Court Opinion

ID: 4628971
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:04:27.714822+00
Date Added: 2024-06-11T07:57:17.879443
License: Public Domain

GEORGE C. DOERSCHUCK, RICHARD DOERSCHUCK AND WALTER DOERSCHUCK, EXECUTORS AND TRUSTEES, ESTATE OF GUSTAV J. L. DOERSCHUCK, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Doerschuck v. CommissionerDocket No. 21392.United States Board of Tax Appeals17 B.T.A. 1123; 1929 BTA LEXIS 2172; October 31, 1929, Promulgated *2172  Transfer of certain stocks and bonds to his sons, by a father, held not intended to take effect in possession or enjoyment at or after his death.  Harold H. Seaton, Esq., for the petitioners.  Harold Allen, Esq., for the respondent.  LITTLETON*1123  The Commissioner determined a deficiency in estate tax of $42,365.26 for the year 1922.  He held that a transfer by the decedent of the full value of $210,000 of 6 per cent bonds of the North American Brewing Co. and so much of the common stock of said company as necessary to produce an annuity of $9,400 at 4 per cent, or 2,350 shares at $100 par value, making a total value of $445,000 par value of securities transferred, was one to take effect in possession and enjoyment at or after death and was, therefore, subject to tax under the provisions of section 403(a)(3) of the Revenue Act of 1921.  The executors claim this was error.  In the brief of the respondent it is now stated 1,985.34 shares are the correct number instead of 2,350 shares.  FINDINGS OF FACT.  The executors and trustees of the estate of Gustav J. L. Doerschuck, deceased, petitioners herein, are residents of New York.  The*2173  decedent, about 1892, founded the North American Brewing Co., a New York corporation, which thereafter engaged in the brewing business.  He was its president from its inception until his death on February 2, 1922.  During the entire time he was the dominant figure in the company, continuously performing duties in all departments of the business.  He purchased the great majority of all supplies, supervised the actual trading operations, controlled the credits extended to customers, directed the purchase and sale of its real estate, and had active charge of the entire business of the corporation, until about six weeks before his death.  *1124  In 1913 the decedent contemplated distributing his bonds and stock of the North American Brewing Co. among his four sons, and a written instrument to effect such distribution was prepared, signed by the decedent and his four sons, and new stock certificates in the sons' names were also prepared.  The transaction was then held in abeyance until March 18, 1916, when the agreement was acknowledged and put into effect, and the bonds and new stock were delivered to the four sons.  From March 18, 1916, the sons, respectively, have voted the stock, *2174  the dividends on which have been paid to them in proportion to their holdings, and the interest on the bonds has been similarly paid to them.  Decedent's distribution of his securities among his sons as aforesaid was the subject of a written contract, the parties to which were the North American Brewing Co. in its corporate capacity, the decedent, and each of his four sons, and the instrument was acknowledged by or on behalf of each of these six parties.  This contract, a copy of which is in evidence, recites that the president (the decedent) had "been receiving from the company during the past two years fifty thousand ($50,000) Dollars per annum as a salary for his services and about twelve thousand ($12,000) Dollars per annum on account of interest on the bonds held by him." The averment above quoted, that the decedent had been receiving a salary of $50,000 per annum for the past two years, is erroneous, as admitted by one of decedent's sons, who testified at the hearing.  The decedent had, for the three years just prior to 1916, been receiving from the North American Brewing Co., a salary of $40,000 per year and interest of $12,600 on his bonds, making a total of $52,600.  He*2175  had in 1912, received a salary of $50,000.  The contract recited and provided as follows: WHEREAS, the four stockholders are the sons of the President and the President has concluded to make a gift of his holdings in the Company consisting of the said forty-nine hundred (4900) shares and two hundred and ten (210) bonds to the stockholders, in equal parts, share and share alike, which they have agreed to accept and receive upon the conditions hereinafter set forth.  NOW, THEREFORE, in consideration of the premises and of the sum of One ($1.00) Dollar to each of them in hand paid by the others of them, the receipt whereof is hereby acknowledged, the stockholders do hereby covenant, promise and agree to continue the President in his position as President of the Company during the remainder of his natural life and to elect and re-elect him President at the stockholders meetings in each and every year and not to vote for any other person as President of the Company, and that the Company shall pay the President as and for his salary during the term of his natural life, the sum of Sixty-two thousand ($62,000) Dollars per annum, payable in equal monthly installments, in advance, on the*2176  first day of each and every month.  The Company does hereby covenant, promise and agree to pay Gustav J. L. Doerschuck, during the term of his natural life, for his service as President of the Company, the sum of Sixty-two thousand ($62,000) Dollars per annum, *1125  payable in equal monthly installments, in advance, on the first day of each and every month.  The President does hereby assign, transfer and set over unto the stockholders, in equal parts, share and share alike, all his stock of the Company consisting of about forty-nine hundred (4900) shares and his two hundred and ten (210) six (6%) per cent bonds of the Company, and he does hereby accept the employment of President of the Company for and during the term of his natural life at a salary of Sixty-two thousand ($62,000) Dollars per annum, to be paid him by the Company, in equal monthly installments, in advance, on the first day of each and every month.  