Mansfield v. Commissioner

MINNIE I. MANSFIELD, EXECUTRIX, ESTATE OF HENRY F. MANSFIELD, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Mansfield v. Commissioner Docket No. 12165. United States Board of Tax Appeals 17 B.T.A. 335; 1929 BTA LEXIS 2315; September 19, 1929, Promulgated *2315 The decedent in July, 1917, sold, transferred and conveyed by a prenuptial agreement certain shares of stock, which agreement provided that he should have the "sole use and benefit of such property and be entitled during his lifetime to all dividends, income and profits therefrom and also the exclusive voting power of such shares of stock." At the same time he transferred and conveyed certain real estate by prenuptial deed, reserving to himself "the use, possession and income of said property during his lifetime." The transferor died June 23, 1923. Held that under the decisions of Nichols v. Coolidge,274 U.S. 531; Edward H. Alsop,7 B.T.A. 848; James Duggan, Executor,8 B.T.A. 482; and Northern Trust Co., Executor,9 B.T.A. 96, the value of the property should not be included in the gross estate of the decedent in determining the net estate subject to tax under the Revenue Act of 1921. James Coupe, Esq., for the petitioner. Frank T. Horner, Esq., for the respondent. LITTLETON *335 The Commissioner determined a deficiency in estate tax of $1,852.79. The issue is*2316 whether the Commissioner erred in treating as a part of the gross estate under section 402(c) of the Revenue Act of 1921, the value of certain shares of stock and certain real estate, transferred and conveyed by the decedent on July 12, 1917, to Minnie Illingworth, his then intended wife, whom he married on July 17, 1917, and who is now his executrix. The facts are stipulated. FINDINGS OF FACT. Minnie I. Mansfield, a resident of the City of Utica, N.Y., is the executrix of the last will and testament of Henry F. Mansfield, who died June 11, 1923. *336 July 12, 1917, Henry F. Mansfield, then unmarried, entered into an agreement with Minnie Illingworth, his intended wife, that in consideration of the sum of more than $1 paid Henry F. Mansfield by Minnie Illingworth and other good and valuable consideration received by him, and in consideration of Minnie Illingworth agreeing to marry him, he sold, transferred, assigned, conveyed, set over and delivered unto Minnie Illingworth, her heirs, executors, administrators and assigns to have and hold the same forever, the following described property: 133 Shares of the common stock of the Avalon Knitwear Co. of Utica, N.Y. *2317 30 Shares of the preferred stock of Avalon Knitwear Co. 256 Shares of the Utica Steam and Mohawk Valley Cotton Mills of Utica, N.Y. 67 Shares of the capital stock of the Oneida National Bank of Utica, N.Y. 55 Shares of the capital stock of New York Central R.R. Co. and N.Y.C. & H.R.R.R. Co. 44 Shares of the capital stock of the First National Bank of Utica, N.Y., and 8 shares of the capital stock of the Oneida County Trust Co. The prenuptial agreement recited that it is intended thereby that the title to the property described should, upon the signing and delivery of the agreement, vest in Minnie Illingworth, and should remain vested in her after the solemnization of their marriage. It further recited that it was mutually understood that during the term of the natural life of Henry F. Mansfield he should have the "sole use and benefit of such property and be entitled during his lifetime to all dividends, income and profits therefrom and also the exclusive voting power of such shares of stock, and for the purpose of more effectually vesting the title of said property in said Minnie Illingworth," Henry F. Mansfield endorsed all the certificates of stock for transfer*2318 prior to the delivery thereof. The agreement also provided that to the end that said Henry F. Mansfield "shall be secured in said right to the profits, dividends, income and voting power of said stock," Minnie Illingworth agreed to forthwith deliver all of such certificates of stock and evidence of property to the Oneida County Trust Co. of Utica, N.Y., its successors or assigns and suffer and permit the same to remain with such trust company, as custodian thereof, until the death of the said Henry F. Mansfield. This was done. It was further agreed and understood that if: * * * During the life of said Henry F. Mansfield, the said Henry F. Mansfield and Minnie Illingworth, her heirs, executors, administrators, assigns or representatives shall deem it advisable to sell or trade a portion of the above described property, said portion may be released by the proceeds of such to the parties hereto upon their consent in writing and the proceeds of such sale or trade shall be delivered to said Minnie Illingworth forthwith and that said Minnie Illingworth will thereupon deliver said proceeds to Oneida County Trust Company, as custodian thereof and same shall be retained by said custodian*2319 *337 under the terms of this instrument in the same manner as the original property and shall be delivered with the remaining property to said Minnie Illingworth, her heirs, executors, administrators and assigns upon the death of the party of the first part [Henry F. Mansfield]. The agreement also stated that the certificates of stock enumerated were then in the name of Henry F. Mansfield, and that it was agreed that they should so remain during his life, and that no transfer on the books of the various companies should be made during the life of Henry F. Mansfield without his consent. It was provided, however, in said agreement: Should the parties hereto, at any time, determine to release any portion of said property from the operation of this agreement, or should either of the parties hereto desire to release to the other, his or her interest therein, a written release duly signed and executed by the parties hereto shall be made and filed with said Trust Company, whereupon said Trust Company shall release said property as provided by the terms of said release. On the same date, July 12, 1917, by an instrument attached to the original contract, it was agreed that*2320 the certificates of stock, heretofore enumerated, should be transferred to Minnie Illingworth and continue in her name during the life of Henry F. Mansfield, but should not be transferred on