The opinion of the court was delivered by: CLARY
This is an action by the Executors of the Estate of Frederick J. Kress, deceased, to recover income taxes paid to the then Collectors of Internal Revenue for the Twenty-third District of Pennsylvania for the calendar year 1941 in the sum of $ 27,131.15. Claim for refund having been rejected by the Commissioner of Internal Revenue, these actions were instituted on April 5, 1948.
From pleadings, exhibits and stipulations entered into between the parties, I make the following
1. Frederick J. Kress died a resident of the City of Pittsburgh, Allegheny County, Pennsylvania on October 6, 1939, and his Last Will and Testament, dated February 5, 1935, and Codicil thereto, dated November 4, 1935, were duly probated October 13, 1939 in the Office of the Register of Wills of said County and State and recorded in Will Book Vol. 243, page 560, at No. 4843 of 1939 of the Records of said Office, whereupon the said Register of Wills in said proceeding issued Letters Testamentary on the estate of the said decedent to the plaintiffs, who are now the duly qualified and acting Executors of the said estate.
'Fourth. I give and bequeath to Fidelity Trust Company, of Pittsburgh, a Pennsylvania corporation having its domicile in the City of Pittsburgh, Allegheny County, Pennsylvania, and to my wife, Lillian Conner Kress, or the survivor of them, all shares of the capital stock of the F.J. Kress Box Company, a Pennsylvania Corporation, (sometimes hereinafter called the 'Company') to me belonging at the date of my death, they to have and to hold the same in trust, for the following uses and purposes:
'(b) The Trustees shall hold the balance of my said shares of capital stock of the Company, in trust, for the following purposes:
'During the period not exceeding ten (10) years from the date of my decease and so long as J. Burk LeClere shall continue to be actively employed by the Company as an Executive Officer thereof, if in any fiscal year of the Company commencing with January first of the fiscal year in which I shall die, the the net earnings of the Company computed as set forth in Paragraph (b)(a) of this Article shall be equal to or in excess of six (6%) per cent. of the par value of the capital stock of the Company then issued and outstanding, the said J. Burk LeClere shall have the privilege, provided the Trustees be of the opinion that his ability and effort have been one of the contributing causes for such earnings, and subject to the further conditions and limitations hereinafter set forth, of purchasing from the Trustees in the year immediately succeeding the year in which the said earnings shall have been realized such number of said shares of the capital stock of the Company, at book value, as he may elect to purchase, provided that the total number of shares which the said J. Burk LeClere may purchase during the said period of ten (10) years shall not exceed twenty-five (25%) per cent. of the total capital stock of the Company issued and outstanding.
'When and if at the expiration of the said period of ten (10) years from my decease the said J. Burk LeClere shall have purchased from the Trustees shares equal in amount to twenty-five (25%) per cent. of the then outstanding capital stock of the Company, the Trustees shall hold the balance of the shares of the capital stock for a further period not exceeding two (2) years from said date when the total of the purchases so made by the said J. Burk LeClere shall have equalled the said twenty-five (25%) per cent. of the then outstanding capital stock of the Company and at any time during said period of two years the said J. Burk LeClere, if at said time he shall be actively identified with the Company as aforesaid, shall have the privilege, subject to the limitations thereon and conditions hereinafter set forth, of purchasing all, but not less than all, of the shares of capital stock of the Company then held in trust, whether under the provisions of subdivision (B)(a) or of subdivision (B)(b) of this Article, at the book value of the said shares.
'If the said J. Burk LeClere shall sever his connection with the Company at any time during the said period of ten (10) years from the date of my decease, upon the severance of the said connection, his privilege of purchasing the said shares of stock will automatically cease.
'The Trustees are hereby authorized and empowered to agree with the said J. Burk LeClere upon such terms of payment for the said shares which he may purchase as aforesaid as the Trustees, in their discretion, may deem proper, and to accept the said shares of stock as collateral security for the payment of any note which they may see fit to accept on account of the purchase price for said shares.
'The privileges hereinbefore granted to the said J. Burk LeClere of purchasing the said shares of stock held in trust as aforesaid are granted, subject to the further limitation and condition that the Trustees may, in their discretion, revoke the same at any time, if the Trustees shall be able to effect a sale, on terms which they may deem advantageous, of all of said shares of stock or in the event of a sale of the property and assets of the Company, including its good will, or in the event of the merger or consolidation of the Company with any other corporation or corporations, and the Trustees, anything hereinbefore contained to the contrary notwithstanding, shall not be prevented nor hindered from voting any of the shares in the trust in favor of such sale, merger or consolidation, or from collecting or receiving the proceeds, profits and emoluments thereof, as freely as though said privilege had not been granted, and the Trustees are hereby expressly authorized and empowered to effect a sale of all of said shares of stock, or to vote in favor of any sale of the assets of the Company, or in favor of a merger or consolidation of the Company with any other corporation or corporations whenever, in their uncontrolled discretion they may deem it advantageous so to do.'
3. Walter L. Miller, deceased, was at the material times hereinafter set forth Collector of Internal Revenue for the Twenty-third District of Pennsylvania.
4. On or about March 15, 1942 the plaintiffs filed an Income Tax Return for the calendar year 1941 with the said Walter L. Miller, Collector of Internal Revenue, and paid to him, as such Collector, the tax shown on said Return to be due, to wit, the sum of $ 17,339.49.
5. On July 30, 1943 the Commissioner of Internal Revenue issued to the plaintiffs his ninety day letter, wherein he determined the tax liability of the plaintiffs for the year 1941 to be the sum of $ 27,131.15, and a deficiency assessment ...