John W. Wells, a resident of Menominee, Mich., died on August 17, 1921. The Commissioner of Internal Revenue assessed additional estate taxes, upon the ground that certain transfers by the decedent within two years prior to his death, were made in contemplation of death and should be included in the taxable estate under the provisions of section 402(c) of the Revenue Act of 1918, 40 Stat. 1057, 1097. The amount of the additional tax was paid by the executors and claim for refund was filed. The claim having been rejected, the executors brought this suit in the Court of Claims to recover the amount paid. The Court of Claims decided in favor of the executors (39 F.(2d) 998, 69 Ct. Cl. 485), and this Court granted a writ of certiorari.
The substance of the findings of the Court of Claims with respect to the circumstances of the transfers may be stated as follows:
The decedent died at the age of seventy-three years; his wife and five children, three sons and two daughters, survived him. When a young man he became interested in the business of acquiring and selling timber lands and of manufacturing lumber. He continued in that business to the time of his death.
As early as the year 1901, decedent began the making of advancements of money and other property to his children. He kept a set of books on which he charged to his children some, but not all, of the amounts transferred to them. The decedent believed that the appropriate course for a man of wealth was to give to his children substantial sums of money during his lifetime while he could advise with them as to its proper use. He informed one of his friends: 'I am making distribution from time to time of part of my property to see what my children will do during my lifetime, and I will then know when my time is up what I ought to do with the balance.'
In 1918, decedent advanced to three of his children, Ralph W. Wells, Mrs. Edna Walsh, and Mrs. Florence Law, shares of stock in the Dunbar & Wausaukee Railway Company for which he charged each of them, in the equalization hereafter mentioned, the sum of $25,460. Neither this transfer, nor any of the earlier transfers, is in controversy.
In December, 1919, decedent transferred to his son Artemus C. Wells, 343 shares, and to his son Daniel Wells, 73 shares, of the stock of the J. W. Wells Lumber Company. He charged Artemus with $89,180, and Daniel with $18,890, on account of these transfers.
On January 1, 1921, after carefully examining his accounts in preparing for the final equalization of the prior advancements, decedent transferred to his children 68,985 shares of the stock of the Girard Lumber Company. His summaries of accounts with each of his children showed debit balances, on which he had computed interest, as follows: Daniel Wells, $266,530; Artemus C. Wells, $231,651; Ralph W. Wells, $214,008; Mrs. Florence Law, $216,445; and Mrs. Edna Walsh, $180,662. The decedent indorsed each of these statements with the words, 'Account with _,' 'This account is canceled and ledger balanced to date as a gift to _' (the name of the son or daughter being inserted), or with other words to the same effect.
In this process of equalization decedent charged his children with a total of 3458 shares of the capital stock of the Lloyd Manufacturing Company. These shares were not delivered at that time, as decedent had agreed to exchange them for a like number of shares in a new company to result from an expected merger. On January 26, 1921, decedent transferred to Marshall B. Lloyd, as trustee for the benefit of his wife and five children, 3,713 shares of the stock of the Lloyd Manufacturing Company with authority to exchange these shares for shares of the stock of the new corporation, on the issue of which the trustee was to assign the shares to decedent's wife and children, respectively, in designated amounts, or, in the event that the exchange was not consummated before December 1, 1921, to distribute to them the shares of the Lloyd company. On April 6, 1921, Lloyd, the trustee, distributed the certificates for the shares in the new company, but the finding states that the decedent had divested himself of all interest in the 3,713 shares of the Lloyd stock when they were transferred in trust.
The transfers which the Commissioner deemed to be subject to the additional estate tax are these:
That of December, 1919, to his sons Daniel and Artemus, of 416 shares of the stock of the J. W. Wells Lumber Company, increased by a subsequent stock dividend to 1,280 shares at the date of the decedent's death;
That of January 1, 1921, to his children, of 68,985 shares of the stock of the Girard Lumber Company: