Before SWAN, CLARK and FRIENDLY, Circuit Judges.
Petitioner, Estelle Want, is the sister of Jacob A. Want, who was the founder of a corporation engaged in the printing business and its president until his death in February 1947. In January, 1945, Jacob Want established a trust for his only child, Jacqueline. He named petitioner and a brother, Samuel, as co-trustees. Jacob transferred to the trust $82,000 in cash in 1945 and 397 of the 400 outstanding shares of the corporation in 1946. Petitioner and Samuel were also named as co-executors in Jacob's will executed in April, 1945; the will bequeathed his entire estate to them as trustees under the trust for Jacqueline.
Some time in 1945 Jacob Want began to be affected by the chronic degenerative disease that was to cause his death. In the fall of that year petitioner joined him in New York to assist in his business affairs and to care for Jacqueline. She soon learned that Jacob had been giving large sums of money to Blossom S. Ost. In 1946 petitioner caused certain of Jacob's funds to be deposited in her own bank account in order to prevent further diversions to Mrs. Ost.
Several months after Jacob's death in early 1947 petitioner and Samuel, in their capacity as executors, filed original gift tax returns for 1945 and 1946. The gift of $82,000 to the trust in 1945 was declared and the tax thereon was paid; the gift of the shares in 1946 was declared but no tax was paid since the shares were claimed to be worthless at the time of transfer. The executors noted on the return that additional gifts may have been made by the decedent to Blossom Ost, but they professed their inability to determine the amount of these and thus made no declaration of them. Amended gift-tax returns, filed in June, 1949, made certain changes not here material and repeated the statements regarding the gifts to Mrs. Ost. In June, 1947, Mrs. Ost filed Donee's Information Returns listing gifts to her from the decedent of some $15,000 in 1945 and some $32,000 in 1946. Since the donor had failed to pay the gift tax when due, Mrs. Ost became liable for it as a transferee, Int.Rev.Code of 1939, § 1009, 26 U.S.C.A. § 1009. In a Tax Court proceeding she admitted this liability and deposited $2,500 in an offer of compromise; as of the date of the Tax Court decision in the instant case the offer had been neither accepted nor rejected by the Commissioner.
On May 25, 1951, the Commissioner issued six notices of deficiencies to Samuel and Estelle. Five related to alleged liability for additional estate taxes, in both their individual and representative capacities. The sixth, issued to "Samuel Want and Estelle Want, Trustees and Transferees," asserted their liability "as trustees and transferees" for deficiencies in gift tax and penalties. The statement accompanying this notice of deficiency showed that the adjustments, so far as here material, were the inclusion of gifts of $15,000 to Mrs. Ost in 1945 and gifts of $34,000 to her in 1946, and, for the latter year, the alleged value of the 397 shares given to the trust for Jacqueline.
The contests of all these deficiencies were consolidated for trial in the Tax Court. Samuel had died in 1953 and his executrix, Fannye Want, was substituted as a party. The Tax Court held against the Commissioner on the principal estate tax issue, namely, whether the several transfers to the Jacqueline trust were includible in the decedent's gross estate as gifts in contemplation of death, Int.Rev.Code of 1939, § 811(c), 26 U.S.C.A. § 811(c), and the Commissioner has not sought review. Judge Kern held the trustees were not liable as transferees because of the donor's failure to pay gift tax on the 397 shares, since the shares "had no fair market value" at the time of transfer; as to this likewise the Commissioner has not sought review. Rejecting petitioner's claim that "she was a fiduciary in name only," the judge held, without further explaining the basis for his decision, that Estelle and Samuel's estate were liable "as trustees and transferees" of the property of Jacob Want for the gift tax and penalties owing on the transfers to Blossom Ost in both 1945 and 1946, to wit $2,798.80 for 1945 and $6,402.84 for 1946. Estelle has petitioned for review of this last determination; the executrix of Samuel's estate has not, the Supreme Court of South Carolina having barred the assertion of the tax claims against Samuel's estate, Want v. Alfred M. Best Co., 1958, 233 S.C. 460, 105 S.E.2d 678.
The Commissioner first urges that petitioner is precluded from raising the arguments against transferee liability on which she now relies most heavily, because of her alleged failure to assert them in the Tax Court. We find no merit in the Commissioner's contention, Hormel v. Helvering, 1941, 312 U.S. 552, 61 S. Ct. 719, 85 L. Ed. 1037.
