Case Name: Sally S. Levy and Otto C. Sommerich, Surviving Executors of the Last Will and Testament of Joseph M. Levy, Deceased, Petitioners, v. Commissioner of Internal Revenue, Respondent
Court: United States Board of Tax Appeals
Jurisdiction: United States
Decision Date: 1932-04-19
Citations: 25 B.T.A. 1174
Docket Number: Docket No. 35226
Parties: Sally S. Levy and Otto C. Sommerich, Surviving Executors of the Last Will and Testament of Joseph M. Levy, Deceased, Petitioners, v. Commissioner of Internal Revenue, Respondent.
Judges: ARUNDEll agrees with this dissent.
Reporter: Reports of the United States Board of Tax Appeals
Volume: 25
Pages: 1174–1191

Head Matter:
Sally S. Levy and Otto C. Sommerich, Surviving Executors of the Last Will and Testament of Joseph M. Levy, Deceased, Petitioners, v. Commissioner of Internal Revenue, Respondent.
Docket No. 35226.
Promulgated April 19, 1932.
Saul I. Badin, Esq., for the petitioners.
L. S. Pendleton, Esq., for the respondent.

Opinion:
OPINION.
Sternhagen :
1. At the time of his death in 1925, the decedent and his wife owned as tenants by the entirety real property in New York, having, it is agreed, a value of $30,000 at the time of death. They had acquired the property June 5, 1914, by warranty deed of conveyance for a valuable consideration subject to a purchase money mortgage executed by them. There is no evidence of the circumstances of its acquisition, and it must be assumed, therefore, consistently with the respondent's determination, that no part of the property was originally owned by decedent's wife or acquired by her from decedent for fair consideration, etc., Henry M. Butzel, Executor, 21 B. T. A. 188.
The petitioner contends that property held by the entirety may not be included in the gross estate, because, (1) the whole property is vested in the survivor by the original deed and not by the death, (2) the New York courts have so held in respect of the New York State transfer tax, and (3) a tax may not be retroactively imposed " to affect vested interests."
Following Tyler v. United States, 281 U. S. 497, the Board has decided that pursuant to the provisions of section 302 of the Eevenue Act of 1924 and similar provisions of the Eevenue Act of 1921, the gross estate includes property held by entirety at the time of death, irrespective of the date when the title in the entirety was created. Ada M. Slocum, Executrix, 21 B. T. A. 169; Commerce Union Trust Co., Executor, 21 B. T. A. 174; Pennsylvania Co., etc., Executor, 21 B. T. A. 176; Henry M. Butzel, Executor, supra; Georgianna M. Romberger, Executrix, 21 B. T. A. 193; Bank of New York, Executor, 21 B. T. A. 197; Elizabeth Putnam, Executrix, 21 B. T. A. 205; Marmaduke B. Morton, Administrator, 23 B. T. A. 236; Elizabeth F. Bowditch, Executrix, 23 B. T. A. 1265. See also Third National Bank v. White, 45 Fed. (2d) 911.
The law of New York in respect of the state's power to tax or the construction or application of its taxing statutes does not control the determination of the Federal tax and has nothing to do with the doctrine of Federal recognition of a state law of property. That doctrine fixes the legal character of the decedent's estate as an estate by the entirety, but leaves the Federal Government free to determine whether by its own taxing statutes such an estate is a part of the taxable net estate. Weiss v. Wiener, 279 U. S. 333. This Congress has done by section 302 (e).
