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ORVIS v. HIGGINS

June 14, 1948

ORVIS et al.
v.
HIGGINS



The opinion of the court was delivered by: CONGER

This is an action for the refund of estate taxes in the sum of $ 243,577.43, assessed pursuant to Section 302(c) of the Revenue Act of 1926, as amended, 26 U.S.C.A. § 811(c), 26 U.S.C.A.Int.Rev.Code, § 811(c).

The decedent, Edwin W. Orvis, died testate on April 29, 1939, at the age of 85 years.

 On March 8, 1932, the decedent executed four deeds of trust, the terms of which provided for income to his wife for life, and upon her death the income was to be paid to his four sons for life. The trusts in respect of which the sons Warner, Homer and Arthur Orvis were secondary beneficiaries provided for payment of principal upon their deaths to their surviving issue; in default of issue then to their brothers and the issue of any brother; and failing brothers or their issue, the principal was to be paid as the brothers might direct and appoint by will. The trust of which the fourth son, Schuyler, was the secondary beneficiary made provision for the payment of principal upon his death as he might direct by his last will and testament, and failing to exercise the power, then the principal would be distributed in the manner of the other three trusts.

 On June 4, 1932, the decedent executed a deed of trust providing for a life income to his wife. On her death the trust estate was required to be divided into four equal parts with each son the beneficiary of the income as to one share. The principal was payable on the death of the sons as each might direct and appoint by will; in default of such appointment then to his surviving issue, or to brothers, or their issue.

 On December 19, 1934, Mr. Orvis executed a deed of trust providing for income to his wife for life with the remainder to the four sons; provisions for issue and for brothers, or issue, in case the sons predeceased the settlor were included.

 The fact amount of all the trusts was $ 1,000,000, divided as follows:

 The four trusts of March 8, 1932, $ 100,000 each

 The trust of June 4, 1932, $ 300,000

 The trust of December 19, 1934, $ 300,000.

 The Commissioner of Internal Revenue determined that the corpus of each of the trusts of March and June, 1932 was includible in decedent's gross estate for tax purposes under Section 811(c) of the Internal Revenue Code, 26 U.S.C.A.Int.Rev.Code, § 811(c), and that the December, 1934 trust was includible to the extent of the value of Mrs. Orvis' trust at the date of decedent's death, it being reciprocal to her trust executed in December, 1934, and accordingly assessed the estate the sum in dispute. The plaintiffs paid the tax, and filed claim for refund; the claim was rejected, and this action ensues.

 On the trial there were three issues:

 1. Were the transfers made in contemplation of death?

 2. Were the transfers intended to take effect in possession and enjoyment at or after the decedent's death?

 3. Was the trust of the decedent, dated December 19, 1934 and of decedent's wife, dated December 13, 1934, reciprocal?

 Some time after the trial had been finished the United States Attorney (the attorney of record for defendant) notified me that in the light of the provisions of the Amended Regulations contained in T.D. 5512, the Government withdrew its defense that the transfers of March 8, 1932 and of June 4, 1932 were intended to take effect in possession and enjoyment at or after death within the meaning of § 811(c) of the Internal Revenue Code.

 The Government now argues that all of these trusts were made 'in contemplation of death'; that in addition, the trust of December 19, 1934 was reciprocal to the trust that Mrs. Orvis, the wife of the decedent, created on December 13, 1934 and, therefore, the latter trust is includible in decedent's estate under Section 811(d) of the Code.

 The case was tried without a jury.

 A rather peculiar situation presents itself, which I should discuss and dispose of at the outset. Plaintiffs have called my attention to the fact that the Commissioner when he assessed the deficiency tax did not do so on the ground that the trusts were made in contemplation of death. This appears to be correct.

 Although the Commissioner in the 30-Day Letter does refer to Section 811(c) of the Internal Revenue Code, which contains among other things the provision which makes taxable a trust made in contemplation of death, still the method he used in arriving at the deficiency tax indicates that he had in mind only that the decedent had made a gift intended to take effect in possession and enjoyment after death (also covered by Section 811(c)).

 This refers to the trusts of March 8, 1932 and the trust of June 4, 1932. It also clearly appears that in assessing the deficiency tax on the trust of December 19, 1934 the Commissioner did so on the ground that the two trusts made by decedent and the other made by his wife were reciprocal.

 Plaintiffs do not urge that the assessments as so made preclude the Government of interposing a defense here that the trusts were made in contemplation of death, but they do assert that by reason thereof no presumption arises that the Commissioner was correct as to whether or not decedent made the gifts in contemplation of death, inasmuch as he made no such finding. Plaintiffs, on the contrary, urge that it should be presumed that the Commissioner found that the gifts contained in the trust deeds were not made in contemplation of death.

 In the latter contention I cannot agree with plaintiffs. This question of presumption, it seems to me, is of little significance here.

 The deficiency tax has been assessed by the Commissioner. It was paid by decedent's estate and decedent's executors now sue to get it back on the ground that it was wrongfully and illegally assessed and collected. The Government has answered and denied that the tax was an illegal tax. This, of course, created the issue which was tried before me.

 The burden was upon the plaintiffs to prove their case by a preponderance of the credible evidence, i.e. they had the burden of proving that the deficiency tax was an illegal tax.

 One of the issues raised by the pleadings and litigation before me was whether or not the gifts were made in contemplation of death. Before they may succeed, plaintiffs must meet that issue by proof of which they have the burden, a duty which comprises more than the duty imposed by the presumption. So we, therefore, may disregard the presumption. First Trust & Deposit Co. v. Shaughnessy, 2 Cir., 134 F.2d 940, certiorari denied 320 U.S. 744, 64 S. Ct. 46, 88 L. Ed. 442.

 I shall first take up the Government's claim that all the trusts were made in 'contemplation of death.' If they were, then the transfer may be subjected to assessment and tax. The law is well settled on this subject. It is the application of the law to factual situations that gives rise to controversy in some cases. This is one of those cases. I feel that a resume of the facts at this time may be helpful. There is no real controversy ...


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