MacAulay v. Commissioner

Estate of Genevieve Brady Macaulay, Nathan L. Miller and Lawrence Cavanagh, as Sole Surviving and Sole Acting Executors, Petitioners, v. Commissioner of Internal Revenue, Respondent MacAulay v. Commissioner Docket No. 109617 United States Tax Court 3 T.C. 350; 1944 U.S. Tax Ct. LEXIS 182; February 24, 1944, Promulgated *182 Decision will be entered under Rule 50. 1. Decedent made gifts of securities, furnishings, and art objects to her husband within two years of her death. She had previously provided for him by will. Decedent's executors, with the husband's approval, treated the gift of securities as having been made in the nature of an advancement and the husband's legacy was abated accordingly. Held, on the evidence, that the gifts were not made in contemplation of death within the meaning of section 302 (c) of the Revenue Act of 1926 as amended, and that the presumption to the contrary has been overcome. 2. Petitioners filed an estate tax return on February 20, 1940, disclosing an estate tax liability of $ 1,361,517.07. The sum of $ 1,497,262.38 was paid to the collector on that date. Held, that there has been an overpayment of estate tax. Held, further, that this Court has no jurisdiction of matters pertaining to interest. William FitzGibbon, Esq., and Sandow Holman, Esq., for the petitioners. Thomas H. Lewis, Jr., Esq., for the respondent. Hill, Judge. HILL *351 This proceeding involves an estate tax deficiency in the amount of $ 676,504.66. Petitioners*183 claim an overpayment of tax in excess of $ 100,000. The deficiency was determined by respondent as a result of numerous adjustments, many of which are not contested. Respondent now concedes that he erred in disallowing a deduction of certain executors' commissions and legal fees. He will also allow credit for New York State estate taxes in the amount actually paid by petitioners. These issues are resolved by written stipulation. At the trial the parties further stipulated that the decedent's Union Bleachery Co. stock should be valued at $ 50 per share, and petitioners abandoned their positions respecting an alleged debt deduction. Effect will be given to these changes in position in the final settlement under Rule 50, at which time the amount of the deduction for charitable bequests also will be recomputed. Two issues remain in controversy, namely, (1) whether certain gifts made by the decedent were made in contemplation of death, and, hence, are includable in the decedent's gross estate under section 302 (c) of the Revenue Act of 1926 as amended, and, (2) if an overpayment is found to have been made, whether petitioners are entitled to a refund with interest from the date *184 of the overpayment. The estate tax return was filed with the collector of internal revenue for the third district of New York. The facts were stipulated in part and, to that extent, are herewith found accordingly. However, we set forth so much thereof, together with those facts otherwise established, as are material to the controverted issues. FINDINGS OF FACT. Nathan L. Miller and Lawrence Cavanagh are the duly qualified executors of the estate of Genevieve Brady Macaulay, a citizen of the United States who died testate in Rome, Italy, on November 24, 1938. Death was caused by acute leukemia, a fatal disease which generally runs its course within three or four weeks and which, in this instance, brought death in twelve days. Decedent was then approximately sixty years old, but had the appearance and energy of a younger woman. Other than in her last illness, she had neither suffered from nor complained of any bodily affliction, except an infrequent cold or minor ailment, during the last twenty-two years of her life. *352 Decedent was a woman of considerable means. Having an independent fortune of several million dollars, she inherited several millions more upon the death of*185 her first husband in 1930. She was charitably inclined and was generous of both her time and money in relation to, particularly, the Girl Scouts of America, of which she was long the national chairman; the Carroll Club in New York, which she founded and largely supported in behalf of Catholic working girls; and the Catholic Novitiate at Wernersville, Pennsylvania, which was built by her first husband and herself at a cost of nearly $ 3,000,000. Decedent also contributed heavily to other charities and religious organizations, a principal gift being her one million dollar Long Island estate, Inisfada, conveyed to the Jesuit Order for a study house. She entertained frequently and lavishly, traveled extensively, played an active and intelligent part in the management of her estate, and dressed in a fashion commensurate with her wealth and social life to the very time of her death. In 1938 she renewed the lease on her Rome villa for a ten-year term, built two greenhouses, and had plans drawn for a swimming pool. Her last illness caused the cancellation of reservations for a trip to the United States in November 1938. Plans had also been made for a trip to Egypt in January 1939. On*186 March 6, 1937, decedent married William