdivisions were worth substantially more than the fair market value of the underlying acreage on November 3, 1920, when the gift of the enterprise was completed. At that time plans for development had been completed, improvements had been installed, the subdivision had gained public favor in Detroit, as evidenced by sales of 60 per cent of the lots, and there was every reason to believe that the remaining 40 per cent of the lots could be sold at or near the price asked. . On the other hand the value contended for by the petitioners as contained in the testimony of Alger and Henry Shelden is based on a prospective element which we think must be eliminated in determining the fair market price or value at the basic date. To realize the value contended for by them would require that they hold the subdivisions as a business enterprise until they had been completely liquidated.

After careful consideration of all the evidence, we think the fair market price or value on November 3, 1920, of H. D. Shelden’s interest in Eosedale Park Subdivisions Nos. 2 and 3 was $1,000,000, exclusive of the unsubdivided 10-acre tract, the cost of buildings under construction, and cash on hand or accounts receivable. This figure should be allocated on a percentage basis between land contracts receivable and unsold lots in proportion to the total unpaid balance of the former and the total asked price of the latter. The fair market price or value of the unsubdivided 10-acre tract was at least $13,000 at that date.

The record contains several voluminous exhibits showing figures relative to the sale of lots, repossession of lots, collections, and many other facts necessary to a recomputation under Eule 50. We have not encumbered this report with findings of fact from such exhibits, since such facts are not necessary to a determination of the issues raised. They are necessary, however, to a recomputation under Eule 50, and will be referred to in making such recomputation.

The petitioners allege in their amended petition that the respondent made numerous errors in taking figures from the books kept for the Rosedale Park subdivisions. There is no allegation in particular of the errors complained of, and while the record contains an exhibit consisting of transcripts from the books, we do not feel obliged to search out errors under such a general allegation. If the parties see fit to correct the errors under Rule 50, we have no objection.

Reviewed by the Board.

Decision will he entered under Rule 50.

Trammell dissents.

SteRNHAGEN,

concurring: While the decision is, in my opinion, entirely unfair, I see no escape from it under the law which governs it. The spreading of gains from installment sales over the years of payment was a privilege granted to afford relief from the ordinary system of taxing the gain at the time of the transaction. Cf. B. B. Todd, Inc., 1 B. T. A. 762. Such relief ought in fairness to carry with it the obligation that by no device will the tax, which, but for the relief, would have been paid, be frustrated. The earlier statutes provided no such obligation and no considerations of general fairness empower the Board to impose it. According to a cardinal rule, taxes may not be imposed by implication, no matter how strong, and therefore the statute may not by construction be regarded either as permitting the disregard of the transfer by the donor or applying to the donees the basis which would have been applied to him, or as taxing him for the income which came to them, or as treating the disposition by gift as a realization of the gain. The intimations in Irvin v. Gavit, 268 U. S. 161, and Taft v. Bowers, 278 U. S. 470, that the tax is upon income, notwithstanding change of ownership of the corpus from which it is derived, are, in view of other cases like Poe v. Seaborn, 282 U. S. 101, and Hoeper v. Tax Commissioner of Wisconsin, 284 U. S. 206, not sufficient to give assurance that this theory is to be taken as a general principle of the income tax.

By the Revenue Act of 1928, section 44 (d), an attempt has been made to provide for such cases, but this was not made retroactive.


source: Caselaw Access Project

author: Tkammell :

license: Public Domain

text:
    Lucius N. Littauer, William Littauer and Manufacturers Trust Company of New York, N. Y., as Executors of the Last Will and Testament of Eugene Littauer, Deceased, Petitioners, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 51858.
    Promulgated December 31, 1931.

      Frecl Linus Carroll, Esq., for the petitioners.

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

Tkammell :

In the pleadings the petitioners set forth nine assignments of error, upon the basis of which it is asserted that the respondent determined the deficiency in controversy. These alleged errors will be considered in the order stated in the petition.

1. The petitioners allege that the respondent erred in including in the gross estate 1,550 shares of stock in the Fonda Glove Lining Company at $60 per share instead of $50 per share, as returned by the executors. At the hearing respondent conceded the contention of the petitioners on this issue, and we have accordingly found that the fair value of this stock at the date of decedent’s death was $50 per share.

2. and 3. Under these assignments the petitioners allege that the respondent erred in including in the gross estate certain “French securities ” at a valuation of $31,257.56 instead of $20,271 as returned by the executors, and in including in the gross estate certain “ British securities ” at $169,032.20 instead of $150,242.48, as returned by the executors.

The evidence established that, at the time of his death, decedent owned certain securities which were deposited in banks in France and England. After decedent’s death one of the executors personally went to those countries to obtain possession of said securities, but the French banks refused to deliver the securities there to the executor until death taxes claimed by the French Government in the amount of $10,986.56 had first been paid. Likewise the English banks refused to turn over to the executor the securities in their possession until inland revenue dues claimed by the British Government in the amount of $18,789.72 had first been paid. The executors paid out of moneys forming part of the estate in the United States the taxes claimed by the two foreign governments respectively, and the securities were thereby brought into the administration of the decedent’s estate in the United States.

The securities were returned by the executors as a part of the gross estate at their value less the amount of taxes paid to the French and British Governments. In determining the deficiency the respondent included the securities without deducting said taxes. The petitioners contend, first, that the securities should be included at their value less the taxes paid in order to obtain possession and bring them into the administration of the estate in the United States, and secondly, in the alternative, that deduction of the taxes should be allowed as administrative expenses if they are included in the gross estate at their full value.

