*2010 1. On December 19, 1922, decedent executed an irrevocable deed of trust by which he conveyed to trustees named therein his entire interest in his father's estate, reserving to his own use a portion of the income for life, with remainder to the beneficiaries. The transfer was not made in contemplation of death. Held, that no part of the corpus of said trust may be included in the gross estate of decedent subject to the Federal estate tax. Reinecke v. Northern Trust Co.,278 U.S. 339">278 U.S. 339.
2. Prior to his death, decedent subscribed $5,000 to the Welfare Federation of Philadelphia, a community chest, "in consideration of the subscriptions of others." Subsequent to his death, said amount was paid by decedent's executors. Held, that said amount constituted a claim against decedent's estate deductible as such under section 303(a)(1) of the Revenue Act of 1924. Jeptha H. Wade, Jr., et al., Executors,21 B.T.A. 339">21 B.T.A. 339, followed.
*1093 This is a proceeding for the redetermination of a deficiency in estate tax*2011 in the amount of $143,951.56, less an additional credit in the amount of $863.57 on account of State inheritance taxes paid, leaving the portion of the deficiency which is proposed for assessment *1094 in the amount of $143,087.99. The issues raised by the pleadings involve the following:
(1) The value of the real estate on which decedent's home was located at Wayne Avenue and Johnson Street, Philadelphia, Pa.;
(2) The value at decedent's death of 22,136 shares of stock in the Counties Gas & Electric Company and of 7,332 shares of stock in the Portsmouth Gas Company;
(3) The value of certain paintings, furniture and personal effects bequeathed to the decedent's wife for life, with remainder to charity;
(4) Ownership of certain personal effects, of the agreed value of $14,510;
(5) The inclusion in the gross estate of any or all of the value of the corpus of the trust created by the decedent on December 19, 1922, of the agreed value of $247,861.03;
(6) The allowance of a deduction as a debt of the decedent of the amount of a pledge made by the decedent to the Welfare Federation of Philadelphia;
(7) The amount of the credit to which the estate is entitled on account*2012 of State estate and inheritance taxes paid;
(8) The allowance of additional deductions on account of the debts of the decedent; and
(9) The allowance of additional deductions on account of administration expenses.
In his amended answer, the respondent alleges that the deficiency should be increased by including in the gross estate the entire value of the corpus of the trust involved in issue (5) above, instead of the portion thereof included in determining the deficiency set forth in the deficiency notice.
FINDINGS OF FACT.
The decedent, John D. McIlhenny, died testate on November 23, 1925, a citizen of the United States and a resident of the city of Philadelphia, State of Pennsylvania. By his last will and testament, decedent appointed the petitioners herein and his brother, Francis S. McIlhenny, as executors of his estate. Said will was admitted to probate on December 2, 1925, in the office of the Register of Wills for the County of Philadelphia. The executors named therein duly qualified, and have not been discharged as such. Francis S. McIlhenny died on May 6, 1927.
The decedent at the time of his death was the owner of a certain piece of real estate situated*2013 in the city of Philadelphia at the corner of Wayne Avenue and Johnson Street, containing approximately 5 3/4 acres, with his dwelling house erected thereon. The fair value of said property at the date of decedent's death was $211,500.
*1095 Decedent at the time of his death was the owner of 22,136 shares of common stock of the Counties Gas & Electric Company. The fair value of this property at said date was $60 per share, or a total of $1,328,160.
Decedent at the time of his death was the owner of 7,332 shares of common stock of the portsmouth Gas Company, having a fair value at said date of $50 per share, or a total value of $366,600.
Decedent at the time of his death was the owner of certain paintings, furniture and personal effects located in his home at Wayne Avenue and Johnson Street, Philadelphia, which were reported by the petitioners in the estate tax return at an aggregate value of $91,958.50, and which respondent determined to have a total value of $104,478.50. The fair value of said property at decedent's death was $99,458.50.
