McClure v. Commissioner

J. CLARENDON MCCLURE, ADMINISTRATOR, ESTATE OF NATHANIEL D. MCCLURE, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

McClure v. Commissioner

Docket No. 30987.

United States Board of Tax Appeals

20 B.T.A. 1127; 1930 BTA LEXIS 1967;

October 1, 1930, Promulgated

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1. Held that the evidence is not sufficient to overcome the presumption that certain transfers of corporate stock by gift made by decedent within two years prior to his death were made in contemplation of death.

2. Held that the provisions of the Revenue Act of 1924 are applicable to transfers by way of gift of corporate stock made in 1923 in contemplation of death where the decedent died in 1924 subsequent to the enactment of the Revenue Act of that year.

George E. H. Goodner, Esq., and Walter K. Smith, C.P.A., for the petitioner.

John D. Foley, Esq., and J. A. Lyons, Esq., for the respondent.

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TRAMMELL

This proceeding is for the redetermination of a deficiency in estate tax of $5,649.48. The matters in controversy are (1) whether certain absolute transfers of corporate stock by way of gift made by the decedent to his children on November 1, 1923, and within one year prior to his death on October 29, 1924, were made in contemplation of death, and (2) whether the provisions of the Revenue Act of 1924 are applicable to the transfers of property made prior to the date of the enactment of such act.

FINDINGS OF FACT.

The petitioner is the duly authorized and acting administrator of the estate of Nathaniel D. McClure, deceased. Nathaniel D. McClure, hereinafter referred to as the decedent, died intestate and a resident of Mobile, Ala., on October 29, 1924. At the time of his death he was 71 years 10 months and 3 days of age.

From about 1910 or earlier the decedent was engaged in the lumber business at Wagar, Ala., where he resided until in March, 1921, when he moved to Mobile. The decedent formerly owned and operated the old McClure Lumber Co., whose plant at Wagar burned in April, 1920. The petitioner and two of his sons formed a partnership, which constructed a new mill, bought a tract of timber, and carried on a lumber business until November 1, 1923. About that date a corporation known as the McClure Pine Co. was organized with a capital stock of $100,000 consisting of 500 shares of common stock and 500 shares of preferred stock, both of a par value of $100 per share. There were transferred to the corporation for its capital stock, all of the assets of the partnership and everything pertaining to a sawmill that the decedent and the two sons who were in partnership with him owned in Washington County, Ala. As the decedent had the larger interest in the partnership and owned more of the other properties transferred to the corporation, he was entitled to the larger part of the corporation's stock, receiving all of the 500 shares of preferred stock and 300 shares of the common stock, the sons each receiving 100 shares of common stock.

The decedent had ten children - five boys and five girls, all of whom were of age and living on November 1, 1923. Prior to that date the decedent had made loans to some of his children. On or about November 1, 1923, the decedent made absolute transfers by way of gift to his children of 294 shares of the common stock and 491 shares of the preferred stock which he had received in the McClure Pine Co. The preferred stock, having a value of $122,750, was given to the daughters while the common, having a value of $73,500, was given to the sons. In transferring the stock to his children the decedent took into consideration the former loans made to each so that the distribution was equalized as to each child.

The petitioner filed an estate-tax return showing a total gross estate of $167,510.59 and a net estate of $89.951.21. The stock transferred by the decedent to his children on or about November 1, 1923, and having a total value of $196,250, was not included in the return as a part of the decedent's estate. In determining the deficiency here involved the respondent increased the gross estate by including in it, at a value of $196,250, the stock in the McClure Pine Co. transferred by the decedent to his children on or about November 1, 1923.

About the latter part of 1916 or 1917 the decedent, who was a large man and of robust appearance, weighing about 200 pounds and being about 6 feet tall, made application for a life insurance policy. He was examined by a Dr. G. C. McCrary, who was then living at Wagar, and also by a physician from Mobile. They passed the decedent, but his application was denied by the company, as its medical director in New York found a trace of sugar in the decedent's urine. Upon learning of the reason for the rejection Dr. McCrary made several tests, but found no sugar. At the time Dr. McCrary examined the decedent for life insurance he found his heart in good condition and although he afterwards examined the decedent on several occasions, he never examined his heart after that time.

