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MCCULLOUGH v. GRANGER

UNITED STATES DISTRICT COURT, WESTERN DISTRICT OF PENNSYLVANIA


January 26, 1955

Anna S. McCULLOUGH and Jay G. Stephens, Executors of the Estate of Frank H. Stephens, Deceased, Plaintiffs,
v.
Stanley GRANGER, Defendant

The opinion of the court was delivered by: WILLSON

This case has been submitted upon an agreed statement of facts. Counsel have been heard on oral argument, briefs have been submitted and have been considered. The complaint is based on plaintiffs' contention that the inclusion of a joint and survivor annuity in the estate tax return filed by executors under the will of Frank H. Stephens, deceased, was erroneous, and a refund is claimed on account of the tax assessed thereon. The defendant now concedes the issues raised in the complaint, but asserts a set-off. The set-off poses the question whether the corpus of an inter vivos trust created by the decedent for his minor son should have been included in the decedent's gross estate under 26 U.S.C.A. ยง 811(c)(1)(B). The parties make further reference to Treasury Regulation 105:

'Sec. 81.18. Transfers with possession or enjoyment retained. --

 'The use, possession, right to the income, or other enjoyment of the property will be considered as having been retained by or reserved to the decedent to the extent that during any such period it is to be applied towards the discharge of a legal obligation of the decedent, or otherwise for his pecuniary benefit.'

 If the inter vivos trust was not includable in the decedent's taxable estate, then plaintiff is entitled to judgment of $ 9,317.16, being the amount of the overpayment of the estate tax, and an additional sum of $ 60.28, being the amount of overpayment of interest. If the trust corpus was includable in the decedent's taxable estate, then the parties have agreed that plaintiffs may not recover in this action. Based on the stipulation, I make the following

 Findings of Fact

 1. The plaintiffs are the executors of the estate of Frank H. Stephens, who died testate and domiciled in the Commonwealth of Pennsylvania on October 10, 1946. By his last will, dated December 19, 1941, and probated before the Register of Wills of Allegheny County, Pennsylvania, on November 6, 1946, he appointed his wife, Anna A. Stephens, and his son, Jay G. Stephens, executors. Letters testamentary were granted to the said Anna A. Stephens and Jay G. Stephens by the Register of Wills of Allegheny County, Pennsylvania, on November 6, 1946, at No. 5778 of 1946, and such letters are still in effect. Anna A. Stephens subsequently remarried and is now Anna S. McCullough.

 2. The defendant Stanley Granger was, at all times material herein, the Collector of Internal Revenue for the Twenty-third District of Pennsylvania. On November 11, 1952, Stanley Granger ceased to be the Collector of Internal Revenue for the said Twenty-third District of Pennsylvania.

 3. On January 7, 1948, the plaintiffs filed with the defendant the federal estate tax return of the estate of Frank H. Stephens. Of the amount of federal estate tax shown due by the said return in the amount of $ 62,640.97, $ 28,500 was paid by the plaintiffs on November 18, 1947, and the balance of $ 34,140.97 was paid by the plaintiffs on January 7, 1948, both payments being made to the defendant. In the said return the plaintiffs elected to value the estate under Section 811(j) of the Internal Revenue Code (1939), as of a date one year after the death of Frank H. Stephens.

  4. On October 11, 1949, the Internal Revenue Agent in Charge, Pittsburgh, Pennsylvania, issued a report of examination of the said estate tax return in which he proposed a net estate tax deficiency in the amount of $ 536.04.

 5. On November 1, 1949, the plaintiffs executed an acceptance of the proposed deficiency and waived restrictions on the assessment thereof and filed the same with the Internal Revenue Agent in Charge, Pittsburgh, Pennsylvania, for transmission to the Commissioner of Internal Revenue.

 6. On December 8, 1949, the plaintiffs paid to the defendant the deficiency of $ 536.04 with interest thereon to November 25, 1949, in the amount of $ 60.28 in accordance with a statement of estate tax due issued by the said defendant.

