Court Opinion

ID: 4618927
Source: CourtListenerOpinion
Date Created: 2020-11-21 02:39:36.465317+00
Date Added: 2024-06-11T07:55:32.747843
License: Public Domain

ESTATE OF JOHN A. HICKS (L. R. HICKS AND R. A. HICKS, DISTRIBUTEES), PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Hicks v. CommissionerDocket No. 7253.United States Board of Tax Appeals9 B.T.A. 1226; 1928 BTA LEXIS 4268; January 13, 1928, Promulgated *4268  The transfers involved herein were not made by the decedent in contemplation of death and were not intended to take effect in possession or enjoyment at or after his death.  Lloyd W. Dinkelspiel, Esq., for the petitioner.  Thomas P. Dudley, Jr., Esq., for the respondent.  MARQUETTE *1226  This proceeding is for the redetermination of a deficiency in estate taxes asserted by the respondent against the estate of John A. Hicks, deceased, in the amount of $627.42.  The issue raised is whether certain property transferred by the decedent to his two sons prior to his death should be included as a part of the gross estate subject to the Federal estate tax.  FINDINGS OF FACT.  John A. Hicks, a resident of the State of California, died testate on August 29, 1922, and his sons, L. R. Hicks and R. A. Hicks, were duly appointed and qualified as executors of the estate.  For a number of years prior to April 10, 1920, John A. Hicks was the owner of 248 shares of the 250 outstanding shares of the capital stock of the John A. Hicks Co., a California corporation which owned and operated ranches at Watsonville, Calif., and Cupertino, Calif., two stores at*4269 Los Gatos, Calif., and a parcel of land at San Jose, Calif.  The two other shares of stock outstanding were owned by L. R. Hicks and R. A. Hicks, sons of John A. Hicks.  The sons had been active in the operation and development of the properties owned by the corporation and in the latter part of the year 1916 and early in 1917, John A. Hicks had expressed the intention of giving to each of the sons approximately a one-third interest in the corporation, and had discussed the matter with them.  However, the intention was not immediately carried into effect because of the fact that the sons entered the United States Army during the World War and were absent from California for an extended period.  However, on April 10, 1920, that being the joint birthday of the two sons and their first birthday after their discharge from the Army, John A. Hicks transferred to each of them 79 shares of the capital stock of the John A. Hicks Co., so that from that date until the dissolution of the corporation, John A. Hicks owned 90 shares, L. R. Hicks, 80 shares, and R. A. Hicks 80 *1227  shares of the capital stock.  At the date of the transfer John A. Hicks was between 66 and 67 years of age and*4270  was in good health and actively engaged in the real estate and insurance business.  The John A. Hicks Co. was dissolved on August 20, 1920, and the assets passed by order of court to John A. Hicks, L. R. Hicks and R. A. Hicks, as trustees for the creditors and stockholders.  Shortly thereafter John A. Hicks, L. R. Hicks and R. A. Hicks, as trustees, conveyed to themselves as the only stockholders of the corporation, all of the real estate formerly owned by the corporation in the following proportions: John A. Hicks, an undivided nine twenty-fifths interest, L. R. Hicks, an undivided eight twenty-fifths interest, and R. A. Hicks, an undivided eight twenty-fifths interest, such interests being in the same proportion as the respective shareholdings of John A. Hicks, L. R. Hicks and R. A. Hicks in the corporation.  After April 10, 1920, the sons had the absolute and sole control and management of the Watsonville ranch; expended several thousands of dollars of their own money in improvements thereon and received and retained all of the income therefrom.  From and after April 10, 1920, the sons also continued to participate in the operation of the other property formerly owned by the corporation*4271  and received their proportionate shares of all of the income derived therefrom.  The respondent, upon audit of the estate-tax return of the estate of John A. Hicks, added to the gross estate as therein set forth, the amount of $57,443.21 as representing the "16/25th interest in the property consisting of the assets of the John A. Hicks Company transferred to the decedent's sons, Leo R. Hicks and Raymond A. Hicks," in contemplation of death or to take effect at or after death, and determined the deficiency in tax in the amount of $627.42.  OPINION.  MARQUETTE: The evidence herein shows that on April 10, 1920, John A. Hicks transferred to his two sons certain shares of the capital stock of the John A. Hicks Co., and that subsequently upon the dissolution of that company they participated in its assets in proportion to their stockholdings.  But John A. Hicks did not convey to the sons any direct interest in the corporate assets; he gave them only shares of stock which entitled them to share in the earnings of the corporation, and upon dissolution, to aliquot shares in its assets after the payment of its debts.  We are therefore unable to perceive upon what theory the respondent*4272  included in the gross estate of John A. Hicks, any part of the assets of the corporation which the sons received in liquidation.  If there was anything to be included in the estate on account of the transfers involved herein, it was the value of the thing transferred, to wit, 158 shares of the capital stock of the *1228  John A. Hicks Co.  However, it is clear that the transfer was absolute and in praesenti and that there was no interest in or control over the stock reserved to the grantor.  It is also clear, we think, that the transfers were not made by John A. Hicks in contemplation of death.  There is not only no evidence to indicate that on April 10, 1920, John A. Hicks believed or had any reason to believe he would die in the reasonably near future, but on the other hand the evidence shows that he was in good health at that time and that he made the transfer pursuant to an intention he had formed and expressed several years before, to give to his sons an interest in the corporation, in the affairs of which they had long taken an active part.  Judgment will be entered on 15 days' notice, under Rule 50.