Court Opinion

ID: 4597453
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:19:13.120471+00
Date Added: 2024-06-11T07:51:46.938663
License: Public Domain

ESTATE OF FREDERICK BODELL, JOSEPH J. BODELL, EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Bodell v. CommissionerDocket No. 106353.United States Board of Tax Appeals47 B.T.A. 62; 1942 BTA LEXIS 743; June 9, 1942, Promulgated *743  At the time of decedent's death there were in force eight policies of insurance on his life, six of which were ordinary life policies payable at death to his wife, if living, otherwise to his estate.  The other two policies were endowment policies payable at maturity to decedent, if living, or, in case of his prior death, to his wife.  All of the policies were taken out by decedent and all premiums were paid by him.  Two of the policies were taken out prior to the enactment of the Revenue Act of 1918.  Held, that the proceeds of all of the policies, in excess of $4,000, are includable in the decedent's gross estate under section 302(g) of the Revenue Act of 1926, as amended.  Andrew P. Quinn, Esq., and Richard F. Canning, Esq., for the petitioner.  Davis Haskin, Esq., for the respondent.  SMITH*62  This proceeding involves a deficiency of $15,381.98 in the estate tax of the estate of Frederick Bodell, deceased.  There are two questions in issue: (1) Whether the proceeds in excess of $40,000 of certain life insurance policies on decedent's life are includable in his gross estate, and (2) the value at which certain shares of stock owned*744  by decedent at the time of his death are to be included in his gross estate.  FINDINGS OF FACT.  Decedent died June 20, 1938, and was survived by his wife, Albina Elise Bodell.  An estate tax return was timely filed by decedent's executor with the collector of internal revenue for the district of Rhode Island.  At the time of decedent's death there were in effect eight policies of insurance on his life amounting in the aggregate to $113,332, face amount, on account of which $120,260.07 was paid at decedent's death.  Those policies were as follows: *63  (1) Policy No. 178772, Provident Mutual Life Insurance Co. of Philadelphia, was an endowment policy for $5,000 taken out by decedent October 31, 1911, payable to him on October 31, 1955, if living, otherwise to his mother, if living, otherwise to his estate, Decedent's wife was irrevocably named beneficiary, instead of his mother, on May 6, 1918.  (2) Policy No. 398704, Massachusetts Mutual Life Insurance Co., was an ordinary life policy for $10,000 taken out by decedent March 1, 1917.  It was first made payable to decedent's mother, but on October 6, 1917, was made payable to decedent's wife if living at the time of*745  his death, otherwise to decedent's estate.  Decedent reserved the right to change the beneficiary at any time.  (3) Policy No. 393754, Provident Mutual Life Insurance Co. of Philadelphia, was an endowment policy for $5,000 taken out by decedent in 1921 and made pauable to decedent on November 28, 1955, if living, or upon his death prior to that date payable to his wife, if living, otherwise to his estate.  (4) and (5) Policies Nos. 855005 and 855006, John Hancock Mutual Life Insurance Co., were ordinary life policies for $15,000 and $10,000, respectively, taken out by decedent on February 8, 1922, and made payable to his wife, if living, otherwise to decedent's estate.  (6) and (7) Policies Nos. 3,135,830 and 3,135,831, Equitable Life Assurance Society of the United States, were ordinary life policies for $30,758 and $12,574, respectively, taken out by decedent on March 22, 1923, and made payable to decedent's wife, if living at the time of his death, otherwise to his estate.  (8) Policy No. 501,258, Fidelity Mutual Life Insurance Co., was an endowment policy for $25,000 taken out by decedent on March 4, 1933, and made payable to decedent if living at maturity (1971), or upon*746  his death prior to the maturity date to his wife, if living, otherwise to his estate.  The decedent paid all of the premiums on all of the above policies.  Petitioner did not report any of the proceeds of the above described insurance policies in the decedent's estate tax return.  The respondent included $120,350.07 in the gross estate as the amount paid on the policies, less an exclusion of $40,000, or a net of $80,350.07.  At the date of his death the decedent was the owner of 2,375 shares of common stock of the James Hanley Co., which was included in his estate tax return at a value of $25 a share, or $59,375.  In determining the deficiency herein the respondent valued the stock at $29.625 a share, or $70,359.38.  The James Henley Co. was a brewing company organized in 1934.  Its original issue of securities was underwritten by Bodell & Co., a partnership of which decedent and his brother were members.  The partnership continued active trading in the securities and at the *64  time of decedentS death the partnership, as well as individual members of the Bodell family, owned a large number of shares of the stock.  From June 1938 to June 1939, inclusive, Bodell & Co. *747  purchased 4,953 shares of common stock and sold 4,832 shares at prices ranging from $28.50 to $31.75 per share.  During the month of June 1938, the month of decedent's death, 705 shares were purchased and 512 shares were sold by Bodell & Co., the lowest price being $28.50 and the highest $29;50; Another brokerage firm in Providence, Rhode Island, Barret & Co., also dealt in the James Hanley Co. stock.  