 7. The value of a joint and survivor annuity contract, reported as Item 8 in Schedule F of the federal estate tax return, was erroneously included in the gross estate of the decedent. The value of this contract for estate tax purposes was determined to be $ 33,836.79, and federal estate tax was paid thereon.

 8. On January 9, 1950, the plaintiffs duly filed with the defendant for transmission to the Commissioner of Internal Revenue, a claim for refund of federal estate tax in the amount of $ 9,317.16, on the grounds that no part of the joint and survivor annuity contract upon which estate tax had been paid was properly includable in the gross estate.

 9. On February 15, 1952, the Commissioner of Internal Revenue disallowed the foregoing claim for refund in its entirety by letter properly addressed to the plaintiffs. All conditions precedent to the entry of this suit have been performed or have occurred.

 10. No part of the amount of $ 9,377.44 claimed by the plaintiffs as overpayment of estate tax in the amount of $ 9,317.16 and overpayment of interest in the amount of $ 60.28 has ever been refunded or in any manner credited to the plaintiffs.

 11. The defendant, for the purpose of this action, concedes that the value of the joint and survivorship annuity contract referred to in paragraph 7 was erroneously included in the gross estate of decedent and that the assessment of tax based on the inclusion of said joint and survivorship annuity contract in the taxable estate of decedent was erroneous. The defendant denies that the taxable estate of the decedent is thereby reduced, however, because of a set-off pleaded by defendant. The issue raised by the set-off is whether the corpus of an inter vivos trust created by decedent for his minor son should have been included in his taxable estate. If the Court determines that this trust, based on the facts hereinafter set forth, was not includable in decedent's taxable estate, then defendant concedes that decedent's gross estate should be reduced by the sum of $ 33,836.79 attributable to the value of the joint and survivorship annuity contract erroneously included in the taxable estate, and that plaintiffs are entitled to a judgment for the tax paid thereon plus interest from dates of payment. If the Court determines that the trust was includable in decedent's taxable estate, then the parties agree that plaintiffs shall take nothing from their action. 12. On December 24, 1936, the said Frank H. Stephens as donor and Anna A. Stephens and Jay G. Stephens as trustees, entered into a deed of trust for the benefit of the son of Frank H. Stephens, Frank H. Stephens, Jr., who was born on March 15, 1928, and was a minor of the age of eight years on the date of execution of the deed of trust. Pursuant to the provisions of the said deed of trust, Frank H. Stephens on December 24, 1936, transferred to the trustees 600 shares of the common stock of Allegheny Ludlum Steel Corporation, having a basis for income tax purposes of $ 2,791.08 and carried on the books of the trustees at that amount. Thereafter from time to time the said Frank H. Stephens transferred to the trustees the following cash and securities on the dates indicated and at the carrying values indicated: Dec. 24, 1937 200 sh. Allegheny Ludlum Steel Corp., com. $ 930.36 Dec. 24, 1938 100 sh. Allegheny Ludlum Steel Corp., com. 465.18 Dec. 6, 1939 $ 700 U.S.A. Treasury Bonds, 3 1/4% 5/15/44-46 700.00 Dec. 25, 1939 100 sh. Allegheny Ludlum Steel Corp., com. 465.18 Jan. 19, 1940 $ 650 U.S.A. Savings Bonds, Series D, due Jan. 1, 1950 487.50 Feb. 16, 1940 Cash 283.05 Dec. 16, 1940 100 sh. Allegheny Ludlum Steel Corp., com. 465.18 June 30, 1943 Cash (proceeds sale of 38 sh. Allegheny Coal and Coke Co. stock) 2,850.00 Dec. 6, 1943 100 sh. Allegheny Ludlum Steel Corp., com. 625.00 $ 50 U.S.A. Savings Bond Series E, due Oct. 1, 1954 37.50

19550126

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