
    406 F. 2d 1363
    CARRIE KRAMER AND JULIUS KRAMER, EXECUTORS OF THE ESTATE OF ABRAHAM KRAMER, DECEASED v. THE UNITED STATES
    [No. 285-66.
    Decided February 14, 1969]
    
      
      Richard Katcher, attorney of record for plaintiffs. Herbert B. Levine, of counsel.
    
      Philip R. Miller, with whom was Assistant Attorney General Mitchell Rogovin, for defendant.
    
      Before CoweN, Chief Judge, Laramore, Dhreee, Davis, Collins, SseltoN and Nichols, Judges.
    
   Nichols, Judge,

delivered the opinion of the court:

Plaintiffs, Carrie and Julius Kramer, are executors of the estate of Abraham Kramer. They axe claiming an estate tax refund because they say the Commissioner of Internal Kev-enue (hereinafter referred to as the Commissioner) wrongfully included in the decedent’s gross estate the value of the right of decedent’s widow to receive weekly payments from his employer after his death. The parties have stipulated the facts. We agree with the plaintiffs.

In 1946, Abraham Kramer, the decedent, organized the Kramer Supply Company, a wholesale plumbing business. He originally owned 20.25 shares of the 250 shares of stock issued, and his son and son-in-law owned the remaining shares. Later, Mr. Kramer transferred his shares to a daughter and his son. Decedent, his wife and a son-in-law were on the first Board of Directors, and decedent was the first president of the Company. He remained in that position until November 15, 1956, when he entered into a written agreement with the Company. It recited that it was essential to the Company to have the benefit of Mr. Kramer’s services during the forthcoming years. It provided in part:

(1) The Company does hereby employ the said Mr. Kramer as General Manager at an annual salary of $12,000.00 per year.
(2) In the event of illness and/or in the event that due to any circumstances which may make it impossible for Mr. Kramer to continue to act as General Manager, the Company agrees that he shall remain with it as an Ad-visor and Counsellor and to assist the officers and Employees in formulating plans and programs for the continuation of the business, for the remainder of his life. That during such services being rendered, he shall receive an 'annual salary of $12,000.00, payable in regular weekly installments.
(3) In the event of Mr. Kramer’s decease, and while serving the Company either under the provisions of Paragraph (1) or (2), and in the event his wife, Carrie Kramer, shall survive him, then the Company agrees that she shall receive as compensation the sum of $150.00 per week, as long as she lives.

The agreement was subject to ratification by the Board of Directors and was approved December 1, 1956. The Board consisted of Mr. Kramer and the son and son-in-law above mentioned. Defendant says decedent contracted with himself. He did sign for the Company, but in his capacity as President, and, as noted, the agreement was subject to the approval of the Board of Directors. Mr. Kramer, an Ohio resident, died July 7,1961, while serving as General Manager under paragraph 1 of the Agreement, and until four days before his death, he had worked in that position seven hours a day, five and one-half days a week. Decedent had no other arrangements or agreements with the Company concerning payments to him or his survivors at his death. Under Mr. Kramer’s will his wife was bequeathed the residue of his estate “for the term of her natural life” and the remainder at her death was to be divided among his children.

After Mr. Kramer’s death, his wife began receiving $150 per week from the Company pursuant to paragraph 3 of the agreement. Plaintiffs filed an estate tax return but did not include in decedent’s gross estate the value of Mrs. Kramer’s light to receive payments for the remainder of her life. Upon audit the commuted value of the widow’s right to receive the payments was included in decedent’s gross estate under Section 2089 of the Internal Revenue Code of 1954. (All references are to the 1954 Code unless otherwise specified.) Plaintiffs paid the deficiency, after which they filed a claim for refund of the tax attributable to the inclusion of the value of Mrs. Kramer’s right to the payments. The refund was disallowed.

Mrs. Kramer’s income tax returns for 1962 and 1963 included the $150 per week payments in her gross income. After plaintiffs received notice of the inclusion of the value of the payments in decedent’s gross estate, Mrs. Kramer claimed an income tax refund under Section 691(c) which was allowed. Under Section 6501 the statute of limitations on Mrs. Kramer’s 1962 and 1963 income tax years has now run against the defendant. The defendant urges that the commuted value of Mrs. Kramer’s right to receive $150 per week was includi-ble in decedent’s gross estate under Section 2039. This section, captioned “Annuities”, provides:

(a) GENERAL.
The gross estate shall include the value of an annuity or other payment receivable by any beneficiary by reason of surviving the decedent under any form of contract or agreement * * * if, under such contract or agreement, an annuity or other payment was payable to the decedent, or the decedent possessed the right to receive such annuity or payment, either alone or in conjunction with another for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death.
(b) AMOUNT INCLUDIBLE.
Subsection (a) shall apply to only such part of the value of the annuity or other payment receivable under such contract or agreement as is proportionate to that part of the purchase price therefor contributed by the decedent. For purposes of this section, any contribution by the decedent’s employer or former employer to the purchase price of such contract or agreement * * * shall be considered to be contributed by the decedent if made by reason of his employment.

There have been very few cases that have dealt with Section 2039, but a reading of them indicates that all of the requirements of the section must be met for the payments such as those received by Mrs. Kramer to be includable in a decedent’s gross estate. See Bahen v. United States, 158 Ct. Cl. 141, 305 F. 2d 827 (1962). There must be an “annuity or other payment receivable by any beneficiary by reason of surviving the decedent” and the payments under subsection (b) must be by reason of the decedent’s employment. We think that the $150 per week paid to Mrs. Kramer constituted “annuity or other payment” which was paid by reason of the decedent’s employment, and under paragraph 3 of the agreement she had to survive Mr. Kramer to receive the payments.

An annuity or other payment also must have been payable to the decedent or he must have possessed the right to receive the payment. It is this requirement that is in issue in this case, and we do not believe that it has been met. Under the agreement the only payments Mr. Kramer had a right to receive were in the form of compensation for services rendered. There is nothing in the agreement or stipulated facts that leads us to believe anything different was intended. In Bahen, supra, the issue of whether or not salary was meant to be included in the definition of “other payment” was discussed. In that case, the decedent’s beneficiary was to receive at his death an amount equal to three months’ salary of the deceased. The Government had argued that “other payment” included salary, but we said:

* * * Since employees normally receive salary or wages, defendant’s interpretation would effectively obliterate, for almost all employees, the express requirement in Section 2039 of “an annuity or other payment” to the decedent. (Bahen, p. 154, 305 F. 2nd p. 834.)

In considering this same issue in Estate of Fusz, 46 T.C. 214 (1966), the Tax Court approved of our reasoning in Bahen and concluded that salary was not included in the meaning of “other payments” 'but that “the phrase ‘other payment’ is qualitatively limited to post-employment benefits, which at the very least, are paid or payable during decedent’s lifetime.” Fusz, supra p. 218.

The defendant argues that Mr. Kramer’s agreement with the Company was really a retirement arrangement. We cannot agree. Because the parties chose to stipulate the facts in this case, we have a rather sparse record on which to base our decision, but we find in it nothing to indicate that this was a scheme to pension off Mr. Kramer while at the same time avoid the impact of Section 2039. The facts we do have indicate the opposite. Mr. Kramer worked seven hours a day, five and one-half days a week as General Manager of the Company which would hardly appear to be a retirement schedule. The defendant argues that as part of the retirement process, the decedent had even turned over stock control of the corporation. But the facts as stipulated show that decedent never did have stock control of the Company; the most he ever owned was 20.25 shares out of the 250 shares issued.

Under paragraph 2 of the agreement decedent was to serve as “Advisor and Counsellor” if it became impossible for him to perform the duties of General Manager. Defendant considers that paragraph a disability arrangement providing for contingent payments similar to the disability payments the decedent in the Bahen case had a contingent right to receive. We held in that case that contingent rights to receive payments that qualified as “other payments” came within the meaning of “possessed the right to receive” of Section 2039 and their value was includable in the decedent’s gross estate. Bahen v. United States, supra, pp. 147-50, 305 F. 2d pp. 830-32. Thus, the fact that Mr. Kramer died while serving under paragraph 1 would not affect the significance of paragraph 2, even though it never became operative, were we to find those payments qualified as “other payments” which he possessed the right to receive. Paragraph 2 of the agreement provided that plaintiff was to receive his salary “during such services [those of Advisor and Counsellor] being rendered.”

Because of Mr. Kramer’s interest in and close ties to the Company and its management, the defendant argues that he would have been expected to remain available for advice anyway, and thus the payments under paragraph 2 were really retirement or disability payments. But we do not find defendant’s argument persuasive. Again we have only the stipulated facts — but they reveal no basis for defendant’s argument. It seems just as reasonable to conclude from this record that decedent’s advice might have been preempted by others who would have been willing to have paid decedent for it had the Kramer Supply Company been getting it for nothing.

The result in this case turns entirely on the stipulation and under different stipulated or proven background facts, an identical contract might have different tax consequences. Stipulations are often unsatisfactory materials for decision because it is improbable that counsel will ever agree on all the facts a judge would consider material. Often stipulations reflect the will of the parties that he build bricks without straw. On the other hand, the need to hold the cost of litigation within bounds, and to keep court dockets moving, demand that litigation be disposed of on submitted stipulations if at all possible. Here, defendant wants us to infer from the stipulated family relationship that the agreement really imports something different from what it says. It invokes the presumption in favor of the Commissioner’s decision and reminds us that the burden of proof is on plaintiff. However, the submission via stipulation, of a contract, without more, satisfies the burden of establishing that the parties agreed to what the contract says. One who intends to argue that there were side agreements, oral, implied, or merely understood, should not stipulate a basic contract alone. There are all sorts of families, and among those who are close by blood or marriage, every relationship may be found from love and affection to bitter hostility. There is no stipulation into which category these people fell. There is nothing-in the stipulated facts to disprove that Mr. Kramer exacted the agreement precisely because he mistrusted the love and affection of his kin as assuring support for him in his twilight years.

