Opinion
No. J-374.
February 9, 1931.
Suit by Euphemia Van Rensselaer Todd as executrix of Sir Joseph White Todd, baronet, deceased, against the United States.
Petition dismissed.
This case having been heard by the Court of Claims, the court, upon the evidence adduced, makes the following special findings of fact:
Plaintiff is a resident and citizen of the United States and is executrix of the estate of Joseph White Todd, deceased.
The plaintiff's testator was a nonresident alien not engaged in business within the United States, and died February 19, 1926, at his residence in London, England, leaving property within the United States which he disposed of by a separate will relating thereto alone. Therein he appointed his wife, plaintiff, sole executrix and legatee, and bequeathed to her thereby all property of which he died seized or possessed within the United States of America.
The plaintiff filed a return for federal taxes containing an itemized inventory by schedule of the gross estate of the decedent, with legal deductions. Under schedule D-2 of that return, with the caption "Other Miscellaneous Property," appeared the following item, to wit:
2. Moneys on deposit with Van R. C.D. Halsey bankers on time receipt (certificate of deposit) at 5% per annum interest ................... $100,000.00 Interest thereon from 1/13/26 to 2/19/26 ................. 680.56
In schedules L and M of the same return plaintiff set up said sum as not being subject to tax. But the Commissioner of Internal Revenue, in determining the tax against the estate of the decedent, included as a part of the gross estate the sum of $100,000 due the estate of decedent by Cortlandt Van Rensselaer Halsey and Charles D. Halsey, Jr. The plaintiff was notified of this action, and a deficiency in the estate tax was assessed against her, as executrix, and she consented to the action of the Bureau officials except as to the item of $100,000 hereinbefore referred to, on the ground that it was money on deposit with persons in the banking business and was not subject to tax.
Subsequently, and on October 3, 1927, the Commissioner of Internal Revenue informed the plaintiff that "it appears that the amount owing this decedent at the time of his death by Van R. and C.D. Halsey Company is on account of a loan to the firm mentioned, and that it was not money on deposit. This item is therefore not exempt from tax. No adjustment in relation thereto is warranted"; that the deficiency determined amounted to $7,059.77; and that the plaintiff would be allowed sixty days within which to file a petition with the United States Board of Tax Appeals for a redetermination of the deficiency.
$3,066.37 of the amount assessed was included in a payment of taxes made by the plaintiff on February 17, 1927; $2,933.63 was paid on October 5, 1927; and interest in the amount of $93.92 was paid by the plaintiff on October 18, 1927 — the total payments of taxes and interest upon the $100,000 transaction involved herein thereby aggregating $6,093.92.
On October 29, 1927, there was filed by Charles Stewart Davison, as attorney for the plaintiff, a claim for refund of said $6,000 paid on February 17, 1927, and October 5, 1927, respectively, in which it was asserted that the application should be allowed for the reason that "there has been included in the amount of the computation of the gross estate liable to taxation a sum of $100,000 which was money belonging to the deceased nonresident alien not engaged in business within the United States of America on deposit with a person in the banking business in the city of New York, on the ground that the said deposit was referred to as a `loan' in the acknowledgment of the receipt of and the promise to repay said money, or certificate of deposit, given at the time."
On April 17, 1928, the Commissioner of Internal Revenue rejected the aforesaid claim for refund in its entirety.
The firm of C.D. Halsey Co. was organized as a partnership in 1894, and has continued in business since under that name, although there have been changes in the partnership from time to time. On January 11, 1926, there were five partners, two of whom were Cortlandt Van Rensselaer Halsey and Charles D. Halsey, Jr. The firm dealt in money and securities, buying and selling securities for the account of others and charging a commission therefor; it borrowed money from banks and trust companies, bankers and individuals paying interest thereon; and in some instances accepted deposits from its clients upon which it paid interest.
On January 11, 1926, the decedent called at the office of Halsey Co. and asked to see his two stepsons, Cortlandt Van Rensselaer Halsey and Charles D. Halsey, Jr. With them he had a conversation which culminated in his making a loan to them of $100,000 and taking the following evidence thereof:
"New York, Jan. 11, 1926.
"Received from Sir Joseph White Todd, baronet, the sum of one hundred thousand dollars ($100,000) on loan at 5% per annum. Interest payable semiannually. The principal to remain for two years with option of lender and borrower to extend the term of loan year by year by giving 12 months' notice.
"[Signed] Van R. Halsey. "Chas. D. Halsey."
The loan was made by transferring to them a check for $100,000 made by Zaldo Co. to the order of decedent and indorsed by him.
The firm of C.D. Halsey Co. did not open any account on its books in the name of the deceased by reason of this transaction. No record thereof appears anywhere on the books of C.D. Halsey Co. showing any connection with the plaintiff's testator. The transaction appears on the books of C.D. Halsey Co. by entries showing individual investments of $50,000 each made by Cortlandt Van Rensselaer Halsey and Charles D. Halsey, Jr., in the firm of C.D. Halsey Co. on January 11, 1926, and since that time the books have continued to carry these items as a liability of the firm to Cortlandt Van Rensselaer Halsey and Charles D. Halsey, Jr.
