*678 In 1932 petitioner had a serious and extensive operation for cancer. Thereafter he went about his business without apparent inconvenience except that resulting from a colostomy. In April 1937 he submitted to another operation, presumably for gall stones, but which revealed a cancerous condition of the liver beyond relief. On December 31, 1936, he transferred without consideration certain stock in a corporation controlled by him to his wife, two sons, and his secretary. On August 4, 1937, he transferred to his wife, two sons, two daughters, and his secretary other shares at less than their fair market value, receiving as down payment dividends declared on August 14 and taking notes for the balance. He died September 29, 1937. Held, under all the facts and circumstances, the transfers of December 31, 1936, and the transfers of August 4, 1937, to the extent of the difference between the selling price and the fair market value of the stock, were gifts in contemplation of death and properly includable in decedent's gross estate.
*529 This proceeding*679 involves a deficiency of $8,455.76 in estate taxes. The issue is whether certain gifts of shares of stock on December 31, 1936, and certain sales of similar stock on August 4, 1937, constituted gifts made in contemplation of death, the extent of the alleged gifts as to the sales being the difference between the selling price and the fair market value of the stock.
FINDINGS OF FACT.
The petitioners are the trustees and former executors of the last will and testament of John E. Gilson, who died a resident of Port Washington, Wisconsin, on September 29, 1937, at the age of 59. The estate tax return was filed with the collector of internal revenue for the district of Wisconsin.
For more than 20 years prior to his death decedent conducted a foundry business in Port Washington. Prior to January 1, 1937, this business was operated as a sole proprietorship under the firm name of "J. E. Gilson Company." In 1928 his elder son, George I. Gilson, became active in the business and in 1934 his other son, John B. Gilson, entered the business. During 1932, which was the low ebb of the depression as far as employment and sales by the J. E. Gilson Co. were concerned, the company employed*680 approximately 45 persons. From 1933 to 1936 its business grew continually until it employed 97 *530 persons at the time of decedent's death and its sales were three to four times its 1932 sales. Except for certain periods during 1932 and 1937, hereinafter more fully discussed, the decedent was actively engaged in conducting the foundry business until shortly before his death.
Prior to March 16, 1932, decedent was suffering severely from what he thought was hemorrhoids. At or about this time he complained of his condition to his wife for the first time. She suggested that he see a doctor in Milwaukee that they had met on a vacation trip. The doctor's examination convinced him that decedent's condition was more serious than hemorrhoids. This diagnosis was supported by a second physician, who took the decedent to the Chicago Memorial Hospital for further examination. The decedent's condition was diagnosed as carcinoma or cancer of the rectum. Decedent, upon being informed of this condition, "thought everything was over." The surgeon explained the very extensive and serious nature of the operation that would have to be performed and decedent agreed to submit thereto. *681 He was admitted to the hospital on March 16, 1932, and approximately 18 inches of the lower intestine were removed. An artificial opening was made in decedent's side through which waste from the body was eliminated by drainage into a pad or apron receptacle. It required daily cleansing and changing.
Decedent was discharged from the hospital on April 29, 1932, and returned to his home in Port Washington to convalesce. As his strength increased he gradually increased the time devoted to his business affairs until he resumed full control. During the years subsequent to the operation his condition was apparently good, he was free from the terrible distress he had had prior thereto, and he picked up in spirits and weight. He had been told by the surgeon that there might be a recurrence of the cancer, but that "if he could go four or five years he could be pretty safe." His local physician told him that after three years he was reasonably safe. On occasions he expressed the conviction that his operation had been as successful as similar operations on several other people in the community, and he expressed the belief that with the passage of time a recurrence of cancer became increasingly*682 remote.
In or about September 1936 decedent discussed the incorporation of his foundry business with his accountants and his attorney. Pursuant to decedent's request, his accountants prepared an analysis and report on the relative advantages and disadvantages of sole proprietorship and incorporation as applied to his business. This report was submitted to decedent under date of November 13, 1936. It made no specific recommendation as to what the decedent should do about incorporating but stated that the accountants would be pleased to discuss the matter further upon notification.
