DocketNumber： Docket No. 31573.
Citation Numbers： 28 B.T.A. 132, 1933 BTA LEXIS 1179
Judges： Black, Smith, Murdock
Filed Date： 5/17/1933
Status： Precedential
Modified Date： 1/12/2023
*1179 1. STATUTE OF LIMITATIONS. - MEANING OF "REQUIRED RETURN" AS USED IN SECTION 1009(b) OF THE REVENUE ACT OF 1924, AND SECTION 1109(a)(2) OF THE REVENUE ACT OF 1926. - Where decedent died March 4, 1920, and the estate tax return was not filed until June 29, 1925, the return was not the "required return" and assessment and collection were not barred on August 10, 1927, when the Commissioner mailed his deficiency notice.
2. ESTATE TAX - SHARES OF STOCK IN A DOMESTIC CORPORATION OWNED BY NONRESIDENT ALIEN. - Where at the time of his death, the decedent, a nonresident alien, owned shares of stock in domestic corporations and the certificates of stock were held by custodians in New York City, the value of such stock at the date of decedent's death is properly included as a part of his gross estate.
3. STOCKS DEPOSITED IN ESCROW - OWNERSHIP. - Where prior to his death, decedent had contracted to purchase certain shares of stock from the estate of one of his brothers and had agreed to pay therefor in ten annual installments and the shares of stock*1180 so purchased were deposited in escrow with a custodian under an agreement that as fast as decedent made payments title to a proportionate part of the stock should be vested in him, only the value of the stock paid for at time of decedent's death, so far as the certificates of stock are concerned, should be included as a part of his gross estate. He did not own the stock held in escrow which had not been paid for. He only owned the right to purchase it.
4. CONTACT RIGHTS - SITUS IN CASE OF A NONRESIDENT ALIEN DECEDENT. - The value of the right which decedent had to purchase the balance of the stock at less than its fair market price and have the title thereto vest in him was intangible personal property. The contract providing for such purchase, together with the shares of stock to which it related, were deposited with the Guaranty Trust Company of New York City at the time of decedent's death and under the doctrine announced by the Supreme Court in
*132 This proceeding involves Federal estate taxes asserted against the estate of Louis Joel Duveen, a nonresident alien decedent. The amount involved is $179,491.38, consisting of an asserted deficiency of $85,881.38 and the tax shown on the return in the amount of *133 $93,610, which was paid, less $165, and interest in the amount of $24,401.01, which was paid thereon, all of which petitioners claim were overpayments.
FINDINGS OF FACT.
The parties entered into the following stipulation of facts:
1. Petitioners are the executors of the Estate of Louis Joel Duveen, deceased, and at all times herein mentioned were and now are inhabitants of London, England.
2. Louis Joel Duveen died on March 4, 1920, and at the time of his death was not a resident or citizen of the United States. His Last Will and Testament was admitted to probate in England on June 17, 1924, and administration of his estate vested in the petitioners as his executors. Petitioners at all times since June 17, 1924, have been and now are the duly appointed, qualified and acting executors, under*1182 the will, of the Estate of said Louis Joel Duveen.
3. At the time of his death, said Louis Joel Duveen was the owner of 1900 shares of common stock and 2,672 shares of preferred stock of Duveen Brothers, Inc., a corporation organized under the laws of the State of New York.
4. On February 19, 1919, said Louis Joel Duveen and Joseph Duveen entered into a contract in New York, N.Y., with the executors under the will of Henry J. Duveen, in respect to 3,500 shares of common stock and 8,976 shares of preferred stock of said Duveen Brothers, Inc., other than the shares referred to in paragraph 3 hereof. A true copy of said contract is attached hereto, marked Exhibit A and made a part hereof. On May 29, 1919, an agreement supplemental to said contract of February 19, 1919, was made in New York, N.Y., between Joseph Duveen, Louis Joel Duveen and Benjamin Duveen. Said supplemental agreement of May 29, 1919, provided that the purchase of the stock mentioned in the contract of February 19, 1919, should be divided between Louis Joel Duveen and Joseph Duveen, as follows: 2,565 shares of preferred stock and 1,000 shares of common stock to Louis Joel Duveen and the balance to Joseph Duveen. *1183 A true copy of said supplemental agreement is attached hereto, marked Exhibit B, and made a part hereof. Said contracts were at all times herein mentioned, subsequent to the dates thereof, in full force and effect. Prior to the date of the death of said Louis Joel Duveen, the parties to said contracts had performed all conditions of said contracts to be performed by them prior to said date.
