*2573 1. ESTATE TAX - DEDUCTION FOR PROPERTY PREVIOUSLY TAXED WITHIN FIVE YEARS. - Certain Liberty bonds of the par value of $25,200 acquired by the present decedent with funds resulting from the sale of United States Steel preferred received from a prior decedent within five years identified as property previously taxed and allowed as a deduction from the gross estate of the present decedent.
2. Id. - Cash in the amount of $34,706.71, received by the present decedent from a prior decedent within five years and invested by the present decedent in the capital of a mercantile business conducted by the present decedent during his life, identified as property previously taxed in an amount equivalent to the same proportion to the total of such capital at its low point between the time when the $34,706.71 was added thereto and the date of the decedent's death was to the total at the time the contribution was made thereto.
3. TRANSFERS IN CONTEMPLATION OF DEATH. - Liberty bonds of par value of $25,000 placed by decedent in the hands of one of his business associates to be held or used for the benefit of two employees of decedent's business, held to have been gifts made in contemplation*2574 of death and properly included in gross estate.
*520 The deficiencies here involved are in estate taxes and the petitioner alleges that the respondent erred (1) in refusing to allow a deduction as previously taxed property in the amount of $34,706.71, cash received from a prior decedent and invested as capital in the mercantile business of the present decedent, (2) in refusing to allow a deduction as previously taxed property of the amount of $24,844.31, value of Liberty bonds alleged to have been acquired in exchange for United States Steel preferred, received by the present decedent from a prior decedent, and (3) in refusing to allow a deduction as previously taxed property of the amount of $194.68, the value of certain Liberty bonds alleged to have been acquired by the present decedent in exchange for United States Steel preferred received from a prior decedent.
FINDINGS OF FACT.
The petitioner is the duly appointed, qualified and acting executor of the estate of Charles R. Noyes, who died on March 13, 1922. The prior decedent herein referred to*2575 was Rossie L. Noyes, wife of Charles R. Noyes, who died on October 15, 1921. Charles R. Noyes, the present decedent, was the sole beneficiary under the will of his wife, Rossie L. Noyes, and executor of her estate. An estate-tax return was made for the estate of Rossie L. Noyes, which showed a total gross estate in the amount of $267,080.40 and a net estate after all deductions in the amount of $212,780.47, and an estate-tax liability in the amount of $4,383.41.
Included in the estate of Rossie L. Noyes, as returned for Federal estate tax, and in Schedule B of such return, there were 300 shares of United States Steel preferred, valued at the date of her death in the amount of $33,037.50, plus $287.50 of accrued dividends. There was also included in the estate of Rossie L. Noyes, as returned for estate tax in Schedule C thereof, cash deposit balance in the First National Bank of Boston, with interest to October 15, 1921, $57,854.37.
On November 7, 1921, Charles R. Noyes, as executor of his wife's estate, drew a check against her deposit in the First National Bank in the amount of $50,000 payable to W. W. & C. R. Noyes, a business then owned and conducted by the said Charles*2576 R. Noyes, and there was then opened on the books of the said W. W. & C. R. Noyes an account with the estate of Rossie L. Noyes, and such account was on November 7, 1921, credited with the sum of $50,000. In the course of the administration of the estate of Rossie L. Noyes, and in the payments required during such administration, Charles R. Noyes drew against the above-mentioned $50,000 account various disbursements, until on December 21, 1921, the said balance in said account *521 was reduced to the amount of $34,706.71, and on that day, December 21, 1921, the said Charles R. Noyes caused the said balance of $34,706.71 to be transferred to his own capital account in the business of W. W. & C. R. Noyes. The said account of the estate of Rossie L. Noyes on the books of W. W. & C. R. Noyes was then closed.
On December 21, 1921, the capital account of Charles R. Noyes on the books of W. W. & C. R. Noyes, and prior to the transfer of the said amount from the account of Rossie L. Noyes, stood in the amount of $56,373.56, and after the transfer of the balance of the said Rossie L. Noyes account Charles R. Noyes' capital account stood at $91,080.27. Following December 21, 1921, decedent's*2577 capital account in this business decreased until it reached its low point of $79,958.07 on February 11, 1922. Thereafter, this capital account gradually increased and on March 13, 1922, the day of the death of Charles R. Noyes, the balance in his capital account on the books of W. W. & C. R. Noyes was $84,366.60.
