
    NELL W. CARSON v. THE UNITED STATES
    [No. 252-59.
    Decided May 10, 1963.
    Defendant’s motion for rehearing denied July 12, 1963]
    
    
      
      John D. Ueckert and John McClure for plaintiff. McClure & McClure were on the briefs.
    
      Theodore D. Peyser, Jr., with whom was Assistant Attorney General Louis F. Oberdorfer, for defendant. Edward 8. Smith, Lyle M. Turner, and Philip B. Miller were on the brief.
    Before JoNes, Chief Judge, Reed, Justice {Bet.), sitting by designation, Lakamoke, Dukeee, and Davis, Judges.
    
    
      
       Justice Reed (Ret.), sitting by designation in place of Judge Whitaker, would grant defendant’s motion for rehearing or correction of the opinion in accordance with his dissent.
    
   Durfee, Judge,

delivered the opinion of the court:

■ Plaintiff brings this action for refund of her payment of additional income taxes assessed for the years 1952 through 1956 by the Commissioner of Internal Revenue. The assessment was upon the basis that annual payments made to the widowed plaintiff by a corporation in honor of her deceased husband were not nontaxable “gifts” but were taxable as ordinary income. We are asked by plaintiff to reverse this ruling.

Under section 22(b) (3) of the Internal Revenue Code ■of 1939 and section 102(a) of the Internal Revenue Code of 1954, “the value of property acquired by gift” is excluded from gross income and consequently exempt from income taxation.

* * * The meaning of the term “gift” as .applied to particular transfers has always been a matter of contention. Specific and illuminating legislative history on the point does not. appear to exist. * * * The meaning of the statutory term has been shaped largely by the decisional law. * * * [Commissioner v. Duberstein, 363 U.S. 278, 284.]

The Court there reviewed the general principles governing “gifts”' in its decision as follows (p. 289):

* * * Decision of the issue presented in these cases must be based ultimately on the application of the fact-finding tribunal’s experience with the mainsprings of human conduct to the totality of the facts of each case. The nontechnical nature of the statutory standard, the close relationship of it to the data of practical human experience, and the multiplicity of relevant factual elements, with their various combinations, creating the necessity of ascribing the proper force to each, confirm us in our conclusion that primary weight in this area must be given to the conclusions of the trier of fact.

This refusal of the Supreme Court to set more definite criteria as requested by the Government for determination of a gift caused Justice Frankfurter to remark in his concurring opinion, “What the Court now does sets fact-finding bodies to sail on an illimitable ocean of individual beliefs and experiences.” Before setting sail on such a voyage we shall first examine any available aids to navigation.

Foremost in mind is what the Supreme Court stated as “the most critical consideration * * * the intention of the transferor.” There must be an objective inquiry as to whether what is called a gift amounts to it in reality. The proper criterion is one that inquires whether the basic reason for the donor’s conduct was in fact the dominant reason that explained his action in making the transfer, in the words of Duberstein.

What was the basic reason, the dominant reason, of the directors of the Bottling Works for making the annual payments to plaintiff for the years 1952 to 1956 inclusive?

The initial resolution by the directors of the company in 1938, shortly after the death of their- President, John F. Carson, provided as follows:

* * * Salary to be paid to Nellie W. Carson in 1939 or in any later year is in recognition of services rendered by her husband John F. Carson deceased in 1938.

Thereafter, plaintiff was reelected vice president each year through 1956. She performed no duties for the company in this capacity, and was only nominally a corporate officer. Her salary was specified eacb year at amounts ranging from $13,200 to $17,160. For the years 1952 through. 1955, the minutes of the directors’ meetings eliminated the provision for salary, and stated:

Eesolved: that as in past years, in behalf of the stockholders of this corporation, a gift of $17,160.00 be voted to Nellie W. Carson.

This change of phraseology in the resolution occurred as a result of a suggestion of the company’s tax advisors with representatives of the Internal Eevenue Service concerning the manner in which the Bottling Works should treat such payments for tax purposes. However, the payments were not deducted from gross income in the company’s Federal income tax returns from 1943 through 1956, following a settlement of tax liability with the Commissioner of Internal Eevenue, on this question for the years 1941 and 1943. In any event, “the taxing statute does not make nondeductibility by the transferor a condition on the ‘gift’ exclusion.” Duberstein, supra, p. 287.

The directors testified in this case that the purpose of this change in the resolution was to state, more clearly than the previous resolutions did, the intention with which they authorized the payments throughout. They also testified that the payments they designated as “gifts” were “in honor of,” “in memory of,” and “in appreciation for the services” of the deceased John F. Carson as founder and president of the company.

While due weight must be given to these expressions of intent, we must go further and consider what the Supreme Court described as “the multiplicity of relevant factual elements, with their various combinations, creating the necessity of ascribing the proper force to each, * * Duberstein, supra, p. 289. This multiplicity of relevant factual elements and their various combinations becomes readily apparent from consideration of the decisions of other Federal courts on “gifts” under the taxing statute. Since Duberstein, there has been an apparent conflict in these decisions, with a resultant multiplicity of the criteria or tests that were applied. A consideration of these criteria, as applied to the facts in the present case, would appear to be next in order.

Recently, in Poyner v. Commissioner, 301 F. 2d, 287 (C.A. 4, 1962), the Circuit Court of Appeals for the Fourth Circuit applied the five factors listed by the Tax Court in Florence L. Luntz, 29 T.C. 647, 650 (1958), (prior to the Dubersteim, case), as the “clearest formulation of relevant criteria

(1) The payments had been made to the wife of the deceased employee and not to his estate;
(2) There was no obligation on the part of the corporation to pay any additional compensation to the deceased employee;
(3) The corporation derived no benefit from the payment;
(4) The wife of the deceased employee performed no services for the corporation;
(5) The services of her husband had been fully compensated.

Our findings of fact directly respond to every one of these five factors, as we have previously considered them under the principles set down in Duberstein, supra. In each instance, the response is favorable to the widow, as the Court of Appeals also found under the facts in Poyner, supra, except for the third finding that the corporation derived no benefit from the payment. We propose to deal with this separate question later in this opinion.

However, the Court of Appeals in Poyner, supra, also noted that since Duberstein, the Tax Court has considered it necessary to inquire into:

(1)the widow’s stock holdings in the company;
(2) the knowledge of the Board of the widow’s financial status following the death of her husband;
(3) and of “the widow’s needs.”

The Court of Appeals in Poyner accordingly remanded the case for further evidence as to these additional criteria, or any other factors that the Tax Court might consider relevant.

(1) In the present case, the widow never owned any stock of the company in her own name, but after her husband’s death she held over one-third of the outstanding stock as trustee of her husband’s estate from 1939 through 1956. She was not present at the meeting of the directors in 1988 when the first of the payments to her was authorized after her husband’s death, but thereafter, attended most of the meetings from 1939 through 1956, and when present, she voted for the annual payments to be made to her, together with all the other directors.