To support their first contention, the petitioners rely upon the decision of the Supreme Court in Frick v. Pennsylvania, 268 U. S. 473. That case involved the question of the power of the State to impose a tax upon the transfer of property by will or intestate laws, under the due-process-of-law clause of the Fourteenth Amendment to the Constitution. Here a vitally different situation is presented, which, we think, renders the Frick decision inapplicable. The distinction is clearly defined by the Supreme Court in its opinion in the Frick case, from which we quote:

In United, States v. Bennett, 232 U. S. 299, 306, * * * where this Court had occasion to explain the restrictive operation of the due process of law clause of the Fourteenth Amendment, as applied to the taxation by one State of property in another, and to distinguish the operation of the like clause of the Fifth Amendment, as applied to the taxation by the United States of a vessel belonging to one of its citizens and located in foreign waters, it was said :
“ The application to the States of the rule of due process relied upon comes from the fact that their spheres of activity are enforced and protected by the Constitution and therefore it is impossible for one State to reach out and tax property in another without violating the Constitution, for where the power of the one ends the authority of the other begins. But this has no application to the Government of the United States so far as its admitted taxing power is concerned. It is coextensive with the limits of the United States; it knows no restriction except where one is expressed in or arises from the Constitution and therefore embraces all the attributes which appertain to sovereignty in the fullest sense. Indeed the existence of such a wide power is the essential resultant of the limitation restricting the States within their allotted spheres * *

In the instant case the decedent died in 1929, and the questions here presented are governed by the Kevenue Act of 1926, which contains the following pertinent provisions:

Sec. 301. (a) In lieu of the tax imposed by Title III of the Revenue Act of 1924, a tax equal to the sum of the following percentages of the value of the net estate (determined as provided in section 303) is hereby imposed upon the transfer of the net estate of every decedent dying after the enactment of this act, whether a resident or nonresident of the United States;
* * # # * jp *
(b) The tax imposed by this section shall be credited with the amount of any estate, inheritance, legacy, or succession taxes actually paid to any State or Territory or the District of Columbia, in respect of any property included in the gross estate. The credit allowed by this subdivision shall not exceed 80 per centum of the tax imposed by this section and shall include only such taxes as were actually paid and credit therefor claimed within three years after the filing of the return required by section 304.
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—
* ***** «
Sec. 303. For the purpose of the tax the value of the net estate shall be determined—
(a) In the case of a resident, by deducting from the value of the gross estate—
(1) Such amounts for * * * administration expenses, claims against the estate, unpaid mortgages upon, or any indebtedness in respect to, property (except, in the case of a resident decedent, where such property is not situated in the United States), * * * as are allowed by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered, but not including any income taxes upon income received after the death of the decedent, or any estate, succession, legacy, or inheritance taxes * * *.

The intention of Congress is clearly discernible in the foregoing provisions of the statute. Section 301 (a) imposes the tax upon the net estate, the value of which is determined by deducting from the value of the gross estate the items specifically enumerated in section 303. The allowance of deductions is a matter within the discretion of Congress, and only such deductions as are authorized may be allowed in computing taxes.

In section 301 (b), supra, it is provided that the tax imposed shall be credited with the amount of any estate, inheritance, legacy or succession taxes actually paid to any State or territory or tbe District of Columbia to the extent ox 80 per centum of the Federal tax, but the statute does not authorize ,the deduction of such taxes in computing the value of the net estate. ' On the contrary, section 303 (a) (1) specifically excludes such taxes as allowable deductions.

The British and French taxes here in controversy, not having been paid to “ any State or Territory or the District of Columbia,” are not allowable as credits, and since said taxes obviously are in the nature of “ estate, succession, legacy, or inheritance taxes, they are not allowable as deductions in computing the value of the net estate. ' The petitioners’ main contention is that in respect of the foreign taxes in question the British and French Governments were in the position of “lienors in possession,” and that it was necessary for the petitioners to pay said taxes in order to acquire possession of the securities and to bring them within the administration of the decedent’s estate in the United States. Hence, the petitioners argue that only the net amount of the value remaining after payment of the foreign taxes should be included in the gross estate.

In our opinion this argument is untenable in view of the provisions of section 303 (a) (1), supra. That section provides for the deduction of “ unpaid mortgages upon, or any indebtedness in respect to, property (except, in the case of -a resident decedent, where such property is not situated in the United States).” The decedent was a resident of the United States at the time of his death, and the British and French securities constituted property which was not situated in the United States. It is thus apparent that, even if the foreign taxes had constituted liens upon the securities of the decedent, or if they might be said to be indebtedness in respect to property included in the decedent’s gross estate, the amounts thereof are, by the plain language of the statute, excluded as allowable deductions. In the second place the Federal statute here involved does not require that assets be brought into the limits of the United States in so far as a citizen is concerned in order that the United States may have jurisdiction to levy a tax upon its transfer by death. The tax may be levied upon the transfer abroad, while in the case of a State transfer tax, which was involved in the Frick case, another question is involved.

To include the decedent’s securities in the gross estate at their value, less the amount of the taxes paid to the foreign governments, would be in effect to allow the amounts of such taxes as deductions in computing the value of the net estate, and would violate not only the clearly expressed intention of Congress, but the specific provisions of the statute. This we may not do.

For tbe same reason the amounts of the said taxes may not be deducted as administration expenses. It is not necessary to determine here whether the foreign taxes in question might properly be classified as administration expenses, for, if so, then the provision excluding such taxes as allowable deductions must be construed as a limitation upon or exception to the provision permitting the deduction of administration expenses.

To concede either of the petitioners’ contentions would be in effect to allow the amounts of the said foreign taxes as deductions in computing the value of the decedent’s net estate, and to allow indirectly what may not be allowed directly. On these points, the action of the respondent is sustained.

4. and 5. These issues involve gifts of money made by the decedent to his brother, William Littauer, and to his niece, Catherine Louise Doeller, within two years of the date of his death. The gifts made by the decedent to his brother within such period aggregated $109,550, of which the respondent included in the gross estate $104,550, or the excess over $5,000. The gifts made by the decedent to his niece within said two-year period amounted to $9,544.15, of which the respondent included in the gross estate the excess over $5,000, or the net amount of $4,544.15.