It purchased 55 shares on June 10, 1938, at $29,25 shares on June 21, 1938, $30at, and 160 shares on June 23, 1938, at $29.50.  From June 20, 1938, to June 20, 1939, it purchased 3,397 shares at prices ranging from $29 to $30.50 a share.  In January 1936 the stock sold as low as $3.75 a share.  In April 1937 it sold as high as $39.50 a share.  It broke to about $25 a share in September 1939, when the general manager, who was retiring from the company, offered a large block of shares for sale, and in December 1939 sold as low as $22.50 a share.  The James Hanley Co. stock was never listed on any stock exchange, but was traded in by a number of brokers in over-the-counter transactions.  Practically all purchases and sales of the stock were made through these brokers.  There was usually*748  a margin of from $1 to $2 between the prices which the brokers paid for the stock and the prices at which they sold it to the public.  According to the company's stock book records, approximately 11,600 shares were transferred during the period June 20, 1938, to June 20, 1939.  There were 110,000 shares of the common stock of a par value of $5 each authorized and outstanding on June 20, 1938, and some 7 percent debentures, but no preferred stock.  In the latter part of 1938 the debentures were retired and preferred shares were issued.  A dividend of $2 a share was paid on the common shares in 1938.  The fair market value of the 2,375 shares of common stock of the James Hanley Co. which were owned by the decedent at the time of his death was $28 a share.  OPINION.  SMITH: The first question for our determination is what portion of the proceeds of the above described insurance policies on decedent's life in excess of $40,000 is includible in his gross estate for estate tax purposes.  Section 302 of the Revenue Act of 1926, as amended by section 404 of the 1934 Act, reads in part as follows: SEC. 302.  The value of the gross estate of the decedent shall be determined by including*749  the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated, except real property situated outside the United States - *65  (a) To the extent of the interest therein of the decedent at the time of his death; * * * (g) To the extent of the amount receivable by the executor as insurance under policies taken out by the decedent upon his own life; and to the extent of the excess over $40,000 of the amount receivable by all other beneficiaries as insurance under policies taken out by the decedent upon his own life.  (h) Except as otherwise specifically provided therein subdivisions (b), (c), (d), (e), (f), and (g) of this section shall apply to the transfers, trusts, estates, interests, rights, powers, and relinquishment of powers, as severally enumerated and described therein, whether made, created, arising, existing, exercised, or relinquished before or after the enactment of this Act.  Of the eight policies listed abobe, three were endowment policies which were payable to decedent at maturity.  If the decedent should die before maturity the named beneficiary was to receive the proceeds.  All of the other policies were*750  ordinary life policies, with the proceeds payable to decedent's wife if living at the time of his death, otherwise to his estate.  Decedent specifically reserved the right to change the beneficiary in only one of the policies.  All of the policies were taken out by the decedent and the premiums were all paid by him.  Two of them were taken out before February 14, 1919, the effective date of the Revenue Act of 1918, which was the first revenue act to contain express provisions including the proceeds of insurance policies in the gross estate for estate tax purposes.  Decedent's only interest in some of the policies, and his common interest in all of them, was the right of his estate to receive the proceeds of the policies in the event that the named beneficiary, his wife, should not be living at the time of his death.  Respondent's contention is that because of this retained interest all of the proceeds of all the policies are includable in the gross estate under the theory of , and *751 . Petitioner concedes in his brief that as to the six policies taken out by the decedent after the effective date of the Revenue Act of 1918 "the retention by the insured of a possibility of reverter constitutes an incident of ownership giving rise to the imposition of the tax", under the principle enunciated by the Supreme Court in the Hallock case.  Petitioner contends, however, that the proceeds of policies taken out before the enactment of the Revenue Act of 1918 are not includable in the gross estate, relying upon ; , and . In the recently decided case of , we held, chiefly upon authority of , that the proceeds of a life insurance policy in which the only interest retained by the insured was the right of his estate to receive the proceeds if the named beneficiary should predecease the insured *66  were includable in his gross*752  estate under section 302(g) of the Revenue Act of 1926, as amended.  The policy there under consideration was taken out by the insured in 1929.  The proceeds were to be paid to the insured's wife for life, with remainders over to his children and grandchildren if any survived, otherwise to his estate.  The insured reserved no right to change the beneficiary or to assign or pledge the policy.  The amount to be included in the insured's gross estate was limited in our decision to that portion of the proceeds which was allocable to the premium paid by the insured.  