Security Trust & Sav. Bank v. Commissioner

SECURITY TRUST & SAVINGS BANK, FORMERLY EXECUTOR, ESTATE OF CHARLES A. GOODYEAR, AND NOW TRUSTEE OF CERTAIN ASSETS OF SAID ESTATE; FRED L. WALTER, EXECUTOR, ESTATE OF HENRIETTA GOODYEAR; FRED. L. WALTER AND JOSEPH E. WALTER, HEIRS AND SOLE BENEFICIARIES OF THE ESTATE OF HENRIETTA GOODYEAR, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Security Trust & Sav. Bank v. Commissioner Docket No. 10304. United States Board of Tax Appeals 11 B.T.A. 833; 1928 BTA LEXIS 3708; April 26, 1928, Promulgated *3708 In an exchange, without reserve or contingency, of valuable capital stock, decedent acquired the right to an annuity for life. Held, the transaction was not a transfer to take effect at or after death and the gross estate should not be increased by a value attributable thereto. Charles F. Hutchins, Esq., for the petitioners. John W. Fisher, Esq., for the respondent. TRUSSELL *834 This proceeding results from the determination by respondent of a deficiency in estate tax amounting to $116,240.02. Petitioners allege error with reference to the inclusion in the amount of the gross estate, subject to the tax, of the value, amounting to $1,250,000, of property the transfer of which was erroneously considered to have been intended to take effect at or after death. FINDINGS OF FACT. Under date of April 19, 1909, the decedent, Charles A. Goodyear, transferred to The C. A. Goodyear Lumber Co., a Wisconsin corporation, 1,870 shares of the capital stock of the Great Southern Lumber Co., a Pennsylvania corporation. In consideration of the transfer of the stock, The C. A. Goodyear Lumber Co. was obligated to pay to Charles A. Goodyear the*3709 sum of $50,000 per annum during the remainder of his life, and, after his death, a life annuity of $10,000 per annum to his second wife, Emma A. Goodyear, in case she survived him. Under the same date, April 19, 1909, Charles A. Goodyear conveyed the capital stock of The C. A. Goodyear Lumber Co. to his wife and children as follows: Transferee. Shares of common stock. Shares of preferred stock. To Emma A. Goodyear 1,500.0 To Belle Goodyear Hodges 1,602.25 447.5 To Josephine Goodyear Rowlands 1,602.25 447.5 To Miles A. Goodyear 1,602.25 447.5 To Miles A. Goodyear as trustee for Charles Stewart Goodyear and Caryl M. Goodyear 1,602.25 447.5 6,409.00 3,290.0 The transfer of the stock was made in consideration of natural love and affection and further in consideration of the written undertaking of Belle Goodyear Hodges, Josephine Goodyear Rowlands and Miles A. Goodyear jointly and severally to guarantee the payment by The C. A. Goodyear Lumber Co. of the annuities to decedent and his widow. Emma A. Goodyear, the second wife of decedent, died in 1909, soon after the transactions recorded above. Decedent married again in June, 1910. He died*3710 in February, 1922, at the age of 69 or 70 years. The third wife, Henrietta Goodyear, was decedent's sole heiress, save for a few minor bequests. The gross estate was inventoried at $105,100 and included promissory notes of The C. A. Goodyear Lumber Co. for $86,000 and $11,000 for the amounts of unpaid annuities due decedent. The third wife died on April 4, 1924, about six months after the estate was distributed. Her two sons, Fred L. Walter and Joseph E. Walter, were her sold heirs. *835 OPINION. TRUSSELL: This is an estate tax issue and the sole question before us is the propriety of the action of respondent in adding to the gross estate of Charles A. Goodyear a value attributable to properties which respondent considered to have been transferred with intention to take effect at or after death. Respondent concedes that the transfers were not in contemplation of death. In 1909, thirteen years prior to the death of decedent, in accordance with agreements in writing, decedent divested himself of certain corporate capital stocks and acquired in consideration thereof the right to receive the sum of $50,000 per annum for the rest of his life. Respondent has valued*3711 the right at $1,250,000, and has included such value in the amount of the gross estate of decedent. For reasons which will presently appear, we will not discuss the amount of this valuation further than to point out that it is manifestly in excess of the value which would be computed as of the date of decedent's death rather than the date of the transfer in 1909, upon a basis of the life expectancy of a man "69 or 70 years old," and in our opinion it is grossly overstated. We are unable to agree with respondent in his contention that the transfers of the stocks in 1909 resulted in a reservation of an interest therein. The transfers of the stocks were absolute. The transferees entered at once into possession and enjoyment of the properties. In our view decedent exchanged the stock of the Great Southern Lumber Co. for an annuity which has been defined to be "the obligation by a person or company to pay to the annuitant a certain sum of money at stated times during life or a stated number of years in consideration of a gross sum paid for such obligation." *3712 ; . We have uniformly held that such an annuity is not interest or rent and it is paid in consideration of the acquisition of the property. It is the cost of the property. ; ; ; . The annuity was the agreed consideration to be paid in exchange for the stock. We do not think that it can be held that any amount of income was "reserved" to decedent. There was no amount of income then determinable, since it was dependent upon the unknown quantities of future earnings and the amounts of future declarations of dividends. On the other hand, the transferee was obligated to pay the annuity regularly and without reference to the results of its operations. *836 The obligation to pay the annuity was fixed and entirely devoid of contingencies. The death of decedent, of course, was determinative of the aggregate amount which the transferee would be required to pay for the stock, but it was not significant with reference*3713 to the title of transferee, for that was acquired in full in 1909 when the transfer was made. Cf. ; ; ; . It follows that respondent is reversed. Judgment will be entered on 15 days' notice, under Rule 50.