Court Opinion

ID: 4592466
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:08:01.090209+00
Date Added: 2024-06-11T07:50:52.101004
License: Public Domain

J. BERTRAM LIPPINCOTT AND BERTHA LIPPINCOTT COLES, EXECUTORS OF THE ESTATE OF WALTER LIPPINCOTT, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Lippincott v. CommissionerDocket No. 49233.United States Board of Tax Appeals27 B.T.A. 735; 1933 BTA LEXIS 1316; February 11, 1933, Promulgated *1316  1.  The respondent's inclusion in the gross estate of the decedent of the value, in excess of $5,000, of gifts made within two years prior to the decedent's death, does not relieve the petitioners of the burden of proving that the gifts were not made in contemplation of death.  The decision of the Supreme Court of the United States in the case of Heiner v. Donnan,285 U.S. 312">285 U.S. 312, that the conclusive presumption provision contained in section 302(c) of the Revenue Act of 1926 is unconstitutional, affords no basis for shifting the burden of proof, but entitles the petitioner to show that the transfers, whenever made, were not in fact made in contemplation of death.  2.  Under the facts of the instant case, held, that the transfers involved herein were made in contemplation of death.  3.  Value of certain property determined.  Jesse I. Miller, Esq., for the petitioners.  L. S. Pendleton, Esq., for the respondent.  MATTHEWS *735  This proceeding arises under the Revenue Act of 1926 and is for the redetermination of a deficiency in estate tax in the amount of $86,102.87, asserted against the petitioners as executors of the*1317  estate of Walter Lippincott, who died on March 2, 1927.  Petitioners allege that the respondent erred in including in the gross estate the amount of $1,061,868.01, representing the value at the date of decedent's death, in excess of $5,000, of certain parcels of real estate which the decedent conveyed to his daughter after the enactment of the Revenue Act of 1926 but within two years prior to his death.  It is further alleged that the respondent's valuation of two of these parcels of real estate was erroneous, and that the respondent also erred in his valuation of 506 shares of the preferred stock of the J. B. Lippincott Company which the decedent owned at the time of his death.  *736  FINDINGS OF FACT.  The decedent, Walter Lippincott, was a resident of the State of Pennsylvania, and died testate on March 2, 1927.  The petitioners are the duly qualified executors of his estate.  The decedent was seventy-eight years of age at the time of his death.  He was survived by one child, Bertha Lippincott Coles, who is one of the petitioners in this proceeding.  In July, 1922, decedent was stricken with hemiplegia, which resulted in paralysis of his left side.  He was confined*1318  to the house for about a month and thereafter he was under the constant care of nurses day and night.  This stroke so affected him that he was unable to walk without assistance.  He was usually in a wheel chair.  The husband of the decedent's daughter was a physician and they lived next door to the decedent and saw him daily.  For a number of years, even before he suffered the stroke, decedent had provided for himself the attention of a trained nurse, and doctors were in frequent attendance.  Decedent's wife had died in December, 1917, and he kept in his employ the nurse who had attended her for several years.  He liked to have someone at hand to wait on him, especially at night when the servants were asleep.  After he was stricken with hemiplegia he employed four nurses so that he could have two on duty in the daytime and two at night.  His mind was clear and he was uniformly cheerful.  He took an automobile ride nearly every afternoon and enjoyed calling on his friends and receiving their visits.  Until the attack of hemiplegia he had attended to his financial affairs, but thereafter he depended on his son-in-law for everything.  He was unable to sign checks and he was accompanied*1319  by a nurse wherever he went.  Although the decedent was in very poor health and was partially disabled from the time he was stricken, there was no appreciable change in his physical condition until his last illness, which did not occur for nearly five years and which lasted only three days.  The immediate cause of his death was pneumonia.  He appeared to be as well as usual on Saturday afternoon, but on Sunday morning he was unable to recognize his daughter and he did not regain consciousness before dying on Tuesday.  Some time after the death of his wife decedent contemplated a second marriage.  In November, 1924, he instructed his attorney to prepare an antenuptial contract between himself and a certain woman to whom he had been attentive, and a few months later a second antenuptial contract was prepared, in which the intended wife was not referred to by name.  Neither of these proposed antenuptial contracts was ever executed.  Decedent consulted his physicians *737  with respect to his remarriage and was advised not to marry again on account of his age and ill health.  On May 13, 1926, the decedent executed three deeds conveying to his daughter, Bertha Lippincott Coles, *1320  certain parcels of real estate.  The property so transferred consisted of all the real property owned by the decedent except a small piece of real estate on Ithan Street in the City of Philadelphia.  These deeds were executed with the understanding that before they should be recorded his daughter would make her will providing that the decedent should have the use during his lifetime of the property situated at Byrn Mawr, Pennsylvania, known as "Alscot," which had been occupied by decedent as his residence since 1891, and she accordingly executed her will under date of June 9, 1926, containing the agreed provisions for the decedent's benefit.  