Decedent at the time of his death was the owner of certain personal property, then being used in part by his three children, *2014 which property was not included by the petitioners in the estate tax return, but which was included in the gross estate by the respondent in computing the deficiency herein. Said property had a fair market value at the date of decedent's death in the amount set opposite each item, as follows:
| Item | Value |
| Hepplewhite bed | $750 |
| Chippendale dressing table | 270 |
| Knee-hole writing desk | 325 |
| Tall chest of drawers | 600 |
| 2 Gothic chairs | 500 |
| Modern furniture used by John D. McIlhenny, jr | 300 |
| 3 Sheraton chairs | 250 |
| Bureau | 1002 beds |
| 150 | |
| Drop-leaf table | 100 |
| Couch | 35 |
| Armchair | 50 |
| Water color by Winslow Homer | 600 |
| Oil by John Constable | 900 |
| Oil by Charles W. Eaton | 250 |
| Oil by Maroni | 500 |
| Chippendale bed | 1,000 |
| Chinese chest of drawers | 500 |
| Dressing table, stool, mirror | 500 |
| 2 small tables | 150 |
| Duncan Phyfe table | $350 |
| Louis XV bed | 180 |
| 3 chairs | 300 |
| Worktable | 375 |
| XIV commode | 400 |
| Oil portrait by Polidoro | 600 |
| Benj. West | 800 |
| Chippendale bed | 600 |
| Bureau | 250 |
| Charles II mirror | 300 |
| Writing desk | 350 |
| Small tables | 200 |
| 2 chairs | 175 |
| William and Mary stool | 200 |
| Picture by Romney | 1,000 |
| Picture by Collins | 250 |
| Picture by Feti | 200 |
| Pair of Italian paintings | 150 |
| Total | 14,150 |
*2015 The foregoing articles of furniture, paintings, and household effects were acquired by the decedent during his lifetime or with funds furnished by him, and were used in part by his daughter and two sons in their respective rooms in his home. Said property was the subject matter of a memorandum in the handwriting of and signed by the decedent, designating the articles which he desired each of his children to have, in accordance with the last paragraph of Item XV of his will, reading as follows:
I also direct that upon my wife's death each child shall receive from my trustees, or upon the marriage of any child of mine during the lifetime of my wife, such child shall, upon the written consent of my wife, receive from my *1096 Trustees to do with as he or she may see fit, such furniture, rugs and other art objects which he or she may have regularly used in his or her bedroom and which have been recognized during my life by my family in that sense as their own. In addition thereto, such furniture, rugs, pictures or other art objects in my home not in the debroom of any of my children shall go to such child or children of mine as I may designate in a written memorandum left*2016 by me among my papers, such memorandum to be in my own handwriting and signed by me.
Decedent, on December 19, 1922, executed an irrevocable deed of trust by which he conveyed to trustees named therein all of his interest in the estate of his father, John McIlhenny, deceased. Said deed of trust contained provisions material here as follows:
2. During my life the Trustees shall apply so much of the net income as shall be necessary to the payment of premiums on existing policies of life insurance on my life aggregating $102,000. Any dividends which may be declared by Insurance companies carrying these policies to me as a policy holder therein, shall be permitted to remain with the respective Companies to be applied to the purchase of additional paid up insurance, and a copy of this Trust Deed shall be full and sufficient authority to said Insurance Companies so to apply any such dividend. The obligation of the Trustees to pay premiums upon said policies of life insurance, however, shall be limited to the net income from the Trust Estate, and the Trustees assume no liability for payment from any other source. Should such income at any time prove insufficient to pay said premiums*2017 the Trustees shall notify me of said fact and I shall have the option to make up the deficiency, and on my failure so to do, the Trustees may surrender the policies. Said policies of life insurance shall be lodged with the Trustees.
3. Any excess of income during my life over and above the amount necessary to pay the premiums on life insurance policies as aforesaid, and the entire income after my death, shall be applied by the Trustees to the education, maintenance and support of my children to wit; John D. McIlhenny, Jr., Bernice M. McIlhenny and Henry P. McIlhenny, in such manner, and in such amounts as said Trustees shall deem wise. The amount of income to be paid to each child shall be controlled by circumstances from time to time, and shall depend upon the use which each child is making of his or her income. I do not wish my sons or a son-in-law to live in idleness, but desire them to be useful, upright and industrious citizens. The Trustees therefore need not allow the same amount to each child, but the amounts to be paid to each from time to time shall depend upon the child himself or herself. The Trustees may either allow the full share of income to any child, or any*2018 lesser amount down to an amount sufficient merely to keep such child from want. If at any time or times my Trustees are satisfied that any or all of my said children should receive a full share of income, the said full share or normal income shall be ascertained by dividing the net income available for this purpose into as many shares as there may be living at that time children and issue of deceased children representing per stirpes their parents' share. Any child who in the judgment of my Trustees should have a full share of income shall receive it in quarterly payments. The decision as to the proportion of income the child of said issue shall receive shall depend entirely upon the discretion of my Trustees, as my interest in this matter is what is best for the child or said issue. The exercise of this discretion shall not be subject to review by any court. If any child or any of said issue shall die leaving a widow or surviving husband, my Trustees may allow some income to them so long as they *1097 shall not remarry. If any of my said children or any of said issue does not in any year receive all of his or her normal share of income for the reasons as aforesaid, the*2019 excess amount may be paid by my Trustees in their discretion to my other children or to any of my grandchildren. In case of the death of any child not having exercised the power of appointment hereinafter referred to and leaving no children or children of deceased children, my Trustees may pay said child's full normal share of income to any other of said children who may be living or to their children, and in doing so shall exercise the same discretion as above referred to. In case of the death of any of my said children leaving children or issue of deceased children, and not having exercised the hereafter mentioned power of appointment, I direct that my Trustees shall pay over said deceased child's so called normal share of income to said child's children; said payments of income to be in the same exercise of my Trustees' discretion as aforesaid.