A true copy of the contract of April 10, 1918, referred to in said contract of February 19, 1919, is attached hereto, marked Exhibit C, and made a part hereof.
5. The value on March 4, 1920, of each share of common stock of Duveen Brothers, Inc. was $566. and the value on March 4, 1920, of each share of preferred stock of Duveen Brothers, Inc. was $100.
6. Prior to the date of his death, said Louis Joel Duveen had paid, pursuant to the contracts of February 19, 1919 and May 29, 1919, the sum of $130,463.30 with interest. At the time of the death of said Louis Joel Duveen, the unpaid balance under said contracts to be paid by said Louis Joel duveen, computed as therein provided, was $552,534.54.
7. Petitioners, as executors of the Will of Louis Joel Duveen, returned for Federal*1184 estate tax purposes, as Item 4 of Schedule B of the Federal estate tax return, and on the basis therein stated, the amount of $130,463.30 as the value of the interest of Louis Joel Duveen in the shares of stock covered by the contracts of February 19, 1919, and May 29, 1919. In determining the deficiency *134 in Federal estate tax the Commissioner included in the gross in the gross estate for tax 5,237 shares of preferred stock of Duveen Brothers, Inc. at a vaue of $523,700, and 2,900 shares of common stock of Duveen Brothers, Inc. at a value of $1,641,400. The shares of common and preferred stock of Duveen Brothers, Inc. so included in the gross estate by the Commissioner included shares of stock described in paragraph 3 of this stipulation, and also the 1,000 shares of common stock and 2,565 shares of preferred stock covered by the contracts of February 19, 1919, and May 29, 1919.
8. It is agreed that the amount of $969,884.12 determined by the Commissioner as debts of the decedent * * * should be reduced to $879,841.96. It is agreed that the administration expenses, funeral expenses, and claims agaivst the estate, excluding any amount on account of the unpaid balance*1185 to be paid under the contracts of February 19, 1919, and May 29, 1919, were the amounts shown on the Federal estate tax return filed by the petitioners as executors of the Estate of Louis Joel Duveen.
9. The petitioners filed in duplicate a Federal estate tax return for the Estate of Louis Joel Duveen, on June 29, 1925, showing a tax of $93,610. * * * Said return was not false or fraudulent with intent to evade the tax. The only deficiency letter of the Commissioner of Internal Revenue asserting a deficiency in the Federal estate tax due from said Estate was mailed by the Commissioner to the petitioners on August 10, 1927, * * * and no assessment of a deficiency in Federal estate tax has been made by the Commissioner, and no suit for collection without assessment has been instituted.
10. Subsequent to the filing of the petition herein the petitioners and the Commissioner of Internal Revenue Compromised the 25% ad valorem penalty asserted in the deficiency letter and the total deficiency now asserted by the Commissioner of Internal Revenue is $85,881.38.
Subsequent to the filing of the foregoing stipulation of facts, the parties filed the following supplemental stipulation*1186 of facts:
1. At the date of his death on March 4, 1920, and all times prior thereto mentioned herein, Louis Joel Duveen was domiciled in and a resident of England and a citizen and subject of Great Britain. At the date of the death of Louis Joel Duveen, and at all times prior thereto and subsequent to April 10, 1918, the certificates of stock representing 1,900 shares of common stock and 2,672 shares of preferred stock of Duveen Brothers, Inc., owned by Louis Joel Duveen at the time of his death and referred to in paragraph 3 of the said stipulation of facts heretofore filed with the Board at the original hearing hereof, were on deposit with Guaranty Trust Company of New York pursuant to paragraph sixth of the contract of April 10, 1918, a copy of which, marked Exhibit C, is attached to the said stipulation of facts heretofore filed.
2. At all times subsequent to February 19, 1919, and prior to the death of Louis Joel Duveen on March 4, 1920, the certificates representing the shares of common and Preferred stock of Duveen Brothers, Inc., covered by the contracts of February 19, 1919, and May 29, 1919, copies of which marked Exhibits A and B, respectively, are attached to the*1187 stipulation of facts heretofore filed with the Board, were on deposit with Guaranty Trust Company of New York, pursuant to the provisions of Exhibits A and C.
