dissenting: I have no doubt on the record before us that the decedent, Charlés Gilman, retained until his death the “enjoyment” of the 6 shares of common stock within the meaning of section 2036(a)(l)of the Code. An understanding of the history and significance’of these. 6 shares is necessary for a proper consideration of the matter.
In late 1939 and early 1940, a. serious conflict, had developed between Charles Gilman and his father (Isaac Gilman) in respect of the Gilman Paper Co. Only one class of stock was then outstanding, consisting of 25,000 shares of voting common. Isaac owned nearly 16,000 shares, Charles about 5,000 shares, and Charles’ four sisters 1,000 shares each. Isaac, who was then about 75 years old, dominated the company, and Charles, who was then about 42 years old, was the only other member of the family who was engaged to any significant degree in the conduct of the company’s business. To the extent that Charles’ sisters’ husbands were also engaged in the company’s affairs they were “there as a sinecure” and added very little to the operation of the enterprise. Charles was fearful that upon his father’s death, his 16,000 shares would be divided equally among all five children, with the consequence that Charles, as a minority stockholder, could be ousted from a position of control over the company. He importuned his father for some arrangement that would prevent any such result from occurring. Indeed, when no such arrangement appeared on the horizon, he not only threatened to quit his association with the company, but undertook to implement that threat by carrying on extensive negotiations looking towards the establishment of other business connections for himself. He made it clear to his father that he '“wanted first and uppermost to be put in a position where I would run that company, because I felt I was the only one that could run that company — when I say ‘run it,’ have control of it * * * to control the Gilman Paper Company, should anything happen to him.”1
The solution to the problem was finally found in an agreement dated June 22, 1940, which provided for the reorganization of the company, whereby the entire outstanding 25,000 shares of voting common were exchanged for 25,000 shares of new nonvoting preferred, and. the control of the company was concentrated in 10 new shares of $100 par value voting common, of which 6 shares were issued to Isaac and 4 to Charles. The agreement also provided that on Isaac’s death, Charles was to have the right to purchase 2 shares of the new common from his father’s estate at par, upon condition, however, that Charles enter into a further agreement with the company that his compensation would not exceed an amount determined in accordance with a certain formula. Under conditions which then prevailed, that formula placed an effective ceiling of $30,000 a year on Charles’ salary, in contrast to the $40,000 that he was then receiving from the company and its affiliates. Distasteful as these latter provisions were to Charles, he was nevertheless willing to accept these terms because—
Ihad one idea in mind, which was uppermost in my mind, and that was, as I explained before, the control of the business after my father died, that I would be assured of the control of the business, and when I accomplished that, or if I could accomplish that, that meant to me more than salary or anything else.!2!
Upon Isaac’s death in 1944, Charles exercised his right to purchase 2 shares of the common from his father’s estate, which together with the 4 shares already owned by him comprised the 6 shares here in controversy.3 It was these 6 shares that Charles in 1948 placed in trust, naming himself, his attorney, and older son as trustees, and providing for distributions of income to his two sons. The trust had no other assets. Over the entire period from the creation of the trust in 1948 up to the date of Charles’ death in 1967 — and indeed up through 1970 — the total amount of dividends received by the trust in respect of the 6 shares was only $300. In contrast, the company paid dividends in the amount of $1,129,900 with respect to the preferred up to the date of Charles’ death.
Can there be any doubt that the only purpose of the 6 shares was to provide Charles with the sought-after control over the company? These shares were conceived and issued solely for that purpose. It was that control that was central to their very life.4 Plainly, the continued existence of such control in Charles’ hands for the remainder of his life constituted his “enjoyment” thereof within the meaning of section 2036(a)(1).
To be sure, as is indicated in United States v. Byrum, 408 U.S. 125, it is the income from property that is ordinarily regarded as the “enjoyment” contemplated by section 2036(a)(1). But that is not universally so, for, as recognized in Byrum, “enjoyment” in respect of real property may consist of its occupancy. See also Estate of Emil Linderme, Sr., 52 T.C. 305. Obviously, the nature and character of the property must be taken into account. In the case of a valuable oil painting, “enjoyment” may clearly be its availability for viewing on the transferor’s walls. As to the 6 shares involved herein, the control which they embodied was their very raison d’étre. It is that feature of those shares that must be predominantly associated with their “enjoyment,” rather than their equity interest5 in the corporation or their income-producing potential — features which were only of relatively minor consequence in the context of this case. As already noted, the total income received by the trust from these shares for a period of nearly 20 years was only the comparatively miniscule amount of $300. Had Charles reserved the right to that income, there could be no question that the value of the 6 shares would have been includable in his gross estate. How much more meaningful to him was the control that was concentrated in these shares! And how bizarre it is to attribute to Congress an intention that would require the inclusion of the 6 shares in the decedent’s gross estate in the first situation but would call for their exclusion in the second! Clearly, when Congress used the word “enjoyment,” it manifested a purpose to treat both situations alike.