4. Any of my said children at his or her death may by his or her last Will dispose as hereinafter mentioned of the share of the principal of my Estate from which he or she would have been entitled to the so-called full normal income as aforesaid if living. (For this purpose of fixing the amount of such share the discretion of the Trustees*2020 is not to be considered.) And such child so dying may under that power of appointment dispose of said share of principal in fee or for life or for any other estate and under such trusts or otherwise and to such person or persons as he or she may in his or her said last Will name and appoint. Provided, however, that said powers of appointment may only be exercised in favor of children, grandchildren or other descendants of mine, widows or surviving husbands or adopted children of my children or grandchildren, and charities, and provided further that said powers of appointment may only be exercised in such a way as will not offend the rule against perpetuities, and that in the case of the exercise of any such power in favor of widows or surviving husbands of any of my children, the said power shall be only good for the disposal of income from such share of principal to said widows or surviving husbands and not of principal. If any child attempts to exercise said power of appointment in such a way as would make said exercise invalid in whole or in part by reason of being contrary to the rule against perpetuities, or for any other reason, as to such portion of the principal as is affected*2021 by such invalidity the appointment shall be void and such portion shall be held by my Trustees to pay over the income therefrom in their discretion to any said descendants of mine as above mentioned and when the principal of my Estate is finally divided as hereinafter provided, then such portion of the principal as was affected by such invalidity shall be distributed in the same way as the balance of the principal as hereinafter provided. The provisions mentioned above as to disposition of income by my Trustees in favor of children of deceased children, widows and surviving husbands are only to apply in case said powers of appointment are not so exercised.
5. During my life, and for so long a period after my death as is permitted by law, if my Trustees shall in any year or years in their discretion not pay out to my children and other beneficiaries hereunder the entire income available for such payments the unpaid balance shall be accumulated and either added to principal, or else paid out as income in a succeeding year or years, as my Trustees shall deem best. After the termination of the above mentioned period my Trustees shall not add any such excess income to principal, but*2022 may either pay it out as income in a succeeding year or years or pay it to the Pennsylvania Museum and School of Industrial Art to be added to and become part of *1098 the Endowment Fund which I contemplate creating by my Will, as to my Trustees shall, in view of all the circumstances, seem best. If any accumulation of income under this paragraph shall at any time be declared invalid, my Trustees shall forthwith pay said income to the Pennsylvania Museum and School of Industrial Art to be added to the Endowment Fund aforesaid.
6. Wherever I have provided herein for the payment of income from my residuary estate to any beneficiary, I direct that the same shall not be subject to attachment, execution, sequestration, or to any order of the Court, and that the beneficiary shall have no power to alienate or anticipate said payments or encumber the same, nor shall said income be liable for the contracts, debts or engagements of any beneficiary, but the same shall be paid by my Trustees to said beneficiary free and clear of all assignments, attachments, anticipations, levies, executions, decrees and sequestrations, and shall only become the property of the beneficiary when actually*2023 received by him or her as the case may be.