We think paragraph 2 of the agreement means that on the contingency contemplated Mr. Kramer was to assist the officers and employees in formulating plans and programs for the continuation of the business, to the extent he was able and such assistance was needed. We have no clue how much it would have been needed. We know nothing about the character of the business which would show whether this responsibility was light or onerous. Having no facts to warrant any other view, we can only suppose it was worth the $12,000 per annum consideration that was proposed. Cf. Tasty Baking Co. v. United States, 184 Ct. Cl. 56, 393 F. 2d 992 (1968), in which we held it to be presumed that the future loyal adhesion of officers and employees was worth the value of the property placed in a pension trust to obtain it. A majority of us do not believe that Mr. Kramer could have advised and consulted for an hour and then have told the officers and employees to be gone, though still seeking advice and consultation. Such behavior, we think, would have breached the agreement and forfeited the $12,000 honorarium. If the parties bad intended to pay $12,000 for little or nothing they could just as well have omitted paragraph 2 and allowed Mr. Kramer, though sick, to hold the title of General Manager until Ms decease, and by doing so they would have avoided any issue under Section 2039.

The stipulation recites that there was no other agreement between decedent and the Company that provided for payment of any amounts to the decedent or to anyone else by reason of surviving him. This is somewhat ambiguous, and may not mean to say there was no contract or agreement at all between decedent and the Company prior to the agreement set forth. At any rate, he was employed as President. It is all the more impossible to draw inferences beyond the text of the writing itself, when one does not know what it replaced, or what claims, demands, or choses in action Mr. Kramer then had against the Company, other than the moral ones recited in the preamble.

In re Wadewitz's Estate 339 F. 2d 980 (7th Cir. 1964) affirms the Tax Court, 39 T.C. 925, in holding that a somewhat similar arrangement was covered by Section 2039. Decedent had an agreement with Ms Company calling for payment of specified sums for 15 years, to him beginning with Ms retirement, to Ms wife and daughter if he died before retiring, and if he died after retirement but before the full sums were paid, the balances were to go to the wife and daughter. Both courts considered that Section 2039 required inclusion of the unpaid balance in the gross estate. There were clauses prescribing what decedent was to do after retiring; he was to “keep himself reasonably available for consultation” but mostly the clauses sought to bar Mm from competing with the Company or aiding others to do so. The agreement is called a “retirement contract,” 339 F. 2d at p. 981. Both courts refer to our Bahen case with approval and there is no suggestion of any conflict. It is therefore clear that neither court gave any serious consideration to the possibility that the post-employment payments were primarily for affirmative services during the “retirement” period and evidently this was not urged. In Wadewitz, as here, facts were presented by stipulation, precluding any comparison in depth of the background circumstances. As we see no reason to call the paragraph 2 period in Mr. Kramer’s contract a post-employment period, as the word “retirement” is not used, and ras apparently the parties contemplated that Mr. Kramer would render services worth $12,000, we do not see Wadewitz as an applicable precedent.

We hold that Section 2039 does not require inclusion of the commuted value of the annuity in the gross estate, reiterating that this result turns on the fact as stipulated, not on the facts as suspected, speculated, or inferred by the defendant. Any court, construing a similar contract, will not regard this case as a precedent if it appears that the services to be rendered were nominal or pro forma or that the prescribed payments were really a retirement annuity.

The defendant argues that even if the payments to Mrs. Kramer are not includable in the decedent’s gross estate under Section 2039, they are includable under Sections 2036(a)(2), 2038(a)(1) and/or 2033. In Estate of Fusz, supra, a case similar to the instant one, the Government did not argue and the Tax Court expressly left open, the question of whether or not any provisions other than Section 2039 were applicable. Section 2036(a)(2), as amended, 76 Stat. 1052, provides:

* * * the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer * * * under which he had retained for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death—
‡ ‡ ‡
(2) the right, either alone or in conjunction with any person, to designate the persons who shall possess or enjoy the property or the income therefrom. *****

Section 2038(a) (1) provides for inclusion in the value of the gross estate all property:

*****
To the extent of any interest therein of which the decedent has at any time made a transfer * * * where the enjoyment thereof was subject at the date of bis death to any change through the exercise of a power * * * by the decedent alone or by the decedent in conjunction with any other person (without regard to when or from what source the decedent acquired such power), to alter, amend, revoke, or terminate, * * *