*531 On or about December 15, 1936, decedent visited his doctor in Chicago. He complained at that time of some digestive disturbance and of a little distress in the upper right abdomen in the region of the gall bladder. His doctor hospitalized him from the 15th to the 18th, as he suspected the decedent might have gall stones or metastasis of the liver. X-rays were taken, which indicated the trouble might be gall stones. He was advised that another operation would be necessary. At that time decedent was planning his annual winter vacation and the doctor told him to go ahead with his plans*683 and see how he made out.
Shortly after returning from the hospital and on or about December 31, 1936, decedent incorporated his business as the "J. E. Gilson Company", with a capital stock of $100,000, par value $100 per share. On December 31, 1936, he transferred by gift 152 shares of the capital stock of said corporation as follows:
| Jessie F. Gilson, wife | 50 shares |
| George I. Gilson, son | 50 shares |
| John B. Gilson, son | 30 shares |
| Clementine Kraus, secretary | 20 shares |
| Walter H. Bender, attorney | 2 shares |
In making these gifts decedent stated that the members of his family and Miss Kraus, who had worked with him for many years, were deserving of some interest in the business. He further expressed the hope that a financial interest in the business would result in a greater personal interest on the part of the donees. At the time these gifts were made decedent gave no indication that he was concerned with the thoughts of death.
On or about January 15, 1937, decedent, his wife, and their son, George, left home on a motor trip to Florida. The son remained in Florida with his parents for a week, during which time they visited various points of interest in*684 Florida and many of the orchards. On these trips decedent purchased canned jellies and things of that type to send to some of his good customers. In the evenings they always dined out, then took in the movies, went for a walk, or went down to the yacht club to see the boats. Decedent's weight while in Florida was fairly normal. Decedent returned home shortly before April 7, 1937.
On or about April 7, 1937, decedent reentered the hospital and on April 10 an operation was performed. Upon opening up the abdomen to explore the gall bladder the doctor discovered that decedent had carcinoma of the liver, evidenced by a growth on top of the liver nearly as large as a good big chestnut. This was a condition about which nothing could be done and no further operation was attempted. Instead, the doctor had a gall stone given to decedent, who was told that it was his gall stone. The members of decedent's family were *532 advised as to his true condition and cautioned against revealing it to him. The surgeon advised decedent's physician in Port Washington as to the facts and prescribed an intravenous injection of colloidal gold to be administered by the local physician for the*685 purpose of retarding the cancerous growth but informed decedent that the injections were to make the gall ducts and bladder work.
Decedent was discharged from the hospital on April 23, and after a few days at home he returned to the plant for a few hours a day. As his strength increased he became increasingly active in the business. In or about June 1937 he moved out to his summer home, which was four miles from Port Washington, and remained there until Labor Day. He drove his car back and forth from the foundry plant to the summer home.
During the summer of 1937 decedent made plans for enlarging the floor space of the factory by approximately 50 percent because of greatly increased business. In or about June 1937 he drew up the preliminary sketches and engaged the services of an architect to draw the permanent plans. He held frequent consultations with the architect and with the contractor who was to do the building in connection with the proposed expansion of the foundry plant.
Decedent's activities outside his business up to the middle of August 1937 included supervising the construction of a very extensive rose bed at his summer home, the drafting of plans and supervision*686 of the construction of a sunhouse at the summer home, and consideration of the purchase of a sailboat. In addition he was active with the school board, being nominated and reelected in July 1937. He conducted several meetings at his summer home in the evenings, to which he invited a great many of the townspeople and at which various school policies and plans were discussed. Decedent had served as chairman of the school board for twelve years and had been very active in educational work for years.