the books of the various companies during his life without his consent, but should be transferred to her on the books of the various companies after his death upon her demand. Henry F. Mansfield by deed dated and duly executed July 12, 1917, and recorded on July 14, 1917, in the Oneida County Clerk's office at Utica, N.Y., for the recited consideration of more than $1 paid by Minnie Illingworth, granted and released to her, her heirs and assigns forever a certain parcel of land on Clinton Place in the City of Utica, N.Y., which land was fully described in said deed, being the premises on which Minnie Illingworth Mansfield and Henry F. Mansfield lived from the date of their marriage until his death, June 11, 1923, and during said period "she rendered unto him all her services." In said deed Mansfield reserved to himself "the use, possession and income of said property during his lifetime." When Henry F. Mansfield died, he left him surviving no heirs of his body. Neither at the time of making*2321 the transfers heretofore mentioned, nor at any time thereafter, did he own any other real estate than that conveyed to Minnie Illingworth by deed. Henry F. Mansfield's will was duly probated in the Surrogate's Court for the County of Oneida, New York, in January, 1924, having been made November 21, 1918. In said will, after directing the payment of all just debts, funeral and testamentary expenses and a bequest of $5,000 to his brother, Albert T. Mansfield in the event, and only in the event such brother should survive him, he devised and bequeathed to his wife, Minnie *338 Illingworth Mansfield, "all the rest, residue and remainder" of his property and estate of every nature and description, the same to be hers absolutely. Minnie Illingworth Mansfield was named in the will as executrix, to serve as such without giving bond or other security for the faithful performance of her duties as such executrix, and as such she appeared and took the oath prescribed by law, and received letters testamentary. In determining the deficiency claimed by the Commissioner, the value of the securities heretofore described and amounting to $81,914.38 and the real estate valued by the*2322 Commissioner at $15,000 and conveyed by the decedent to his intended wife on July 12, 1917, were included in the gross estate of the decedent as transfers intended to take effect in possession or enjoyment at or after the decedent's death. OPINION. LITTLETON: Both parties agree that this is not a case of a transfer of property in contemplation of death, nor is it claimed by any one that the transfer was not bona fide. The Commissioner held that the consideration was not one in "money or money's worth" and therefore was a transfer to take effect at or after death. The transfer was complete and absolute when made and title passed to Minnie Illingworth. The petitioner contends that the consideration of marriage was a "consideration in money or money's worth" within the meaning of section 402(c) of the Revenue Act of 1921, and the Commissioner contends that it was not. It is unnecessary to pass upon these contentions for the reason that under the decision of the Supreme Court in Nichols v. Coolidge,274 U.S. 531, and the decisions of the Board in *2323 Edward H. Alsop,7 B.T.A. 848; James Duggan, Executor,8 B.T.A. 482; and Northern Trust Co., Executor,9 B.T.A. 96, the property can not be included in the gross estate. In Nichols v. Coolidge, supra, the court stated: The exaction is not a succession tax like the one sustained by Scholey v. Rew,23 Wall. 331. Keeney v. New York,222 U.S. 525. * * * This court has recognized that a statute purporting to tax may be so arbitrary and capricious as to amount to confiscation and offend the Fifth Amendment. Brushaber v. Union Pacific R.R.,240 U.S. 1, 24; Barclay & Co. v. Edwards,267 U.S. 442, 450. See also Knowlton v. Moore,178 U.S. 41, 77. And we must conclude that Section 402(c) of the statute here under consideration, in so far as it requires that there shall be included in the gross estate the value of property transferred by a decedent prior to its passage merely because the conveyance was intended to take effect in possession or enjoyment at or after his death, is arbitrary, capricious and amounts*2324 to confiscation. Whether or how far the challenged provision is valid in respect of transfers made subsequent to the enactment, we need not now consider. *339 In Northern Trust Co., Executor,9 B.T.A. 96, we had occasion to consider the cases of Frew v. Bowers, 12 Fed.(2d) 625, and Nichols v. Coolidge, supra, in connection with the provision of section 402 of the Revenue Act of 1921. In these two cases the grantor had disposed of the income as well as the remainder while in the Northern Trust Co., Executor, supra, the decedent kept the income for life. In the latter case the Board in holding that the property transferred by certain instruments there involved should be excluded from the gross estate said: * * * The Supreme Court, so far as can be gathered from the opinion, did not look upon this as controlling; for aside from the statement of the fact, it nowhere enters into the discussion. The opinion seems rather to condemn in toto the attempt to reach back and bring into the gross estate any property which had by such a trust been transferred before the passage of the Act. * * * *2325 In view of the repeated and well established rule that constitutional questions will be avoided wherever possible, and the decision of the District Court that the transfers in question were within section 402(c), it must be assumed that the Supreme Court so treated them. Hence it is unnecessary for us to consider here whether the transfers of 1912 and 1917 were within the statute, for even assuming that they were, they could only be reached by the retroactive clause of the provision. We see no escape, after the Supreme Court's decision as to the 1918 Act, from the conclusion that the 1921 Act is subject to the same infirmity, and we must therefore reverse the Commissioner. See Edward H. Alsop,7 B.T.A. 848, and James Duggan, Executor,8 B.T.A. 482. Under these decisions the value of property here involved should be excluded from the gross estate of the decedent. Reviewed by the Board. Judgment will be entered under Rule 50. ARUNDELL dissents.