3. At the date of his death Louis Joel Duveen was the owner of 2,423 shares of Common Stock of the Atchison, Topeka & Santa Fe Railway Company, a corporation organized under the laws of Kansas, which stock had a value on said date of $82.4375 per share. At the date of the death of Louis Joel Duveen, and at all times during which he owned said stock, the certificates *135 representing the said stock were issued in the name of Louis Joel Duveen and were in the safe deposit box of Duveen Borthers, Inc., in the Metropolitan Trust Company in New York.
4. At the date of the death of Louis Joel Duveen the total issued and outstanding capital stock of Duveen Brothers, Inc., was 22,000 shares of Preferred Stock and 10,000 shares of Common Stock, and the total issued and outstanding capital stock of the Atchison, Topeka & Santa Fe Railway Company was 1,241,737 shares of Preferred Stock and 2,228,735 shares of Common Stock.
5. Pursuant to the provisions of the laws of England an Estate Duty was paid on behalf of the*1188 Estate of Louis Joel Duveen to the Commissioners of Inland Revenue for Estate Duty in England with respect to transfer of the said 2,425 shares of Common Stock of Atchison, Topeka & Santa Fe Railway Company and with respect to transfer of the 1,900 shares of Common Stock and 2,672 shares of Preferred Stock of Duveen Brothers, Inc., referred to in paragraph 1 hereof, and with respect to transfer of the Common and Preferred Stock of Duveen Brothers, Inc., covered by the said contracts referred to as Exhibits A and B, a deduction being allowed for the unpaid balance of the purchase price under said contracts.
6. A Federal estate tax in the amount of $93,610 (the amount shown as Federal estate tax on the estate tax return filed by the petitioners as executors less $165) together with $24,401.01 interest thereon, was paid by the petitioners as executors of the Estate of Louis Joel Duveen on July 8, 1925.
Exhibit A, attached to the stipulation of facts, was in part as follows:
AGREEMENT, made this 19th day of February, 1919, between GEOFFREY E. DUVEEN, MAX BRUELL, and GUARANTY TRUST COMPANY OF NEW YORK, as the Executors of the Last Will and Testament of Henry J. Duveen, deceased, *1189 hereinafter called the Executors, parties of the first part, and JOSEPH DUVEEN and LOUIS J. DUVEEN, parties of the second part;
WITNESSETH:
WHEREAS, an agreement, dated April 10, 1918, was made between Henry J. Duveen, Joseph Duveen, Louis J. Duveen and Benjamin J. Duveen, which agreement is hereby referred to and made a part hereof; and
WHEREAS, said Henry J. Duveen died on January 15, 1919, and the Surrogates' Court of New York County, on January 30, 1919, duly granted to the Executors letters testamentary upon the Estate of the said Henry J. Duveen, deceased; and
WHEREAS, the said Henry J. Duveen, deceased, was the owner of, and the Executors now own, eight thousand, nine hundred, seventy-six (8,976) shares of the Preferred Stock, and three thousand, five hundred (3,500) shares of the Common Stock of Duveen Bros., Inc., a New York corporation, hereinafter called the Corporation, which said shares of stock are now on deposit with Guaranty Trust Company of New York, pursuant to said agreement of April 10, 1918; and
WHEREAS, the Executors desire to sell, and the parties of the second part desire to purchase, all of the said shares, pursuant to the provisions of Article "Eighth" *1190 of said agreement of April 10, 1918, but subject to the modifications and conditions set forth in this agreement;
NOW, THEREFORE, in consideration of the premises and of the mutual agreements herein contained, it is agreed as follows:
FIRST: The Executors hereby sell, transfer and assign unto Joseph Duveen and Louis J. Duveen, and the said Joseph Duveen and Louis J. Duveen hereby *136 purchase from the Executors the said eight thousand, nine hundred, seventy-six (8,976) shares of the Preferred Stock and the said three thousand, five hundred (3,500) shares of the Common Stock of the Corporation, at the price and upon the terms hereinafter set forth.