At the hearing the petitioners offered evidence, without objection from the respondent, to establish that these gifts were in fact not made in contemplation of death, and, admittedly being completed gifts at the time made, they could not have been intended by the decedent to take effect in possession or enjoyment at or after his death. Obviously, then, the respondent included said gifts in the gross estate in excess of $5,000 pursuant to section 302 (c) of the Eevenue Act of 1926, which provides that:

Where within two years prior to his death but after the enactment of this Act and without such a consideration the decedent has made a transfer or transfers, by trust or otherwise, of any of his property, or an interest therein, not admitted or shown to have been made in contemplation of or intended to take effect in possession or enjoyment at or after his death, and the value or aggregate value, at the time of such death, of the property or interest so transferred to any one person is in excess of $5,000, then to the extent of such excess, such transfer or transfers shall be deemed and held to have been made in contemplation of death within the meaning of this title.

Upon completion of the testimony offered by the petitioners at the hearing, the respondent conceded that said gifts were in fact not made in contemplation of death, and that the amounts thereof included in the gross estate should be excluded in the redetermination of the deficiency. This constituted in effect a confession of error on the part of the respondent, and also an agreement or stipulation of the parties that the gifts should not be included in the gross estate. The statute, however, provides that gifts of the kind here involved “ shall be deemed and held to have been made in contemplation oi death,” and so subject to tax. A conclusive presumption is raised by the statute which does not admit of rebuttal. The action of the respondent in confessing error, or if viewed as a stipulation of the parties, amounts substantially to a conclusion of law in direct contravention of the statute. In these circumstances, we can not give effect to such a confession or stipulation.

On the other hand, the same net result must be reached, but for an entirely different reason. The validity of the statute above quoted was considered by us in Estate of Robert Todd Lincoln, 24 B. T. A. 334, and we there held that the conclusive presumption provision of section 302 (c) of the Revenue Act of 1926 is unconstitutional. On authority of that decision, we hold here that, since the respondent included the gifts in question in decedent’s gross estate because of such invalid statutory presumption, and it having been shown that the gifts in fact were not made in contemplation of death, the amounts included by the respondent will be excluded in redetermining the deficiency.

6. This assignment of error relates to the action of the respondent in disallowing a claim of Dr. Berg against the estate in the amount of $15,000 for surgical services rendered to the decedent. No evidence was offered thereon at the hearing, and for the purposes of this proceeding the issue may be considered as abandoned in view of the following statement of counsel for the petitioners:

Now, your Honor, I think I made a misstatement when you asked me whether any of the items in the petition would not be pressed; the item of the bill of Dr. Berg will not be pressed at this time, that being in dispute, pending in the Surrogate’s court, as to the amount.

7. This item relates to the claim of Dr. Eliasberg in the amount of $500, which, the evidence shows, was compromised and settled by the executors on October 28, 1930, for $250. The latter amount constitutes an allowable deduction from the value of the gross estate.

8. and 9. These issues involve additional income taxes of the decedent for the years 1927 and 1928, the amounts of which were originally in controversy. The matter was adjusted and on February 4, 1931, the executors paid the amounts set out in our findings of fact, which amounts will be allowed as deductions in redetermining the deficiency.

Reviewed by the Board.

Judgment will be entered wider Rule 60.


author: Murdock:

text:
    Security Trust Company, now Detroit Trust Company, and Anna Dodge Dillman (formerly Anna Thomson Dodge), as Trustees Appointed by the Probate Court of Wayne County, Michigan, under the Will of Horace E. Dodge, Deceased, Petitioners, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 25325.
    Promulgated December 31, 1931.

      Archibald, Broomfield, Esq., and Hal H. Smith, Esq., for the petitioners.

      W. H. Trigg, Esq., and L. H. Rushbrook, Esq., for the respondent.
   OPINION.

Murdock:

The Commissioner determined a deficiency of $4,145,-635.41 in the income-tax liability .of the Horace E. Dodge Trust for the year 1925. The parties have entered into a stipulation, which is made a part hereof by reference. The liability for tax on all miscellaneous items as to which errors were assigned in the petition has been conceded by the petitioner in this stipulation. The sole issue now in controversy is as to the proper basis upon which to compute the taxable gain realized by the petitioner in 1925 by reason of the receipt of a liquidating dividend from the Dodge Estates Corporation.

Horace E. Dodge died testate on December 10, 1920. At the time of his death he was a citizen of the United States and of the State of Michigan, residing in the Eastern District of Michigan. His will was duly admitted to probate oh’ February 10, 1921, by the Probate Court of Wayne County, Michigan. In his will the decedent named as his executors his wife, Anna Thomson Dodge, now Anna Dodge Dillman, and Howard B. Bloomer. On February 11, 1921, these two persons qualified as such executors and letters testamentary were issued to them by the Probate Court of Wayne County. They were still acting as executors up to the time of the hearing of this case.

The gross estate of Horace E. Dodge was appraised for estate-tax purposes at $40,540,976.11. Among the assets of the estate were 50,000 shares of stock of Dodge Brothers which were appraised for Federal estate-tax purposes, as of the date of the decedent’s death, at $29,343,350. The 50,000 shares were increased on or about December 28, 1922, to 250,000 shares by a stock dividend at which time the corporation was permitted to capitalize its surplus earnings.

On February 11, 1921, the executors obtained possession of all of the personal property of the estate, including the Dodge Brothers stock, and continued in possession thereof until the stock was turned over to the trustees. While they were in possession of this stock they received dividends on it and voted it at a number of stockholders’ meetings. During this same period the executors paid debts, liabilities, taxes and administration expenses of the estate and also expended some money in the preservation of the estate. The will gave them power to sell personal property.

The will of Horace E. Dodge provided for the payment of his debts and funeral expenses; gave to his wife his jewelry, personal belongings, pictures, insurance, private yacht and other similar items. Pecuniary legacies amounting in all to $16,400 were made and all were to be paid in full, free of taxes. It further provided that all the residue of the estate be given, devised and bequeathed to Anna Thomson Dodge and Howard B. Bloomer and their successors in trust. It also named John Ballantyne of Detroit as an alternative trustee. The trustees were given power to convert the property which came into their hands into income-producing personal property, and the power to sell, convey and keep invested the property. The trustees were directed to collect all income and from such income, first to pay all taxes, insurance, repairs and other maintenance charges of the estate, and then to pay certain specified amounts annually to certain named individuals for life, “ the same to be payable quarterly from the date of my death.” The will also provided that a certain amount should be paid each month to the decedent’s wife’s father during his life. All of the balance of the net income of the estate was to be paid to the decedent’s wife for life in quarterly payments. After her death the trustees were to dispose of the estate by purchasing annuities to cover payments to be made to the other life beneficiaries then living, and to deliver the remainder of the trust fund to the decedent’s children.

