Second Nat'l Bank & Trust Co. v. Commissioner

THE SECOND NATIONAL BANK AND TRUST COMPANY AND GEORGE L. HUMPHREY, EXECUTORS AND TRUSTEES OF THE ESTATE OF ARTHUR D. EDDY, DECEASED, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Second Nat'l Bank & Trust Co. v. Commissioner Docket No. 31764. United States Board of Tax Appeals 23 B.T.A. 370; 1931 BTA LEXIS 1884; May 21, 1931, Promulgated *1884 The prior decedent died intestate on August 4, 1918. From his estate the present decedent received certain corporate stock pursuant to an order of distribution made by the probate court on June 8, 1920. The present decedent died April 22, 1925. Held that in determining the net estate of the present decedent a deduction may not be taken under the provisions of section 303(a)(2) of the Revenue Act of 1924 on account of the corporate stock received from the estate of the prior decedent. H. A. Mihills, C.P.A., for the petitioner. R. F. Staubley, Esq., for the respondent. TRAMMELL *371 This proceeding is for the redetermination of a deficiency in estate tax of $189,568.29. The only matter in controversy is the correctness of the respondent's action in determining the net estate in not allowing a deduction of $840,234.37 on account of property received from the estate of one who died more than five years prior to the date of the death of Arthur D. Eddy. The case was submitted on the pleadings and a stipulation of facts, from which we make the following findings of fact. FINDINGS OF FACT. Arthur D. Eddy died testate and a resident of*1885 Saginaw, Saginaw County, Mich., on April 22, 1925. His estate is being probated in the probate court for Saginaw County, Michigan. The Second National Bank of Saginaw and George L. Himphrey are the executors and trustees of the last will and testament of said Arthur D. Eddy, deceased. Walter S. Eddy, a citizen and resident of Saginaw, Saginaw County, Mich., died intestate August 4, 1918. One of his lawful heirs was Arthur D. Eddy, a brother. The estate of Walter S. Eddy was regularly probated and administered in the probate court of Saginaw County, Michigan. At the time of his death Walter S. Eddy owned 9,375 shares of the capital stock of C. K. Eddy & Sons, a corporation organized and existing under the laws of the State of Michigan, with its principal office at Saginaw. All of the said 9,375 shares of the capital stock of said C. K. Eddy & Sons were returned by his administrators to the Commissioner of Internal Revenue for Federal estate-tax purposes. The value of the shares of stock as of the date of Walter S. Eddy's death was included by the Commissioner in the computation of the Federal estate tax on the transfer of the net estate at an amount of $1,680,468.75. The*1886 Federal estate tax assessed thereon was duly paid by the estate. The administration and probate of Walter S. Eddy's estate was closed and completed June 8, 1920, and an order of distribution was made on that date by the probate court assigning the residue of the estate to the lawful heirs, among whom was Arthur D. Eddy. The residue so distributed under the said order of the probate cout included the 9,375 shares of the capital stock of C. K. Eddy & Sons *372 and one-half thereof, 4,687 1/2 shares, was distributed to Arthur D. Eddy as an heir at law. At the time of his death, Arthur D. Eddy was the owner, in addition to other items of property, of 12,500 shares of the stock of C. K. Eddy & Sons, 4,687 1/2 shares of which were received by him from the estate of his brother, Walter S. Eddy. The executors of the will of Arthur D. Eddy, in their return to the Commissioner of Internal Revenue for Federal estate-tax purposes, included that 12,500 shares of stock of C. K. Eddy & Sons in the gross estate and claimed a deduction on account of 4,687 1/2 shares thereof on the ground that said 4,687 1/2 shares were identified as having been taxed within five years. The Commissioner*1887 in determining the deficiency here involved included in the gross estate of Arthur D. Eddy the value of the said 12,500 shares of the capital stock of C. K. Eddy & Sons for Federal estate-tax purposes at the amount of $4,367,003.72. The Commissioner otherwise increased the valuation of the estate over that returned and determined a deficiency of $189,568.29, against which the estate is entitled to a credit of $47,392.07 on account of State inheritance tax paid, provided the amount of the deficiency determined by the Commissioner is not reduced, which leaves an undischarged deficiency in the tax of $142,176.22. In determining the deficiency here involved the Commissioner disallowed the estate's claimed deduction of the value of said 4,687 1/2 shares of the stock of C. K. Eddy & Sons, explaining that the said disallowance of the estate's claim to deduction on account of property alleged by the estate to have been taxed within five years was based upon the ground that more than five years elapsed between the dates of death of Walter S. Eddy, the former decedent, and Arthur D. Eddy, the decedent in the instant case. OPINION. TRAMMELL: The parties have stipulated that the only*1888 question before us for consideration and determination is the amount of the deduction, if any, to which the estate is entitled on account of the 4,687 1/2 shares of stock of C. K. Eddy & Sons received by Arthur D. Eddy from the estate of his brother, Walter S. Eddy, but in no event to exceed the sum of $840,234.37. The pertinent portions of the Revenue Act of 1924 are as follows: SEC. 301. (a) In lieu of the tax imposed by Title IV of the Revenue Act of 1921, a tax equal to the sum of the following percentages of the value of the net estate (determined as provided in section 303) is hereby imposed upon the transfer of the net estate of every decedent dying after the enactment of this Act, whether a resident or nonresident of the United States: * * * *373 SEC. 302. 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 - * * * SEC. 303. For the purpose of the tax the value of the net estate shall be determined - (a) In the case of a resident, by deducting from the value of the gross estate - (2) An amount equal to the value*1889 of any property (A) forming a part of the gross estate situated in the United States of any person who died within five years prior to the death of the decedent, or (B) transferred to the decedent by gift within five years prior to his death, where such property can be identified as having been received by the decedent from such donor by gift or from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received. This deduction shall be allowed only where a gift tax or an estate tax under this or any prior act of Congress was paid by or on behalf of the donor or the estate of such prior decedent as the case may be, and only in the amount of the value placed by the Commissioner on such property in determining the value of the gift or the gross estate of such prior decedent, and only to the extent that the value