Both provisions require a transfer by the decedent. In Worthen v. United States, 192 F. Supp. 727 (D. Mass. 1961), a case decided under similar sections of the 1939 Code, the court found that the decedent’s promise of future employment provided the consideration for the promise of payment of post-death benefits by the employer and that the arrangement was in substance a transfer to the one who would benefit from the payment. Other cases have found a transfer in a similar manner. Davis v. Commissioner, 27 T.C. 378 (1956); Estate of Higgs v. Commissioner, 12 T.C. 280 (1949), rev'd. on other grounds, 184 F. 2d 427 (3rd Cir. 1950). We may assume arguendo that decedent’s employment here did provide the consideration for the transfer and that, based on the reasoning in Worthen, there was a transfer here. But Section 2036(a)(2) also requires that decedent retain the right to designate who would possess or enjoy the benefits and Section 2038(a)(1) requires that the decedent retain the power to alter, amend, revoke or terminate the enjoyment of the property transferred. Defendant lumps the requirements of these two sections together and argues that the decedent, because of his relationship to the Company, could have “bargained” with it for a change in the beneficiary or amount of payments, which would be enough for inclusion of the proceeds in his gross estate under these sections. In short, there is nothing in the agreement itself that would permit decedent to change the beneficiary or the amount of the payments. The agreement was subject to ratification by the Board of Directors, which occurred, and that was the only condition placed on it. Nowhere in the agreement do we find that decedent could have altered it at all. This is not a situation where decedent reserved the right to change the beneficiary or to renegotiate the amount of payments, and the defendant has again relied on assumptions not in the stipulation. Tbe source of decedent’s supposed power to renegotiate lies in the love and affection defendant postulates. There is no stock control; decedent is not shown to be a creditor. If he refused to perform, decedent would simply forfeit his own rights as well as those of his beneficiary, not change them. He had no other leverage shown by the stipulation.

If the value of Mrs. Kramer’s right to receive $150 per week is not includable in decedent’s gross estate under any other section then the defendant urges that it should be included in decedent’s gross estate under Section 2033. This section taxes all property to the extent the decedent had an interest therein at the time of his death. The defendant argues that at the time of decedent’s death he was performing services for which an annuity was to be paid and he could have had the commuted value of the annuity turned over to him, therefore, he died with an interest in the property. Again the defendant assumes facts not in the record. The decedent’s interest in the employment contract ceased at his death. He was entitled to be paid a salary as long as he was employed by the Company but nothing beyond that. Decedent had no right to the $150 per week payments and no control over them. As the Tax Court said in Estate of Wadewitz, supra, at p. 933:

* * * It is well established, * * * that where a decedent holds only a property interest which terminates at his death, * * * such an interest cannot be reached by section 2033 * * * and is not includable thereunder in the decedent’s gross estate. * * *

We think that the interest Abraham Kramer had in his employment agreement was terminable and therefore the property also is not includable under Section 2033.

The defendant claims that if the value of Mrs. Kramer’s payments is not included in decedent’s gross estate then it is entitled to recoup the income tax benefits Mrs. Kramer received in 1962 and 1963 by deduction from her gross income the estate tax paid on the value of the $150 per week payments. Section 691(a) subjects to income tax income in respect of a decedent when that income is paid to a recipient regardless of the fact that the right to receive the income was subjected to estate tax through inclusion of it in the estate of the decedent who produced the income. Section 691(c) however, permits a deduction from the recipient’s income of the amount of estate tax incurred by the inclusion in the decedent’s gross estate of the value of the right to receive the income.

Mrs. Kramer included in her gross income for 1962 and 1963 payments of $150 per week. She did not claim a Section 691(c) deduction for the amount of estate tax attributable to the value of the right to receive the payments because the value of the right to receive the $150 per week had not been included in decedent’s gross estate. After a deficiency in the estate tax was assessed and plaintiffs paid the additional estate tax, Mrs. Kramer claimed refunds of the income taxes she paid on the $150 per week in 1962 and 1963 which were allowed. Since the allowance of the refunds of Mrs. Kramer’s income tax was incorrect because the value of the payments to Mrs. Kramer was not includable in the decedent’s gross estate and since the statute of limitations for the income tax years of 1962 and 1963 has now run, the defendant is invoking the doctrine of equitable recoupment. This doctrine is designed to prevent the injustice that would result from applying the statute of limitations in certain cases. But because it upsets the policy underlying the statute of limitations,- it is narrowly applied. Rothensies v. Electric Storage Battery Co., 329 U.S. 296 (1946).