* * *
FOURTH: The parties of the second part shall be jointly and severally liable to the Executors for the total purchase price of said shares of stock, as hereinabove provided, but the said parties of the second part, as between themselves, shall be liable each only for the shares respectively purchased by him.
FIFTH: (a) As security for the payment of the said ten (10) half-yearly installments to be paid by the parties of the second part, as aforesaid, the parties of the second part hereby deposit with the Executors*1191 all of the shares of stock hereby purchased.
(b) Upon payment of each installment, the Executors shall do all things necessary or proper for vesting against each such payment a proportionate amount of said Preferred Stock and said Common Stock in such names and such divisions as may be directed by the parties of the second part; and upon payment of all of the said installments with interest, as hereinabove provided, the Executors shall vest any and all of said stock then not transferred in the parties of the second part, as they may direct.
(c) In case, however, there shall be a default of twelve (12) months in any installment of principal, without extension of time or leave therefor being granted by the Executors, then and in that event the entire amount of principal indebtedness, together with the interest to the date thereof, may be declared due and payable by the Executors at their option; but nothing herein contained shall limit or restrict the legal rights and remedies of the Executors for the collection of each installment of principal and interest as and when the same may be due hereunder.
(d) Any and all cash distribution in liquidation on the said shares of stock*1192 hereby sold, except upon such shares of stock as the parties of the second part may then be entitled to have transferred to them forthwith, shall, until final payment of all of the said installments with interest as aforesaid, be paid over by the parties of the second part to the Executors to be applied on account of and credited against (1) interest accrued and due, and (2) the over-due or the next accruing installment or installments of principal; but all dividends in specie or in kind shall, unless and until default shall have been made, belong to and be delivered and turned over to the parties of the second part or their assigns, whether or not said shares of stock shall yet have been transferred.
(e) Until default in the obligation of the parties of the second part in the payment of any of the said installments or of the interest thereon, the parties of the second part or their assigns, as individually entitled to receive same, shall be entitled to vote the said shares of stock for the time retained hereunder as security by the Executors, and the Executors shall furnish any and all necessary documents to that end.
(f) Upon any default for the period of twelve (12) months*1193 in the payment of any of said installments or interest, the Executors may, at their option, nominate and appoint and individual of their selection to the Board of Directors of the Corporation, who shall have the full powers of a director during the continuation of such default, and if at the time of such default there shall be a liquidation, then during such liquidation such representative of the Executors shall act as a liquidator in the place of and with the full voting power of the parties of the first part.
*137 SEVENTH: Inasmuch as the certificates for the said shares of stock hereby sold are now on deposit with Guaranty Trust Company of New York, under said agreement of April 10, 1918, such depositary is hereby notified that the parties of the second part have become the owners of the said shares and of all the right, title, share and interest of the Executors and of the said Henry J. Duveen, deceased, in and to the same, and a copy of this agreement shall be filed with the said depositary.
EIGHTH: This agreement shall bind and enure to the benefit of each and all of the parties hereto, their and each of their respective heirs, executors, administrators, successors*1194 and assigns. [Signatures omitted.]
It is believed that the stipulations make sufficient reference to Exhibits B and C and therefore no useful purpose would be served in copying them in detail in these findings of fact and they are therefore omitted, except by reference.
In addition to the foregoing stipulations, together with the exhibits attached thereto, the depositions of two witnesses were introduced in evidence, from which we make the following findings:
The dividends on all of the stock, including the dividends on the Atchison, Topeka and Santa Fe Railway stock, referred to in the stipulation, were credited to decedent's account with Duveen Brothers, Inc., and he was entitled to and did draw against such account. Duveen Brothers, Inc., had establishments in London, Paris and New York City.
Decedent Louis Joel Duveen spent practically all of his time in London, England, and his duties were to purchase antiques, mostly at auction sales, for sale in New York City by Duveen Brothers, Inc. He carried on no active business in the United States. After 1911 and prior to his death, he was in the United States only once.
OPINION.
BLACK: Petitioners' assignments of*1195 error upon which they rely may be summarized as follows:
1. The Commissioner is barred from assessing or collecting any additional tax, interest, or penalty in this case because of the running of the statute of limitations.