At the time of executing these deeds the decedent's income from his personal property was approximately $10,000 a year, which amount was more than ample to supply all his needs.  The transfers of real estate made by the decedent to his daughter on May 13, 1926, were made in contemplation of death.  Included in the real estate transferred by the decedent to his daughter was an equal undivided one-third interest in a brick factory building located at the northeast corner of Sixth and Locust Streets, in the City of Philadelphia.  This property*1321  had a frontage on Sixth Street of 76 feet, 1 3/4 inches and a depth of 179 feet, 5 1/4 inches.  It was assessed for local tax purposes at $155,000 and was encumbered by a mortgage for $100,000.  At the time of the transfer it was owned by the decedent and his two brothers and was known as the "Lippincott Publishing Company Building." It was used for the manufacture, sale and storage of books and was under lease to the J. B. Lippincott Company for $12,600 per year.  In January, 1928, the lot adjoining this property on the east, known as "225 South Sixth Street," having a frontage of 25 feet and of the same depth as this property, was sold for $67,500.  The next lot on the east, known as "223 South Sixth Street," which also had a frontage of 25 feet and was the same depth as this property, was also sold in 1928 for $67,500.  These two lots were inside lots and the property in which the decedent had a one-third interest extended to the corner of Sixth and Locust Streets.  In their Federal estate tax return petitioners valued the decedent's one-third interest in this property at $18,333.34, which represented one-third of the assessed value less the mortgage encumbrance.  In determining*1322  the deficiency the respondent valued decedent's one-third interest at $83,333.34.  The value of decedent's interest in this property at the time of his death was $48,746.66.  *738  There was also included in the real estate transferred by the decedent to his daughter on May 13, 1926, property situated at Bryn Mawr, Pennsylvania, known as "Alscot." This was the property upon which decedent resided and was a large estate of slightly over 20 acres.  The improvements consisted of (1) a large stone mansion, stone annex, frame stable, stone and frame garage; (2) a stone and frame dwelling house, stone garage and laundry; (3) four frame tenant houses; (4) greenhouse, tool house, carpenter shop, child's playhouse and poultry house.  The above-described property was valued by the petitioners at $149,000, which was increased by the respondent to $300,000.  This property had a value of $243,000 on the date of the decedent's death.  At the time of his death decedent was the owner of 506 shares of the preferred stock of the J. B. Lippincott Company, which had a value on that date of $100 per share.  This stock was returned by the petitioners at $60 per share, or $30,360.  The respondent*1323  valued the decedent's entire gross estate at $1,933,755.84 and the real estate transferred to his daughter at $1,066,868.01.  In determining the deficiency the respondent included the entire value of the real estate conveyed to decedent's daughter on May 13, 1926, less an exemption of $5,000, as a transfer made in contemplation of death within the meaning of section 302(c) of the Revenue Act of 1926.  OPINION.  MATTHEWS: The underlying and controlling question in this case is whether the transfers by the decedent, upon which the disputed deficiency in tax was computed, were in fact made in contemplation of death.  The pertinent section of the statute, section 302(c) of the Revenue Act of 1926, is quoted in the margin.1 It will be seen that section 302(c) contains two provisions.  Under the first provision the value of transfers made at any time in contemplation of death, except by a bona fide sale, is required to be included in the decedent's *739  gross estate.  The second provision, which raises a conclusive presumption that gifts made within two years prior to the decedent's death were made in contemplation of death, has been held by the Supreme Court of the United*1324  States to be unconstitutional (.) *1325  At the hearing of this proceeding it was strongly urged on behalf of the petitioners that, inasmuch as there was deducted in the instant case the sum of $5,000 as an exemption, the respondent was relying upon the conclusive presumption provision of section 302(c) of the Revenue Act of 1926, and that since the Supreme Court declared that provision to be unconstitutional in the Donnan case, supra, the burden was on the respondent to show that the transfers involved herein were actually made in contemplation of death.  We see no merit in this argument.  Since the pronouncement of the Supreme Court that the conclusive presumption provision of that section is unconstitutional, the petitioner has the right to introduce evidence to show that the transfers, whenever made, were not in fact made in contemplation of death.  This is not equivalent to relieving the petitioner of the burden of proving the respondent's determination to be erroneous.  In the instant case the respondent has not admitted that the transfers were not actually made in contemplation of death.  The record does not indicate that the respondent, in including in the gross estate the value, in excess of $5,000, of*1326  the property transferred to the decedent's daughter, was relying solely upon the conclusive presumption raised by section 302(c).  