On August 4, 1937, decedent sold certain shares of stock of the J. E. Gilson Co. at $100 per share to the following persons:
| Name | Shares | Consideration |
| Jessie F. Gilson, wife | 50 | $5,000 |
| George I. Gilson, son | 50 | 5,000 |
| Retta Gilson, daughter | 50 | 5,000 |
| Marion Gilson, daughter | 50 | 5,000 |
| John B. Gilson, son | 50 | 5,000 |
| Clementine Kraus, employee | 30 | 3,000 |
| Total | 280 | 28,000 |
The shares of stock were transferred on the books of the corporation to the purchasers. Just prior to these transfers and on July 31, 1937, the books of the corporation showed a surplus of $43,700, or a *533 book value of approximately $143 per share. On August 14, 1937, the corporation*687 declared a dividend on its stock, which dividend was used as a down payment on the purchase price of the stock and 5 percent notes due in five years were given by the parties named for the balance. The whole initiative with respect to the sales aforementioned was taken by the decedent, and the wife, at least, was not consulted as to whether she would buy the additional stock.
Decedent's normal activities continued until about the middle of August. During the second or third week of August it became apparent that he was losing weight, although his appearance outwardly was good. During the summer he gave no indication to his local physician that he was suffering any pains or that he knew the purpose of the colloidal gold injections. In administering the colloidal gold the local physician removed the label and told the decedent the injection was for the purpose of increasing the ability of his liver to function. Decedent received about twelve injections of colloidal gold, but they upset his stomach so much that the injections were discontinued.
On August 28 the decedent was visited by his attorney and the latter's wife. At that time decedent mentioned that he had some discomfort*688 and some little pain of a neurotic character, which he presumed was recovery pains, as he had similar pains from his first operation. He stated that he had been operated on for gall stones and that he had the stone. Decedent gave no indication that he believed or thought he was suffering from an incurable ailment, but he did discuss making a last will and testament with his attorney.
On September 11, 1937, decedent executed his will and on September 15, 1937, he executed a codicil thereto. Under the terms of the will his real estate, together with $5,000 in cash, was given to his widow, 400 shares of stock in J. E. Gilson Co., and cash of $3,000 and $5,000 were given to his two sons, 168 shares of said stock were placed in trust for them, and, except for certain specific bequests, the residue of his estate was placed in trust for his two daughters. The codicil provided for placing the share of John B. Gilson in a trust which could be terminated upon certain conditions.
On September 19, 1937, decedent developed a bowel disorder that caused him severe pain, which was relieved by the use of morphine. This was the first use of morphine after the 1937 operation. The death certificate*689 gave the principal causes of death in order of date of onset as: chronic myocarditis, September 1937; chronic nephritis, August 1937; and contributory causes of importance as, carcinomatosis of interestines.
The estate tax return reported decedent's gross estate as $274,971.60, exclusive of the transfers involved herein. In determining the deficiency respondent increased the gross estate by $27,750 representing *534 the 150 shares of stock 1 transferred on December 31, 1936, and by $23,800 representing the excess of the aggregate value of 280 shares on August 4, 1937, over the selling price thereof. Respondent valued the stock transferred on each occasion at $185 per share, and it is stipulated that, if the transfers constituted gifts in contemplation of death, the value determined by respondent is correct.
Decedent was an active and intelligent leader in his community. He was one of the organizers of the local Building & Loan Association and its president when*690 he died. He founded the Port Washington Rotary Club and was its first president. He was a director in several corporations, was active in Masonic circles, was chairman of the Ozaukee County Republican Committee for many years, and was interested in various civic endeavors. He was normally of a cheerful disposition and seldom complained of his personal ills.
The dominant motive and impelling cause for the gifts and transfers made by decedent on December 31, 1936, and August 4, 1937, were contemplation of death.
OPINION.
ARNOLD: Section 302(c) of the Revenue Act of 1926 as amended 2 provides, so far as pertinent hereto, that the value of a decedent's gross estate:
* * * shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated, except real property situated outside of the United States - (c) To the extent of any interest therein of which decedent has at any time made a transfer, by trust or otherwise, in contemplation of * * * death; except in case of a bona fide sale for an adequate and full consideration in money or money's worth. Any transfer of a material part of his property in*691 the nature of a final disposition or distribution thereof, made by decedent within two years prior to his death * * *, without such consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this title.
