Appeals from the District Court of the United States for the Northern District of Illinois, Eastern Division; John P. Barnes, Judge.
Before ALSCHULER, EVANS, and PAGE, Circuit Judges.
ALSCHULER, Circuit Judge.
The controversy relates to the federal estate tax upon the gross estate of Samuel R. Kaufman, deceased. The issues are whether, under section 402, Revenue Act of 1921 (42 Stat. 278)*fn1 an inter vivos gift of 4,434 shares of corporate stock of Congress Hotel Company to the wife by the deceased, made within two years of his death, was in contemplation of death and therefore includable for taxation in his gross estate, and whether certain real estate held by deceased and his wife by the entirety was includable in his gross estate.
The Commissioner included the items in the gross estate and found a deficiency accordingly, and upon appeal the Board of Tax Appeals held both items were properly included. 5 B.T.A. 31.
The order of the Board was not then reviewable by the Circuit Court of Appeals and, the tax having been paid, suit to recover it back was brought in the District Court against the Collector of Internal Revenue of the revenue district wherein it was paid. The court held that the stock was transferred by deceased in contemplation of death and was includable for taxation in the gross estate, denying recovery therefor, from which holding the executors appeal (No. 5002); and that the real estate held by the entirety was not includable, giving judgment for the executors for the tax paid thereon, wherefrom the Collector appeals (No. 5003).
Deceased, a resident of Chicago, died April 29, 1922, aged 58 years. By his will, executed about five months previously, his property passed to his wife and their three children. The wife and the elder son were made executors, but the son, not then having reached his majority, could not qualify under the law of Illinois.
In scheduling the gross estate, the executrix, his wife, did not include 4,434 shares of the stock of Congress Hotel Company, valued at $443,400, and 400 shares of Chatham & Phenix National Bank stock, valued at $94,800. The Commissioner increased the value of the gross estate by including therein these amounts and the real estate held by the entirety, which resulted in a substantial deficiency. The bank stock is not here involved.
In October, 1915, deceased and his brother Nathan, who held stock in the hotel company, made an agreement that in case of the death of either the stock of the one dying might be purchased by the survivor at the par value thereof, the purchaser to give his ten-year note therefor, stock represented by any stock dividend to be included without cost. Nathan died in 1918 owning 5,900 shares, of which Samuel purchased 4,371 shares, giving his note therefor. In 1919 a 50 per cent. stock dividend was declared, and, after Samuel's death, these origina and dividend shares were transferred to the payee of the note, who surrendered and canceled the note.
In 1918 Samuel and three other brothers, all holding hotel stock, entered into a contract similar to that with Nathan. One of these brothers died, and, pursuant to the agreement, his stock passed to the survivors.
Samuel became worried by reason of the fact that his then holding of the stock (14,000 shares) was much more than that of the brothers, and in case of his death his surviving brothers could buy his stock at a price much less than he deemed its value to be, whereby his own family would, as he thought, be unduly deprived. He consulted his attorney, who advised him the contract was effective only as to such stock as the one dying had at the time of his death, and that stock disposed of before his death would not be subject to the agreement. The attorney further advised him that, as he had for some time contemplated giving a portion of his Congress Hotel stock to his wife, it would be well for him to carry out this intent and give it to her at once, and thus relieve those shares from the burden of the contract. He thereupon made plans to arrange his indebtedness secured by such stock so that he would have some of the stock clear. By December, 1921, he had free from his obligations the 4,434 shares of the stock which he thereupon procured to be transferred to his wife on the books of the company. In the same month he took the stock certificates to New York, where she then was, and gave them to her, saying to her, "There is the stock I have been promising you for so long." She then placed the certificates in her safety deposit box in New York with her other valuables, to which she alone had access, and there, up to her husband's death, it remained.
On April 20, 1920, deceased made a gift to his wife of $84,500 of Liberty bonds, which in 1921, upon his advice, she exchanged for the Chatham & Phenix Bank stock, which was held to be no part of the gross estate.
In 1916 Samuel became ill and his appendix was removed. From this he fully recovered. In 1919 he was indisposed with a cold and was examined by his physician, who found he had a slightly enlarged liver. He had no further illness until the spring of 1921, when he contracted influenza, from which he apparently recovered, and he then went to New York, where he suffered a relapse and developed an intestinal condition which involved the gall ducts and produced jaundice. He also had erysipelas in the ear and neck, and poisoning, which caused him to be delirious for several weeks, involving nearly every organ of the body. This illness covered April and part of May, 1921. Thereafter he steadily improved, and he went to his summer camp in Michigan, as was his custom; and on his return to Chicago in October his health was better than before his illness. He continued in active management of his large affairs, particularly in the management of the Congress Hotel and several other business ventures, and enjoyed and continued to enjoy good health to the night of April 29, 1922, when he was suddenly stricken and died in a few hours from gastric hemorrhage, an ailment which does not appear to have had relation to any prior illness.
On January 1, 1922, the hotel company declared a 4 per cent. dividend, amounting on these shares to $17,737, which, at the request of deceased, was paid by the hotel company to him. On April 1, 1922, a further dividend of 2 per cent. was declared, which was likewise paid to him, both sums being deposited in his bank account.
The Board of Tax Appeals, after finding the facts, reached the conclusion and held that this gift of stock was not made by deceased in contemplation of death, but that by reason of the fact of his drawing the dividends after the transfer of the stock the transfer was one intended to take effect in possession ...