The parties covenant that the provisions and stipulations of this agreement shall be applicable to and binding and operative upon and against and in favor of not only the parties to this agreement but likewise their and each of their heirs, executors, administrators*2177  and assigns.  On March 18, 1916, the date the contract became effective, the stockholders of the North American Brewing Co., being the four sons of decedent, in meeting assembled, unanimously passed the following resolution: That the directors of this company be and they hereby are authorized to employ as manager of its business Gustav J. L. Doerschuck, with salary of $62,000 (Sixty-two Thousand dollars) per annum.  At a meeting of the board of directors of said company, held on same date, March 18, 1916, Gustav J. L. Doerschuck offered his resignation as a director and the same was accepted and Richard W. Doerschuck was elected to fill the vacancy.  At the same meeting it was resolved: That the salary of Gustav J. L. Doerschuck for his services shall be $62,000 (Sixty-two thousand dollars) per annum.  OPINION.  LITTLETON: The issue is whether the transfer of stocks and bonds was one intended to take effect in possession or enjoyment at or after decedent's death.  It is not contended by the Commissioner that such transfers were made in contemplation of death.  There is no evidence indicating that the decedent made such transfers as and when he did with a view to evading*2178  payment of any taxes.  The written instrument embodying the agreement between him and his four sons was discussed, decided upon, and put in contract form in 1913, about nine years before his death, and was actually executed in 1916, in the original form in which drawn.  He was a very successful business man, had for years before his death been receiving $12,600 per annum as interest on bonds of the North American Brewing Co., of which he had been president since its inception in 1892, and as its president had been receiving a salary of $40,000 for each of the three years immediately prior to 1916.  *1126  He was the dominant figure in the corporation and the salary of $62,000 contracted for in the agreement of March 18, 1916, between his four sons, the North American Brewing Co., and himself, was not unreasonable for his services, in view of such as he had been rendering and was to continue rendering during his natural life, the profits of the business resulting therefrom and the stock and bonds which he was transferring as a gift to his sons and from which he would no longer receive income or interest.  The recitation in the agreement of March 18, 1916, relative to the amount*2179  of salary he had for several years prior been receiving was erroneous to the extent indicated in the evidence, but in the circumstances of the case, does not in our opinion materially affect results.  His desire to give his sons his 4,900 shares of stock in the North American Brewing Co. and his 210 bonds of the company, is clearly expressed in the contract, with them and the company.  As regards the securities, the stock and bonds, there was an absolute transfer of the title to the same to the four sons when the old, unsigned contract of 1913 was finally executed on March 18, 1916.  The stocks and bonds were then actually transferred and delivered to the sons.  Since that date the sons have voted the stock and received the dividends thereon, and the interest on the bonds has likewise been paid them.  There was no postponement of either possession or enjoyment on the part of the sons of the gift of the stocks and bonds to them by their father.  The transfer was in every respect complete in 1916 and title to the property transferred vested at that time in the four sons.  In *2180 , the court said: But, further, what is meant by the phrase "take effect in possession or enjoyment at or after" the death of the trust creator?  The natural inclination of every lawyer is to recognize that "take effect" is not a phrase of art, to search for some artistic equivalent, and find it in the word "vest." But, if, as the result of a passage of title, the passing estate is vested, whether in fee, for life, in remainder, or in reversion, even though subject to divestment by subsequent event, then the transfer is complete, and so is the "possession or enjoyment," for one "possesses and enjoys" a reversion as thoroughly as he does a fee, even though most men prefer a fee to a reversion.  But if the transfer of an estate results in the immediate vesting thereof, and of each and every part of the same, the transaction is complete, and the grantor or transferor has no "interest" left therein; wherefore on his death there can be found no such "interest" to include in his gross estate.  In *2181 , the Board said: From the agreed facts we consider the gift of $20,000 to the decedent's daughter to have been full and complete on June 2, 1922.  All interest in the money passed out of the decedent at that time and he took only a personal obligation *1127  from his daughter to pay a specified sum quarterly.  There is nothing in the facts from which we can fairly conclude that the money or the property purchased with the money was chargeable with the payment of the specified sum.  On the contrary, it seems clear that the gift was complete at that time and was not intended to take effect in possession or enjoyment at or after death.  Neither possession nor enjoyment vested at or after death.  Both possession and enjoyment were given on June 2, 1922, to his daughter.  We are of opinion that the transfer was not one intended to take effect at or after death.  The Commissioner therefore erred in including the stocks and bonds in the decedent's estate for estate-tax purposes.  Judgment will be entered under Rule 50.