(2) During each of the years 1939 through 1951, the Board of Directors of the Bottling Works consisted of three persons; Luther F. Carson, brother of the deceased John F. Carson; Lester B. McCool (not related) and plaintiff. Luther F. Carson and his wife also held over one-third of the total outstanding stock. From 1952 through 1956 the board consisted of five persons: the three just mentioned; Wallace Bishop, plaintiff’s son-in-law and William Carson, a nephew of John and Luther Carson. Over two-thirds of the stock was held about equally over the entire period 1939 through 1956 between the family of the deceased John F. Carson and the family of his brother, Luther F. Carson. Within such a closely related board of directors, it can be concluded that they had knowledge of plaintiff’s substantial financial status after the death of her husband.

(3) The directors, other than plaintiff, although indicating friendship and affection for her, testified that except for their desire to honor the memory of her deceased husband as founder and president of the company, they would not have voted for the payments to plaintiff.

The record does not reveal how the directors arrived at the amount of the annual payments, ranging from $15,000 to $11,160 a year over a period of 18 years, but these payments are closely comparable to the salary formerly paid to plaintiff’s deceased husband. Apparently, the directors took some account of aiding plaintiff in maintaining a living standard comparable to her former married status when they determined the amount of the memorial payments. However, plaintiff reported taxable income for the years involved herein, 1952 through 1956, from $38,000 to $48,371.32, not including the corporate memorial payments. She and her daughter occupied a home valued at $148,886.67 and the cost of its operation and maintenance was paid out of her husband’s estate, and they were both residuary beneficiaries of her husband’s estate, valued at $1,407,180.59. Plaintiff as a widow was not in need and the directors of this closely held family corporation must have recognized this fact, even though they may have considered her former standard of living in determining the amount of the memorial payments.

Another factor or criterion has been considered in some of the recent cases, holding that the corporation payments to a widow were not “gifts.” Where there is an established policy of an employer to provide for the wife of a deceased officer for a limited period after his death, even though the widow had no enforceable legal right to the payments, these courts have recognized not only the “moral obligation” of the employer to continue the established practice but also the immediate benefits derived by the employer from such a plan. In such cases the payments have been held to be “compensation” and not “gifts” in the sense of the tax statutes. Smith v. Commissioner, 305 F. 2d, 778 (C.A. 3, 1962); Simpson v. United, States, 261 F. 2d 497, 500 (C.A. 7, 1958). This line of decision was recently followed in Gaugler v. United States (C. A. 2, 1963), 312 F. 2d 681, affirming Dist. Ct. (S.D.N.Y.) 204 F. Supp. 493. The Court there considered certain factors as relevant in approving conclusions of the District Court that the impetus for the payments was “anticipated economic benefits as well as the impelling force of a moral duty.”

In applying these same factors from Gaugler, supra, to the facts here, we reach the following conclusions: 1) The accounting and tax treatment by the Bottling Works is not inconsistent with a gift, since the company did not deduct the payments to plaintiff from gross income; 2) There is no evidence of any “previous practice of making similar payments to widows of high officials of the company;” 3) The computation of the payments to plaintiff amounted to approximately the same amount as the salary received by her deceased husband when president of the company; 4) There is evidence from which it can be inferred that “sound business reasons” were considered by the company in authorizing the payments; 5) There was no “moral duty implicit in any special circumstances of the widow’s need to readjust to a lower standard of living” such as referred to in Gaugler, supra; and 6) There is no evidence of “the company’s failure to investigate the actual financial circumstances and needs of the widow.”

In contending that these payments to plaintiff were not gifts from the Bottling Works, but that they were informal dividends or compensation, the Government has apparently for the first time placed its principal reliance upon the magnitude and duration of the payments as evidence against a “gift” under the tax statute.

In none of the Federal court cases that we have considered was the payment by a corporation to a widow of a deceased officer or employee comparable in magnitude and duration to those in the present case. They ranged from totals of about $20,000 to $60,000 over periods of from one to three years’ duration. In none of these cases was the amount or duration of the payments regarded as a separate significant factor. Bounds v. United States, 262 F. 2d 876 (C.A. 4, 1958); United States v. Allinger, 275 F. 2d 421 (C.A. 6, 1960) ; United States v. Kasynski, 284 F. 2d 143 (C.A. 10, 1960); Kuntz v. Commissioner, 300 F. 2d 849 (C.A. 6, 1962); United States v. Frankel, 302 F. 2d 666 (C.A. 8, 1962); Olsen v. Commissioner, 302 F. 2d 671 (C.A. 8, 1962); Poyner v. Commissioner, 301 F. 2d 287 (C.A. 4, 1962).

In the present case, the corporate payments to the widow over the eighteen-year period from 1939 through 1956 amounted to a total of $272,880, and a total of $85,880 during the tax period 1952 through 1956 herein at issue. We regard the magnitude and duration of these payments as an additional and significant factor.

If the memorial gift by the Bottling Works in memory and in honor of its deceased president and founder had been for the benefit of persons or projects not associated with its own operation, for example a memorial donation to a college or philanthropic institution, the great magnitude and long duration of this gift would clearly not have the same significance as a comparable gift to a member of a closely held family corporation with attendant economic benefit to that corporation.

There is no direct evidence in the record that the directors were actuated by any motive or intention other than that revealed by their own testimony. In the common-law interpretation, this clearly expressed and honorable intention could be determinative of a gift, even though the donor might have anticipated some economic benefit. Nevertheless, their own characterization by the directors of motive or intent is not finally determinative. The intention which we must determine is not to be measured by the common-law concept of gift and “donative intentit must contemplate a “gift” within the meaning of the tax statute. Whether the directors, in calling the payments to plaintiff a “gift,” were cognizant of the difficult distinction between a common-law gift or a statutory gift is not apparent from the record, but we must measure their expressions of motive within the context of the entire record and by the statutory standards expressed by the courts.

* * * a voluntary executed transfer of his property by one to another, without any consideration or compensation therefor, though a common-law gift, is not necessarily a “gift” within the meaning of the statute. For the Court has shown that the mere absence of a legal or moral obligation to make such a payment does not establish that it is a gift. * * * [Duberstein, supra, p. 285.]

All that the court can conclude from the tax record is that the company never claimed the annual payments to the widow as deductible after its tax settlement in 1946, but plaintiff did.

Relevant to the overall inference to be derived from all of these findings is the fact “that the transferor is a corporate entity.” Duberstein, supra. This was a closely held family business corporation, and its principal corporate purpose and obligation was to carry on a business and make money for its stockholders. During the tax years 1952 through 1956 herein involved, the company was successful in this principal purpose, and declared the following dividends:

Yem's Dividends
1952_ $168,000
1953_ 168,000
1954_ 128, 800
1955_1_ 128, 800
1956_ 128, 800

The same amount of dividends per share was declared and paid by the Bottling Works to all its stockholders. Plaintiff was not then a stockholder individually and none of the dividends declared was paid to her as an individual. As trustee under the will of John F. Carson, she held about one-third of the stock in the Bottling Works; she received the same dividends per share that all other stockholders received, and one-half of the residuary income of the trust each year was payable to plaintiff personally.