About the latter part of 1918 or early in 1919, the decedent had an abrasion or infection of his foot and was thinking of consulting a specialist, a dermatologist, in Mobile about it. The decedent, upon discussing the condition with Dr. McCrary, was reminded by the latter that the ulcerated or infected condition was probably due to his diabetic condition. A few days afterwards Dr. McCrary made an examination of the decedent's urine and found it heavy with sugar. A specimen was sent to decedent's son, Dr. C. C. McClure, at Nashville, Tenn., and one was also sent to a private laboratory. These examinations confirmed Dr. McCrary's findings, and the decedent was then willing to admit that he had diabetes. Immediately after this the decedent went to see his son, Dr. C. C. McClure, at Nashville and while there consulted a Dr. Oughterson about his condition. Dr. McCrary together with Dr. McClure prescribed a "sugar-free, starch-free" diet for the decedent, which he followed rigidly. After the decedent went on the diet the sugar condition cleared up and disappeared and while Dr. McCrary thereafter on many occasions down to December, 1920, examined specimens, he found them practically free of sugar and only occasionally did he find a trace of Sugar. After discovering the sugar condition, Dr. McCrary's examinations of the decedent were, except for the diabetic condition, more or less superficial, as the decedent was otherwise apparently in good physical condition and attending to his daily duties about normally. Dr. McCrary knew the decedent had a distinct condition which required only a diet, since there was no medicine for it at that time.

The decedent was a temperate man and was a total abstainer from alcoholic drinks.

In January, 1921, the decedent purchased an old seven or eight room house on a lot of ground about 300 feet by 800 feet, in Mobile. After practically rebuilding the house he moved into it in March of 1921. After moving to Mobile the decedent personally looked after the care of the ground about his house. On this ground he had a vegetable garden, flower gardens, and a lawn which was beautified with shrubbery, etc. The petitioner continued to do this through 1923.

While the decedent did not drive an automobile, he owned several. In January, 1923, he bought a Packard and owned one or two Fords. The Packard was wrecked in October, 1923, and in February, 1924, he bought another.

The decedent took an active part in the operation of the partnership composed of himself and two of his sons. While he was general manager of the partnership, and his duties as such consisted of overseeing the entire operation and offering suggestions, the two sons were actively in charge of operations. The sons always consulted with the decedent before entering into any major transaction and he gave directions as to what should be done. Every week or two the decedent went back and forth between Mobile and Wagar, a distance of 55 miles. He traveled by train and by automobile. When traveling by automobile it took from one and three-quarter hours to three hours to make the trip, depending on the condition of the roads. The decedent would stay several days in Wagar when he went up from Mobile. After the formation of the McClure Pine Co. the decedent became its president and his activities in connection with the corporation and the amount of time devoted thereto were the same as they had been with the partnership. The decedent continued to be consulted about the operations as theretofore. This relationship and activity continued until the time of his last sickness and death in 1924.

On October 12, 1924, the decedent traveled by automobile from Birmingham to Wagar and that night ate some chestnuts. He then had an attack of indigestion, which was followed by a heart attack. Sometime during the following day, October 13, a Dr. Kimbrough was called in to see him. Dr. McCrary was called in in consultation with Dr. Kimbrough. When Dr. McCrary saw the decedent about eight o'clock on the night of the thirteenth he was in bed, completely relieved and cheerful. Thereafter the decedent was taken to his home in Mobile. There he was attended for about ten days and until his death by Dr. G. C. Kilpatrick of Mobile. Dr. Oughterson also made a trip from Nashville to see the decedent before his death.

The cause of the decedent's death was chronic myocarditis and contributory or secondary to it was hypostatic pneumonia.

OPINION.

TRAMMELL: The petitioner contends that the transfers of the stock in the McClure Pine Co. made by the decedent to his children on or about November 1, 1923, and within two years prior to the decedent's death on October 29, 1924, were not made in contemplation of death. The respondent contends that they were made in contemplation of death.

Section 302 of the Revenue Act of 1924 provides in part as follows:

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 -

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(c) To the extent of any interest therein of which the decedent has at any time made a transfer, or with respect to which he has at any time created a trust, in contemplation of or intended to take effect in possession or enjoyment at or after his death, except in case of a bona fide sale for a fair consideration in money or money's worth. Any transfer of a material part of his property in the nature of a final disposition or distribution thereof, made by the decedent within two years prior to his death without such a consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of Part I of this title;

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(h) Subdivisions * * * (c) * * * 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.

There is no controversy between the parties as to the stock transferred constituting a material part of the decedent's property or as to the value of such stock at the time of its transfer.

The meaning of the phrase "in contemplation of death" as used in the statute has heretofore been discussed by us in a number of cases, and no useful purpose would be served by repeating such discussion here. See ; ; ; and .

Inasmuch as the transfers were made within two years prior to the decedent's death, there is a presumption under the statute that they were made in contemplation of death.

To sustain his contention, the petitioner, a son of the decedent, submitted the testimony of himself, E. O. McClure, another son of decedent, and Dr. McCrary.