If the transfers made by decedent on December 31, 1936, and on August 4, 1937, were gifts in whole or in part, then the statute sets up a presumption that these gifts were made in contemplation of death, as decedent died within nine months of the first gifts. The burden rests upon the petitioners to rebut the statutory presumption and to overcome respondent's determination. No question is presented as to the values included in the gross estate as a result of the transfers. The only question is whether such transfers were made in contemplation of death.
*535 Whether gifts are made in contemplation of death is primarily a question of fact. In determining the ultimate fact it is necessary to carefully scrutinize the circumstances of each case in order to detect*692 decedent's dominant motive, as is always to be found in motive. U.S. 102. In the course of the cited opinion the Supreme Court defined the statutory words thought of death is the impelling cause of the transfer that rule of construction which in place of contemplation of death makes the final criterion to be an apprehension that death 'is near at hand'." The Supreme Court reversed the rule laid down by the Court of Claims that there be a condition creating a reasonable fear that death was near at hand, and that such reasonable fear or apprehension must be the only cause of transfer, by stating that of death be the inducing cause of the transfer whether or not death is believed to be near.
By their evidence petitioners have attempted to rebut the presumption of the statute and overcome respondent's determination by establishing that the gifts were motivated by thoughts of continued life and that the transfers were not testamentary dispositions influenced by the thought or fear that was near at hand, but were transfers to aid and assist his family, to give them a present income, and to more closely align the donees with the business. Finally, it is urged that the sales of August 4, 1937, were*693 for an adequate and full consideration and no gifts resulted.
After carefully weighing and scrutinizing the facts adduced, we are convinced that neither the statutory presumption nor the burden of proof as to respondent's determination has been overcome. All the witnesses agreed that decedent was a highly intelligent man. The surgeon testified that decedent knew he was suffering from cancer in 1932, that he was desperate, and that he over. and that the operation then to be performed was serious and extensive, with the chances of recovery against him. It does not appear whether he knew the percentages against the success of the operation or not, but the surgeon testified that one operation in five was successful if the case was obtained early enough to effect a cure. The testimony shows that the cancer an operation, the chance of success of which was wholly problematical. He knew the operation offered no guarantee against a recurrence of the cancer cells elsewhere in his body, but he took this chance to prolong his life.
The testimony of the witnesses establishes that decedent had the possibilities of a recurrence of his condition on his mind. Had he *536 sought to*694 forget his cancerous condition, no chance was afforded him, as the aftereffects of the colostomy constituted a daily reminder. That the possibility of a recurrence was ever before him is shown by the testimony of the two doctors, the son, the widow, and the attorney, with each of whom he discussed the matter. Neither doctor assured decedent that the passage of three or five years without a recurrence would constitute a guarantee against cancer, but only that he would be that most patients who know they are operated on for cancer feel that there will be a recurrence, and in his opinion decedent thought the same thing.
Decedent, as an intelligent man, must have known that a malignant affliction, such as he knew he had when first operated on and of which the colostomy was thereafter a daily reminder, would inevitably prove fatal unless completely eradicated. We must, therefore, examine his actions under these circumstances for a clue to his predominant motive in making the gifts. It is significant that decedent made the first transfers only after ascertaining that another operation was necessary. Informed on or about December 18, 1936, of the impending operation, he immediately*695 incorporated his business for the purpose, inter alia, of making the gifts of December 31, 1936, since it would be impracticable to give undivided interests in a sole proprietorship. Such hasty action becomes doubly significant in view of decedent's complete despair at the time of the first operation, his obvious concern about his condition thereafter, and the possibility of a recurrence. While it may be true that the transfers were partly motivated by a desire to aid and assist his family and to more closely align the donees with the business, the question is not whether decedent had these motives as well, but what his predominant motive was. His continued interest in local affairs and in his business after he learned he was afflicted with cancer was but natural to anyone who had led an active life such as decedent had led. It tended to distract his mind from his physical condition. The respondent has determined that decedent's predominant motive in making the gifts was contemplation of death. The evidence does not overcome this determination.