On the last day of each of the years 1952 through 1956, the Bottling Works had earned surplus and undivided profits as follows:

Year Amount
1952_ $310, 758.'83
1953_ 331,160.37
1954_ 346, 067. 60
1955_ 342, 957.14
1956_ 323, 641.50

In summary, the company appears to have been highly successful throughout 1952-1956.

Although the record affords no express basis for finding that the initial memorial motive of the directors was diluted by the passage of time in relation to the motivating force of other considerations, the renewal of these annual authorizations of payments appear to have been made largely as a matter of formal corporate custom, except for the years 1941 through 1948, when the annual payments to plaintiff were reduced from $15,000 to $13,200, and thereafter increased to $17,160, and except for the year 1952 when consideration was given to tax consequences to plaintiff of these payments by the company.

During all this period plaintiff, as trustee of her husband’s estate, controlled and voted one-third of the stock. As one of the directors, she voted for these payments from 1939 through 1956, although she did not participate in the original 1938 resolution. All of the other directors but one were related to plaintiff and to each other in some degree during the period 1952 through 1956, and prior thereto. The payments of gift and dividends enabled plaintiff to draw out of the company an amount comparable to that withdrawn by her brother-in-law, Luther F. Carson, successor to her husband as president, who with his family also owned over one-third of the stock, and the two Carson families thus owned a controlling interest of over two-thirds of the total stock. The annual payments to plaintiff are closely comparable to the former salary of the deceased husband of plaintiff as president, and to the salary of the successor president, her brother-in-law, Luther F. Carson.

Considering the close family relationship between the holders of over two-thirds of the company’s stock, and the close relationship between most of the directors, it is apparent that this was a highly successful, closely held family corporation both prior to 1938 and thereafter through 1956, and that it was desirable for all concerned to continue this relationship. There is no evidence of dissatisfaction with the company by any of its directors or stockholders. On the contrary, it can be assumed that in the light of their experience with the continuing success of the Bottling Works, everyone was financially interested in maintaining this prosperous and amicable status quo within the two Carson families. This common interest involved maintaining'the position of plaintiff, both personally and as an officer of the company on a financial basis comparable to that which had existed prior to her husband’s death.

Although the gift cases considered in Dwberstem were not on all fours with the present case, the Supreme Court’s language is appropriate (p. 285):

* * * The cases at bar are fair examples of the settings in which the problem usually arises. They present situations in which payments have been made in a context with business overtones * * *.

While plaintiff is not in a comparable position with Mr. Duberstein, who claimed that his Cadillac automobile was a “gift” from an automobile agency, we do believe this case also presents a situation in which these payments have been made “in a context with business overtones,” as the Court there pointed out.

We note that the directors also voted a salary of $1,200 per year from 1939 to George T. Hunter, a minority stockholder, until his death in 1949, ostensibly for “salary,” but without deduction on the company’s tax return. Mr. Hunter was connected with the parent Coca Cola bottler from which the company bought its syrup, and it appears that in order to maintain the economic benefit of good relations with the syrup supplier, the Bottling Works made these ostensible payments of “salary” to a nominal secretary. As counsel for plaintiff have stated in their brief, “It was only good business.” Similarly, it was “good business” for the company to maintain good relations with plaintiff in the family corporation, comparable to that which existed before her husband’s death.

These total payments of $272,880 over an eighteen-year period were not made solely in honor of the deceased John F. Carson. This was not solely an act of detached and disinterested generosity, of grateful memory, or of merely giving away $272,880 to a well-to-do widow. There was a distinct economic benefit and advantage to the company from making the payments, which, from the totality of the facts, we find was anticipated:

* * * if the payment proceeds * * * from “the incentive of anticipated benefit” of an economic nature, * * * it is not a gift. * * * A gift in the statutory sense * * * proceeds from a “detached and disinterested generosity.” [Duberstein, supra, p. 285, citing. Bogardus v. Commissioner, 302 U.S. 34, 41; Commissioner v. LoBue, 351 U.S. 243, 246.]

The burden of proof is upon plaintiff to establish that what is called a “gift” amounts to it in reality; to establish that the donative memorial intent expressed by the company was the basic, dominant reason for the payments. As trier of the fact, we have been directed by the Supreme Court in Duber-stein, supra, to rely upon our “experience with the mainsprings of human conduct” in appraising whether the totality of the facts meets the burden of proof. The decisions of other Federal courts following this direction demonstrate diverse and often conflicting judicial appraisals of those mainsprings of human conduct involved in making “gifts” under the tax statute. Father than add further diversity or conflict in the administration of the income tax law, we have appraised the totality of the facts in this case in the light of Duberstein and all the criteria considered relevant by other courts, and in the light of our own experience, “with the mainsprings of human conduct,” as trier of the fact.

Accordingly, we find that the annual payments of $17,160 by the Bottling Works to plaintiff during the years 1952 through 1956 were not “gifts” within the meaning of section 22(b) (3) of the Internal Revenue Code of 1939 and section 102(a) of the Internal Revenue Code of 1954. Plaintiff is not entitled to recover, and therefore, her petition is dismissed.

n

The Government’s counterclaim seeks judgment for $49,717.05 with interest on deficiencies for the years 1952 through 1956, based on a- determination that the estate of John F. Carson which was formally closed December 31, 1956, should be treated as having been closed not later than December 31, 1946, and that one-half of the net income of the estate thereafter, including that for the years 1952 through 1956, except 1953, should be treated as distributable and taxable to plaintiff. She was also executrix and trustee under the will.

The Treasury Regulations on Income Tax (1954 Code), sec. 1.641(b)-3 provide in part, as follows:

If the administration of an estate is unreasonably prolonged, the estate is considered terminated for Federal income tax purposes after the expiration of a reasonable period for the performance by the executor of all the duties of administration. * * *

A similar regulation existed under the 1939 Code.

It does appear that between December 31, 1946 and 1956, the estate had sufficient resources to satisfy its indebtedness by any of various arrangements or combinations of arrangements for:

(a) transfer of assets to the plaintiff and Mrs. Bishop in satisfaction or reduction of the estate’s indebtedness to them, (b) use of the funds distributed to them as income, instead, as a means of reducing the estate’s indebtedness to them, and (c) use of cash and Government bonds belonging to the estate to reduce or satisfy the estate’s indebtedness.