Howard B. Bloomer declined to act as a trustee. On June 14, 1924, the Probate Court of Wayne County entered an order reciting that Anna Thomson Dodge and John Ballantyne had filed their acceptance of the trusteeship under the will, finding that they were suitable persons to perform the duties as trustees under the will, and ordering that they give bond in the penal sum of $100, and, on the approval thereof, letters of trusteeship under the trust created by the will should issue to them. The bond was filed and approved and letters of trusteeship were issued to them on June 14, 1924. Since that time they have acted continuously as such trustees and have had their principal office in the city of Detroit, Michigan, except that on or about July 21, 1927, John Ballantyne resigned as trustee, and the Security Trust Company of Detroit, Michigan, now the Detroit Trust Company, was appointed successor.

On June 14,1924, the Probate Court of Wayne County, Michigan, ordered distribution to the trustees of the entire residue of the Horace E. Dodge estate, except certain items having a value of about $2,180,000. Pursuant to this order the 250,000 shares of the Dodge Brothers stock were transferred and delivered by the executors to the trustees on July 12, 1924. The trustees thereafter had possession of the stock, voted it, and received dividends including the liquidating dividend herein involved.

On June 14, 1924, when the order of distribution was made, and on July 12, 1924, when the stock -was transferred by the executors to the trustees, the 250,000 shares of Dodge Brothers stock had a fair market value of $57,500,000.

On May 1, 1925, Dodge Brothers sold all of its assets as a going business, subject to most of its liabilities, for $146,000,000 in cash. Thereafter, on May 4, 1925, the company (then called the Dodge Estates Corporation) filed a notice of dissolution and the directors distributed and paid in cash a liquidating dividend of $125,000,000. The trustees under the will of Horace E. Dodge, as holders of one-half of the stock of the company, received one-half of the liquidating dividend or $62,500,000. This dividend was the first of a series of distributions in complete cancellation or redemption of the stock of the company.

The trustees filed an income-tax return for the year 1925, and in a rider attached thereto disclosed the receipt of this liquidating dividend, but did not include any part of it in the taxable income of the trust. They contended that the value of the stock on June 14, 1924, and July 12, 1924, was not less than $62,500,000, and therefore, they had received no taxable profit.

No portion of the liquidating dividend of $62,500,000 has been distributed by the trustees to any of the beneficiaries of the trust. The stock of Dodge Brothers owned by Horace E. Dodge at the date of his death on December 10,1920, had a fair market value on that date of $29,343,350. The Commissioner, in determining the deficiency, included in income and taxed under section 208 of the Revenue Act of 1926, the difference between the value of the Dodge Brothers stock at the date of the death of Horace E. Dodge and $62,500,000.

The case of Detroit Trust Company et al., Trustees under the Will of John F. Dodge, deceased, Docket No. 29402, was heard at the same time that this case was heard. The two cases were argued simultaneously, and, although two sets of briefs were filed on behalf of the petitioners, these briefs were complementary. The same question is involved in each case. Therefore, all of our discussion of the question appears in this report and we have issued only a memorandum in the other proceeding.

The only issue in these two cases is as to the proper basis on which to compute the taxable gain realized by each trust in 1925 by reason of the receipt of a liquidating dividend from the Dodge Estates Corporation. The Revenue Act of 1926, which became retroactively effective as of January 1, 1925, provides as follows in section 204(a) (5) for determining gain from the disposition of property acquired after February 28, 1913:

If the property was acquired by bequest, devise, or inheritance, the basis shall be the fair market value of such property at the time of such acquisition.

The petitioners contend that the proper basis is the value of the stock on the dates transferred to the trustees by the executors, its value on the dates when the probate court entered its orders of distribution, or its value on the dates upon which the trustees qualified. It has been stipulated in each case that the value of the stock was the same on each of these dates. The respondent contends that the value of the stock on the date of the testator’s death is the proper basis. We stated to counsel for the petitioners at the argument of this case, that the case of Brewster v. Gage, 280 U. S. 327, made their position extremely difficult and we are of the opinion still that the petitioners have failed to sufficiently distinguish their cases from the Brewster case, and therefore, their contentions must fail.

Brewster was a residuary legatee; so are the present petitioners. In each case executors were appointed by will; such executors administered the estate; and distribution was made to the residuary legatees of the residuary estate, which consisted of personal property, to wit, stock. The Commissioner made the same contention in the Brewster case that he makes here. The provisions of the acts involved are in all material respects the same, and the decision of the question involved depends here, as it depended there, upon the construction of the word “ acquired ” and the phrase “ at the time of such acquisition.” The only differences between the situation in the Brewster case and the situation in each of the present cases is that the estate in the Brewster case was administered under the laws of the State of New York, while the Dodge estates were administered under the laws of the State of Michigan, and Brewster, an individual, was in being at the time of his testator’s death, whereas the residuary estate of each of the two Dodge brothers was left to trustees for the benefit of certain individuals, and the trustees, although appointed by will, did not qualify until the date of the final order of distribution. However, the beneficiaries, and also those who later qualified as trustees, were in existence at the time of the decedent’s death.