A full discussion of the cases cited above and other related cases is found in our opinion in that case and need not be repeated here.  In an earlier decision, , the Board held that where an endowment policy was taken out by the insured prior to the enactment of the 1918 Revenue Act and was made payable to the insured at maturity if living, otherwise to his wife if living, otherwise to his estate, the proceeds of the policy were not taxable in the insured's gross estate under section 302(g) of the 1926 Act.  In so far as the case may be construed to hold that the*753  right of the insured's estate to receive the proceeds of the policy, in case the named beneficiary predeceased the insured, was not an interest in the policy which warranted the inclusion of the proceeds in the gross estate of the insured, it will not hereafter be followed.  In , the court held, upon authority of the Hallock case, that all of the proceeds of certain insurance policies in which the insured held no interest at the time of his death except the right of himself or his estate to the proceeds in case his wife predeceased him were includable in the insured's gross estate under section 302(g).  Some of the policies there involved were taken out before the enactment of the Revenue Act of 1918, but this fact was not considered material.  Also, the court rejected the contention made by the taxpayer in that case, which is also the contention of the petitioner in the instant case, that the amount to be included in the gross estate was only the value of the interest retained by the insured rather than the total proceeds of the policies.  In its opinion the court said: We do not see that there is*754  any distinction to be made between the policies written prior to the effective date of the 1926 Revenue Act, and those written thereafter, on the ground that vested interests were created in the beneficiary by the earlier policies which constitutionally could not be affected by a subsequent statute.  If, as said in the Klein case, "the death of the grantor was the indispensable and intended event which brought the larger estate into being for the grantee and effected its transmission from the dead to the living, thus satisfying the terms of the taxing act and justifying the tax inposed," a principle approved in the Hallock case as a fastening upon the vital factor underlying a proper interpretation of the estate tax, then the identifiable event which determines both the incidence of the tax and its measure, is not the *67  date of the insurance contract but the death of the insured, and there is no distinction to be made between the avails of policies written before and those issued after the effective date of the statute.  They are all to be included in the estate to be taxed.  *755 Broderick v. Keefe, supra [112 Fed.(2d) 293]. This conclusion must also result our rejecting a contention that the amount to be included in the gross estate is to be measured not by the avails of the insurance policies but by the value of the interests therein that had been reserved.  If Helvering v. Hallock furnishes, as it purports to do, a practical formula for determining the measure of the gross estate at the time of death, it is not by us to be refined or evaded by limiting inclusion in gross estate to the value of a possibility of reverter which real though it be, in respect to postponing complete passing of property until the event of death, is yet an intangible element in respect to value, and so incapable of measurement.  * * * In , the proceeds of certain policies were held taxable in the gross estate where the policies were taken out before the enactment of the Revenue Act of 1918 but the beneficiary was not irrevocably named until after that date.  We agree with the observation of the court in the Washer that under the theory of the Klein and the Hallock cases no distinction*756  is warranted between policies taken out before the enactment of the taxing act and those taken out after its enactment.  The respondent is sustained in his determination that all of the proceeds, in excess of $40,000, of all of the policies in question are includable in decedent's gross estate under section 302(g) above.  The remaining issue involves the determination of the fair market value of 2,375 shares of the James Hanley Co. common stock which were owned by the decedent at the time of his death.  The decedent's executor reported the shares in the estate tax return at a valuation of $25 a share.  The respondent has determined a value of $29.625 a share.  The respondent's valuation is based on over-the-counter average sale prices of the shares at or about the basic date.  The evidence of record is that there was a very limited market for the shares - they were not listed on any stock exchange - and that the transactions rarely involved more than 100 shares; that the only market for the shares was through brokers; and that the price offered by the brokers averaged from $1 to $2 less than the retail price at which they would expect to sell it.  Giving weight to all the evidence*757  of record we have determined that $28 a share is as much as decedent's estate would have been able to realize from the sale of the 2,375 shares over a reasonable period following decedent's death and was the fair market value of those shares on that date.  The shares in question should be included in decedent's estate at the value determined.  Reviewed by the Board.  Decision will be entered under Rule 50.MURDOCK and LEECH dissent.