In 1947, upon petition by plaintiff as executrix of the estate, the County Court in Florida which had jurisdiction of the administration of the estate, found the estate indebted in the sum of $108,142.01; that most of the assets were stocks in closely held corporations, and that the estate had a large income out of which this indebtedness could be paid without requiring the sale of the corporate stocks at a sacrifice. Accordingly, the court ordered that the executrix could pay the indebtedness from income, and that the estate remain open. Thereafter, the executrix reported to the court as directed in 1951, 1953 and 1955, and each time the County Court renewed its order, keeping the estate open for the reasons hereinabove stated. This was an active and valid exercise of the continuing jurisdiction of the probate court during the last eight years of the administration.

In Frederick v. Commissioner, 145 F. 2d 796, 799 (C.A. 5, 1944), the court said:

* * * In the absence of fraud, or conspiracy to evade taxes, it does not lie within the province of the Tax Court to say tbat tbe County Judge abused his discretion in ordering that the administration should be kept open, in compliance with the agreement and desire of all parties in interest that this should be done until such time as the business could be liquidated by an advantageous sale. Those orders of the County Judge’s Court were conclusive of the question of whether it was reasonably necessary, or for the best interests of the estate, at the times the orders were made, to keep the estate open, even if the question of the time reasonably necessary to keep the estate open were involved here. The order of the County Judge to continue the business is not subject to be set aside by the Commissioner of Internal Revenue, nor to be collaterally attacked by him in the Tax Court, in the absence of a showing that orders were void on their face. * * *

In Stewart v. Commissioner, 196 F. 2d 397 (C.A. 5, 1952), and Chick v. Commissioner, 166 F. 2d 337 (C.A. 1, 1948), affirming the closing of an estate for Federal tax purposes under the tax regulations, both courts noted the absence of conflicting affirmative action by the state court having-jurisdiction.

Without holding that the orders of the Florida Court holding the estate open during the last eight years of administration are conclusive, we do not believe that its lawful orders can be disregarded or lightly weighed in determining their validity of the earlier termination of the estate by the Federal tax authorities. This is particularly true in view of the circumstances. The stock that was finally disposed of in 1956 was sold at a substantial profit; the balance of the indebtedness was paid, and the estate was promptly closed. The executrix had a bona fide purpose in holding the estate open, and it turned out to be good business for the estate and for the Government. There is no evidentiary basis for finding that plaintiff had any purpose to avoid payment of taxes at a higher rate, or that higher aggregate income taxes would have been payable as a consequence of an earlier closing of the estate. (See finding 77.)

Under these facts and circumstances, we conclude that plaintiff has established that the period of administration of the estate of John F. Carson while under the jurisdiction of tbe County Court in tbe State of Florida from December 23, 1938 to December 31, 1956 was not unduly or unreasonably prolonged, and was not terminated earlier by operation of law for Federal income tax purposes pursuant to statute or Treasury Kegulations.

Defendant makes an alternative claim that even if tbe estate is not deemed closed prior to 1952, tbe income of tbe estate used to pay the expenses of tbe Snell Island home, acquired by tbe estate after the death of John F. Carson, should be treated as having been distributed to plaintiff and her daughter.

Early in 1939, the estate bought the Snell Island home in St. Petersburg, Florida at a cost of $148,886.67 for use by plaintiff and her daughter. During the period 1952 through 1956, the estate paid the following expenses of operation and maintenance of the Snell Island home:

Household Expense: 1952 195S 1964 1955 1956
Insurance and utilities_ $3,203.49 $1,191.55 $2,679.89 $2,972.43 $1,555.56
Food-supplies-servants. 11,219.92 10,413.37 8,624.75 10,660.11 8,474.51
General upkeep and yard-. 5,935.13 5,707.21 11,737.89 2,714.16 10,518.84
Included among the items * * * as general upkeep and yard are $431.50 in 1955 and $20 in each of the other years for cemetery and mausoleum expenses, $5,470 in 1954 for sea wall repairs at Snell Island, and varying amounts for furniture and appliances, carpeting, flowers, yard work, repairs, painting, hardware, iron gates, and lawn sprinklers.

Section 162(c) of the 1939 Internal Revenue Code and sections 661 'and 662 of the 1954 Code, provide that income distributed by an estate is taxable to the distributee. The expenditure for $5,470 for sea wall repairs at Snell Island were capital expenditures and not taxable to plaintiff, as defendant concedes. Some of the other expenditures listed are either capital expenditures or made for the maintenance and preservation of the trust estate. Defendant has not requested any more specific finding of fact in this regard, and in this particular aspect of the counterclaim, we find no substantial evidence to establish that a portion of the income of the estate was distributed to plaintiff in connection with the expense of the Snell Island home. We therefore conclude that the alternative claim of defendant under its counterclaim has not been established.

It is therefore ordered that defendant’s counterclaim, in its entirety, is dismissed.

Need, Justice (Bet.),

sitting by designation, dissenting:

I join that portion of the opinion of the court that holds the transfer of corporate assets was not a gift. However, I feel the court holds incorrectly in deciding that the Commissioner’s ruling that the estate should be considered closed by 1952 was erroneous. The history of the estate is set out in detail in our Findings 37 through 77. Suffice it to say that by 1952, fourteen years after the death of the taxpayer’s husband, all of the normal functions of administration had been completed. The only outstanding obligations of the estate consisted of debts to the taxpayer and to her daughter, the only other beneficiary of the residuary estate. The estate had borrowed from its beneficiaries at the same time it had purchased the home in which the taxpayer has since resided. Not only could the estate have discharged its indebtedness to the taxpayer and her daughter by transferring the home to them, but during the years prior to 1952 the estate had distributed to its two beneficiaries substantially more money than would have been necessary to discharge the debts. Indeed, the earnings of the estate were even being used to pay the taxpayer’s ordinary household expenses.

Eighteen years is far longer than is ordinarily required to wind up the affairs of an estate. The facts indicate no substantial business reason why this estate should have remained open for so long a period. Our Commissioner so found, and the taxpayer has taken no exception to his finding. The taxpayer does suggest that the estate was held open to avoid sacrificing closely held corporate stock. This was the grounds upon which the Florida probate court granted permission to keep the estate open. However, it is perfectly clear that the estate could have discharged its debts without selling this stock. See Finding 66. On what basis, then, can we hold that the Commissioner of Internal Revenue erred when he determined that the administration of this estate was unreasonably prolonged ?

The taxpayer and the majority opinion seem to suggest two reasons. First, taxpayer stresses that the estate was held open with the approval of the Florida probate court. The Government argues that since it was not a party to the probate proceedings, which were nonadversary, it is not bound by the orders rendered therein. But I do not doubt either the correctness or the finality of the determination that the estate was held open in accordance with Florida law. Frederich v. Commissioner, 145 F. 2d 796, 799 (C.A. 5, 1944). However, although relevant, the validity of the procedure followed under state law is not conclusive of the reasonableness of the period for which an estate is held open for federal income tax purposes. Indeed, there is agreement between the majority opinion and the dissent that the action of the Florida court is not conclusive. This conclusion is compelled by the necessity to interpret the tax laws “so as to give a uniform application to a nation wide scheme of taxation.” Burnet v. Harmel, 287 U.S. 103, 110 (1932); Estate of Putnam v. Commissioner, 324 U.S. 393 (1948), which of course would be impossible if the probate judges of every state had the power to extend the period of administration for income tax purposes. A state may choose to allow an estate to be used for purposes other than gathering the decedent’s assets, paying his debts, and distributing the proceeds among the beneficiaries of the estate. But the provisions recognizing the estate as a separate tax entity were not intended to apply when the estate is used for such other purposes. S. Rep. No. 1622, 83d Cong., 2d Sess. 340.

