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December 20, 1950


The opinion of the court was delivered by: KAUFMAN

The plaintiffs seek to recover the amount of $ 1,056.75 paid for federal stock transfer stamps used in connection with the transfer of certain stock certificates. The case was submitted to the Court upon stipulated facts which are as follows:

Plaintiffs are suing in their capacity as trustees, and suit is brought against the administratrix of the estate of William J. Pedrick, who was Collector of Internal Revenue at the times mentioned in the complaint. The administratrix has been substituted for Pedrick.

On August 5, 1935, Dorothy E. Church, as settlor, and Richard N. L. Church and Dorothy E. Church, as trustees, entered into a trust agreement wherein the settlor transferred to the trustees certain securities to be held in trust, the net income of which was to be paid to Richard N. L. Church, the settlor's husband, during his life. Upon the death of the life beneficiary, the trustees were directed by the trust agreement

 ' * * * to divide the then principal of said trust estate, including all increase thereof, into equal parts corresponding in number to the number of children of the Settlor now living who shall then survive or who shall have died leaving lawful issue them surviving and to dispose of the said parts as follows:

 '(b) To transfer and pay over one of said equal parts to each of the children of the Settlor who shall then have attained the age of thirty years;

 '(c) To hold, invest and reinvest one of said equal parts upon a separate trust for the benefit of each child of the Settlor, who shall not then have attained the age of thirty years until he or she shall attain said age, or until his or her earlier decease, * * * .'

 Richard N. L. Church died on February 19, 1943, at which time there were three children of the settlor surviving,- Cynthia, Richard Bennett and Patricia, all of whom were then under the age of thirty years. Under the terms of the trust indenture Dorothy E. Church, the surviving trustee, designated The New York Trust Company to act as co-trustee in place of decedent. Pursuant to the terms of the trust indenture the principal of the trust fund, which consisted in part of shares of stock, was then divided into three parts, and these were thereafter held by Dorothy E. Church and The New York Trust Company in separate accounts in trust for the three surviving children.

 Stock transfer stamps in the amount of $ 1,056.75 were purchased by the plaintiffs on November 1, 1944 and affixed to the shares of stock in the trust corpus with respect to the exchange of the old stock certificates in the names of the trustees under the trust for Richard N. L. Church for new stock certificates registered in the names of the trustees under the three trusts for the benefit of the three children. The plaintiffs duly filed a claim for the refund of said tax, which claim was disallowed.

 The sole question for determination is whether documentary stamp taxes were lawfully due and payable in connection with the re-registration of the stock.

 Section 1802(b) of the Internal Revenue Code, Title 26 U.S.C.A. ยง 1802(b), imposes a stock transfer tax: 'On all sales, or agreements to sell, or memoranda of sales or deliveries of, or transfers of legal title to any of the shares or certificates * * * .' (Emphasis added.)

 Section 113.33 of Regulation 71 of the Treasury Regulations (1941) states in subdivision (d) that transfers to or by trustees are taxable transactions.

 Section 1802(c) of Title 26 provides various exceptions to 1802(b) which are non-taxable transfers, and among these exceptions are transfers: '(8) From trustees to surviving, substituted, succeeding, or additional trustees of the same trust.' (Emphasis added.)

 Hence the question presented in this case is whether the re-registration of stock amounted to a taxable transfer of legal title or was it merely a routine change necessary to the proper administration of the same trust by the trustees. A change in trustees, by itself, does not affect the problem, for if it is found that the same trust continued in existence, innumerable changes in trustees could be effectuated as provided by Section 1802(c)(8) with no resulting liability for transfer taxes; whereas if new trusts were created with no change at all in the persons of the trustees, the trustees would still have to pay transfer taxes in their new capacity as trustees for the new trusts.

 The plaintiffs contend at the outset that under the laws of New York no transfer of legal title to the corpus of the trust took place on the death of Richard N. L. Church. However, the determination of what is a taxable transfer under the taxing statute is a federal question controlled by federal law for which 'Congress establishes its own criteria and the state law may control only when the federal taxing act by express language or necessary implication makes its operation dependent upon state law.' Lyeth v. Hoey, 1938, 3 ...

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