J. B. Macaulay, the then Irish envoy to the Vatican. These parties, the day before, had executed and acknowledged an agreement which, after reciting the pendency of the marriage and their desire that each remain free to make such testamentary dispositions as may respectively be deemed appropriate, stated: Now, Therefore, in consideration of the premises and of the mutual promises herein contained and of other good and valuable considerations, receipt of which by each from the other is hereby acknowledged, each of the parties hereto covenants and agrees to and hereby does ratify and confirm any and all wills and testaments of the other wheresoever and whensoever made and hereby waives any right conferred by law, whether by statute of the State of New York or otherwise, to take as against any will of the other the intestate share to which each would otherwise be entitled. At about the same time decedent executed a will in which she bequeathed Macaulay $ 1,000,000. Immediately following the wedding decedent and Macaulay sailed for Italy and took up residence in Rome, where decedent had for some years maintained a villa and where Macaulay was*187 stationed by reason of his position. Decedent continued to maintain an apartment on Park Avenue, New York City. In October 1937 decedent returned to New York and, while there, executed her last will. By the terms of this will she bequeathed to her husband $ 1,000,000, the furnishings at the Rome villa, and all personal effects not otherwise disposed of. Paragraph sixth of the will was as follows: *353 Sixth: It may be that during my life provision may be made for the carrying out of some of the charitable devises and bequests herein made through the Inisfad Foundation, Inc. To the extent that such provisions may be made, I direct that the charitable devises and/or bequests herein made shall abate I may also make advances to some of the legatees herein named on account of their said legacies, and to the extent that I may make such advances, I direct that all legacies upon which advances shall have been made by me shall to the extent thereof abate. The March 1937 will had contained a similar clause, as had her several previous wills dating back to a time prior to the death of her first husband. In October 1937 decedent told Nathan L. Miller, her legal adviser, that she was*188 thinking of giving her husband securities in an amount sufficient to produce an income of $ 25,000 per year. In March 1938 decedent again returned to New York, and, in Miller's absence, advised his law associate that she had definitely determined to make such a gift to her husband to enable him to pay their heavy living expenses abroad without assistance from her. The securities made the subject of the gift later were selected by Miller at decedent's direction and the gift was consummated on April 20, 1938, by the transfer of 5,000 shares of Niagara Hudson Power Corporation 5 percent cumulative first preferred stock. The fair market value of this stock at the date of decedent's death was $ 428,750. The living and traveling expenses of Macaulay, a man of moderate means, increased tremendously after his marriage to decedent. The gift was made to enable him personally to meet these additional expenses and to reduce decedent's income taxes. In the summer of 1938 decedent was about to auction some of her personal property situated at Inisfada preparatory to its passing to the Jesuits. On July 1, 1938, before the auction, she gave to her husband certain of Inisfada's miscellaneous*189 furnishings and art objects for the purpose of refurbishing and beautifying his embassy at Rome. The fair market value of this property at the date of decedent's death was $ 56,542. A gift tax of $ 27,674.17 was paid on the gifts of the stock and the personal property. Decedent did not indicate to Miller, his associate, or her husband that she wished the gift of stock to be treated as an advance on account of her husband's general bequest. Nevertheless, Miller, as coexecutor of her estate, suggested to Macaulay that he so regard the gift and the latter was agreeable to the suggestion. In the accounting before the surrogate, $ 400,000 was treated and considered to be an advancement against the $ 1,000,000 legacy to Macaulay, pursuant to paragraph sixth of the will, so that this legacy was discharged by the payment by the executors to Macaulay of an additional $ 600,000. The gift of personal property was not included in the executor's accounting, *354 since it was personal property situated outside the jurisdiction of the Surrogate's Court. The decedent's gifts to her husband in April and July 1938 were not made in contemplation of death. Petitioners filed an estate tax return*190 on February 20, 1940, reporting decedent's net estate to be worth approximately $ 4,500,000. The return disclosed an estate tax liability in the sum of $ 1,361,517.07 and the sum of $ 1,497,262.38 was paid the collector on that date, which was within three years of the filing of the original petition in this proceeding. No amount greater than that shown on the return has been assessed against