Source: https://openjurist.org/280/f2d/777
Timestamp: 2017-11-18 18:03:51
Document Index: 355251536

Matched Legal Cases: ['§ 811', '§ 811', '§ 1009', '§ 1025', '§ 1025', '§ 1026', '§ 1026', '§ 3467']

280 F2d 777 Want v. Commissioner of Internal Revenue | OpenJurist
280 F. 2d 777 - Want v. Commissioner of Internal Revenue
280 F2d 777 Want v. Commissioner of Internal Revenue
280 F.2d 777
Estelle WANT, Trustee and Transferee, Petitioner,
Docket 26003.
George D. Webster, Washington, D. C., Davies, Richberg, Tydings, Landa & Duff, Washington, D. C., of counsel, for petitioner.
Morton K. Rothschild, Atty., Dept. of Justice, Charles K. Rice, Asst. Atty. Gen., Lee A. Jackson and Robert N. Anderson, Attys., Dept. of Justice, Washington, D. C., for respondent.
The contests of all these deficiencies were consolidated for trial in the Tax Court. Samuel had died in 1953 and his executrix, Fannye Want, was substituted as a party. The Tax Court held against the Commissioner on the principal estate tax issue, namely, whether the several transfers to the Jacqueline trust were includible in the decedent's gross estate as gifts in contemplation of death, Int.Rev.Code of 1939, § 811(c), 26 U.S. C.A. § 811(c), and the Commissioner has not sought review. Judge Kern held the trustees were not liable as transferees because of the donor's failure to pay gift tax on the 397 shares, since the shares "had no fair market value" at the time of transfer; as to this likewise the Commissioner has not sought review. Rejecting petitioner's claim that "she was a fiduciary in name only," the judge held, without further explaining the basis for his decision, that Estelle and Samuel's estate were liable "as trustees and transferees" of the property of Jacob Want for the gift tax and penalties owing on the transfers to Blossom Ost in both 1945 and 1946, to wit $2,798.80 for 1945 and $6,402.84 for 1946. Estelle has petitioned for review of this last determination; the executrix of Samuel's estate has not, the Supreme Court of South Carolina having barred the assertion of the tax claims against Samuel's estate, Want v. Alfred M. Best Co., 1958, 233 S.C. 460, 105 S.E.2d 678.
Section 1025(a) (1) of the Internal Revenue Code of 1939, to which all references will relate unless otherwise stated, enacts that "the liability, at law or in equity, of a transferee of property of a donor" to pay the gift tax deficiency, penalties, interest, etc., may be collected in the same manner that the tax would be collected from the donor. This authorizes issuance of notices of deficiency by the Commissioner and proceedings in the Tax Court by the taxpayer.1 The liability "at law" of a donee derives from § 1009 which provides that the gift tax "shall be a lien upon all gifts made during the calendar year" and "the donee of any gift shall be personally liable for such tax to the extent of the value of such gift" if the donor does not pay the tax when due; under § 1025(f) a donee is a "transferee." Section 1009 has been interpreted to impose personal liability on a donee not only for the tax owing on the gift to him but also for the tax due on all other gifts made by the donor during the calendar year. Baur v. Commissioner, 3 Cir., 1944, 145 F.2d 338. However, by the plain terms of the statute, the liability is limited to the value of the gift to the particular donee sought to be charged.
The Commissioner says that the Jacqueline trust or its beneficiary is a "person subject to the liability specified in § 1025" and that under § 1026(b) the trustee assumes the "duty" to satisfy the liability.2
The authorities relied on by the Government not only are not contrary to this interpretation but support it. In Fidelity Trust Co. v. Commissioner, supra, there was no suggestion that the trust lacked sufficient assets to pay the liability and the court indicated that this was to be "collected from the trust estate." 141 F.2d at page 57. In Fletcher Trust Co. v. Commissioner, supra, the court answered petitioner's contention that its holding would impose undue hardship on fiduciaries by saying, 141 F.2d at page 40, that the trustee "could not be liable in any event in excess of the assets or estate of such trust." Neither is Springfield National Bank, 4 CCH Tax Ct.Mem.Dec.No.14440 (1945) to the contrary if properly interpreted. After imposing transferee liability on a trustee, the Tax Court referred to the trustee's objection that the trust had "no available property out of which to satisfy the tax claim." It said that this was "directed rather to the mechanics of collection than to the legal principles involved. No question is raised as to the adequacy of value of the transferred property." There was no intimation that the trustee might be held personally liable.
Courts have departed from a literal interpretation of this statute in holding that a fiduciary may be liable for a distribution of funds that is not, strictly speaking, the payment of a debt. E. g., United States v. Munroe, D.C.W.D.Pa. 1946, 65 F.Supp. 213. However, it has long been held that a fiduciary is liable only if it had notice of the claim of the United States before making the distribution. E. g., United States v. Clark, C.C.D.N.Y.1826, 25 Fed.Cas. pp. 447, 451, No. 14,807. Clearly petitioner would be personally liable, whether under the statute or under § 1026(b), as regards any distribution made out of trust assets after May 25, 1951, when the notice of deficiency was served. And she may also be so liable as to distributions made before then if at the time she had actual notice of the government's intention to hold the trust liable as transferee for the gift tax and penalties on the 1945 gifts to Blossom Ost. See, e. g., Irving Trust Co., 1937, 36 B.T.A. 146, 148. The facts with respect to this may be developed on remand. The notice of deficiency was adequate to raise the issue of Estelle's personal liability under Rev. Stat., § 3467, for any "debts due the United States" from the trust estate. Estate of Henry Wilson, 1943, 2 T.C. 1059, 1088-1089.
The final issue is the Commissioner's claim that petitioner is liable as a transferee "in equity" because of her receipt of the following payments from the decedent when he was insolvent: (1) bonds of the value of $13,266.49, endorsed by the decedent to "Estelle Want and Samuel Want, Legal Guardians of Jacqueline Want, a minor," (2) that portion of Jacob's funds transferred by the petitioner to her own account in 1946 for safekeeping from Mrs. Ost which she paid out to creditors after his death, and (3) that portion of the premiums on life-insurance policies payable to the Jacqueline trust that was paid by the decedent in fraud of creditors, see Commissioner of Internal Revenue v. Stern, 1958, 357 U.S. 39, 45-46, 78 S.Ct. 1047, 2 L.Ed.2d 1126. We do not think this argument is open to the Commissioner. The notice of deficiency and the Commissioner's answer made it plain that transferee liability was asserted only by virtue of the 1945 and 1946 gifts to the trust. If the pleadings left any doubt that this was the sole issue raised, the doubt would be removed by the opening statement of the Commissioner's counsel which we quote in the margin.3 We therefore do not need to consider other criticisms of the Commissioner's contentions made by petitioner.
Prior to the 1926 Act the government could assert transferee liability only through a suit. See Latham, Liability of Transferees Under the Revenue Act of 1926, 22 Ill.L.Rev. 233, 234 (1927)