Defendant relies on Stone v. White, 301 U.S. 532 (1937), to support its claim for recoupment. In that case, the decedent had left his property in trust and the trustee was instructed to pay the sole beneficiary the net income upon request. The trustee paid income tax on the trust income which should have been paid by the beneficiary. In a suit by the trustee for a refund the Supreme .Court allowed a recoupment of the income tax owed by the beneficiary against the refund sought by the trustee although the statute of limitations had run against the Government on its claim against the beneficiary. The Court found that the trustee and the sole beneficiary had identical interests. It said at pp. 535-38:

* * * [A] ny recovery in this action will be income to the beneficiary, and will deprive the government of a tax to which it is justly entitled and enable the beneficiary to escape a tax which she should have paid. * * * Since in equity the one taxpayer represents and acts for the other, it is not for either to complain that the government has taken from one with its right hand, when it has, because of the same error, 'given to the other with its left.

This court in Sewell v. United States, 85 Ct. Cl. 512, 524—25, 19 F. Supp. 651, 663 (1937), refused to allow equitable recoupment by the Government on the identity of interest issue. In that case the wife of the decedent was entitled to a portion of the income of his estate for life and the balance was to be accumulated and distributed to others after her death. When the estate sought a refund of the income taxes paid by it but which should have been paid by the widow, this court distinguished Stone v. White and refused to allow a recoupment by the Government claiming that neither the interests of the two taxpayers nor the fund which should pay the tax were the same. The court found that

* * * the remainderman has been injured by the failure of the trustees to take a deduction and the beneficiary has been benefited to the extent of the tax paid by the trustees out of the interest of the remainderman. In the Stone case, * * * the beneficiary was entitled to the whole net income * * * of the estate of which she was the sole beneficiary. In the instant case, the beneficiary was only entitled to part of the net income and the balance was retained in the estate for the benefit of the remainderman. It is obvious that the payment of the tax by the trustees would impair the fund ultimately to be received by the residuary legatee.

Mrs. Kramer was bequeathed the residue of decedent’s estate “for the term of her natural life,” and the remainder at her death was left to their children. Under Ohio law she is not considered the sole residuary legatee, but a life tenant with an unlimited power to dispose of the proceeds. She is a trustee or quasi-trustee of the property. She is bringing this suit in her capacity as co-executor of the estate and the residuary estate will benefit from the recovery of the estate taxes. Mrs. Kramer’s personal income benefitted from the income tax refund, but other persons, i.e., the remaindermen have a vested interest in the residuary estate. If Mrs. Kramer were the sole beneficiary then Stone v. White would be applicable and the defendant would be entitled to an equitable recoupment. Here, however, there is a possibility that the remainder-men will also benefit from the estate tax refund, therefore the doctrine of equitable recoupment is not applicable.

The plaintiffs are entitled to a refund of the estate tax, plus interest, attributable to the inclusion of the commuted value of Mrs. Kramer’s $150 per week payments in the decedent’s gross estate. They are also entitled to a refund under Section 2053 of estate tax plus interest based on the amount of fees and other expenses connected with this litigation to the extent permitted by the laws of Ohio and to the extent they are actually paid. Judgment is entered accordingly with the amount of recovery to be determined in accordance with Rule 47(c) of this court.

Davis, Judge,

dissenting:

Although this case was stipulated, the claimants still bear the double burden — first in their capacity as plaintiffs in a refund suit, and second as taxpayers seeking to overturn a determination of the Internal Revenue Service — of proving that they are entitled to recover. See Boehm v. Commissioner, 326 U.S. 287, 293-94 (1945). Gaps in the stipulation should not be filled in their favor. Under this standard, they have failed to persuade me that they fall outside of Section 2039 of the Internal Revenue Code of 1954.

The only real issue is whether the payments to be made to Mr. Kramer under the second paragraph of the Memorandum of Agreement with the Company constituted “an annuity or other payment [which] was payable” to him or which he “possessed the right to receive” for his life. In Estate of Bahen v. United States, 158 Ct. Cl. 141, 154, 305 F. 2d 827, 834-35 (1962), we held that this term “an annuity or other payment” does not include “the decedent-employee’s regular salary.” See also Estate of Fusz, 46 T.C. 214 (1966). Here the court interprets the $12,000 payable to Mr. Kramer “[i]n the event of illness and/or in the event that due to any circumstances which may make it impossible for [him] to continue to act as General Manager” as equivalent to the “regular salary” of which we spoke in Bahen. On the other hand, I see these payments as “post-employment benefits” to Mr. Kramer (Estate of Fusz, supra, 46 T.C. at 218), close kin to an ordinary retirement annuity or retirement payment.

The Memorandum of Agreement makes it absolutely plain that these payments were to be made after the decedent had stopped being general manager (for which he was also being paid $12,000 per year), and that he was nevertheless to “remain” with the company for “the remainder of his life.” His illness was expressly contemplated, as were “any circumstances which may make it impossible for Mr. Kramer to continue to act as General Manager.” In other words, he could be totally disabled for active participation in the business but would still continue to receive $12,000 each year for the rest of his life.