petitioners. The notice of deficiency was mailed to petitioners on October 21, 1941. OPINION. The principal question in this proceeding is whether transfers of stock and personal property made by decedent to her husband in April and July 1938, respectively, were made in contemplation of death within the meaning of section 302 (c) of the Revenue Act of 1926 as amended by section 802 (a) of the Revenue Act of 1932. On the determination that they were, respondent increased the value of decedent's estate by $ 485,292, the fair market value of such property on the date of decedent's death. It is well settled that the words "in contemplation of death" mean the thought of death is the impelling cause of the transfer and, further, that the estate tax does not cover gifts inter vivos which spring*191 from a different motive. ; . Hence, in the many cases involving the question of whether particular transfers were made in contemplation of death the inquiry has been directed to the decedent's motive in making them. The facts here disclose that the instant gifts were made during the year in which decedent died. By statute they presumptively were made in contemplation of death. By way of overcoming this presumption, petitioners adduced considerable evidence stressing decedent's long record of good health, the suddenness of her death, the continuous fast tempo of her life to the end, and the considerations which impelled her to make the gifts of stock, furnishings, and works of art to her husband. This evidence, uncontroverted, impels the conclusion that decedent to the last had no presentiment of impending death and that the gifts in question were made, respectively, to enable Macaulay to defray his increased current expenses and to refurbish and enhance the beauty of his embassy. The gift of stock was also calculated to decrease*192 decedent's income taxes. Such motives obviously are associated with life, not death, and respondent does not argue to the contrary. *355 This conclusion should dispose of the issue, as it has in many similar proceedings. However, respondent asserts, in effect, that this case may not turn on the answer to the normal inquiry, i. e., the decedent's motive in making the transfer, but that a gift inter vivos made in ademption of a legacy, such as he claims we have here, is of necessity made in contemplation of death within the meaning of the statute. Respondent's proposition, to which his brief is devoted solely, proceeds on the premise that decedent's gift of stock to her husband was in the nature of an advancement to be credited against his $ 1,000,000 legacy. We think the premise unsound. It is true that paragraph sixth of the decedent's will recognized and provided for the possibility that testator might make advances to some of the legatees. It is also true that Macaulay acceded to a coexecutor's suggestion that, in view of his wife's untimely death, he treat the gift as having been made in reduction of the general bequest. In spite of these circumstances, however, *193 we are unable to say that the gift of stock was, in fact, in the nature of an advancement, for it does not appear that decedent intended it to be such. A clause analogous to paragraph sixth of decedent's last will had been included in wills executed by her before the death of her first husband in 1930. Consequently, it is obvious that this clause was not conceived originally with special reference to Macaulay's legacy and in anticipation of advances to be made to him. Moreover, an examination of the salient terms of the clause itself convinces us that decedent did not mean that every inter vivos transfer to any legatee should, to that extent, abate his legacy. In clause sixth she said, "I may also make advances to some of the legatees herein named on account of their said legacies, * * *." (Emphasis supplied.) Only such advances were to abate legacies. Certainly, decedent did not thereby foreclose to herself the right to make gifts to legatees which were otherwise than on account of their legacies. The New York courts do not regard a statutory advance as having been made by a parent to his child unless it appears that the parent intended the questioned inter vivos*194 gift to be such. ; affd., ; . We think the donor's intent likewise must control as to the "advancement character" of a gift made by a testator to one of his legatees. Neither by word nor act did decedent evince an intent that the transfer of the stock should be deemed an advance on account of her husband's legacy of $ 1,000,000. We must, therefore, assume that she had no such intent and that the gift, accordingly, was not an advance. That Macaulay agreed to a different treatment thereof after decedent's death is immaterial. We need not, however, rest our decision solely on the ground that respondent's contention is based upon an incorrect premise, for, assuming *356 the premise to be correct, his conclusions remain unsound. An advancement is an irrevocable gift in praesenti. The taxing statutes set up a system of taxing gifts which is entirely separate from the estate tax. Yet respondent would have us