The majority opinion seems to imply that because the estate was not held open for the purpose of tax avoidance, the estate must be recognized as a separate tax entity for the tax years in question. The factual premise on which this argument rests is weak. In 1947, the taxpayer had transferred all but a few thousand dollars out of the estate bank account and had prepared to close the estate; the money was then returned to the estate and permission was requested from the probate court to keep the estate open. Findings 50-53. In the absence of any explanation why the estate was not terminated at that point, it is difficult to conclude that the taxpayer was not attempting to obtain the advantages inherent under a graduated tax system in the use of an additional tax entity.

Moreover, even assuming the absence of any tax-saving purpose, the Commissioner of Internal Eevenue was nonetheless entitled to regard the estate as closed in 1952. The absence of tax-saving motive does not establish the taxpayer’s right to prolong the administration of the estate any more than the presence of such motivation would defeat her attempt to keep the estate open for tax purposes. “The legal right of a taxpayer to decrease the amount of what otherwise would be his taxes, or altogether avoid them, by means which the law permits, cannot be doubted. . . . But the question for determination is whether what was done, apart from the tax motive, was the thing which the statute intended.” Gregory v. Helvering, 293 U.S. 465, 469 (1935). See Knetsch v. United States, 364 U.S. 361, 365-66 (1960); National Carbide Corp. v. Commissioner, 336 U.S. 422, 439 (1949). The non-tax purposes for which an estate is held open bear upon the reasonableness of the period for which it is preserved; but in the absence of any substantial non-tax justification for failing to close an estate after the performance of the normal functions of administration, not even ignorance of the very existence of an income tax precludes the Commissioner of Internal Eevenue from treating the estate as closed for income tax purposes.

The crucial question thus becomes whether the evidence fairly supports the determination of the Commissioner that the administration of the estate was unreasonably prolonged. Eecognizing that the state court has approved the procedure followed here, and that the tax laws do not condition recognition of the estate as a separate tax entity upon adoption of the fastest means possible to settle the estate, we are nonetheless faced with the extreme situation in which an estate, after assuming an obligation to its beneficiaries which enabled the estate to purchase a home for the beneficiaries, and although distributing substantial amounts of income over a number of years to the creditor-beneficiaries, failed to apply any of the amounts distributed to the satisfaction of the indebtedness, or to adopt any of several other obvious and nononerous alternatives to discharge the indebtedness. The reasonableness of ever holding an estate open beyond the period required for the performance of the conventional tasks of administration in order to avoid sacrificing closely-held corporate stock to satisfy an indebtedness which is owed to the beneficiaries of the estate and which was assumed after the death of the decedent and for the immediate benefit of the beneficiaries, is at best questionable. But even assuming that this may be reasonable in some circumstances, certainly prompt steps are required under the regulations to satisfy such an indebtedness when arrangements are available which would not necessitate a sacrifice of the stock or any other perceptible disadvantage to the estate. Otherwise, I see no reason why any estate holding unsaleable assets could not be held open indefinitely merely by the expedient of borrowing from its beneficiaries and failing to discharge the debt, and by obtaining the acquiescence of the probate court. In short, in the circumstances of this case, it seems to me that the Commissioner could hardly have reached any conclusion other than the one which this court now holds to have been erroneous.

Jones, Chief Judge, joins in the dissent.

FINDINGS OF FACT

The court, having considered the evidence, the report of Trial Commissioner Robert K. McConnaughey, and the briefs and argument of counsel, makes findings of fact as follows:

1. (a) Plaintiff, Nell W. Carson, a resident of St. Peters-burg, Florida, is the widow of John F. Carson who died December 8, 1938.

(b) John F. Carson, in 1904, had founded the Coca-Cola Bottling Works of Evansville, Indiana, hereafter called the Bottling Works. Immediately before Ms death he was its president.

(c) Louise Carson Bishop, referred to hereafter as Mrs. Bishop, is the daughter of plaintiff and John F. Carson, and the wife of Wallace Bishop, a witness in this case.

2. (a) John F. Carson left a will which was duly admitted to probate in the County Judges’ Court of Pinellas County, Florida, referred to hereafter as the Florida court.

(b) Under the will, the residuary estate was left in trust. Plaintiff was named trustee. The income was to be divided equally between the plaintiff and Mrs. Bishop. Other terms of the trust are summarized in finding 38.

3. On December 22, 1938, the plaintiff qualified as executrix of her husband’s estate.

4. On the records of the Florida court, the estate was closed December 31, 1956, 18 years after the decedent’s death.

5. The plaintiff here seeks recovery of $68,157.78, consisting of $57,781 of tax and $10,376.78 of interest which she paid March 19,1958, in respect of payments of $17,160 made to her by the Bottling Works in each of the years 1952 through 1956. She contends that such payments were gifts and, as such, should have been excluded from her gross income, whereas the Government contends that they were not gifts within the meaning of the applicable provisions of the Internal Bevenue Code and were properly taxed as ordinary income.

The facts primarily pertinent to tMs issue are stated in findings 7 through 36.

6. The defendant, by a counterclaim, seeks a judgment for $49,717.05 with interest, based on a notice, issued to the plaintiff June 19, 1959, of deficiencies for the years 1952, 1954, 1955, and 1956 which were assessed on October 26, 1959, as follows:

These deficiencies were based on a determination by the Commissioner of Internal Revenue not only that the $17,160 plaintiff received from the Bottling Works was income that should be taxed to the plaintiff but also that the estate of John F. Carson, which was formally closed December 31, 1956, should be treated as having been closed not later than December 31, 1946, and that one-half the net income of the estate thereafter, including that for the years 1952 through 1956, should be treated as distributable to the plaintiff, thereby increasing her income during such years as follows:

1952_ $16,623.83
1954_ 15, 350.04
1955_ 13,115.66
1956_ 8, 805.90

The facts primarily pertinent to this issue are stated in findings 37 through 77.

Facts Primarily Perti/nent to the Plaintiff's Affirmative Claim

7. (a) John F. Carson was the founder of the Bottling Works. It was formed originally as a corporation in 1904 under the laws of Tennessee. It was reorganized in 1933 under the laws of Indiana with an authorized capital stock of 35 shares. The stock was split 160 for 1 in 1939.