On December 5, 1921, Charles R. Noyes delivered the certificates representing the 300 shares of United States Steel preferred, received from his wife's estate, to Kidder, Peabody & Co., brokers and investment bankers, and caused the said certificates to be transferred from the name of Rossie L. Noyes to the name of Charles R. Noyes, and on or about December 10, 1921, received the transferred certificates as requested. On February 2, 1922, the said Charles R. Noyes caused the said transferred steel certificates to be again delivered to Kidder, Peabody & Co., with instructions to sell the same and with the proceeds thereof to purchase United States Fourth Liberty bonds due in 1938. His instructions were carried out by the brokers and on February 4 Kidder, Peabody & Co. delivered to the said Charles R. Noyes United States Liberty bonds of the issue above-mentioned in the*2578 amount of $35,200 par, together with a check for $73.58, representing the balance due from the sale of the steel stock above referred to. Upon the receipt of said Liberty bonds the said Charles R. Noyes placed them in the hands of his associate, Willard G. Rolfe, with instructions directing Rolfe to lay aside $15,000 par value of said bonds for W. H. Fails and to hold $10,000 par value of said bonds for the benefit of James A. Flagg. Fails and Flagg were employees of the business of W. W. & C. R. Noyes. The $200 par value of said bonds was to be held for the benefit of Charles R. Noyes.
In the estate-tax return made for the estate of Charles R. Noyes there was reported -
| In Schedule B: | |
| 2 Fourth Liberty bonds par $200 valued at date of death | $194.68 |
| In Schedule D: | |
| Interest in partnership of W. W. and C. R. Noyes, valued at date | |
| of death as adjusted by respondent | 84,366.60 |
| In Schedule E: | |
| Transfers, the return showed $25,000 Fourth Liberty bonds, valued | |
| at date of death | 24,771.80 |
| Together with 15 other gifts or transfers, none of which are here | |
| in controversy, aggregating | 95,675.00 |
| The total of Schedule H, funeral and administration expenses, and | |
| Schedule I, debts of decedent, were adjusted by the respondent in | |
| the amount of | 35,561.71 |
*2579 *522 The respondent as shown by his deficiency notice, found the gross estate to be $636,984.03, and after allowing deductions for property previously taxed in the amount of $98,200, expenses of administration and debts in the amount of $35,561.71, and the specific exemption of $50,000, determined the net estate to be $453,222.34. The $98,200 allowed by the respondent as property previously taxed does not include the amounts here in controversy. All of these properties were situated in the United States. It is here found that Liberty bonds in the amount of $24,771.80 and $194.68 and interest in partnership capital in the amount of $34,706.71 are identified as property previously taxed and these amounts added to the deductions heretofore allowed by the respondent produce a total of less than one-half of the gross estate as determined by the respondent, and no parts of the properties identified as previously taxed were deducted under paragraphs 1 and 3 of subdivision (a) of section 403 of the Revenue Act of 1921.
OPINION.
TRUSSELL: The issues here in controversy are governed by the Revenue Act of 1921 and section 403(a), which provides as follows:
SEC. 403. That*2580 for the purpose of the tax the value of the net estate shall be determined -
(a) In the case of a resident, by deducting from the value of the gross estate -
(1) Such amounts for funeral expenses, administration expenses, claims against the estate, unpaid mortgages upon, or any indebtedness in respect to, property (except, in the case of a resident decedent, where such property is not situated in the United States), losses incurred during the settlement of the estate arising from fires, storms, shipwreck, or other casualty, or from theft, when such losses are not compensated for by insurance or otherwise, and such amounts reasonably required and actually expended for the support during the settlement of the estate of those dependent upon the decedent, as are allowed by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered, but not including any income taxes upon income received after the death of the decedent, or any estate, succession, legacy, or inheritance taxes;
(2) An amount equal to the value of any property forming a part of the gross estate situated in the United States of any person who died within five*2581 years prior to the death of the decedent where such property can be identified as having been received by the decedent from such prior decedent *523 by gift, bequest, devise, or inheritance, or which can be identified as having been acquired in exchange for property so received: Provided, That this deduction shall be allowed only where an estate tax under this or any prior Act of Congress was paid by or on behalf of the estate of such prior decedent, and only in the amount of the value palced by the Commissioner on such property in determining the value of the gross estate of such prior decedent, and only to the extent that the value of such property is included in the decedent's gross estate and not deducted under paragraphs (1) or (3) of subdivision (a) of this section. This deduction shall be made in case of the estates of all decedents who have died since September 8, 1916;
(3) The amount of all bequests, legacies, devises, or transfers, except bona fide sales for a fair consideration in money or money's worth, in contemplation of or intended to take effect in possession or enjoyment at or after the decedent's death, to or for the use of the United States, any State, *2582 Territory, any political subdivision thereof, or the District of Columbia, for exclusively public purposes, or to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art and the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual, or to a trustee or trustees exclusively for such religious, charitable, scientific, literary, or educational purposes. This deduction shall be made in case of the estates of all decedents who have died since December 31, 1917; and
(4) An exemption of $50,000.