It is of interest that the gifts made on December 31, 1936, were substantially*696 in accord with the testamentary dispositions made by his last will and testament, namely, the sons to acquire the business and the wife and daughters to be otherwise provided for. It is established that the decedent was not given to complaining, as his widow testified that she didn't know of his pain and suffering in 1932 until a few days before he went to the doctor. If the pain he suffered prior to March 16, 1932, brought no words of complaint from him until shortly before the operation, it is quite unlikely that carcinoma of the liver, which is *537 much less painful, according to the testimony of the surgeon, would bring forth any complaints, particularly in view of his knowledge that he had cancer in 1932. Obviously decedent was cognizant that his condition was growing more precarious at and prior to the transfers of August 4, 1937, as his physical condition was such that the colloidal gold treatment had to be discontinued. Considering all of the circumstances, we believe that decedent was motivated by thoughts of death and the necessity of putting his house in order before the moment of inevitable surrender. We, therefore, hold that the gifts here involved were made*697 in contemplation of death within the meaning of section 302:c) of the Revenue Act of 1926, as amended. ; affd., .
There remains the question of whether the transfers of August 4, 1937, were bona fide sales for an adequate and full consideration in money or money's worth. Petitioners defend the sales upon the ground that the books indicated a book value of $143 per share on July 31, 1937, before taxes, and, being stock in a closed corporation that was engaged in a hazardous business, decedent could not have realized more than $100 per share in the open market. While agreeing that for tax purposes the stock had a value of $185 per share, petitioners deny that this establishes the selling price thereof, citing , and contend that $100 a share was an adequate consideration for the stock.
A major difficulty with petitioners' argument is that decedent acted for both vendor and vendee in arranging for the sales to vendees who were the natural objects of his bounty. The widow testified that decedent took the entire initiative in selling and*698 transferring the stock and all she had to do was sign the notes. She stated she wasn't even consulted about the sale, but merely acquiesced in the purchase. Certainly, there was no bona fide sale for an adequate and full consideration within the meaning of the statute under these circumstances. We are, therefore, of the opinion that the excess of the agreed value over the selling price constituted a gift presumably made in contemplation of death, and that the evidence adduced supports the statutory presumption.
The Schwing case, supra, was decided upon its own peculiar facts and is not controlling herein.
Reviewed by the Board.
Decision will be entered for the respondent.
BLACK, dissenting: I dissent from that part of the majority opinion which holds that the gifts of 150 shares of stock in the J. E. Gilson Co. which decedent made on December 31, 1936, to his wife and two *538 sons and his secretary were made in contemplation of death. The Board's findings of fact as to these gifts state, among other things, as follows:
In making these gifts decedent stated that the members of his family and Miss Kraus, who had worked with him*699 for many years, were deserving of some interest in the business. He further expressed the hope that a financial interest in the business would result in a greater personal interest on the part of the donees. At the time these gifts were made decedent gave no indication that he was concerned with the thoughts of death.
It seems to me that the above findings of fact show that the transfers in question were related to purposes associated with life, rather than with the distribution of property in contemplation of death. Cf. .
I think the decision as to these particular gifts should be that they were not made in contemplation of death and that so much of the deficiency in estate tax as is due to the inclusion of their value in decedent's estate should be expunged.
VAN FOSSAN, LEECH, MELLOTT, and TYSON agree with this dissent.
Footnotes
1. Transfers of December 31, 1936, totaled 152 shares, but the two shares that decedent transferred to his attorney were apparently considered compensation and not a gift made in contemplation of death. ↩
2. Amended by Joint Resolution of March 3, 1931, Public No. 131, 71st Cong., and as further amended by section 803(c), Revenue Act of 1932. ↩