Docket No. 11493.
09-24-1928
ESTATE OF JAMES F. FOSTER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
John L. Kenefick, Esq., for the petitioner. W. F. Gibbs, Esq., for the respondent.
John L. Kenefick, Esq., for the petitioner.
W. F. Gibbs, Esq., for the respondent.
This proceeding is for a redetermination of a deficiency in estate taxes amounting to $2,744.80.
FINDINGS OF FACT.
James F. Foster died a resident of Buffalo, N. Y., on August 26, 1921. On August 30, 1921, Ellen Louise Foster, his widow, and James F. Foster, Jr., were duly appointed the executors of the estate.
At the time of his death and for many years prior thereto, James F. Foster was a stockholder and vice president and treasurer of Republic Metalware Co., a New York corporation with its principal office in Buffalo.
Prior to July 1, 1918, the said James F. Foster was the owner of record of 4,598 shares of preferred stock of the par value of $100 each, of said Republic Metalware Co. The total outstanding issue of capital stock of said Republic Metalware Co. on July 1, 1918, amounted to 9,196 shares of preferred stock and 7,500 shares of common stock. Both classes of stock had full voting powers. All of said stock was owned by five stockholders who were officers of said corporation. One Shepard was the owner of a majority of the capital stock of said corporation and was the chairman of its board of directors.
On the first day of July, 1918, said James F. Foster and said Ellen Louise Foster, executed a certain written agreement, of which the following is a copy: BUFFALO, N. Y., July 1, 1918.
For good and sufficient consideration I hereby transfer and give to my wife, Ellen W. Foster the shares of the preferred stock of the Republic Metalware Co. as follows:
Certif. No. 5 for 130 shares. 6 " 110 " 8 " 848 " 11 " 100 "
a total of 1188 shares of the par of $118,800, subject, however, to the following provisions and limitations which are hereby accepted and agreed to by her, to wit:
During my lifetime this stock is to remain in my name on the books of the Republic Metalware Co. and the voting and all other privileges, excepting the ownership of income on same shall remain with me, in token of which and to perfect this agreement, we have hereto affixed our signatures. Accepted — JAMES F. FOSTER. Accepted — ELLEN WHITE FOSTER.
Said agreement was prepared by decedent and was written in his own hand writing. Said Ellen White Foster is the said Ellen Louise Foster.
Said agreement was executed as a duplicate original and one thereof was retained by said Ellen Louise Foster and the other was attached to the certificates of stock mentioned in said agreement, and said certificates and duplicate of said agreement were kept in the safe-deposit box of said James F. Foster in the Marine Trust Company of Buffalo. James F. Foster, Jr., had access to said box of his father.
Federal and New York State stock transfer stamps representing the number of shares referred to therein were duly affixed to the duplicate original of said agreement retained by said James F. Foster, and said stamps were canceled by said Foster in his own handwriting as follows: "J. F. F. 7/1/18."
On July 1, 1918, said James F. Foster delivered to the Republic Metalware Co. a communication of which the following is a copy: The REPUBLIC METALWARE COMPANY, 7/1/18 Buffalo, N. Y. JFF701
GENTLEMEN: I have, on this date, by deed of gift, transferred to my wife, Ellen W. Foster, the title to eleven hundred and eighty-eight (1188) shares of the preferred stock of the Republic Metalware Company, represented by certificates numbered as follows:
No. 5—130 shares. 6—110 " 8—848 " 11—100 " ______ 1188 "
The deed is attached to above certificates which are in my possession as I retain voting power; the income, however, belongs to her as and when declared as dividends. Please credit her account with all such dividends hereafter declared on the above stock.
Yours truly,
On the said 1st day of July, 1918, the said James F. Foster duly delivered a further communication in writing to said Republic Metalware Co., of which the following is a copy: JULY 1, 1918. To the REPUBLIC METALWARE CO., Buffalo, N. Y.
Until further notice please credit to the account of my wife, Ellen W. Foster, the dividends if, as and when declared on 1188 shares of the preferred stock of the Republic Metalware Co., recorded on the books of the company as owned by me; such dividends on the remaining shares of said stock you will please credit to my account.