7. Upon the expiration of the period of twenty-one years after the decease of the last survivor of my children now living, I direct that my Trustees shall divide the principal (or so much as may remain after the valid exercise of the powers of appointment aforesaid) into as many parts or shares as at the time there shall be deceased children of mine but represented by descendants then living, and to sub-divide and pay absolutely and in fee, subject to the aforesaid powers of appointment, each deceased child's share of principal per stirpes to such descendants of said deceased child as may be then living. In case at such time there shall be living no descendants of a deceased child of mine entitled to take hereunder, I direct that the share of principal which would have been divided amongst such descendants if living, shall be paid over by my Trustees to the Pennsylvania Museum and School of Industrial Art, to be added to the endowment fund which I contemplate creating by Will.
8. Although my father has been dead for several years, the securities and investments of his Estate are still handled by my brother and myself as an informal*2024 trust, we receiving the income and paying it over to those entitled thereto. It is my wish that this arrangement should not for the present be disturbed. I authorize my Trustees to permit my share of the principal to remain in the hands of the Executors until such time as the principal of my father's Estate is divided among all of the heirs. Until such time my trustees may permit said Executors to handle the principal as agents of said Trustees, and in such case my Trustees shall in no event be liable for any loss to the trust estate caused by the Act of said Executors. But the entire share of income to which I would be entitled shall from the date of this Trust Deed be payable to my Trustees, and they shall have the right, should they so elect, to demand at any time that the principal be turned over to them.
9. This Trust shall become effective as soon as either of my Trustees named shall accept the trusts herein provided.
* * *
14. Having given consideration to the question whether the trust hereby created shall be revocable or irrevocable, I hereby declare it to be irrevocable.
Frances Plumer McIlhenny, one of the trustees named in the above deed, of trust, accepted*2025 the trusts therein provided on the same date on which the deed of trust was executed, and it thereon became effective in accordance with the provisions of paragraph 9 thereof. Francis S. McIlhenny, the other trustee named in the deed of trust, accepted same approximately two months later.
*1099 Decedent's father, John McIlhenny, died in 1916 and decedent was entitled to one-fifth of the principal of the estate, but at the time of the execution of the above mentioned deed of trust the estate had not been divided. Division was subsequently made on or about March 24, 1925, and the trustees appointed in said deed of trust then received one-fifth of the estate of John McIlhenny, deceased, which constituted the principal of the trust estate and which at the death of the decedent on November 23, 1925, had a fair value of $247,861.03.
Prior to March 24, 1925, the corpus of the estate of said John McIlhenny, deceased, was in the possession of the decedent, John D. McIlhenny, and his brother, Francis S. McIlhenny, as executors, and from December 19, 1922, the date of the execution of the deed of trust by decedent, until March 24, 1925, when the corpus of the estate of his father*2026 was distributed, the income from the share of his father's estate to which decedent was entitled, was paid by said executors to the trustees named in said deed of trust.
Subsequent to the death of the decedent, John D. McIlhenny, the trustees, in accordance with the power vested in them by the deed of trust, appointed the Fidelity-Philadelphia Trust Company of Philadelphia as cotrustee. Francis S. McIlhenny, one of the originally appointed trustees, having died on May 6, 1927, the principal of the trust estate is now in the hands of the two surviving trustees, Frances Plumer McIlhenny and Fidelity-Philadelphia Trust Company, and the net income is being paid to the three children of the decedent in accordance with the terms of the said deed of trust.
On or about October 10, 1925, decedent signed a card subscribing $5,000 to the Welfare Federation of Philadelphia, reading in pertinent part as follows:
In consideration of the subscriptions of others to the Welfare Federation of Philadelphia, I subscribe a total sum of $5,000.
The said Welfare Federation was and is in effect a community chest, by which funds are raised for the support of numerous charities in the city of Philadelphia. *2027 Thousands of other persons signed similar cards at or about the same time. Decedent received no consideration in money or money's worth for his subscription. The decedent did not pay said subscription during his lifetime, but after his death it was paid by his executors. The petitioner claimed said amount as a deduction, but the respondent determined that said pledge did not constitute a debt of the decedent deductible from the gross estate.
The decedent in his will bequeathed certain paintings, furniture and personal effects to his widow for life, with remainder to the Pennsylvania Museum and School of Industrial Art, a charitable institution. Petitioners reported these articles in the estate tax return at a value of $91,958.50, and determined the value of the *1100 charitable bequest, after deduction of the value of the widow's life interest, to be $49,594.14. Respondent increased the value of said bequest to $104,478.50 and added thereto other articles of the value of $14,510, making a total value determined by the respondent of $118,988.50, increasing the deduction for the charitable bequest to $64,171.69. The articles last above mentioned, the value of which the*2028 respondent included in the gross estate and determined to be $14,510, are the same articles hereinabove set forth in detail, with the value of each. The articles first above mentioned in this paragraph as having been bequeathed to his widow by the decedent, with remainder to the charitable institution, had a fair value at decedent's death of $99,458.50. The deduction allowable on account of the charitable bequest will be determined by applying to the total value of said items in the amounts of $99,458.50 and $14,510, the factor .53931.