The burden of proof of the facts relative to the transfers has not been shifted from petitioners to the respondent.  Cf. . We have carefully considered the evidence introduced on behalf of petitioners and have reached the conclusion that the transfers to the decedent's daughter were in fact made in contemplation of death.  It is urged on behalf of petitioners that the decedent was contemplating a second marriage and that he deeded his real estate to his daughter so that he could remarry upon his own terms.  We do not consider the evidence sufficient to support the contention that the conveyances were made in contemplation of marriage.  Had the property been conveyed to the woman he desired to marry the case would be stronger in favor of the petitioners' claim that decedent was not thinking of his approaching decease.  But let us briefly consider the circumstances surrounding the gift to his daughter of property valued at approximately a million dollars.  *740  At the time of executing*1327  the deeds in question decedent was seventy-seven years of age and had been in a wheel chair for nearly four years.  Since being stricken with hemiplegia in 1922 he had been unable to walk without assistance.  He had four trained nurses to wait on him.  He was in very poor physical condition and although he remained cheerful he must have known that his days were numbered.  His daughter was his only child and it was fitting that he should have conveyed to her the property which she would have inherited upon his death.  She was the natural object of his bounty and there is nothing unusual in his having made these transfers prior to his death.  She agreed that during the remainder of his life the decedent should have the use of his estate "Alscot", where he had resided for thirty-five years.  We consider that the transfers were testamentary in character, under all the circumstances of the case.  It is not controlling whether the decedent apprehended that death was near at hand.  Decedent did actually die within less than ten months after making the transfers, but our conclusion would be unchanged if he had lived for a considerably longer period of time.  As was said by the Supreme Court*1328  of the United States in the case of : "Death must be 'contemplated', that is, the motive which induces the transfer must be of the sort which leads to testamentary disposition." In this case the dominant motive, without which the transfers would not have been made, was the decedent's desire that his daughter should come into possession of the real estate which he deeded to her.  See . This is not inconsistent with the hope on his part, however faint, that he might sufficiently regain his health to contract a second marriage.  There remains to consider whether the respondent erred in his valuation of certain property which was included in the gross estate.  With respect to the real estate located at the northeast corner of Sixth and Locust Streets in the City of Philadelphia, we are of the opinion that the decedent's undivided one-third interest therein had a value on the date of the decedent's death of $48,746.66.  In reaching this determination we have taken into consideration the amount of rental received, the size of the lot, its corner location and the prices*1329  at which the adjoining lots sold in 1928.  We do not consider that the amount for which the property was assessed for purposes of local taxation is necessarily a reliable criterion to be used in estimating its fair market value.  We are of the further opinion that the property known as "Alscot", Bryn Mawr, Pennsylvania, had a value of $243,000 on the date of the decedent's death.  This is the amount at which it was valued by an expert real estate appraiser who was familiar with the property and *741  who testified that it was worth $12,000 an acre, including improvements.  He based his opinion on the comparative prices of sales made of similar properties and he pointed out that the property would likely have to be divided into lots and developed before it could be disposed of to the general public; that there is practically no sale for an estate of that size at a figure approximating its cost to the owner, but frequently an estate can be subdivided and improved and then placed on the market at prices which will insure a fair return on the investment.  His testimony is the only evidence contained in the record which has any bearing on the question of the valuation of this real*1330  estate and we consider that it is entitled to considerable weight.  No evidence having been introduced with respect to the value of the shares of stock of J. B. Lippincott Company which decedent owned at the time of his death, the respondent's valuation of $100 per share, or $50,600, must be sustained.  In recomputing the deficiency there should be included in the gross estate the full amount of the value at the date of decedent's death of the real estate conveyed to the decedent's daughter in contemplation of death.  The elimination of the exemption of $5,000 will not increase the deficiency determined by the respondent since we have reduced the respondent's valuation of two of the parcels of real estate.  Reviewed by the Board.  Judgment will be entered under Rule 50.Footnotes1. 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 - * * * (c) To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession of enjoyment at or after his death, except in case of a bona fide sale for an adequate and full consideration in money or money's worth.  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.  * * * ↩