True he was to be “an Advisor and Counsellor” and was “to assist the officers and Employees in formulating plans and programs for the continuation of the business.” Also, he was to receive his $12,000 “during such services being rendered.” But for me the significant aspect of the agreement is that nothing whatever was specified as to how much advice and counsel he was to give each year — or how often. Unlike the retiree in In re Estate of Wadewitz, 339 F. 2d 980, 982 n.2 (C.A. 7, 1964), our decedent did not even promise to “keep himself at all times reasonably available for consultation by the officers and directors of the company.” If this were somehow to be implied, there is no indication that the company was expected to call upon him for any substantial amount of advice. Perhaps a day or two a year of pro forma Consultation would be all; since .this was a small family-corporation, my guess is that, especially if the paterfamilias fell ill, no one anticipated more than a minimal exchange, just enough to say that “services” were “being rendered” -during the year.

In éssence, the agreement, as phrased, was clearly open to being used as a device for paying Mr. Kramer $12,000 so long as he lived even though, because of the state of his health or his age, he could do very little for the firm. This was in fact a “post-employment benefit”, not a “regular salary” such as was paid him as general manager. I repeat that we should-read the lacunae in the contract and the stipulation against the taxpayers, not against the Government as the court, prefers.

What the court does in this case is contrary to what was actually held in In re Estate of Wadewitz, supra, though the precise issue appears not to have been raised in that case and there is therefore no direct conflict. But I find it significant that in that instance all assumed that the payments were not “regular salary” within the meaning of Bahen. If the rule laid down for Mr. Kramer were generalized, it would afford an easy device by which businesses could actually pension off their officers while protecting the latter’s estates by exacting amorphous undertakings from them to give “advice” when called upon. The court’s stress on the stipulated nature of the present case, and the adverse inferences it draws from the Government’s willingness to stipulate, gives me hope that we are not declaring any such general proposition.

Laeamore, Judge, joins in the foregoing dissenting opinion.

BINDINGS OK FACT

The court, having considered the stipulations of the parties, and the briefs and arguments of counsel, makes findings of fact as follows:

1. Abraham Kramer (hereinafter referred to as “the decedent”) was born on June 5, 1889, and died on July 7, 1961, a resident of the City of Shaker Heights, Ohio. His Last Will and Testament was duly admitted to probate in and by the Probate Court of Cuyahoga County, Ohio, on or about August 10,1961. Letters testamentary were duly issued by said Court to Carrie Kramer and Julius Kramer, who are the wife and son, respectively, of the decedent, and who duly qualified as Executors of the said Last Will and Testament and who have ever since and still are qualified and acting as such Executors.

2. The Kramer Supply Company (hereinafter referred to as “the Company”) is a corporation organized under the laws of the State of Ohio on December 23,1946. Its original Board of Directors consisted of the decedent, Carrie Kramer, and David Malkin, who was a son-in-law of the decedent. Its original officers were: President, the decedent; vice president, David Malkin; secretary, Carrie Kramer; treasurer, the decedent. Its original shareholders and the number of shares owned by each were as follows (the Company was authorized to issue 250 common shares without par value) : the decedent, 20.25; Julius Kramer, 120.25; Sol Brooks, who was a son-in-law of the decedent, 109.50. All of these shares were issued on or about January 2,1947. On January 3,1956 the decedent transferred 10.25 of his shares to Julius Kramer and 10 of his shares to Miriam K. Brooks, a daughter of the decedent and the wife of Sol Brooks. No other transfers of the shares of the Company have ever been made. The Company, at all times herein pertinent, was engaged in the business of selling plumbing and related supplies at wholesale.

3. (a) On or about November 15, 1956, the decedent entered into a written Memorandum of Agreement with the Company. Said Memorandum of Agreement was as follows:

“MEMORANDUM OE AGREEMENT

This memorandum of agreement entered into by and between The Kramer Supply Company, an Ohio corporation (hereinafter referred to as the “Company”) and Abraham Kramer (hereinafter referred to as Mr. Kramer) :

WHEEEAS, Mr. Kramer has been the founder and organizer of the Company and has been its President for many years, and

WHEEEAS, as its President and general manager he has caused the Company to grow and has successfully guided it through the problems confronting it during its existence with great achievements and has placed it among the leaders in the industry, and

WHEEEAS, it is regarded by the Company as essential that it make certain that it shall have the benefit of his services during the forthcoming years and that thereafter he shall be available to advise and counsel the Company when he is not able to be as active as in the past,

NOW, THEEEFOEE, in consideration of the mutual promises hereinafter set forth, the parties hereto agree as follows:

(1) The Company does hereby employ the said Mr. Kramer as General Manager at an annual salary of $12,000.00 per year.
(2) In the event of illness and/or in the event that due to any circumstances which may make it impossible for Mr. Kramer to continue to act as General Manager, the Company agrees that he shall remain with it as an Advisor and Counsellor and to assist the officers and Employees in formulating plans and programs for the continuation of the business, for the remainder of his life. That during such services being rendered, he shall receive an annual salary of $12,000.00, payable in regular weekly installments.
(3) In the event of Mr. Kramer’s decease, and while serving the Company either under the provisions of Paragraph (1) or (2), and in the event his wife, Carrie Kramer, shall survive him, then the Company agrees that she shall receive as compensation the sum of $150.00 per week, as long as she lives.
(4) It is understood and agreed that this agreement shall be submitted to the Board of Directors for approval at the earliest date and that this agreement shall become effective immediately after it has been ratified by said Board of Directors.

