*1 OF INTERNAL REVE- COMMISSIONER PROCTER. NUE v.
No. 5215. Appeals, Circuit.
Circuit Court of Fourth
April 1944. May
Rehearing 1944. Denied Asst, Fox, Sp. Atty. Carlton Gen. Clark, (Samuel Jr., Gen, Atty. Asst. Key Monarch, and Sewall Sp. Louis J. Atty. Gen., Assts. to the brief), on the
petitioner.
Fisher,
111.,
Thomas H.
Chicago,
respondent.
PARKER, SOPER,
DOBIE,
Before
Judges.
Circuit
PARKER,
Judge.
Circuit
petition
This is
to review a decision
of the Tax Court holding that no gift tax
could be assessed
a transfer
one
Frederic W. Procter of the remainder in-
terests
two trust
which had been
*2
825
security
1914;
certain a trust
assigned by
year
indenture
him as
executed
the
the other
by
grandfather’s
dis-
created
facts
was
his
promissory notes. The
are
will.
January
On
:
puted
and
as follows
corpus
$928,593.70,
of the first was
that of
separate
in four
Taxpayer held interests
$961,552.68.
the second
was
Taxpayer
was
grand-
by his
trusts which had been created
years
age
36
of
his
time and
that
13, 1939,
in-
January
was
father. On
he
mother 63. In both
he
a vested
trusts
had
$686,-
in the sum of
debted to his mother
remainder after
mother,
his
life estate of
300.03,
by
promissory
seven
evidenced
however,
divested,
if
to be
demand,
been
payable
which had
notes
on
trust,
he died before her.
In the second
by
assignment of
interest
secured
his
the remainder was
to the additional
trusts,
ex-
in all four of
and
condition
that he
should
attained
in the
pressly provided
his
that
interest
age
years
of 40
at his mother’s death.
pro-
might
sold and the
stipulated
present
payment
was
applied in
of the
that
worth
ceeds thereof
of
pay
person aged
$1
notes if
them on
due at the death of a
he should fail
36, provided
person
dale,
aged
he
into an
that
63 shall
mand. On that
entered
a
the
agreement
by
person
which it have
aged
his
died
before
$0.25152,
upon
present worth,
provided
on
in two
and that its
was
notes
that further interest
waived,
additional
his interest
the death of
was
that
that
person
aged
years
the lien
of the
released from
occur after four
trusts was
stipulation
assignment
of
of is
There was no
$0.24883.
and that the holders
or
however,
recourse,
finding,
by
present
virtue
notes should have
as to
worth
assignment
by
age
person
of the lien of
or
execu- of
due
at the death of a
$1
any
years, provided
judgment
person
tion
obtained on the 63
aged
years
on
notes,
remaining
only against
should
the two
survive.
trusts, in
interests
which he held remainder
computed
The
gift tax
Commissioner
property subject
of
life estate
by
subtracting
of
debt
amount
time,
his
At the
he
mother.
same
executed
corpus
trust,
from the
of
find-
the first
assigning
a trust
to trustees
indenture
ing
remaining
worth
of
trusts, pro-
remaining
interest in these two
portion
corpus
sec-
entire
viding
that
mother
ond trust based
formulae
above
pay
trustees should
therefrom
payable
toas
worth
of $1
amount
on
if
them
due
the notes
etc.,
person
years
the death of
i. e.
age
unpaid,
pay
then
should
remain
should
Tax
The
$0.25152
$0.24883.
from
him
income
his lifetime the
subtracting
before
the amount
corpora
what should remain
debt,
found
worth of
children,
trusts and should deliver to his
corpora
application of
of both trusts
representatives,
or their
at his death
formulae,
appropriate
same
the
only
which were
corpora remaining
at that
in their hands
finding
prop-
for
time.
It is this
children of the
erty
taxpayer
which is
said
appropriate
prop-
when the
were
erty
was available at
the death of
in-
mother. As the value
While the
on
was
interest
the notes
corpora
terest in
trusts
cal-
January
waived
was
thus
after
culated was
than
provision
less
pay-
no
extending the
time
date;
assignment
debt secured
of tax-
appears
ment after that
and it
that
payer’s
trusts,
1, 19-12,
the court
on
mother de-
June
held that
had
was
payment
no value and
*3
fact,
ject
in
any
of
to sale
default
at
arriving
a conclusion
time
one for
at
and, in
payment
It
property given;
of the notes.
is therefore
of the
value
nothing here clear that much
tax-
so
of the value of the
that there
view of
fact
payer’s
paid
been
of
interest available at
timé
debt could have
to show that the
property,
the gift
against
should
the notes
the trust
set off
of
be
than out
otherwise
was as
extinguish
Tax Court
would be
them.
say
to
cannot
that
sufficient
we
it in
following
property
What
in
remains is
of
law
the value
guilty of error of
Commissioner,
taxpayer
320 in which the
reserved the income
v.
this case. Dobson
489,
for the term of his life and which is
U.S.