We have set out in our findings of fact the business and recreational activities of the decedent during the last several years of his life as established by the testimony of E. O. McClure, a son of the decedent who was associated in business with him and who saw decedent about once a week and of the petitioner, also a son of the decedent, who lived in decedent's home at intervals between May, 1921, and the summer of 1924. The facts show that the decedent took an active interest in the business of the McClure Pine Co., of which he was president and stockholder, until about the time of his death. But to our minds such activity is not inconsistent with the idea that the decedent in making the transfers was doing so because of a belief that death was near at hand or was to be expected in the reasonably near future.

As to the decedent's physical condition during the last several years of his life, the petitioner submitted the testimony of himself, that of E. O. McClure, and that of Dr. McCrary.

The petitioner testified that he could not remember any apparent change in the decedent's condition from the early part of 1921 until the end of 1923. He also testified that he was living in New York at the time the transfers were made and did not see his father around that time. E. O. McClure testified that he could not detect any change in the decedent's health between the beginning and end of 1923 and that during 1923 and 1924 he could see no changes in the decedent's condition from any prior time. Upon being asked if he had seen the decedent several weeks prior to October 13, 1923, which is the nearest specific date to the time of the transfers that any question was asked as to the decedent's condition, he was unable to testify, stating that the decedent had gone to Nashville to visit his son Dr. C. C. McClure. While both the petitioner and his brother testified that the decedent was not under the care of a doctor down to the end of 1923, they both testified that the decedent followed a diet very rigidly, and although they testified that so far as they knew decedent was never confined to his bed, yet during this time they knew that he had diabetes.

The return filed by the petitioner for the estate gives the names and addresses of the decedent's physicians as follows:

Dr. W. E. Kimbrough, St. Stephens, Ala.

Dr. G. C. Kilpatrick, Mobile, Ala.

Dr. G. C. McCrary, Jackson, Ala.

Dr. N. A. Oughterson, Nashville, Tenn.

Dr. Kilpatrick is shown as the physician who attended the decedent during his last illness. He also signed the certificate of the decedent's death, showing that the cause of his death was chronic myocarditis and that contributory or secondary to it was hypostatic pneumonia.

Although Dr. McCrary, the only one of the above named physicians whose testimony was offered, saw the decedent professionally during the three or four years prior to December, 1920, he never thereafter examined him or saw him in a professional capacity except for the one time when he was called in in consultation with Dr. Kimbrough on October 13, 1924, and about two weeks prior to the decedent's death. While Dr. McCrary met the decedent several times during 1921 and 1922, and at such times noticed no change in the decedent's condition, he never saw him during 1923. Dr. McCrary testified quite fully as to the decedent's diabetic condition prior to December, 1920, but was not in a position to testify as to his condition on or about the time the transfers were made in 1923.

While Dr. McCrary's testimony shows that he found the decedent's heart in good condition when he examined him for life insurance in 1916 or 1917 and about six or seven years prior to the transfers, it also shows that he never examined the decedent's heart again. The record shows that the decedent died from myocarditis which was chronic or of long standing. However, it is silent as to about how long the decedent had had the heart condition or as to when the condition began to manifest itself or as to the stage to which it had advanced when it first became manifest. Nor is there anything to indicate the rapidity with which the disease progressed after having manifested itself, or the treatment or regimen prescribed and followed for it. The record is silent as to whether the decedent knew that he had heart trouble, and if so as to when he was informed of it and whether he was informed as to the prospects of its resulting fatally in the near future. The answer to these and other pertinent questions is left entirely to speculation.

Considering all of the evidence, we are of the opinion that the petitioner has not sustained the burden of overcoming the statutory presumption that the transfers were made in contemplation of death within the meaning of the statute. See .

The petitioner contends that the transfers may not be subjected to tax under the Revenue Act of 1924, as they were made prior to the passage of that act, and in support of the contention relies on the decision in .

A similar contention with respect to the taxability of transfers made prior to the enactment of the Revenue Act of 1921 was before us in . There we said:

It is urged that the gifts in question may not be subjected to tax under the Revenue Act of 1921, as they were made prior to the passage of that Act. The language of the Act expressly states that gifts made before the passage of the Act are subject to the tax and liability could only be escaped on the ground that such provision is unconstitutional. Petitioners urge that such was the decision in ; 6 Am.Fed. Tax Rep. 710. There the court was concerned with the attempt to tax a gift made many years before the enactment of the taxing statute, not in contemplation of death, but surrounded by such conditions that it took effect in possession at death. The court expressly refused to pass upon the situation where a gift was made in contemplation of death. The motion of the petitioners, made at the hearing, for judgment upon the pleadings upon the authority of that decision, is denied.

In view of the express provisions of subdivision (h) of section 302 of the Revenue Act of 1924 heretofore quoted, we think that what we said in the Loetscher case is applicable here and accordingly hold that the transfers are subject to tax under the Revenue Act of 1924. See , and .

Reviewed by the Board.

Judgment will be entered under Rule 50.