The court said in the Brewster case :

Upon the death ol the owner, title to his real estate passes to his heirs or devisees. A different rule applies to personal property. Title to it does not vest at once in heirs or legatees. United States v. Jones, 236 U. S. 106, 112, 35 S. Ct. 261, 59 L. Ed. 488, Ann. Cas. 1916A, 316. But immediately upon the death of the owner there vests in each of them the right to his distributive share of so much as shall remain after proper administration and the right to have it delivered upon entry of the decree of distribution. Sanders v. Soutter, 136 N. Y. 97, 32 N. E. 638; Vail v. Vail, 49 Conn. 52; Cook v. McDowell, 52 N. J. Eq. 351, 30 A. 24. Upon acceptance of the trust there vests in the administrators or executors, as of the date of the death, title to all personal property belonging to the estate; it is taken, not for themselves, but in the right of others for the proper administration of the estate and for distribution of the residue. The decree of distribution confers no new right; it merely identifies the property remaining, evidences right of possession in the heirs or legatees, and requires the administrators or executors to deliver it to them. The legal title so given relates back to the date of the death. Foster v. Fifield, 20 Pick. (Mass.) 67, 70; Wager v. Wager, 89 N. Y. 161, 166; Thompson v. Thomas, 30 Miss. 152, 158.
Petitioner’s right later to have his share of the residue vested immediately upon testator’s death. At that time petitioner became enriched by its worth, which was directly related to and would increase or decline correspondingly with the value of the property. And, notwithstanding the postponement of transfer of the legal title to him, Congress unquestionably had power and reasonably might fix value at the time title passed from the decedent as the basis for determining gain or loss upon sale of the right or of the property before or after the decree of distribution. And we think that, in substance, it would not be inconsistent with the rules of law governing the descent and distribution of real and personal property of decedents to construe the words in question to mean the date of death.
Undoubtedly the basis for the ascertainment of gain or loss on the sale of real estate by an heir or devisee is its value at the time of decedent’s death. That is “ the time of such acquisition.” The decree of distribution necessarily is later than, and has no definite relation to, the time when the real estate passes. And generally specific bequests are handed over to the legatees soon after the death of the testator, and such property may be and often is sold by them prior to the entry of the decree for final distribution. In such cases gains or losses are to be calculated under these acts on value at the time of death. No other basis is or reasonably could be suggested.
There is nothing in either of the acts or in their legislative history to indicate a purpose to establish two bases — (1) value of real estate and specific bequests at time of death; and (2) value of other property at date of decree. The rule that ambiguities in tax laws are to be resolved in favor of taxpayers has no application here, because it is impossible to determine which basis would impose a greater burden. And neither construction is to be preferred on the ground that the other would raise serious question as to constitutional validity. The generality of the words used in both acts indicates intention that the value at the time of death of the decedent was to be taken as the basis in all cases.
The Revenue Act of 1918 and subsequent acts taxed incomes of estates during the period of the administration, including profits on sales of property, and such gains are calculated on value at date of decedent’s death. There appears to be no reason why gains or losses to the estate should be calculated on one basis and those to the residuary legatees on another.

The court then pointed out that Treasury regulations under the revenue acts in force between 1917 and 1928 declared that value at time of the death of decedent should be taken as the basis for ascertaining profit or loss from the sale of property acquired by bequest or descent since February 28', 1913; the rule so established is reasonable, does no violence to the letter or spirit of the provisions construed and should not be disturbed except for weighty reasons; the situation was no different under the Revenue Acts of 1924 and 1926; the substantial reenactment of the provision as construed by the Treasury Department is persuasive evidence of legislative approval of the regulation; and the deliberate selection of the language of the Revenue Act of 1928, which differed so materially from that used in the earlier acts, indicates that a change of law was intended, but this change should not be retrospectively applied.

The petitioners argue that the Brewster case can have no further application than the facts and the issue therein involved; it involved an individual in being who was a residuary legatee; therefore, it does not apply to testamentary trustees who did not come into existence until the date of distribution. The Supreme Court has frequently said that it decides each case on the facts of that case, and it may conceivably make the very distinction suggested. But in view of the similarity between the two cases and the language and reasoning of the Supreme Court in the Brewster case, our judgment impels us to follow it in a case such as the present until the court itself says that the effect of the case is not as broad as we have interpreted it to be.

The petitioners make a number of arguments, many of them quite forceful and persuasive, which we will not attempt to answer categorically, for the reason that they are contrary to the holding of the court in the Brewster case and to set them forth would unduly lengthen this opinion. We will discuss only those circumstances of the present cases which have no apparent parallel in the Brewster case. One difference is that the one case arose in New York and is affected by the laws of that State, whereas the others arose under the laws of Michigan. The other difference is that Brewster was an individual in being at the time of his testator’s death, whereas the residuary estate involved in each of the present cases was left to trustees for the benefit of others, which trustees, although in existence at the time of the decedent’s death and named in his will, did not accept, qualify and receive the authorization of the probate court until the date of distribution. The petitioners would inter-relate these two differences as will appear in the discussion which follows.

The petitioners contend that the law of Michigan is quite different from the law of certain other States, particularly that of New York, in that testamentary trustees in Michigan are appointed by the probate court and not by the testator as in the other States.- They further contend in this connection, “ that until appointment, acceptance and qualification the trustee does not come into existence, and until distribution he has no powers or duties with respect to the trust estate; that appointment, acceptance and qualification is the inception of his existence as trustee; and that the order of distribution is the inception of legal title and possession in the trustee. It is the beginning of the trustees, as such, and the trust estate.” But the cases and the law cited do not fully support the petitioners’ position. The true situation is somewhat less favorable to the petitioners.

An executor’s interest in a testator’s estate is what the testator gives him and is derived from.the will whatever may be the form which the law requires to be observed before an executor enters upon the discharge of his functions.” Hill v. Tucker, 13 How. 458. An executor is a fiduciary. He holds legal title to certain property in which others have the beneficial interest. His duties are those of a trustee. A probate court has no authority to nominate or appoint an executor. It has power to clothe the executor appointed by the will with legal authority to act, but has no authority to do otherwise unless the executor appointed by the will is disqualified or fails to qualify. Some time always elapses after the death of a testator before his executor is granted letters testamentary and is clothed by the probate court with legal authority to act. After he has assumed his duties he may perhaps sell property belonging to the estate, and if he does it is obvious that the basis for gain or loss from such sale is the value of the property at the time of the testator’s death, even though at the date of death the executor had not assumed his duties as fiduciary or been clothed with full authority to act.