(b) John F. Carson also founded the Paducah Coca-Cola Bottling Co. of Paducah, Kentucky. He was one of the founders of the Washington Coca-Cola Bottling Co. of Washington, Indiana and was associated with the Cola-Cola Bottling Co. of Hopkinsville, Kentucky when its plant commenced operations. At his death, he was also a stockholder and officer of the Coca-Cola Bottling Co. of Bloomington, Illinois.

8. Coca-Cola was not widely known in 1904, when John F. Carson founded the Bottling Works. He and his brother, Luther, initially acquired bottling rights for Evansville and Paducah from Mr. B. F. Thomas who, with two associates, had conceived the idea of bottling Coca-Cola, had obtained the bottling rights in the United States, except for one state, and had set up so-called “parent bottlers.”

The parent bottlers supply Coca-Cola syrup to all Coca-Cola bottling companies (now approximately 1,100) which are referred to as “first line bottlers.” The Bottling Works is one of these. It obtains Coca-Cola syrup by ordering it from the Chattanooga parent bottler which, in turn, orders it from the Coca-Cola Company in Atlanta. The Coca-Cola Company in Atlanta ships the syrup directly to the Bottling Works. The Bottling Works puts 1 ounce of syrup and 5 and 1/2 ounces of carbonated water into each bottle and sells the resulting bottled product to local dealers.

9.Over the years between 1904 and 1938, John F. Carson devoted his talents and energies to the enterprise described in finding 8 to such extent as was necessary to result in its becoming a very successful business by the time of his death. The following tabulation shows the results of its operations from 1934 through 1938:

10. John F. Carson’s salary of $18,000 for 1938 was paid in full. There was no agreement, written or otherwise, obligating the Bottling Works to pay to the plaintiff, or to John F. Carson’s estate, any compensation other than Mr. Carson’s salary up to the date of his death.

11. John F. Carson’s estate was a large one. On the estate tax return, the gross estate was reported as $942,595.47, debts were reported as $54,033.56, and somewhat over $71,000 of additional deductions were shown on Schedule O of the return. The value of the gross estate was finally determined to be $1,407,180.59. The following shares, notes, and claims relating to Coca-Cola bottling companies were among the assets in the estate:

Value as of December 8, 1988
100 shares of Paducah Coca-Cola Bottling Co-$300,363.00
Salary due from Paducah Coca-Cola Bottling Co- 247.50
374 shares of Bloomington Coca-Cola Bottling Co__ 61, 006. 88
Salary due from Bloomington Coca-Cola Bottling Co_ 500. 00
Notes due from Bloomington Coca-Cola Bottling Co— 21,000. 00
13 shares of Coca-Cola Bottling Works of Evansville, Ind_ 673,121.80
Salary due from Coca-Cola Bottling Works of Evansville, Ind_ 6,936. 74

12. A meeting of the directors of the Bottling Works was held on December 29, 1938, 3 weeks after John F. Carson’s death. Two directors, Luther Carson and Lester B. McCool (who had been associated with the Bottling Works since 1923) were present.

The minutes of the 1938 meeting disclose that Luther Carson was elected president, at an annual salary of $18,000, plaintiff was elected vice president, at an annual salary of $15,000, and Lester B. McCool was elected secretary-treasurer, at a salary of $16,000 a year.

The minutes also show that the following resolution was adopted:

* * * Salary to be paid to Nellie W. Carson in 1939 or in any later year is in recognition of services rendered by her husband John F. Carson deceased in 1938.

13. According to the evidence in the record, the plaintiff was not consulted before the 1938 directors meeting and no one requested the directors to elect her as vice president.

14. The plaintiff was reelected vice president of the Bottling Works each year after 1938 through 1956.

15. According to the corporate minutes, plaintiff’s salary was specified as $15,000 for 1940, $13,200 for each of the years from 1941 through 1948, and $17,160 for each of the years from 1949 through 1952.

16. The minutes of the directors meetings held in 1952, and of each year thereafter through 1955, do not state that plaintiff would be paid a salary. Instead, they state that the following resolution was adopted:

Resolved: that as in past years, in behalf of the stockholders of this corporation, a gift of $17,160.00 be voted to Nellie W. Carson.

The amounts authorized to be paid to the plaintiff, as stated in finding 15, had not been referred to in the minutes as a gift before the initial enactment of this resolution in 1952.

This change in the phraseology of the resolutions authorizing the payments occurred as a result of a suggestion of tax advisors of the Bottling Works after an interchange of views with representatives of the Internal Revenue Service concerning the manner in which the Bottling Works should treat such payments for tax purposes. The directors who testified stated that the purpose of the change was to state, more clearly than the previous resolutions did, the intention with which they authorized the payments throughout.

17. In each of the years from 1939 through 1956, the Bottling Works paid to the plaintiff the amounts specified in the minutes, as stated in findings 15 and 16.

18. The payments made by the Bottling Works to the plaintiff during each of the years 1952 through 1956 were shown as an expense on the company’s books, but, as stated in finding 19, were not deducted from income in the Bottling-Works’ Federal income tax returns for those years.

19. (a) On its original returns for 1939 and 1940, the Bottling Works did not claim a deduction for the salary paid to the plaintiff. On amended returns filed for those years, however, the deduction for salaries is $15,000 more than the amount claimed on each original return. A deduction for the amounts paid the plaintiff was also claimed on the 1941 return but not on the return filed for 1942.

(b) On May 23,1946, the Bottling Works entered into an agreement with the Commissioner of Internal Revenue for the settlement of its tax liabilities for 1941 and 1943. As part of the settlement, the Bottling Works agreed as follows:

That in the determination of its Federal tax liability for any taxable year or period beginning subsequent to December 31, 1942, it will not claim or contend, and hereby renounces any claim already made, that it is entitled to deduct from gross income of any of said taxable years any payments made to or on behalf of Mrs. Nellie B. Carson, the widow of its deceased president, John F. Carson, said payments being made to compensate, allegedly, the said Mrs. Nellie B. Carson for services rendered to it by the said John F. Carson prior to his death in the year 1938; * * *

As part of the settlement, the Commissioner of Internal Revenue allowed deductions for the years 1939 through 1942 for amounts paid to the plaintiff. In accordance with the agreement, however, the Bottling Works made no claim for a deduction in respect of the payments made to the plaintiff for the years 1943 through 1956.

20. During each of the years 1939 through 1951, the board of directors of the Bottling Works consisted of three persons, Luther Carson, the plaintiff, and Lester R. McCool.

During each of the years 1952 through 1956, the board consisted of five persons, the three just mentioned, Wallace Bishop, the plaintiff’s son-in-law, and William Carson, a nephew of John and Luther Carson.

21. The plaintiff attended most of the directors meetings held from 1939 through 1956 and, when she attended, she voted for the annual payments to be made to her. She was not present, however, at the 1938 meeting when the first of such payments was authorized.

22. (a) Beyond her attendance at and participation in directors meetings, the plaintiff rendered no other services to the Bottling Works.

(b) It is apparent from the whole record that no one connected with the Bottling Works ever intended or expected that the plaintiff would perform the duties of the office of vice president or render any other services to the company.