In a long line of decisions this Board has uniformly held that property acquired by a decedent with funds obtained from the sale or other disposition of properties acquired from a prior decedent and taxed within five years and identified as thus acquired may be deducted from the gross estate of a present decedent. Elmer E. Rodenbough, Executor,1 B.T.A. 477">1 B.T.A. 477; *2583 Estate of Isabella C. Hoffman,3 B.T.A. 1361">3 B.T.A. 1361; Estate of George W. Burkitt,3 B.T.A. 1158">3 B.T.A. 1158; Walter G. Pietsch, Executor,6 B.T.A. 582">6 B.T.A. 582; Honoro Gibson Pelton, Executrix,7 B.T.A. 1144">7 B.T.A. 1144; John F. Archbold, Executor,8 B.T.A. 919">8 B.T.A. 919; John D. Ankeny, Executor,9 B.T.A. 1302">9 B.T.A. 1302; Northern Trust Co., Executor,9 B.T.A. 1310">9 B.T.A. 1310; Seaboard National Bank, Executor,11 B.T.A. 1386">11 B.T.A. 1386; Moses E. Greenebaum, Executor,12 B.T.A. 823">12 B.T.A. 823; Arthur W. Bingham, Executor,15 B.T.A. 1001">15 B.T.A. 1001; and Frances Brawner, Executrix,15 B.T.A. 1122">15 B.T.A. 1122.
Two of these decisions have been approved and affirmed by circuit courts in Rodenbough v. United States, 25 Fed.(2d) 13, and Archbold v. Blair, 30 Fed.(2d) 774. These cited cases, without exception, are authority for holding in this case that all the Liberty bonds here in controversy are sufficiently identified as to entitle them to be deducted as property previously taxed.
In the recent case of Frances Brawner, Executrix, v. Commissioner, supra, we have held*2584 that where a decedent received from a prior decedent cash in the amount of $100,000 and deposited the *524 same to his credit in a bank that the undrawn balance of said amount remaining in the bank at the date of decedent's death was sufficiently identified as property previously taxed to authorize its deduction from gross estate, although other funds had been deposited in and withdrawn from the same account. In the case of Arthur W. Bingham, Executor, supra, we have recently held, where a decedent had received from a prior decedent certain railroad stocks and had sold them, realizing from such sale the amount of $28,987.50, and had used such funds, together with $21,012.50 acquired from other sources, with which it purchased $50,000 par value of stock in a corporation in which decedent had prior thereto already held an interest, that the $28,987.50 interest in such stock was sufficiently identified as property previously taxed to authorize its deduction from gross estate.
In the present case we find that the decedent received from a prior-taxed estate the sum of $34,706.71 and that with this amount he acquired an additional capital interest in a mercantile*2585 business in which he had previously held an interest and that at the time he acquired this additional interest in the business his total interest therein amounted to $91,080.27, and that on the day of his death his capital interest in said business amounted to the total of $84,366.60, which latter figure has been included in his gross estate. This case differs from the situation described in the Bingham case, supra, only in respect to the evidence of ownership of interest in a business. In the Bingham case the decedent acquired a capital interest in an incorporated business evidenced by certificates of stock, while in the present case the decedent acquired a capital interest in a mercantile business evidenced by his book account of capital contributed to such business. The true character of the properties involved in these two cases is not essentially different. We are, therefore, led to the conclusion that the proportionate part of the $34,706.71 remaining in the capital account of this decedent on the day when such capital account stood at the lowest point between the date when the amount was added to the account and the date of decedent's death is a proper deduction*2586 from gross estate under the provisions of law authorizing the deduction of property previously taxed.
The evidence respecting the transfer of $25,000 par value of Liberty bonds made prior to decedent's death leads us to believe that such transfer was made to take effect at death and that said bonds were properly included in the decedent's gross estate by the respondent. Having found, however, that said bonds are deductible from gross estate as previously taxed properties, the issue becomes unimportant.
*525 The deficiency should be recomputed in accordance with the foregoing findings of fact and opinion.
Reviewed by the Board.
Decision will be made pursuant to Rule 50.