The situation of a testamentary trustee is not very different except that he is something which the executor is not, namely, a legatee under the will. He also is appointed by the will and derives his interest in the testator’s estate from the will. The law also requires that certain forms be observed before a testamentary trustee may enter upon the discharge of his functions. But the probate court can not appoint a testamentary trustee. The title means appointed by will. The probate court has power to clothe him with legal authority to act, but may not disregard the testator’s appointment and appoint another in his place unless the appointee of the testator is disqualified or fails to qualify. His full powers do not devolve upon him until the court has made the decree of distribution. Likewise, it is true that there is not a complete trust in respect to the residuary estate until distribution. But it does not follow, from the fact that this final step is necessary, that the trust is created by the probate court and it does not follow that the testamentary trustees in these cases did not acquire the residuary estates as trustees under the wills at the deaths of the testators.

In Gibney v. Allen, 156 Mich. 301; 120 N. W. 811, the court speaks of a trustee having been appointed by the testatrix and states that the probate court has no authority to name another except for the reasons we have indicated above, and states further that the action of the probate court after a trustee has been appointed by the testatrix is only declaratory and affirmatory. See also Beecher on Michigan Law and Practice in Probate Courts, sec. 749. In paragraph 14052 of the Compiled Laws of Michigan, 1915, we find the following:

If a testator lias omitted in his will to appoint a trustee in this state * * ♦ such probate court * * * shall appoint a trustee, who shall have the same powers, rights and duties and in whom the estate shall vest in like manner as if he had been originally appointed by the testator.

We think it is obvious that in Michigan the rights, titles and appointments of testamentary trustees come from the will at the date of death. Because there was a will and because the testator died, a change was wrought from the date of his death. The property later to be distributed became impressed with a trust. The beneficiaries under the testamentary trust from that date forward had certain rights which they did not have before. Their rights were dependent upon a trust estate. The trustees named by the two Dodge brothers were not disqualified for any reason and the ones who finally qualified as trustees were named by these two testators for that purpose. The named trustees acquired certain rights at the moment the testator died, which up to that moment they had not had. Thereafter it was only necessary for them to accept the trust, give bond, and allow the executors reasonable time to administer the estate until they would be entitled to perform their duties as trustees in accordance with the will of the testator. From the date of the testator’s death, they, like Brewster, had a right to demand and receive at some time in the future whatever might remain after paying the debts and expenses of the estate. They, like Brewster, at that time acquired a right to have the executors honestly administer the estate and distribute to them their share of the residuary estate. They had a duty to gain possession of the property. Brewster eventually received his bequest in fee. Here, the testamentary trustees representing the trust entity eventually received the legal title, but the cestuis que trustent were the beneficial owners. Each was a component part of the trust entity, the taxpayer. There was the same enrichment here at the date of death as there was in the Brewster case, but the total enrichment was distributed between those named as testamentary trustees and those named as cestuis que trustent.

We do not agree with the petitioners’ contention that an immediate bequest to the testamentary trustees was not intended and was not made. The words of each will indicate an intention to make an immediate bequest. Each trust required the trustees to make payments to certain beneficiaries from the date of the testator’s death. Thus, it appears that each testator, although he must have known that it would take some time to administer his estate, intended that the trust should relate back to and become operative from the date of his death. Cf. Poole v. Union Trust Co., 191 Mich. 162; 157 N. W. 430. There is no indication of an intention to postpone' either bequest. Each trust actually realized and received in cash the increase in value of the property over its value at the time of the testator’s death. Thus, it reaped the benefit for which the tax is payable. Cf. United States v. Phellis, 257 U. S. 156; Taft v. Bowers, 278 U. S. 470. The petitioners point out that the estates, exclusive of the Dodge Brothers stock, were not sufficient as valued at death, to pay debts and expenses. We can not see how this fact would help them, for it would only tend to show that at each testator’s death the value of the residuary estate was less than the value of the Dodge Brothers stock, and thus less than the basis already allowed by the Commissioner.

In one of the briefs for the petitioners there is a statement that the court in the Brewster case pointed out that Brewster, at the time of the testator’s death, had a right to the residue which he could have then disposed of, and the court held this right to dispose of the property to be tantamount to the property itself. The argument was then made that this may not be true of a bequest to a trust. The answer is that the court never made the statement or the holding attributed to it. Contentions are also made that certain things could not be done by or to the testamentary trustees prior to the date of the decree of distribution. However, the same was true of Brewster, and the reason in each case is that the residuary legatee was not entitled to receive the property until the decree of distribution.

The petitioners concede that the time of the death of the decedent is “ the time of such acquisition ” in a number of cases including real estate acquired by will or intestacy, personal property acquired by specific bequests and personal property acquired by an individual residuary legatee in being at the time of the death of the decedent. But, they argue, it would be a distortion of the statute to hold that testamentary trustees acquire the residue of personal property at death. They point out that there is no residue until the estate is ready for distribution. But as this was true in the Brewster case, we can not see that it need be considered a difficulty here. They further contend, as previously stated, that neither the trusts nor the trustees were in existence or capable of taking until the date of distribution, and, therefore, could not acquire the residue of personalty prior to that time. But if there is any merit in this argument it would seem to apply with equal force had the testator given real estate or specific personal property to form the corpus of this trust. Yet, the petitioners would concede that in either of the latter cases the property would have been acquired at the time of the death of the decedent. Furthermore, the executors were no more in existence at the decedent’s death than were these trustees, nevertheless, the basis to executors is the Value at the time of the decedent’s death.

The petitioners claim that there are certain cases in which it is obvious that the time of acquisition is not the date of the decedent’s death. For instance, a bequest to a child born after the death of the testator, or to a corporation thereafter to be formed, could not be acquired at the time the testator died. They cite a number of cases in this connection. But the present cases are not necessarily like the case of a gift to a corporation to be formed in the future. Here the testator actually created the trust by his will. The trust, not the trustees, is the taxpayer. The trustees are only one of the component parts of the taxpayer. They hold legal title to and possession of the property and act for the taxpayer. They never acquired a beneficial interest in the trust property — that goes to the cestuis que trustent, who are also a part of the trust. The taxpayer, the trust, acquired at the decedent’s death the same thing that Brewster acquired. Thus, the Brewster case holds that there can be but one basis in all such cases, the value of the property at date of death. The Commissioner has used this basis in determining the deficiency.