23. During the years 1937 through 1956, the stock of the Bottling Works was held as shown in table I, which appears on page 8.

24. As shown in table I, plaintiff did not own any stock in the Bottling Works individually during the years from 1939 through 1956. She did, however, during those years, hold and vote, as trustee, the shares of the Bottling Works (varying between 2,080 and 2,070 shares) shown in table I to be held by her as trustee under the will.

25. (a) There is no evidence that during any of the years 1939 through 1956 the plaintiff was in need, in the sense that she lacked adequate funds to satisfy the basic material necessities of living.

(b) The relationship between the plaintiff’s resources and her financial commitments during those years is not apparent in detail from this record.

(c) On her tax returns for the years 1952 through 1956, the plaintiff reported taxable income between $38,000 and $48,371.32.

(d) Part of the funds available to the plaintiff for each of the years 1952 through 1956, which she reported as taxable income, consisted of payments in varying amounts made to her, nominally as salary, by other Coca-Cola Bottling companies in which her husband had been interested, of which she was a stockholder and nominally an officer, and for which she performed no services. She reported the amounts received from other Coca-Cola Bottling companies as taxable income. This record does not contain sufficient evidence concerning the details of these arrangements with other companies to afford a basis for a specific comparison between them and the arrangements with the Bottling Works in question here.

26.The articles of incorporation and the bylaws of the Bottling Works neither expressly authorize nor expressly prohibit gifts to officers or stockholders.

27.During the years 1952 through 1956, the Bottling Works declared the following dividends:

Tears Dividends
1952_ $168,000
1953_ 168,000
1954_ 128,800
1955_ 128,800
1956_ 128, 800

28. The same amount of dividends per share was declared and paid by the Bottling Works to all its stockholders. The plaintiff was not then a stockholder individually and none of the dividends declared was paid to her as an individual. As trustee under the will of John F. Carson, which held stock in the Bottling Works, she received the same dividends per share that all other stockholders received.

29. On the last day of each of the years 1951 through 1956, the Bottling Works had earned surplus and undivided profits as follows:

Tear Amount
1951_ $288,823.37
1952_ 310,758. 83
1953_ 331,160.37
1954_ 346, 067.60
1955_ 342, 957.14
1956_ 323, 641.50

30.(a) Lester B. McCool who was a director of the Bottling Works from 1938 through 1956, and Wallace Bishop and William Carson, each of whom was a director from 1952 through 1956, testified concerning the motives that actuated them in voting for the payments made to the plaintiff.

(b) McCool and William Carson, though indicating friendship or affection for the plaintiff, both testified that they did not vote for the annual payments to her because of their friendly or affectionate regard for her.

(c) McCool, Bishop, and William Carson each testified that he would not have voted for the payments made to the plaintiff if her husband had not rendered any services to the Bottling Works. McCool added, “This was in honor of him.” William Carson several times indicated that his intention was to authorize payments to Mrs. Carson “in memory of” her deceased husband. Bishop referred to the payments as “in memory of” the plaintiff’s husband and as “in appreciation for his services.”

(d) McCool, Bishop, and William Carson each testified that in voting for the payments to the plaintiff it was his intention that the payments should be “a gift.” None of these witnesses elaborated his definition of the word “gift,” as he used it in his testimony, in relation to its meaning as used in the Internal Eevenue laws.

31. (a) On the basis of the whole of the evidence in this record, the plaintiff’s initial election as a vice president of the Bottling Works in 1938 at a salary of $15,000 appears to have been motivated primarily by a purpose on the part of the two directors present to take some tangible action “in honor of” the founder of the Bottling Works, then only recently deceased.

(b) The impulse, following closely on the death of a person whose activities have been deemed important by his associates, to do something tangible in his memory is a well-known phenomenon. Its manifestations take many and varied forms, ranging from floral tributes, brass plates, and other types of monuments, to appropriations of money, which in some cases may be paid as a single donation to aid in study of the cause of the decedent’s death, or for some other philanthropic purpose, or in others, may be paid over an extended period to sustain any of various activities regarded as worthy and appropriate to reflect the esteem in which the decedent was held by those who provide the memorial funds, and to perpetuate his memory. Such manifestations also include, not uncommonly, the election of the decedent’s widow, either nominally or actively, to the office her husband had held or a similar office.

(c) The record contains no evidence that consideration was given to means of honoring the memory of the deceased founder of the Bottling Works other than by making the payments to his widow described in these findings. Nor is there evidence as to how the amount to be paid to the plaintiff was determined. It is apparent from the whole record, however, that the initial decision to make such payments, rather than to expend corporate funds on some memorial objective extraneous to the family, took some account of the fact that, as a result of the payment to the plaintiff of an amount of corporate funds approximately equal to five-sixths of the decedent’s former salary, which otherwise she would not receive, the plaintiff would be aided, fro tanto, toward maintaining a living standard comparable with that to which she had become accustomed during his lifetime. A normal, reasonable inference that consideration was given to the practical appropriateness of the memorial chosen is buttressed by the fact that generally similar arrangements were made by other bottling companies in which John F. Carson had been active, and that the aggregate of the payments made to the plaintiff pursuant to such arrangements, coupled with amounts paid to her as income by the estate of John F. Carson, constituted a substantial portion of the funds that became available to her each year after her husband’s death until his estate was distributed.

(d) The initial payment made to the plaintiff nominally as salary was intended by the directors who voted for it as a “gift” in the limited sense that it was:

(i) unaccompanied by any related intention or expectation that the plaintiff would perform the duties of the office of vice president or render any other services to the Bottling Works,
(ii) not motivated by any moral or legal.duty to pay additional compensation for services previously rendered by John F. Carson,
(iii) not motivated by any anticipation of economic benefit to the Bottling Works.

(e) The initial payment made to the plaintiff was not authorized:

(i) as an act of charity, or
(ii) by reason of affection or respect for the plaintiff (although these feelings toward the plaintiff were not lacking).

(f) There is no direct evidence in the record that tax consequences of the making of the first payment or of the form or manner in which it was authorized substantially affected the initial decision to make such a payment.

32. Insofar as appears from the evidence in this record, plaintiff’s subsequent reelection as vice president of the Bottling Works each year between 1939 and 1956 and the annual authorization of a payment to be made to her during each of such years occurred largely as a matter of formal corporate custom within this closely held family company, without any critical or analytical reevaluation by the directors of the reasons why these actions were taken. Accordingly, the record affords no basis for finding that the motives that led to the making of the later payments differed in kind from those that led to the making of the first one, or that the initial memorial motive was diluted by the passage of time, in relation to the motivating force of other considerations that may have contributed to the initial decision to make these payments to the plaintiff out of corporate funds. It is, however, apparent from the record that consideration of tax consequences motivated the 1952 change in the form of the resolution authorizing the payments.