Subject to statutory limitations, the petitioners are entitled to credits against the Federal estate tax on account of inheritance or transfer taxes paid to the several States, as follows:
| Pennsylvania taxes | $76,343.84 |
| Virginia taxes | 9,292.34 |
| Maine taxes | 5,164.50 |
| Additional Maine taxes | 18.08 |
| New Jersey taxes | 1,852.22 |
| Total | 92,670.98 |
The petitioners are also entitled to the following additional deductions from the gross estate:
| Additional income tax for the year 1924 | $277.84 |
| Interest on additional income tax for the year 1921 | 1,065.66 |
| Court examiner's fee | 195.00 |
| Federal and State stamp taxes | 1,733.42 |
| Total | 3,271.92 |
*2029 OPINION.
TRAMMELL: This proceeding involves the redetermination of a deficiency in estate tax, and the various issues raised by the pleadings, as amended, will be considered seriatim in the order set out in the preliminary statement above.
Issue (1) raised the question of the correctness of the valuation of the real estate upon which the decedent's home was situated in Philadelphia, as determined by the respondent. However, the parties subsequently stipulated, and in accordance therewith we have found, that the fair value of this property at the date of decedent's death was $211,500.
*1101 Issue (2) concerns the correct valuation at decedent's death of 22,136 shares of stock in the Counties Gas & Electric Company, and of 7,332 shares of stock in the Portsmouth Gas Company. The stock of the former company was included by the petitioners in the estate tax return at a value of $50 per share, while the respondent determined the value to be $71 per share. The stock of the latter company was valued by the petitioners at $46.66 per share, and by the respondent at $62.50 per share.
The record contains no expert opinion testimony on the values of these stocks, but*2030 much evidence was adduced in reference to the earnings, methods of operation and the general conditions affecting the companies, which evidence has been exhaustively analyzed in the briefs of the parties to support their respective contentions. No sale of either stock was made within such reasonable time of the decedent's death, either before or after, and under conditions similar to those then existing, as to constitute a safe criterion of value at the basic date. It is not believed that a detailed discussion here of various possible analyses of book figures of earnings, assets and the like will serve any useful purpose. From a careful consideration of all the factors established by the record, we have found the fair value of the stocks in question at decedent's death to be $60 and $50 per share, respectively.
Issues (3) and (4), because of their relation to each other, will be considered together as one issue. Issue (4) involves the question of whether or not certain articles of furniture, paintings and other household effects, which are set out in detail in our findings of fact, of the total value of $14,510, were the property of the decedent at the time of his death and*2031 therefore includable in the gross estate. These articles were all purchased by the decedent during his lifetime or with funds furnished by him, and most of them were at his death being used by his three children in their respective bedrooms in his home. The petitioners contend that the articles were the property of the children or of the widow, but the record, we think, not only fails to establish such ownership, but, on the contrary, shows that said articles were the property of the decedent. The only basis for the contention of the petitioners appears to be that because the articles were being used by the children, they had come to regard them as their own. In our opinion, this point is made clear by the will of the decedent, wherein he bequeathed the articles in question to his several children, designating, in a separate memorandum in his own handwriting and signed by him, the specific articles which he desired each child to have, giving to each the articles "regularly used in his or her bedroom and which have been recognized during my life by my family in that sense as their own." It is not shown that this *1102 provision of the will was contested, but apparently distribution*2032 of the articles has been or will be made in accordance therewith, thus recognizing the property as belonging to the decedent at his death. It has been stipulated by the parties, and we have so found, that the value of this property at the date of decedent's death was $14,510, which amount should accordingly be included in the gross estate.