Reviewed by the Board.

Judgment will he entered for the respondent.


author: McMahon:

text:
    Walter J. Reese, Executor of the Estate of Carl Reese, Petitioner, v. Commissioner of Internal Revenue, Respondent.
    Docket No. 44691.
    Promulgated December 31, 1931.

      Fredericlc L. Pearce, Esq., and A. J. Levin, Esq., for the petitioner.

      L. 8. Pendleton, Esq., for the respondent.
   OPINION.

McMahon:

This proceeding raises three issues which will be discussed in the order in which they have been previously set forth herein.

The Eevenue Act of 1926 provides in part:

Sec. 802. Tlie 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—
*******
(e) To the extent of the interest therein held as joint tenants by the decedent and any other person, or as tenants by the entirety by the decedent and ■spouse, or deposited, with any person carrying on the banking business, in their joint names and payable to either or the survivor, except such part thereof as may be shown to have originally belonged to such other person and never to have been received or acquired by the latter from the decedent for less than an adequate and full consideration in money or money’s worth: Provided, That where such property or any part thereof, or' part of the consideration with which such property was acquired, is shown to have been at any time acquired by such other person from the decedent for less than an adequate and full consideration in money or money’s worth, there shall be excepted only such part of the value of such property as is proportionate to the consideration furnished by such other person: * * *

At the time of the death of the decedent there existed a deposit of $6,207.30 in a bank in Michigan in the joint names of the decedent and his wife, payable to both or either or the survivor. It is conceded by both parties to the proceeding that this deposit belonged to decedent and his wife as joint tenants. In the instant proceeding we have no proof that any portion of the amount of the joint account was contributed by or originally belonged to the decedent’s wife, and we accordingly hold that the respondent did not err in including the full amount thereof in decedent’s gross estate. Herbert D. Robinson, Executor, 21 B. T. A. 1373; Rita O’Shaughnessy, Executrix, 21 B. T. A. 1046.

The petitioner also alleges that the respondent erred in including in gross estate the full value of the interest of the decedent and his wife under the four contracts which we have described in our findings of fact. He relies upon Ada M. Slocum, 21 B. T. A. 169, in which it was held that the proceeds from a sale of property held as a tenancy by the entireties in Michigan, including a land contract, are personalty held as a tenancy in common, and that only one-half of the value of the land contract with accrued interest should be included in the gross estate of the decedent. -

It is clear from the decisions of the courts of Michigan that the right of survivorship does not attach, as a matter of law, to personal property held in joint ownership. In Hart v. Hart, 201 Mich. 207; 167 N. W. 337, it is stated:

***«•*»
From an examination of the authorities we conclude that it is the fixed and settled law of this jurisdiction that the right of survivorship does not attach, as matter of law, to personal property held in joint ownership, nor that bequests to two or more persons by operation of law pass to the survivor; in other words, joint tenancy, in personal property, with its right of survivorship, does not obtain in this jurisdiction. The authorities from other jurisdictions are in hopeless conflict. * * *

See also Waite v. Bovee, 35 Mich. 425; Luttermoser v. Zenner, 110 Mich. 186; 86 N. W. 117; Ludwig v. Brunner, 203 Mich. 556; 169 N. W. 890.

However, an examination of later Michigan cases discloses that a right of survivorship may be created in personal property where it is shown that such right was intended by the parties in interest. None of the above cited Michigan cases “ forbid the creation of the right of survivorship in personalty where it is created by the express act of the parties.” Lober v. Dorgan, 215 Mich. 62; 183 N. W. 942.

In Detroit & Security Trust Co. v. Kramer, 247 Mich. 468; 226 N. W. 234, decided by the Supreme Court of Michigan on July 8, 1929, Kramer and his wife held two parcels of land in Michigan as tenants by the entireties. Each parcel was sold by Kramer and his wife on a land contract giving the vendee immediate possession of the property. Thereafter, on January 4,1923, Kramer’s wife died, and at that time there was still unpaid on these two contracts substantially $13,000. Kramer continued to collect the purchase money and suit was brought by the administrator and heirs of the estate of Kramer’s wife for recovery of one-half of the amounts collected. It was the contention of the plaintiffs that the execution of the sales contract terminated the right of survivorship and that Kramer and his wife became tenants in common in the property. The court held that Kramer’s right of survivorship was not destroyed, stating (other facts appearing from the quotation which follows) in part:

* * * * * * *
The property rights herein involved became vested at the death of Mrs. Kramer in 1923, and hence we are not concerned with subsequent legislation in this state (Pub. Acts 1925, No. 126, and Pub. Acts 1927, No. 212), which under like circumstances would now vest complete ownership in the surviving spouse.
* * # * * * *
To hold in this case that, on account of the equitable doctrine of conversion, the respective rights of survivorship between Mr. and Mrs. Kramer were terminated by the execution of executory contracts to sell, is to nullify the settled plan for the disposition of their properties which they deliberately adopted without there being the slightest proof of any intention or desire on the part of either so to do. It is of little consequence in this case whether it is held that the remaining interest of the vendors in the contracted lands is realty or personalty. If it is realty, under the well-established law of this state the right of survivorship vested title in Mr. Kramer; and, if it is personalty, it is equally plain that under our law those parties had a right to arrange by contract for survivorship in such personalty. Regardless of what may have been saiu in some of the earlier decisions of this court, it is now the established law of this state that, in the absence of statutory provisions to the contrary, a right of survivorship may be created in personal property. Lober v. Dorgan, 215 Mich. 62, 183 N. W. 942; Scholten v. Scholten, 238 Mich. 679, 214 N. W. 320; In re Peterson’s Estate, 239 Mich. 452, 214 N. W. 418; Forler v. Williams, 242 Mich. 639, 219 N. W. 641.
We think it conclusively appears in this record that Mr. and Mrs. Kramer so arranged their respective properties that in effect it amounted to a contractual undertaking that each should take and hold a right of survivorship in the other’s property. Bach was the owner of real property, they deeded to a third party, and he redeeded to them the combined properties as tenants by the en-tireties. Bor six years next prior to her death, Mrs. Kramer and her husband continued to hold all their real estate in this manner. Neither of them ever intended or attempted to terminate or divest the estate so created. * * *