In witness whereof, the parties hereto set their hands to duplicates this 15th day of November, 1956.

THE KRAMER SUPPLY COMPANY,
By: /s/ Abraham Kramer
Abraham Kramer, President
By: /s/ Carrie Kramer
Carrie Kramer, Secretary
/s/ Abraham Kramer
ABRAHAM KRAMER
Witness:
/s/ Julius Kramer
/s/ Sol Brooks”

(b) The Memorandum of Agreement was ratified by the Board of Directors of the Company on December 1, 1956. The Board of Directors on the latter date consisted of the decedent, Julius Kramer and Sol Brooks.

4. The decedent died while employed by the Company as General Manager and while actively serving in such capacity, pursuant to the provisions of Paragraph (1) of said Memorandum of Agreement. Until the onset of his final illness four days before his death the decedent worked five and one-half days a week and seven hours a day. At the time of his death the decedent was not acting in the capacity, or being compensated by the Company for acting in the capacity, set forth in Paragraph (2) of said Memorandum of Agreement. At all times herein pertinent there were no other agreements, contracts, arrangements, or plans between the decedent and the Company for the payment of any amounts to the decedent or to anyone else by reason of surviving him.

5. Since the death of the decedent, Carrie Kramer, who survived the decedent, has been receiving the sum of One Hundred Fifty Dollars ($150.00) per week from the Company pursuant to the. provisions of Paragraph (3) of said Memorandum of Agreement.

6. The plaintiffs duly and timely filed Form 706, United States Estate Tax Return, and paid the tax shown thereon to the District Director of Internal Revenue at Cleveland, Ohio. The plaintiffs did not include in the decedent’s gross estate, as reported in said return, any amount as the value of his widow’s right to receive the sum of One Hundred Fifty Dollars ($150.00) per week for the rest of her life. Upon audit of the return, Estate Tax Examiner Joseph A. Krizman included in the decedent’s grossi estate the sum of $56,834.13 as the value on the date of his death of his widow’s right to receive the sum of One Hundred Fifty Dollars ($150.00) per week for the rest of her life, under Section 2039 of the Internal Kevenue Code of 1954 (Title 26, United States Code). A deficiency in estate tax in the amount of $12,822.65 (including $7,863.83 based on such inclusion) was assessed against the plaintiffs by the Commissioner of Internal Revenue. This deficiency plus interest was paid by the plaintiffs on or about September 15,1964 and October 21,1964.

7. On January 10,1966, the plaintiffs duly and timely filed with the Commissioner of Internal Revenue, in accordance with the provisions of law in that regard 'and the regulations of the Secretary of the Treasury established in pursuance thereof, a claim for refund of estate tax in the amount of $8,367.03 plus interest or such greater amount as is legally refundable.

8. Subsequent to the filing of the claim for refund, the Commissioner of Internal Revenue allowed the claim to the extent it was not based on the inclusion in the gross estate of Carrie Kramer’s right to receive the sum of One Hundred Fifty Dollars ($150.00) per week from the Company for the rest of her life. Accordingly, a refund in the amount of $525.40 plus interest thereon was paid to the plaintiffs.

9. On April 8, 1966, the District Director at Cleveland, Ohio, mailed to the plaintiffs by certified mail a notice of the disallowance of said claim for refund to the extent it had not previously been allowed, to wit: said claim was disallowed to the extent it was based on the inclusion in the decedent’s gross estate of his widow’s right to receive the sum of One Hundred Fifty Dollars ($150.00) per week from the Company for the rest of her life. This suit was filed after the receipt by the plaintiffs of said notice.

10. Carrie Kramer filed federal income tax returns for the years 1962 and 1963 with the District Director of Internal Kevenue, Cleveland, Ohio, on April 14, 1963 and 1964, respectively. She included the $150.00 per week amounts received from the Company in her gross income reported in these returns.

11. On August 31, 1965, claims for refund of income tax for the years 1962 and 1963 were filed by Carrie Kramer in which she sought to deduct amounts ($1,079 in each year) computed in accordance with Section 691(c) of the 1954 Code as follows:

(inclusion in gross income from $150'.00/ _$ 7800.00 week payments)_x,$7j863.83 (estate tax=$l,079 $56,834.13 (amount included in m issue decedent’s gross estate herein) as the value on the date of his death of his widow’s right to receive $150.00 per week for the rest of her life)

These claims for refund were allowed by the Internal Kevenue Service and refunds were made.