Under issue (3) the question is the fair value at decedent's death of certain paintings, furniture and personal effects bequeathed by the decedent to his widow for life, with remainder to the Pennsylvania Museum and School of Industrial Art, a charitable institution. These articles were valued by the petitioners in the return at $91,958.50, and the value of the charitable bequest, after deduction of the value of the widow's life interest, was fixed by them at $49,594.14. The respondent increased the value of the property to $104,478.50, and added thereto other articles, the ownership of which is in dispute under issue (4), of the value of $14,510, making a total value of $118,988.50, which resulted in increasing the deduction for the charitable bequest to $64,171.69. The parties have stipulated, and we have found, that the fair value at decedent's*2033 death of the property bequeathed to the widow, with remainder to the charitable institution, was $99,458.50. To this amount is to be added the stipulated value of the articles involved under issue (4) in the sum of $14,510, and the deduction allowable on account of the charitable bequest will be determined by applying to the aggregate of said two amounts the factor .53931.
Issue (5) involves the action of the respondent in including in the gross estate a portion of the corpus of a trust created by the decedent on December 19, 1922. The parties have stipulated, and we have found, that the fair value of the corpus of said trust at the date of the decedent's death was $247,861.03. In computing the deficiency, the respondent included a portion of said amount in the gross estate, and in his amended answer alleges that the deficiency so determined should be increased by including in the gross estate the entire value of the corpus of said trust. The petitioners contend that no part of the value of said corpus should be so included. It is not contended that the trust was created in contemplation of death, and the material provisions of the trust instrument are set forth at length in*2034 our findings of fact.
Thus, we have presented here a clear cut issue of law, namely, whether or not the value of property, transferred to trustees by an irrevocable deed, executed by the decedent more than two years prior to his death, such transfer not being made in contemplation of death and a portion of the income being reserved to the settlor during his lifetime, with remainder to the beneficiaries, may be included in *1103 determining the value of the gross estate for purposes of the Federal estate tax.
The decedent died on November 23, 1925, and the applicable statute is the Revenue Act of 1924, which provides in pertinent part as follows:
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 -
* * *
(c) To the extent of any interest therein of which the decedent has at any time made a transfer, or with respect to which he has at any time created a trust, * * * intended to take effect in possession or enjoyment at or after his death * * *.
The trust deed here in question became effective by its terms when accepted*2035 by either of the trustees named therein. It was accepted by one of the trustees on the date of its execution, and, therefore, became effective on said date, but the respondent contends that because the trust instrument provided that the corpus should not come into possession of the trustees until some future undetermined date, it should be construed as intended to take effect in possession or enjoyment at or after the decedent's death. The respondent further contends that the entire corpus should be included in the decedent's gross estate also because the decedent retained the right to exercise control and management through the trustees as his agents. We can not agree that respondent's conclusions of fact, upon which he predicates his contentions, are correct. If such were the facts, however, we would still be unable to conclude that the corpus of this trust is subject to the tax.
At the date of execution of the trust deed on December 19, 1922, which conveyed to the trustees the entire interest of the decedent in his father's estate, the corpus of the latter had not been distributed, but was then in the possession of the decedent and his brother as executors of their father's*2036 estate. In paragraph 8 of the trust deed, the decedent expressed the wish that such arrangement "should not for the present be disturbed," but provided that the trustees "should have the right, should they so elect, to demand at any time that the principal be turned over to them." In any event, the principal or corpus was actually delivered into the possession of the decedent's trustees on March 24, 1925, which was prior to his death on November 23, 1925, so that the corpus did not in fact pass to the trustees as an incident of the decedent's death.
Nor do we think that the trust instrument discloses that the decedent retained the right to manage the trust estate or to control the trustees in any manner. Full discretion and unhampered management *1104 were invested in the trustees. But so far as concerns the issue here involved, the question of management and control is immaterial. Likewise, the fact that the decedent reserved to his own use a portion of the income of the trust for the payment of premiums on life insurance policies during his lifetime, with remainder over, is immaterial. All of these points have been fully considered and definitely decided by the*2037 Supreme Court of the United States adversely to the respondent's contentions.
The provisions of the Revenue Act of 1924, hereinabove quoted as controlling in this case, appear in substantially the same form in the Revenue Acts of 1918 and 1921. , arose under the Revenue Act of 1921, and the "five trusts" there involved created life interests in the income (payable to others than the settlor), with remainders over. However, the settlor reserved to himself full power to supervise the reinvestment of the trust funds and to appoint successor trustees. The power was also reserved to revoke or modify the trusts by the settlor and beneficiaries, acting jointly. The Court said:
Since the power to revoke or alter was dependent upon the consent of the one entitled to the beneficial, and consequently adverse, interest, the trust, for all practical purposes, had passed as completely from any control by decedent which might enure to his own benefit as if the gift had been absolute. Nor did the reserved powers of management of the trusts save to decedent any control over the economic benefits or the enjoyment of the property. *2038 He would equally have reserved all these powers and others had he made himself the trustee, but the transfer would not for that reason have been incomplete. The shifting of the economic interest in the trust property which was the subject of the tax was thus complete as soon as the trust was made. His power to recall the property and of control over it for his own benefit then ceased and as the trusts were not made in contemplation of death, the reserved powers do not serve to distinguish them from any other gift inter vivos not subject to tax.
