comes within either of these two classes.
An examination of the father's will discloses that he authorized his trustees to lend certain sums to his sons and provided that the loans should bear interest at the rate of 6 per cent. per annum. He further provided, however, that the loans were to be made without security and were to be for such duration and with such privilege of renewal or extension as his son should request. He also provided that: "The interest and principal of such loans shall be charged against each son and his descendants in distribution, both as to principal and income, in like manner except as to the amount of interest as the amounts paid to my sons at the time of my death and herein more specifically set forth." In furtherance of his purpose he directed that his trustees should make no claim for any such loan against the estate of any child of his who died leaving descendants surviving. Only in case of the death of a son without living descendants, so that under the other terms of the will he would not participate in distribution of the principal of the estate, were the trustees directed to collect a loan from the son's estate. There were other provisions exonerating his trustees from responsibility in the event of loss in connection with these loans and providing that the obligation to collect them was only to be exercised in favor of his other children and their descendants.
From a careful consideration of all the provisions of the will, I am clear that what the testator intended to authorize was not the making of loans to his sons, but rather the making of advances to them on account of the principal of his estate ultimately distributable to their descendants. The provision for interest was evidently intended to equalize distribution of income to the other beneficiaries, and the provision for collection from the estate of a son dying without surviving issue was clearly necessary in order to preserve the scheme of his will which provided that the entire principal at the death of his last surviving child should be distributed per stirpes to the descendants of his deceased children.
I accordingly conclude that the sum of $250,000 represented by the note in question was not a claim against the decedent's estate or deductible as such. The accrued interest on that note, however, is not in the same position. It is clear that the testator imposed upon the decedent as a condition of receiving the advance of $250,000, the obligation to pay interest thereon. At the time of his death the accrued and unpaid interest amounted to $2,000. This was unquestionably a claim against his estate and deductible as such.
What I have already said leads inevitably to the conclusion that the $250,000 which was advanced to the decedent by the trustees of his father's estate under the provisions of the latter's will was a bequest within the meaning of section 303(a). This, however, is not enough to make it deductible under the act unless it further appears that the property which was the subject of the advance was subjected to an estate tax as a part of the father's estate and could be identified in the possession of the decedent at the time of his death. The property involved consisted of an interest of $250,000 in the partnership of George H. McFadden & Brother, of which both the decedent and his father were members. There is no dispute as to the fact that the father's interest in the partnership was included in his estate and subjected to estate tax. $250,000 of the interest was transferred by his trustees to the decedent, increasing the latter's interest in the firm to $4,324,694.12. From the day of the transfer to the day of his death the value of decedent's total interest in the partnership was never less than this sum and when he died it had increased to $4,538,520.63. Under these circumstances it is evident that decedent's interest in the firm at his death included the whole of the $250,000 interest which he received as an advance from the trustees of his father's estate. This I think is a sufficient identification of specific property received by the decedent within five years from a prior decedent's estate. I, therefore, conclude that the sum of $250,000 is deductible as such in determining decedent's net estate.
It is quite evident from an examination of the statute that the intention of Congress was to prevent the imposition of the federal estate tax upon the same property more than once within a period of five years. Parrott v. United States (D.C.) 42 F.2d 522. The conclusion to which I have come is in accord with this intent. Furthermore, I cannot escape the impression that the item under discussion is either a claim or a bequest and, therefore, deductible under the one head or the other. As I have indicated, I am convinced that it is a bequest, but to hold it to be neither one nor the other would to my mind be to deprive this estate of a deduction to which in equity and good conscience it is entitled and which the statute intended it should have. In my view the case is one to which the rule that taxing statutes are to be construed strictly in favor of the taxpayer is peculiarly applicable.
Conclusions of Law.
The Commissioner of Internal Revenue erroneously included in the decedent's gross estate the corpus of the trust transferred under the deed executed by the decedent to Girard Trust Company as trustee, dated February 9, 1928.
The Commissioner of Internal Revenue erroneously refused to allow the deduction from the decedent's gross estate as a claim against his estate of interest from November 18, 1930, to the date of his death, amounting to $2,000 on his note given to the trustees under the will of George H. McFadden, deceased, for $250,000.
The Commissioner of Internal Revenue erroneously refused to allow the sum of $250,000, representing the amount advanced to decedent by the trustees under the will of George H. McFadden, deceased, as a deduction from decedent's gross estate representing property received by decedent by bequest from a prior decedent pursuant to the provisions of section 303(a) (2) of the Revenue Act of 1926 (44 Stat. 72).
Estate tax and interest thereon amounting to $35,017.71 paid on August 22, 1934, and estate tax amounting to $589.36 paid on June 22, 1932, were illegally collected from petitioners, and they are entitled to recover said sums with interest from the dates of payment in the suit in No. 18624.
Under the stipulation of the parties plaintiffs are not entitled to recover in the suit in No. 19830.
I accordingly find in favor of the petitioners and against the respondent in No. 18624 in the sum of $35,607.07, with interest on $35,017.71 from August 22, 1934, and on $589.36 from June 22, 1932.
In No. 19830, I find in favor of the respondent and against the petitioners.
© 1992-2004 VersusLaw Inc.