2. The maxim
3. *1196 That even if section 403(b)(3) is constitutional and it is proper to include the value of the shares of stock which decedent owned in domestic corporations in his gross estate, nevertheless as to the stock in Duveen Brothers, Inc., which decedent had contracted to purchase from the executors of the estate of Henry J. Duveen, under the terms of the contract dated February 19, 1919, the extent of the interest of the decedent therein which was subject to the payment of charges against his estate and subject to the payment of expense of its administration and subject to distribution was not in excess of $269,963.70 and that no greater amount than $269,963.70 can in any event be included in the gross estate on account of said interest. In this computation of $269,963.70 is included $157,110.39 which represents the value of the shares which decedent had actually paid for at the time of his death and $112,853.31 which represents the value of his right to purchase the remainder of the stock contracted for but not paid at the time of death. As to this latter item petitioner contends it was intangible personal property which under the doctrine announced by the Board in *1197
4. If it be held that the entire value of all the shares sold to decedent under the terms of the contract mentioned above should be included as a part of his gross estate in the United States, and that the deduction for the unpaid portion of the purchase price contracted to be paid for said stock, amounting to $552,534.54, and other deductions are limitated to 10 per centum of the gross estate in the United States so determined, then section 403(b)(1) which reads:
In the case of a nonresident, by deducting from the value of that part of his gross estate which at the time of his death is situated in the United States -
(1) That proportion of the deductions specified in paragraph (1) of subdivision (a) of this section, which the value of such part bears to the value of his entire gross estate, wherever situated, but in no case shall the amount so deducted exceed 10 per centum of the value of that part of his gross estate which at the time of his death is situated in the United*1198 States;
as thus construed is unconstitutional because such construction and application of the statute result in an arbitrary, capricious and confiscatory measure of tax and deprive persons of property without due process of law, contrary to the provisions of the
We will first consider petitioners' plea of the statute of limitations. The tax in question was imposed under the terms of the Revenue Act *139 of 1918. The decedent, a nonresident alien, died on March 4, 1920. His will was not admitted to probate until June 17, 1924, at which time the executors qualified. The estate tax return was filed June 29, 1925, and the deficiency notice mailed on August 10, 1927. Prior to the enactment of the 1921 Act, the period of limitation applicable to the assessment of an estate tax was 15 months from the time of the delivery of the assessment list to the collector, as prescribed in section 3182 of the Revised Statutes. Assessment of the tax was not barred at the time of the enactment of the 1921 Act and, under the provisions of section 1322 of that act, the period was limited to four years after the tax
Prior to the expiration of such 4-year period the 1924 Act was enacted. Section 316 of the Revenue Act of 1924 made applicable the period of limitation prescribed in section 1009 in lieu of the period prescribed in subdivision (a) of section 310 of the 1924 Act. The period prescribed in subdivision (a) of section 1009 was the same as that prescribed in section 1322 of the Revenue Act of 1921, viz., four years after the tax became due, but was made subject to the exception provided in subdivision (b), which reads as follows:
(b) In case of a false or fraudulent return with intent to evade tax,
The return in question was filed on June 29, 1925, although it was due March 4, 1921 (see sections 404 and 406 of the Revenue Act of 1918, *1200 and article 77 of Regulations 37, revised in January 1921). On June 2, 1924, the date of the passage of the 1924 Act, there was no return on file and, according to the provisions of section 1009 of that act, the tax could have been assessed at any time. Petitioners contend that the expression "required return" as used in section 1009(b) of the 1924 Act does not mean that the return must have been filed within the time required by the Commissioner's regulations under the 1918 Act. It is petitioners' contention that the return which they filed on June 25, 1925, was the "required return" mentioned in the exception contained in section 1009(b) of the 1924 Act and that, although it was filed late, as tested by the Commissioner's regulations, the statute of limitations began to run from the due date of the tax, March 4, 1921, just as if the required return had been then on file, and was therefore barred when the deficiency notice was mailed, August 10, 1927. We do not agree with this contention. To say that the phrase "required return" meant anything other than a *140 timely return under the law and the Commissioner's regulations, would, to all intents and purposes, strike the*1201 term "required" from the act. It therefore follows that the assessment was not barred at the time of the passage of the 1926 Act, which in section 1109(a)(2) provides that in case of a failure to file a return within the time required by law the tax may be assessed at any time. Accordingly, petitioners' plea of the statute of limitations is denied.