of such property is included in the decedent's gross estate and not deducted under paragraph (1) or (3) of this subdivision. Section 301 specifically imposes a tax on the transfer of the net estate of every decedent dying after the enactment of the Act. Section 302 prescribes how the gross*1890 estate shall be determined, while section 303 provides for certain deductions from the gross estate in determining the net estate. If the value of the shares of stock here in controversy is to be deducted from the gross estate, such shares of stock must come within the provisions of either (A) or (B) of section 303(a)(2). The petitioner states its contention in its brief as follows: "It is the contention of the petitioner that the shares in question were transferred to Arthur D. Eddy within five years of his death by inheritance and were received by him within said five years by inheritance, viz: on June 8th, 1920, by order of the probate court and that they are, therefore, exempt." The respondent contends that since the death of Arthur D. Eddy occurred more than five years after the death of Walter S. Eddy the shares of stock do not fall within the provisions of section 303(a)(2). There is no question as to the shares of stock being identified as property taxed in the estate of Walter S. Eddy, or the value at which they were included in that estate. In support of its contention the petitioner urges that the purpose of Congress in enacting the provisions of subdivision (B) *1891 of section 303(a)(2) was to allow an heir at law the full use and benefit of his inheritance for five years before it would become taxable in his estate. The petitioner also urges that there is but one measure *374 of time in subdivision (B), and that is five years prior to the death of the last decedent instead of five years after the death of the first decedent and that measure of time applies to all of the provisions contained in the subdivision, whether it be merely a gift transferred to the decedent within five years of his death or transferred from such prior decedent by gift, bequest, devise, or inheritance within five years prior to the date of the last decedent's death. The petitioner further insists that a plain construction of subdivision (B) would be as follows: "or (B) transferred to the decedent by gift within five years prior to his death * * * or transferred (from such prior decedent by gift bequest, devise or inheritance) within five years prior to decedent's death." Section 303(a)(2) provides, with certain limitations, for the deduction from the value of the gross estate of an amount equal to the value of any property coming within either of two separate*1892 and distinct classes. The first of these classes is, to use the language of the Act, any property "(A) forming a part of the gross estate situated in the United States of any person who died within five years prior to the death of the decedent, * * * where such property can be identified as having been received by the decedent * * * from such prior decedent by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received." The second class is any property "(B) transferred to the decedent by gift within five years prior to his death, where such property can be identified as having been received by the decedent from such donor by gift * * * or which can be identified as having been acquired in exchange for property so received." (Italics ours.) In other words, what follows the clause "(B) transferred to the decedent by gift within five years prior to his death" refers to and modifies the respective preceding clauses set out as (A) and (B). The language "where such property can be identified as having been received by the decedent from such donor by gift" clearly refers to gifts, and the clause "or from such*1893 prior decedent by gift, bequest, devise, or inheritance" refers to property acquired from the prior decedent either by gift, bequest, devise, or inheritance. The word "gift" relates to a transaction inter vivos. The words "bequest, devise, or inheritance" relate to property passing from the dead to the living. We think that the purpose and meaning of the section is that property passing from the dead to the living is governed by the subdivision (A), that is within five years from the death of the prior decedent, and property passing inter vivos is governed by clause (B), that is within five years prior to the present decedent's death. *375 In the case of property passing from the dead to the living it is immaterial when the present decedent actually received it or when it was actually transferred by distribution. The only question is, Did the prior decedent die within five years prior to the death of the present decedent? In the case of "gifts" the only question is was the property "transferred" to the present decedent within five years prior to his own death. The 1921 Act included only what is in subdivision (A) of the 1924 Act. The provision relating to gifts*1894 was added by 1924 Act. From the stipulated facts it is clear that the shares of stock here in controversy were not transferred by Walter S. Eddy to Arthur D. Eddy by gift. The petitioner does not contend that they were and concedes that they were received by Arthur D. Eddy by inheritance. The deductibility of any value on account of them is therefore controlled by the provisions of the section relating to property received by inheritance. In order for any deduction to be allowable on account of property received by inheritance, the death of the prior decedent must have occurred within five years prior to the death of the present decedent. This is in accordance with the plain language of the statute. In the instant case, Walter S. Eddy, the prior decedent, died on August 4, 1918, while Arthur D. Eddy, the present decedent, died on April 22, 1925. More than six years had elapsed between the deaths of the two decedents. This being true, we are of the opinion that the value of the 4,687 1/2 shares of the stock of C. K. Eddy & Sons received by Arthur D. Eddy from the estate of Walter S. Eddy pursuant to the order of the probate court of June 8, 1920, is not to be deducted from*1895 the value of the gross estate in determining the value of the estate of Arthur D. Eddy, subdivision (a)(2)(B) of section 302 relating to property acquired by gift. The petitioner urges that any uncertainty or ambiguity in the provisions of section 303(a)(2) is to be resolved in its favor, since uncertain or ambiguous revenue laws imposing taxes are to be strictly construed in favor of the taxpayer, and that every doubt and ambiguity in the law must be resolved in the taxpayer's favor. While we recognize the rule that ambiguities in laws imposing taxes are to be resolved in favor of taxpayers, the rule is not applicable here. We find no ambiguity or uncertainty in the provisions of that portion of the section here involved. Reviewed by the Board. Judgment will be entered for the respondent.