Chas. Stewart Davison, of New York City, for plaintiff.
Joseph H. Sheppard, of Washington, D.C., and Charles B. Rugg, Asst. Atty. Gen. (Wm. T. Sabine, Jr., of Washington, D.C., on the brief), for the United States.
Before BOOTH, Chief Justice, and GREEN, WHALEY, LITTLETON, and WILLIAMS, Judges.
The plaintiff is the executrix of the estate of Joseph White Todd, deceased, and brings this suit to recover $6,000 and interest alleged to have been wrongfully collected as part of the tax levied against the estate of the decedent. The deceased was a nonresident alien, and the question in controversy in the case is whether a certain transaction had by him in the city of New York amounted to a loan of money or was a deposit in a bank. The Commissioner included the fund in the gross estate of the decedent for the purpose of computing his tax payable on property in this country. The plaintiff insists that the fund was deposited with a person "carrying on the banking business," and was exempt under the statutory provisions.
The law governing the case is found in section 303 of the Revenue Act of 1924 (26 USCA § 1095 note), and is as follows:
"Sec. 303. For the purpose of the tax the value of the net estate shall be determined — * * *
"(e) The amount receivable as insurance upon the life of a nonresident decedent, and any moneys deposited with any person carrying on the banking business, by or for a nonresident decedent who was not engaged in business in the United States at the time of his death, shall not, for the purpose of Part I of this title, be deemed property within the United States."
The evidence in the case shows that the decedent, about six weeks before his death, was in the city of New York and sold some stocks or securities for upwards of $100,000. He had two stepsons, Cortlandt Van Rensselaer Halsey and Charles D. Halsey, Jr., who were, with three others, members of the copartnership of C.D. Halsey Co., doing business in that city in the way of dealing in money and securities, buying and selling securities for the account of others and charging commission therefor, borrowing money from banks and trust companies, bankers, and individuals, upon which they paid interest, and in some instances taking deposits and for particular reasons allowing a few of their clients to draw checks on their balances. But, at the time involved in the case this firm did not hold itself out to the public as a bank or banking institution, did not carry the word "bankers" or "bank" on its letterheads or office, and had never complied with the laws of the state of New York to authorize it to do business as a banker. The decedent asked to see his stepsons, and after some conversation with them indorsed and delivered to them a check for $100,000. At the same time he prepared a receipt or acknowledgment which they signed, and which read as follows:
"New York, Jan. 11, 1926.
"Received from Sir Joseph White Todd, baronet, the sum of one hundred thousand dollars ($100,000) on loan at 5% per annum. Interest payable semi-annually. The principal to remain for two years with option of lender and borrower to extend the term of loan year by year by giving 12 months' notice.
"Van R. Halsey. "Chas. D. Halsey."
The firm of C.D. Halsey Co. did not open any account on its books in the name of the deceased by reason of this transaction. No record thereof appears anywhere on the books of C.D. Halsey Co. showing any transaction with the plaintiff's testator. The books of C.D. Halsey Co. show individual investments of $50,000 each, made by Cortlandt Van Rensselaer Halsey and Charles D. Halsey, Jr., in the firm of C.D. Halsey Co. by an entry made at the time which has since been continued and shows a liability of the firm to Cortlandt Van Rensselaer Halsey and Charles D. Halsey, Jr.
A casual reading of the statute shows that, in order to gain the benefit of the exemption, the funds must not only be deposited, but the deposit must be made with a "person carrying on the banking business." Some argument has been made by counsel upon the question of whether Halsey Co. were engaged in the banking business. The evidence shows that this firm had not complied with the laws of New York with reference to persons engaging in that business, but we do not find it necessary to determine this question. The transfer of the funds by decedent was not made to the firm but to two members thereof in their individual capacity, as was shown by the receipt for the money, which they signed as individuals. Moreover, there was no entry on the books of the firm showing a credit in favor of the decedent as a result of the transaction. On the contrary, Cortlandt Van Rensselaer Halsey and Charles D. Halsey, Jr., were each credited with $50,000 on the firm's books, and these amounts have since been carried as a liability of the firm to the two partners above named. There is nothing in the evidence to show that these two partners were engaged in the banking business. The circumstances indicate that they were not. If there was any deposit, it was clearly with persons not engaged in the banking business. But we do not think the money was deposited in the sense that the word "deposit" is used in the statute. It was clearly the intent of Congress to require the deposit to be made in the same manner that it would have been in an ordinary bank. The receipt and the accompanying circumstances show that the transfer of the check constituted a loan rather than a deposit, and we have so found.
For the reasons stated above, the petition of the plaintiff must be dismissed, and it is so ordered.