We will next take up petitioners' contention that section 403(b)(3) of the Revenue Act of 1918, in so far as it provides that "For the purpose of this title stock in a domestic corporation owned and held by a nonresident decedent, * * * shall be deemed property within the United States," is unconstitutional because in violation of the
We will next discuss the contention made by petitioner in assignment of error No. 3.
Prior to the date of his death, the decedent had entered into contracts for the purchase of 2,565 shares of preferred and 1,000 shares of common stock of Duveen Brothers, Inc. The total purchase price to be paid by the decedent was $682,997.84. He had paid prior to the date of his death, $130,463.30, or less than one fifth of the entire purchase price. The respondent in computing the tax included in the gross estate the value of the entire amount of stock to be purchased by the decedent. The respondent applied the limitation on deductions prescribed in section 403(b)(1). The deductions for administration expenses and debts other than the balance*1203 to be paid under the contracts exceeded the amount prescribed by this section. The result is that the respondent's determination includes in the estate upon which the tax was computed the entire value of the stock to be purchased, without deduction for the unpaid purchase price, although the decedent had paid for less than one fifth of the stock in *141 question at the time of his death. Petitioners contend that respondent should have taxed only the interest of the decedent in the stock and not the entire value of the stock covered by the purchase contract.
Title to the property which a vendor has contracted to sell but withholds pending satisfaction of some condition precedent, such as payment, does not pass to the purchaser until the condition is performed.
The contract relating to the purchase of stock involved in this proceeding contained provisions which appear inconsistent. The contract for example recites that the vendors "hereby sell, transfer and assign" and that the vendees "hereby purchase" certain shares of stock.
Later, the same contract provides, however, that ownership in the shares of stock shall be vested in the purchaser in proportion to his payments made. The contract in this respect reads:
FIFTH: (b) Upon payment of each installment, the Executors shall do all things necessary or proper for vesting against each such payment a proportionate amount of said Preferred Stock and said Common Stock in such names and such divisions as may be directed by the parties of the second part; and upon payment of all of the said installments with interest, as hereinbefore provided, the Executors shall vest any and all of said stock then not transferred in the parties of the second part, as they may direct.
Considering the contract as a whole, we are of the opinion that the intention of the parties was to convey to the vendees no absolute right of ownership in the stock greater*1205 than the installments of purchase price as paid. As fast as one of the ten installments of the purchase price was paid under the terms of the agreement, the ownership in a corresponding amount of the stock became vested in the vendees.
In the light of the contract under which the stock was purchased by decedent, and under authority of the above cited cases, we hold that of this particular block of stock in Duveen Brothers, Inc., all that should be included in decedent's gross estate is $157,110.39, which represents the value of the shares of stock purchased under the terms of the contract and which had actually been paid for at the time of his death. As to decedent's right to purchase the remainder of the stock contracted for but not paid for at the time of his death, which contractual right is conceded to have had a value of $112,853.31, petitioners contend that such right was intangible personal property, which under the doctrine announced by the Board in
*1206 Petitioner contends that this is true, even though it be held that stocks of a domestic corporation owned by a nonresident decedent do have a situs in the United States. Section 402, Revenue Act of 1918, provides:
That the value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated -
(a) To the extent of the interest therein of the decedent at the time of his death which after his death is subject to the payment of the charges against his estate and the expenses of its administration and is subject to distribution as part of his estate * * *.
This provision is applicable to nonresidents to the extent of property situated in the United States under section 403(b), Revenue Act of 1918. The contractual right to purchase the stock at a price less than its market value at decedent's death was intangible personal property. All the physical evidences of such intangible personal property were situated in the United States. The contract to purchase the shares of stock, together with the certificates of stock themselves, were on deposit with the Guaranty*1207 Trust Company of New York City. We think that under the doctrine of the Supreme Court announced in the case of
In view of the above holding, it becomes unnecessary to pass upon the question of the constitutional validity of the language of section 403(b)(1), cited in paragraph (4) of the statement of alleged errors, because petitioners only urge that particular ground in the event that we should hold that the entire value of the shares of stock purchased by Louis Joel Duveen from the estate of his brother, Henry J. Duveen, including*1208 that which had not been paid for as well as that which had been paid for, should be included as a part of his gross estate.
Reviewed by the Board.
SMITH and MURDOCK dissent.