Section 1119(a) of the 1939 Code, 26 U.S.C.A. § 1119(a) (Int.Rev.Code of 1954, § 6902(a), 26 U.S.C.A. § 6902(a)) provides that "in proceedings before the Tax Court the burden of proof shall be upon the Commissioner to show that a petitioner is liable as a transferee of property of a taxpayer * * *" In paragraph 7 of her petition in the Tax Court, Estelle declared that "the notice of deficiency alleges no facts upon which to base a determination that the petitioners are liable as trustees or transferees * * *" The Commissioner's answer sought to meet this by alleging that in 1945 Jacob executed and delivered the trust instrument to petitioners, that petitioners assumed possession of the corpus of the trust, that Jacob made gifts of some $15,000 to Mrs. Ost in 1945, that in 1946 Jacob transferred to the trust 397 shares of his company and made gifts to Mrs. Ost of some $34,000, and that no tax had been paid on any of these gifts save the original $82,000 gift to the trust. The answer further alleged that "the assets received by the petitioners, as trustees, from the said transferor exceeded in value the amount of the liability of the transferor for Federal gift taxes and penalties for the calendar years 1945 and 1946, together with statutory interest" and "that by reason of the transfers of property as gifts as hereinabove set forth, and the receipt thereof by the petitioners herein, the petitioners became and are personally liable as trustees and transferees under the provisions of sections 1009 and 1025 of the Internal Revenue Code * * *" Petitioners filed a reply admitting the receipt of the property, asserting that the 397 shares had no value at the time of transfer, putting the Commissioner upon proof as to the gifts to Mrs. Ost and denying his assertion of transferee liability.
Petitioner's denials of the Commissioner's assertion of transferee liability were general enough to encompass any legal argument she might later choose to make. It is true that at the trial petitioner's counsel seemed principally intent on attempting to convince the court that petitioner was only a "nominal trustee" in view of Samuel's domination of the trust's affairs and, if this claim was rejected, in establishing her right to an offset of the $2,500 that Blossom Ost had deposited in offer of compromise. But her main brief, filed after trial, explicitly made one of the arguments on which she now relies, and her reply brief at least suggested, if it did not clearly state, all the others. To be sure the petitioner may have stated her arguments more effectively in the brief filed in objection to the Commissioner's "Rule 50" computation, where "no argument will be heard upon or consideration given to the issues or matters already disposed of * * *"; but that does not prove that she failed to put the issues before the Tax Court at the proper time.We pass, therefore, to the merits.
Section 1025(a) (1) of the Internal Revenue Code of 1939, to which all references will relate unless otherwise stated, enacts that "the liability, at law or in equity, of a transferee of property of a donor" to pay the gift tax deficiency, penalties, interest, etc., may be collected in the same manner that the tax would be collected from the donor. This authorizes issuance of notices of deficiency by the Commissioner and proceedings in the Tax Court by the taxpayer.*fn1 The liability "at law" of a donee derives from § 1009 which provides that the gift tax "shall be a lien upon all gifts made during the calendar year" and "the donee of any gift shall be personally liable for such tax to the extent of the value of such gift" if the donor does not pay the tax when due; under § 1025(f) a donee is a "transferee." Section 1009 has been interpreted to impose personal liability on a donee not only for the tax owing on the gift to him but also for the tax due on all other gifts made by the donor during the calendar year. Baur v. Commissioner, 3 Cir., 1944, 145 F.2d 338. However, by the plain terms of the statute, the liability is limited to the value of the gift to the particular donee sought to be charged.
Exposition of this much of the statutory framework is sufficient to dispose of one of the issues. No liability "at law" can be imposed on petitioner under § 1009 for the tax on the gifts to Blossom Ost in 1946. For the Tax Court found (and the Commissioner does not challenge the finding) that the deceased's only gift to the trust in 1946, the 397 shares of stock, had no value, and the Commissioner asserts no other 1946 transaction in which petitioner was, or assumed the liability of, a "donee."
The question of 1945 gift-tax liability "at law" is more complex. The Jacqueline trust, of which the petitioner was a trustee, received gifts of $82,000 in 1945, and there are taxes and penalties owing on the gifts to Blossom Ost in that year. Petitioner claims nevertheless that she is not liable since she says § 1009 imposes liability only on the beneficiary rather than the fiduciary and, in the alternative, that if she is liable, her liability is limited to the extent she now holds funds of the trust. The Commissioner asserts ...