* * *
In the light of the general purpose of the statute and the language of section 401 explicitly imposing the tax on net estates of decedents, we think it at least doubtful whether the trusts or interests in a trust intended to be reached by the phrase in section 402(c) "to take effect in possession or enjoyment at or after his death", include any others than those passing from the possession, enjoyment or control of the donor at his death and so taxable as transfers at death under section 401. That doubt must be resolved in favor of the taxpayer.
The Court has thus specifically disposed of each contention of the respondent made*2039 here except the question whether the reservation by the decedent of a portion of the trust income to his own use during his lifetime would render a proportionate part of the trust corpus subject to the tax. This question was definitely decided by the Court, also adversely to the respondent's contention, in . See .
*1105 The Circuit Court of Appeals for the Seventh Circuit, in , in affirming , said:
The conclusion, under this decision (,) seems inescapable that property conveyed by an irrevocable deed of trust, to third parties, with no reversionary interest, contingent or otherwise, in the settlor, though the income during the settlor's life be payable to the settlor, does not pass at the settlor's death, but at the date of the execution and delivery of the deed of trust. Property thus conveyed is therefore not subject to the tax provided for in the section above quoted.
*2040 Affirmed by the U.S. Supreme Court, .
On March 3, 1931, Congress, by joint resolution, amended the Revenue Act of 1926 (section 302(c)) as follows:
(c) To the extent of any interest therein of which the decedent has at any time made a transfer by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, including a transfer under which the transferor has retained for his life or for any period not ending before his death (1) the possession or enjoyment of, or the income from, the property, or (2) the right to designate the persons who shall possess or enjoy the property or the income therefrom; except in case of a bona fide sale for an adequate and full consideration in money or money's worth.
This amendment, however, does not affect the Revenue Act of 1924, which is applicable to the facts of this case.
On authority of the decisions cited, we hold that no part of the value of the corpus of the trust here involved may be included in determining the value of the decedent's gross estate.
Issue (6) involves a deduction claimed by the petitioners of the amount of $5,000 paid by them as a claim*2041 against the estate on account of a pledge given by the decedent prior to his death to the Welfare Federation of Philadelphia, a charitable organization in the nature of a community chest. The facts set out in our findings hereinabove bring this issue squarely within our decision in , and on authority of that decision, we hold that the petitioners are entitled to the deduction claimed. While the Wade case arose under the Revenue Act of 1926, the provisions of the statute there quoted are substantially the same as the corresponding provisions of the 1924 Act applicable here.
Issue (7) relates to the credit against the Federal estate tax claimed by the petitioners on account of transfer, estate or inheritance taxes paid to the States of Pennsylvania, Virginia, Maine, and New Jersey in the total amount of $92,670.98. The respondent admitted the right of the petitioners to credit for the taxes paid to Pennsylvania, Virginia, and Maine, but denied credit for the taxes admittedly paid to the State of New Jersey in the amount of $1,852.22, for lack of proof which the record, in our opinion, now supplies. The*2042 *1106 petitioners have established (1) that the amount of the New Jersey tax as claimed has been paid, (2) that it was paid in respect of property included in the gross estate, submitting a detailed list or inventory of the property, and (3) that no claim for a refund of said tax or any part thereof has been filed, and that no such action is contemplated. This is sufficient proof to entitle the petitioners to the credit under section 301(b) of the Revenue Act of 1924, and, subject to the limitation of 25 per cent provided by said section, the petitioners will be allowed credit in said aggregate amount of $92,670.98.
Issues (8) and (9) involve additional deductions claimed by the petitioners on account of the payment of debts of the decedent and expenses of administration in the total amount of $3,271.92, as detailed in our findings of fact. These deductions are now conceded by the respondent, and will be allowed in recomputing the deficiency herein.
Reviewed by the Board.
Judgment will be entered under Rule 50.