Yours truly.
Prior to the execution of the agreement above referred to Shepard had expressed the wish that the said James F. Foster and the other stockholders of Republic Metalware Co. make no transfers of their respective shares in the corporation.
Dividends on the preferred stock of the corporation were thereafter duly paid. Until December, 1920, dividends on the preferred shares mentioned in the agreement above referred to were credited to a loan account on the books of said Republic Metalware Co., in the name of said Ellen Louise Foster, which said account was opened after the execution and delivery of said agreement. In December, 1920, and continuously thereafter, dividends on said shares were credited to the loan account of said James F. Foster, who was the stockholder of record of said shares, and company checks representing the amount of dividends declared on said shares were then sent to Mrs. Foster and charged to Foster's loan account.
All dividends on said shares paid to the said Ellen Louise Foster as aforesaid were reported by her in her Federal income-tax returns.
At the time of the execution of said agreement, the said James F. Foster was 53 years of age. At all times prior thereto and up to the time of the illness resulting in his death three years later he was in good physical and mental condition. His death was the result of an attack of acute indigestion of but a few days' duration.
The value of said 1,188 shares of the preferred stock of said Republic Metalware Co. was not included in the estate-tax return for the estate of said James F. Foster, but the Commissioner of Internal Revenue has included the value thereof in the gross estate of said James F. Foster and proposes to assess an additional tax thereon.
The market value of said 1,188 shares of preferred stock of the Republic Metalware Co. at the date of the death of the said James F. Foster was $89,100.
OPINION.
PHILLIPS:
The facts are stipulated. The Commissioner determined that the decedent had made a gift of 1,188 shares of the preferred stock of the Republic Metalware Co. to his wife to take effect in possession or enjoyment at or after his death. The gift having been made prior to the effective date of the taxing act, the position of the respondent is untenable. Nichols v. Coolidge, 274 U. S. 531; James Duggan, Executor, 8 B. T. A. 482.
There is no contention that the gift was made in contemplation of death. But it is now urged that no gift of the stock was consummated because it is not shown that there was a delivery of the certificates and because there was no transfer on the books of the corporation. There can be no question that a gift is not valid or enforceable until it has been consummated by a delivery of the thing given. An unexecuted gift is nothing more than a promise to make a gift, unenforceable for lack of consideration. But once a gift has been consummated, the rights of the donee become vested. While delivery is essential, manual delivery of the thing given is no more necessary in the case of a gift than in the case of a sale. A deed of gift is as effective to pass title as a bill of sale. In re Cohn, 176 N. Y. S. 225; In re Valentine's Estate, 204 N. Y. S. 284. See also Matter of Babcock, 147 N. Y. S. 168. Nor will the failure to record the gift by a transfer of the stock on the books of the corporation prevent title from passing as between the donor and the donee. In re Bullard, 78 N. Y. S. 491; Grisson v. Sternberger, 10 Fed. (2d) 764 and cases cited.
The deed of gift contained words of present conveyance: "I hereby transfer and give to my wife." If this were all there would be no question, we believe, that a gift had been made. Certain limitations, however, were imposed; first, that during the lifetime of the donor the stock should remain in his name on the books of the company, and, second, that the voting and all other privileges, excepting the ownership of income on same, should remain with the donor. These restrictions were not inconsistent with the words of transfer and gift. Ownership of stock imports more than the right to transfer or vote it. The necessities of business have caused to be devised means by which the sale or transfer of stock is restricted or the voting power limited or withheld without in any manner affecting its ownership or the interest of its owner in the assets of the corporation or its income. It seems to us clear that the decedent intended to give to his wife all of his interest in the assets and income of the corporation, represented by these 1,188 shares of its capital stock, that this intention was carried into execution by the delivery of a deed of gift sufficient to effect a present conveyance and that the restrictions imposed did not prevent title from passing. At the time of his death the decedent no longer owned this stock. All he had was in effect an irrevocable power of attorney to exercise the voting and other privileges which attached to the stock. There was nothing which he could pass on to others as a part of his estate.
Decision will be entered for petitioners under Rule 50.