Although the previous decisions above cited have clearly sustained the respondent's determination, it is now suggested by members of the Board that those decisions went too far in embracing property which had been held by entirety since before the estate tax of 1916— that is, which were acquired by the entirety at a time when no estate tax whatever was embodied in the taxing system. This view would reverse several of the Board decisions just cited, as well as subsume that in United States v. Provident Trust Co. of Pennsylvania, 281 U. S. 497, the Supreme Court was unaware of or had overlooked the fact that the entireties had been created in 1901, 1903 and 1912, and that the ground rents owned at death had been reserved at the time of the conveyance of 1923, although these facts clearly appear in the reports of the Board, 5 B. T. A. 1004, and the District Court (E. Dist. Pa., Sept. 10, 1928). The authority for this reversal is said to rest in statements found in the later opinions of the Supreme Court in Coolidge v. Long, 282 U. S. 582, and Phillips v. Dime Savings & Trust Co., 284 U. S. 160, and the dissenting opinion of Mr. Justice Stone in Heiner v. Donnan, 285 U. S. 312. It is said that these later statements narrow the ground of the Tyler decision to the prevention of tax avoidance — a thought found only in the last sentence of the court's opinion. But, as has been stated, the Provident case involved entireties existing not only before the particular taxing-statute, but also before the advent of the system of death duties inaugurated by the 1916 Act, and as to all the entireties before it the court held them properly included within the gross estate. While there is some room in the statements found in Coolidge v. Long, supra, and Phillips v. Dime Savings & Trust Co., supra, and the dissenting opinion in Heiner v. Donnan, supra, for the view that this Board's application of the Tyler decision was too broad, there nevertheless remains in the Tyler decision itself a discussion sufficient to support the reliance placed upon it in the earlier decision of this Board.
If, however, it were not so, there is nothing in Coolidge v. Long, supra, or Phillips v. Dime Savings & Trust Co., supra, to require the conclusion that entireties created before 1916 are beyond the reach of the later estate taxes. At most, that question would be left untouched by the Supreme Court; and would, therefore, still remain subject to the precedent of the Board's earlier decisions. Consistently with those decisions, the respondent's determination that the value of the property held by the decedent and his wife as tenants by the entirety is within decedent's gross estate, is sustained.
2. In sixty-six of the policies of life insurance the insured decedent reserved until his death the right to change the beneficiary. The proceeds of these policies are properly part of the gross estate, Chase National Bank v. United States, 278 U. S. 237, irrespective of the date of the policies, Louis M. Weiller, Executor, 18 B. T. A. 1121; George R. Cook Estate, 23 B. T. A. 335; Lillian T. Latty, Executrix, 23 B. T. A. 1249; Bessie M. Ballinger, Executrix, 23 B. T. A. 1311; David A. Reed, Execiotor, 24 B. T. A. 166.
3. In forty-four of the life insurance policies the decedent had, on May 1, 1916, before any Federal estate tax, irrevocably designated his wife as the primary or direct beneficiary. He, however, retained until his death the right to designate " contingent beneficiaries," and, having elected the option of settlement whereby such contingent beneficiaries would receive the proceeds subject only to the prior right of the widow to a 3 per cent annuity, he thus until his death had power to control the disposition of the proceeds except such annuity. This power he exercised as late as 1921. Along with this power to shift the so-called contingent beneficiaries appears to have been the power to borrow on the policies, which, if we may draw inferences from the endorsements, was substantially exercised in 1921.
The question, therefore, is whether his death was the occasion of a statutory " transfer." While it must be recognized that the irrevocable designation of the primary beneficiary in 1916 is a point of difference from the situation dealt with directly in Chase National Bank v. United States, supra, we are of opinion that the situation here is within the ambit of that decision taken together with Reinecke v. Northern Trust Co., 278 U. S. 339, and Tyler v. United States, sufra. It seems clear that until his death the decedent had substantial rights which obstructed the free and assured use or expectation of ownership in the proceeds by any other, except the widow in her 3 per cent annuity for life, and that these rights embodied the economic benefit of borrowing on the fund. His death freed the contingent beneficiaries from the encumbrance of his control, shifted the economic benefit from him to them, and resulted in substantial accessions to them.
We hold, therefore, that the proceeds above $40,000 of all the policies were properly determined by respondent to be within the gross estate.
Reviewed by the Board.
Judgment will he entered under Rule 50.