The circumstances surrounding these 6 shares were so different from those involved in Byrum, that I cannot believe that Byrum is of controlling authority in support of the majority’s position. Similarly, there is only a superficial similarity between this case and that line of cases,6 relied upon by the petitioners, in which broad administrative and managerial powers reserved to the grantor of a trust have been held insufficient to bring section 2036(a)(1) or like provisions into play. It is clear to me that “enjoyment” of the 6 shares here in issue means the continued control embodied therein.
I fully recognize that under the decided cases the mere continuance of “enjoyment” by the transferor until his death is not sufficient, and it is essential in addition that such enjoyment be “retained.” However, it has also been established that such retention need not be based upon a legally enforceable right7 and may be predicated upon an informal arrangement or even a mere tacit or implied understanding. Estate of McCabe v. United States, 475 F. 2d 1142, 1146 (Ct. Cl.); McNichol’s Estate v. Commissioner, 265 F. 2d 667, 670-671 (3d Cir.), affirming 29 T.C. 1179, certiorari denied 361 U.S. 829; see also Skinner’s Estate v. United States, 316 F. 2d 517 (3d Cir.), affirming 197 F. Supp. 726 (E.D. Pa.); Estate of Harry H. Beckwith, 55 T.C. 242, 247; cf. Estate of Ethel R. Kerdolff, 57 T.C. 643, 648; Estate of Emil Linderme, Sr., 52 T.C. 305, 308.
Was there such an understanding here? In my judgment, unless one were to be hopelessly naive, the existence of such understanding must be inferred from this record. In the absence of any explanation to the contrary, it is clear beyond any reasonable doubt that Charles who had fought so hard to obtain the control inherent in the 6 shares would not have parted so readily with that control only a few years after he had attained his objective. Nor can it fairly be inferred that the establishment of the trust was intended in any manner to provide income of any consequence to Charles’ two grownup sons. Plainly, the trust was merely a device through which Charles could continue to exercise control until his death, and which provided a mechanism for its exercise thereafter. To be sure, there were two other trustees, his attorney and older son, and the votes of two of the three were necessary in order to take effective action. The majority herein relies upon the testimony of the attorney which indicates that there was never any agreement, express or implied, between them in respect of the continuance of Charles’ control. I heard that testimony — indeed I was the only member of this Court that did hear it — and it is my unpleasant duty to say that I did not find his testimony credible. I had ample opportunity to observe him, and I paid most careful attention to him and his words as he spoke. I had no confidence whatever in that testimony to the extent that it expressly denied, or merely suggested the absence of, an implied agreement or tacit understanding that Charles would continue to remain in control of the company’s affairs. I have no doubt in the circumstances of this case that there was at least such a tacit understanding. I am unwilling to indulge in the child-like innocence that is necessary to reach the opposite conclusion; certainly, no such credulity is required of a trial judge.
Simpson and Wilbur, JJ., agree with this dissent.The quotation is from Charles’ testimony in Gilman Paper Co., 19 T.C.M. 81, affirmed 284 F. 2d 697 (2d Cir.), the entire record of which was made a part of the record in the present case. I do not understand that petitioners question the truthfulness of this testimony or of his statement appearing infra, which is also taken from that source.
See n. 1 supra.
The remaining 4 shares owned by Isaac were distributed to his daughters, and were redeemed at a later time — in 1957 — prior to Charles’ death.
The majority opinion concerns itself at some length with possible restraints that may have existed in respect of the control embodied in the 6. shares. Apart from the fact that as a practical matter such possible restraints were in general not very meaningful in the circumstances of this case, the critical consideration in this connection is that Charles bargained for such control (with whatever restraints may have been attached thereto) and it was the availability of that control (subject to such possible restraints) that may fairly be regarded as the “enjoyment” of which the statute speaks.
The majority opinion refers to the Commissioner’s determination that the 6 shares had a value of $24,500,000. But that valuation was obviously based primarily upon including the control feature as the principal component of value. Moreover, the question of value of these shares is vigorously contested by petitioners, and was severed for separate trial in the event that it should be held that the shares are includable in the gross estate. Without intending to prejudge their value, it does seem from the materials before the Court that the Commissioner’s figure, as well as the deficiency itself, has been grossly overstated.
See, e.g., Old Colony Trust Co. v. United States, 423 F. 2d 601 (1st Cir.); United States v. Powell, 307 F. 2d 821 (10th Cir.); Estate of Edward E. Ford, 53 T.C. 114, affirmed per curiam 450 F. 2d 878 (2d Cir.); Estate of Ralph Budd, 49 T.C. 468; Estate of Marvin L. Pardee, 49 T.C. 140; Estate of James H. Graham, 46 T.C. 415; Estate of Willard V. King, 37 T.C. 973.
The “enjoyment” clause of sec. 2036(a)(1) is thus to be sharply distinguished from 2036(a)(2) which was held in Byrum to turn upon a legally enforceable right, and which was the principal issue considered in Byrum. It is similarly to be distinguished from that portion of 2036(a)(1) relating to a retention of a “right” to income from the transferred property. No such limiting language is present in respect of the “enjoyment” clause.