12. The statute of limitations on assessments (see Section 6501 of the 1954 Code) against Carrie Kramer’s 1962 and 1963 tax years has now expired.

13. (a) The following provisions of the decedent’s will pertain to the residue of his estate:

ITEM IV.
All the rest; residue and remainder of my estate, real, personal or mixed,_ of every kind and description, wheresoever situate, which I may own or may have the right to dispose of at the time of my decease, after the payment to my wife of a year’s support and setting aside to her assets free of administration as provided for by law, I give, devise and bequeath to my wife, Carrie Kramer, for the term of her natural life, without impeachment for waste and with full power over my entire interest in the property hereby passing by this residuary clause; with power to lease, sell, convey, deed, mortgage or exchange, or in any manner to encumber or dispose of all property, real or personal, then owned by me or thereafter created, at either public or private sale, for whatever price and upon whichever terms and conditions are acceptable to her in her entire and unqualified discretion: to execute and deliver any proxies, powers of attorney or agreements my wife, Carrie Kramer, may deem necessary or advisable, all without procuring the consent or approval of any Court, the law or rules of equity to the cobtrary motwithstanding [sic], and use the proceeds thereof for her own use or otherwise, in any manner she deems best or fit. Said power granted to my wife, Carrie Kramer, herein set forth is intended to be as broad and effective as the law will allow, without being required to apply to or procure the authority of any Court to deal with the Estate, and to make, execute and deliver all deeds, leases, contracts, mortgages, notes and all other instruments or evidence of conveyance, to evidence and/ or carry into effect any and all of the powers herein vested in and/or conferred upon the said Carrie Kramer as she shall deem fit, proper and best as fully and with like effect as I could do if living. No purchaser from my executor and/or my wife, Carrier Kramer, need see to the application of the purchase money for the purposes herein set forth, but the receipt of my executor and/or my wife, Carrier Kramer, shall be a complete discharge and acquittance therefor.
ITEM V.
All of my stock in the Kramer Holding Company, if any is owned by me at the time of my demise and which has not been disposed of, used or invaded by my beloved wife, Carrie Kramer, during her natural lifetime, shall be treated as composed of two (2) equal portions and shall descend and belong absolutely and in fee simple, share and share alike, as follows:
One-half (y2) thereof to my daughter, Miriam K. Brooks, and one-half (y2) thereof to my son, Julius Kramer.
ITEM VI.
All the rest, residue and remainder of my Estate, real, personal or mixed, of every kind and description wheresoever situate, which has not been disposed of, used or invaded by my beloved wife, Carrie Kramer, during her natural lifetime, shall be treated as composed of three (3) equal portions and shall descend and belong to, absolutely an'd in fee simple, share and share alike, as follows : One-third (%) thereof to my daughter, Miriam K. Brooks, one-third (1/3) thereof to my son, Julius Kramer and one-third (14) thereof to my daughter, Sylvia K. Malkin.
ITEM VII.
In the event any one of my three named children do not survive my wife, Carrie Kramer, then and in that event, the shares of such child, or so much thereof as shall not have been affected by the exercise of the power heretofore given to my wife, Carrie, I hereby give, bequeath and devise to such issue of the body of such deceased child, per stirpes. In the event any one of my three children should predecease my wife, Carrie Kramer, leaving no issue of his or her body living at the time of his or her death, then in that event the share given, 'devised and bequeathed to such child of mine, shall lapse and become a part of the residue of my estate and shall pass as part of the residual estate to my other above named surviving children.

(b) Any recovery in the instant action, minus the expenses referred to in paragraph 14, infra, and other administration expenses, will become part of the residuary estate.

14. The plaintiffs have incurred, and will incur, additional attorney fees and other expenses in connection with this litigation, the full amount of which is presently unknown and no deduction for which has previously been allowed. Pursuant to the provisions of Section 2053 of the 1954 Code, the plaintiffs are entitled to a refund of estate tax plus interest thereon based upon the amount of such fees and other expenses, to the extent they are allowable by the laws of the State of Ohio, being the jurisdiction under which the Estate of the decedent is being administered, and to the extent they are actually paid.

CONCLUSION OE LAW

Upon the foregoing findings of fact and opinion, which are adopted by the court and made a part of the judgment herein, the court concludes as a matter of law that plaintiffs are entitled to recover and judgment is entered to that effect with the amount of recovery to be determined in accordance with Rule 47 (c) of this court. 
      
       The Agreement gives no hint of the other “circumstances” which might make it “impossible for Mr. Kramer to continue to act as General Manager” (emphasis added), and the stipulation gives us no light. It is fair to assume that these other “circumstances”, making it “impossible” for him to continue as general manager, would be comparable to a disabling illness.
     
      
      
         In the view I take, I need not, and do not, consider the other questions on which the court passes.
     