declare that gifts which reduce*195 a bequest to the donee are conclusively subject to the estate tax rather than the gift tax. This on the theory that such gifts must necessarily be made in contemplation of death as taking the place of a testamentary act. We find no basis in law or in fact supporting such a theory or directing such a conclusion. There is nothing inherently peculiar about gifts considered as advancements which warrants according them special treatment for tax purposes. It is true they are made in diminution of a bequest or bequests. . However, every substantial gift reduces the donor's estate pro tanto and thus diminishes the amount available for devolution in the event of his death. The estate, as a whole, is diminished no more because a gift is to abate the donee's legacy to the extent of the gift. Treating it as an advancement merely affects the apportionment of the estate among the legatees. If sound, respondent's theory would apply as well to every gift by one having previously made a will, for, if the gift did not diminish the bequest to one legatee, it would reduce the balance available to the residuary legatees or*196 abate the legacies pro rata. A conclusive presumption that all such gifts are made in contemplation of death could not stand. See , which held unconstitutional the conclusive statutory presumption that gifts made within two years of death were made in contemplation of death. We hold respondent's contention on this point untenable. This is not to say that gifts which abate legacies are never to be regarded as having been made in contemplation of death. They bear scrutiny just as do other gifts. In other words, they must be subjected to the same test as are gifts in general, i. e., that of the decedent's motive in making them. This was the test applied to the advancements in , and It is also consistent with respondent's long standing ruling as set forth in Regulations 80, art. 16, applicable to decedents dying in 1938 and from which respondent's present position is a departure, which is as follows: The fact that a gift was made as an advancement to be taken into account upon the final distribution*197 of the decedent's estate is not, in and of itself, determinative of its taxability. No contention has been made that the gift of furnishings and objects of art assumed the character of an advancement. Since the evidence overwhelmingly shows decedent's motive in making the gifts in question to have been associated with life and not *357 death, we hold that petitioners have overcome the presumption to the contrary, and that respondent erred by including in decedent's estate the value of such gifts. We have found, in accordance with the stipulation, that the estate tax return disclosed an estate tax liability of $ 1,361,517.07, and that $ 1,497,262.38 was paid to the collector coincident with the filing of the return. Thus it appears that petitioners paid $ 135,745.31 more than the liability which it acknowledged. In determining the deficiency, largely based upon the contention disposed of adversely to him above, respondent disregarded the receipt of any amount in excess of the tax shown on the tax return, although the excess amount was not returned to petitioners. The deficiency determined, however, was much greater than the additional amount paid. In view of our conclusion *198 that the value of the two gifts is not includable in the estate and in view of other adjustments to which the parties have agreed, it is manifest that the actual estate tax liability was something less than the $ 1,497,262.38 paid. The exact figure will be determined by the recomputation under Rule 50. We think the only fair inference to be drawn from the evidence is that the entire sum paid was paid in respect of the estate tax for which petitioners were then liable. When payment was made the tax was due. Cf. . Petitioners declared what, in their judgment, they believed the indebtedness to be, but elected to pay an amount which they estimated was due if they were unable to overcome the presumption regarding taxability of the gifts. It now appears that the payment was too great. Hence, they have made an overpayment of tax. ; . The overpayment is in an amount by which $ 1,497,262.38 exceeds the tax liability as*199 finally settled by the recomputation. It was paid on February 20, 1940, within three years of the filing of the original petition in the cause. By the second issue we are asked to decide whether petitioners are entitled to a refund with interest from the date of the overpayment. We are unable to resolve this question. Our jurisdiction does not extend to matters pertaining to interest. It is limited to the determination of the existence of a deficiency or an overpayment, as the case may be, and the amount thereof. . Pursuant to section 319 (c) of the Revenue Act of 1926 as amended by section 809 (i) of the Revenue Act of 1938, we have found that petitioners have made an overpayment of tax and its amount, and that it was made within three years of the filing of the petition herein. We may do no more. Decision will be entered under Rule 50.