S.Ct.
to his children
The
of
at his death.
value
to
agreement
Since there was
gift
this remainder at
the date of the
until after
*4
divested; but,
de
taxability
subject
gift,
under
court as to
to
be
case,
dis when
Shaughnessy
this
no
in
there would
the court
cision
before
be
is
point
controversy
taxing
third
whatever
au-
tinction
immaterial. The
with the
is
decide,
upon
provision of
following
thorities which the
based
court could
only possible
gift, viz.:
making
controversy being
indenture
as to
trust
validity
gift
being
and
between the
by
“Eleventh:
is
The settlor
advised
persons
donor and
not
the court.
before
counsel and
trans-
satisfied
Veazie,
Cf.
12
Lord v.
How.
L.Ed.
subject
gift
fer
is not
to Federal
1067;
C.C.,
County,
Van Horn v. Kittitas
However,
deter-
in
should be
the event it
by
Notes
notes postpone of the collection should to the be calculated with reference was taxpayer’s of the death taxpayer’s date of death. Com no basis which the action assumed, illustrate, If it that be to deducting amount of in missioner present right receive to corpora of trusts debts from the of death mother was $0.56445 $1 remains present of what finding value (as by government we are assured counsel such been If had can be sustained. correct) cor worth of the position Commis of agreement, the 15, pus January of the first trust as correct; for the would have been sioner debt amount, $524,144.71. set was This corpora of the against the chargeable $686,- against notes, off the amount of the payable until have been trusts would not 300.03, $162,- would leave a balance become property should have the trust figures rep 155.32. Using as $0.55377 payment there taxpayer to available of; and, resenting payable worth of $1 event, been have it would in that mother, provided at the death of the tax would that between two difference the of that age had attained at take subject gift to been have time, $292,820.70 it cor is clear that collec As the taxpayer’s death. effect $162,- pus (i. of the second e. trust postponed, how debt was not tion of the $0.55377) 155.32 would be set have to deducted, ever, must be amount thereof notes, against leaving balance off value, future but from not from the corpus $668,731.98 representing property pledged tax- which the value security; only by such deduction for it is payer would receive income property given at the value that go and which to his children life would be gift can ascertained. time his death. The worth of this taxpayer’s inter present value of the by applying found the formula should be .24883; however, property, should est in be sub- and this would the amount ascertained, to not with reference been gift ject to the tax. is said in What death, moth but with reference to his merely for the paragraph is of said course death, for it was then that he became er’s illustrating purpose of laid down the rule property. We are told entitled to the preceding paragraph. is for the in Tax the death present worth $1 us, find not for to the correct when $0.56445,or his mother was $0.55377 apply facts. formulae and them to the he present that condition is the additional forty years. age of attain the Taxpayer contends that the deci the Tax should be affirmed holding sion of Court in The Tax Court was in error grounds: (1) additional on the corpora of that the value gift subjected tax be interest to would ascertained should have been the trusts upon taxpayer’s subject to estate tax death taxpayer with reference to the tax; subject gift (2) hence is not to than with rather reference interest of in trusts value that the It held in must be calculated that the hi§ mother. effect contingent for a character of too the is him be taxpayer’s thereof hypothesis that the tax; that, under Item eleventh of (3) property would not become available indenture, not to be was payment of the notes until Lit any if to a is no There evidence of sort come effective death. points. first two said as hypothesis. The evi- need be support such tle think, answered, attempt effect an They completely we to enforce the Supreme would be to gift. defeat sec- decisions of place, 176, 63 S. ond would 318 U.S. effect Shaughnessy, Smith v. be to justice obstruct the and Robinette administration 87 L.Ed. Ct. requiring Helvering, pass upon 63 S.Ct. a moot 318 U.S. the courts to respect second case. If the and the L.Ed. 700. With condition were valid also, in noted, tax, were held ef- point, might holding fect of would to defeat the terest argued gift so contingent remainder as that it would opinion would brief, remainder donor a vested but thus secure