To the same effect are Foy v. King, 248 Mich. 650; 221 N. W. 541; and Moore v. Van Goosen (Mich.), 229 N. W. 451. In the case last cited the court stated in part:

* * * Defendants sold entirety property. They took back a contract to themselves as vendors and as tenants by the entirety. Their contract interest was held in the same manner and subject to the same law as the land itself, and the change from the holding in fee to an interest as vendors was without advantage to creditors. * * *
* * * By agreement, arrangement or contract between them, defendants might bold such funds by entireties. Detroit & Security Trust Co. v. Kramer, supra. * * * The funds arose upon sale of entirety property, and were paid to the tenants by entirety. They were reinvested in entirety property. The evidence tends to show that the funds were held by entireties. There is nothing to indicate that the funds, entirety property at their inception, lost their character before being reinvested in the entirety property in question. •

In the instant proceeding the respondent has included the value of the land contracts relating to premise 40 Rowena Street and 2905 Field Avenue and Boll Sheridan Avenue in the gross estate of the decedent as “ jointly owned property.” The burden is upon the petitioner to show that the respondent erred in such inclusion. As was pointed out in the above cited cases of the courts of Michigan, it is possible for the parties selling property owned by them as tenants by the entireties to so agree between themselves as to render the proceeds from such sales property held by them with right of survivor-ship. It is not clear from those cases as to whether these proceeds are real property held as tenants by the entireties or as joint tenants or whether they are personalty held as joint tenants, but the full value of either class of property must be included in the gross estate of the decedent, under the provisions of section 802 of the Revenue Act of 1926. The petitioner in the instant proceeding has not shown that there was no agreement between the decedent and his wife as to a right of survivorship in the proceeds of the sale of these properties held by them as tenants by the entireties. On the contrary, there is evidence from which such an agreement may be inferred. In this situation the petitioner has not overcome the presumption in favor of the correctness of the respondent’s determination and we must hold that the land contracts received in the' sales of the premises at 40 Rowena Street, 2905 Field Avenue and 3511 Sheridan Avenue should be included in the gross estate of the decedent at the values stated in our findings of fact.

It is the contention of the petitioner that the land contract pertaining to 3511 Sheridan Avenue was personalty held in common by decedent and his wife. Petitioner states that decedent and his wife did not own these premises as tenants by the entireties, but that they simply purchased from Howard E. Lange and Helen E. Lange, a contract for the sale of such premises. However, the admitted facts show that on January 4, 1926, the decedent and his wife acquired the premises at 3511 Sheridan Avenue as tenants by the entireties. With regard to the contract for the sale of these premises, which was executed on January 4, 1926, we are governed by Act 126, Public Acts of Michigan, 1925, which provides:

Section 1. In all cases where a husband and wife shall sell land held as a tenancy by the entirety and accept in part payment for the purchase price the note or other obligation of said purchaser payable to said husband and wife, secured by a mortgage on said land payable to husband and wife, the said debt together with all interest thereon, unless otherwise expressly stated in said mortgage, after the death of either shall be payable to the survivor, and the title to said mortgage shall vest in the survivor, and in case a contract for the sale of property owned by the husband and wife as tenants by the entirety, is entered into by them as vendors the same provisions herein applying to the rights of the survivor in mortgages as above set forth shall apply to the survivor of the contract.
Approved April 30, 1925.

We are also of the opinion that the full value of the interest of decedent and his wife under the contract concerning lot 73 of Mack Avenue Farms No. 1 Subdivision, should be included in decedent’s gross estate. The decedent and his wife did not hold legal title to that lot, but simply owned a contract for its purchase and when, on December 4, 1925, they entered into a contract to sell such lot they, in reality, simply contracted to sell their contract to purchase such lot. The respondent held that this was “ jointly owned property,” and included the full value thereof in the gross estate.

As pointed out above, section 302 of the ítevenue Act of 1926 provides that the gross estate of a decedent shall include the full value of property held by decedent and any other person as joint tenants.

In Lober v. Dorgan, supra, it is stated:

In Michigan the doctrine of the common law with reference to joint tenancies in personal property has never been adopted. Waite v. Bovee, 35 Mich. 425. But this fact does not furnish any reason for holding that parties may not create them by express contract. The statute nowhere forbids it, and the Legislature itself has recognized joint tenancies in real estate by pointing out the way in which they may be created. 3 C. L. 1915, § 11562.

In the instant proceeding the petitioner has not shown that the decedent and his wife did not enter into an express contract creating a joint tenancy with regard to the property in question. We therefore hold that he has not shown error in the respondent’s inclusion of the full value of such property in the decedent’s gross estate.

The petitioner also assigns as error the inclusion by the respondent in the gross estate of the amount of $31,000 representing the value, at the date of the death of the decedent, of premises 2504 Chicago Boulevard, Detroit, Mich., held by decedent and his wife as tenants by the entireties. The evidence discloses that this property was substantially all paid for from the proceeds of sales of property previously held by decedent and his wife as tenants by the entireties. Petitioner contends that the proceeds from the sale .of property owned as tenants by the entireties constitute property held by husband and wife as tenants in common and therefore claims that one-half the móney used for purchasing the property in question in the instant proceeding was furnished by the decedent’s wife and that one-half of the property in question “ originally belonged ” to the wife within the meaning of the revenue act. However, in conformity with the discussion set forth above, in which it was shown that the proceeds from the sale of property held by decedent and his wife as tenants by the entireties may likewise constitute property held as tenants by the entireties, we hold that petitioner had not shown that any portion of the property belonged to decedent’s wife. The respondent’s inclusion of the full value of such property in the gross estate of the decedent is approved.

In Ada M. Slocum, supra, cited by petitioner, no question was raised as to whether the taxpayer had overcome the presumption in favor of the Commissioner’s determination and that question was not considered. In this view that case is. distinguishable from the instant proceeding.

Reviewed by the Board.

Judgment will he entered for the respondent.