33. A determination whether the payments made to the plaintiff by the Bottling Works during the years 1952 through 1956 were, within the meaning of the Internal Revenue laws, excludable from her income during those years as gifts appears to require decision of questions of law concerning the interpretation of those laws and their application to the facts found on the basis of this record which cannot be made solely as a finding of fact. Accordingly, no such finding is attempted in this report.

34. For the years 1952 to 1956, inclusive, plaintiff filed timely income tax returns on form 1040, and paid the tax shown to be due thereon. She did not include in said returns the $17,160 paid to her by the Bottling Works in each of said years.

35. On audit of the returns for 1952 through 1956, the Revenue Service treated the $17,160 received by the plaintiff from the Bottling Works each year as ordinary income. Deficiencies were assessed as follows:

These deficiencies were satisfied by a payment of $68,157.78 on March 19, 1958.

36.On May 7, 1958, plaintiff filed timely claims for refund for each of said years for the additional taxes and interest so assessed and collected on the ground that the said sum of $17,160 was paid to her each year as a gift.

Findings Primarily Pertinent to the Defendant's 0 ovnterdaim

37. The Florida court is a court of record having jurisdiction of the settlement of estates of decedents and minors, to take probate of wills, to grant letters testamentary and administration and guardianship and to discharge the duties usually pertaining to courts of probate.

38. John F. Carson’s will gave the residue of his estate, after payment of debts and specific legacies, in trust to the plaintiff as trustee with broad powers to manage the trust estate and subject to the following provisions, among others:

f) The Trustee shall pay over the income from the trust estate to the beneficiary or beneficiaries entitled thereto in quarterly instalments.
g) The Trustee shall pay out of the income from the trust estate all expenses incidental to the operation and maintenance of our home such as food, supplies, servants, insurance, taxes, and general upkeep. The net income is to be then divided equally, share and share alike, between my daughter, Louise Carson and my wife, Nellie W. Carson who are the beneficiaries under the trust estate.
h) It is my intention and will, and I hereby devise and bequeath to my daughter, Louise Carson, all of my estate remaining at the termination of this trust as herein created to have and to hold the same in fee simple absolutely, and to so vest in her upon the death of my wife, Nellie W. Carson. Should, however, my said daughter, Louise Carson, depart this life prior to my death, or prior to the death of her mother, then it is my will that this trust herein created shall terminate and I will, bequeath and devise all of my property of every kind and description of which I ¡may die seized, and all of said property remaining in said trust to my wife, Nellie W. Carson, to have and to hold the same absolutely in fee simple.
i) The Trustee is not at any time to pledge any of the trust estate as security for any one person, endorse any notes, nor make any donations, charitable or otherwise, without consent of the other beneficiary, my daughter, Louise Carson.

39. About three-quarters of the value of the assets in John F. Carson’s estate was represented by stock of the Bottling Works, the Paducab and Bloomington Bottling companies (referred to in finding 7(b)) and tlie Southern Brewing Company. All were closely held corporations.

40. At the time of his death on December 22, 1938, John F. Carson and the plaintiff were residing at 706 Eighteenth Avenue, Northeast, St. Petersburg, Florida.

41. Early in 1939, the estate bought a home in St. Peters-burg known as Snell Island, for use by the plaintiff and her daugher. During 1939 and 1940, the estate extensively remodeled Snell Island. The total cost of Snell Island, including the remodeling, was $148,886.67 and was paid in cash by the estate. The property was never mortgaged.

42. On December 7, 1939, the estate paid $21,155.10 as Florida inheritance and estate tax.

43. On February 2,1940, the estate filed its Federal estate tax return reporting a gross estate valued, as of December 8, 1938, at $942,595.47 and a tax due thereon of $123,026.99, which was paid.

44. On January 18,1943, a notice of deficiency was mailed by the Commissioner of Internal Revenue to the plaintiff as executrix, determining a deficiency in Federal estate tax of $294,935.71.

45. On April 8,1943, plaintiff, as executrix, filed with the Tax Court a petition for redetermination of the deficiency of $294,935.71.

46. In May 1943, a deficiency in Federal estate tax of $60,000, with interest of $11,095.89, was assessed and was satisfied by the estate by a payment of $60,000 on April 7, 1943, and a payment of $11,095.89 on May 24, 1943.

47. On March 25, 1946, the estate paid $21,493.39 in additional Florida inheritance and estate tax and, on March 30, 1946, paid $8,120.76 to the state of Florida as interest on the additional tax.

48. On March 21,1946, the estate paid additional Federal estate tax of $40,000 and, on November 20, 1946, paid $14,485.48 in interest on the Federal estate tax.

49. By December 31,1946, the estate’s obligations for Federal and state inheritance and estate taxes were satisfied. There remained unpaid certain current administrative expenses and obligations, totaling $111,142.01, payable by the estate to the plaintiff, Mrs. Bishop, and the Florida National Bank.

50l. On January 15, 1947, a bank account was opened by the plaintiff in the name of “Nellie W. Carson, as Trustee under the will of J ohn F. Carson, Deceased” (hereafter called the Trustee Account) with a deposit of $60,000 which had been withdrawn from a bank account in the name of “Est. of John F. Carson, Deceased” (hereafter called the Estate Account). The balance of the Estate Account was thereby reduced to $5,922.04. Jerry Wilbur, plaintiff’s brother, who was in charge of plaintiff’s books and those of the estate, understood at that time that, the estate tax having been paid, it was proper to close the estate.

51. Between January 15 and February 24, 1947, checks were drawn on the Trustee Account described in finding 50 as if the estate had been closed. One of these checks, for $10,084.61, was the final payment of the fee of Sam Mann, attorney for the estate, and was recorded, as of January 31, on the ledger previously used for the estate as “Estate & Admins. Expense.”

52. On February 24, 1947, $45,000 was withdrawn from the newly established Trustee Account and deposited in the Estate Account. The balance of the Trustee Account was thereby reduced to $1,334.75. Jerry Wilbur testified that this shift of funds back to the Trustee Account was made after Mr. Mann “advised that it was improper to close the estate without getting the permission of the Florida court.”

53. No petition was filed to close the estate at that time, or until 1956. Instead, on March 24, 1947, the plaintiff, as executrix of the estate, petitioned the Florida court for instructions. The text of the petition is as follows:

PETITION FOR INSTRUCTIONS
Comes Nellie W. Carson as Executrix of the Estate of John F. Carson, deceased, and states and reports to the Court that a final agreement was reached recently with the Internal Revenue Bureau resulting in the payment of approximately One Hundred Forty Thousand Dollars ($140,000.00) of additional estate taxes which makes the total expenses, including all taxes, interest, fees, etc., which have been paid, approximately Three Hundred Forty Thousand Dollars ($340,000.00); that in order to make payment of these expenses and especially the estate taxes, it has been necessary for your Executrix, under the power given in the Will of the Testator, to borrow One Hundred Eight Thousand, One Hundred Forty-two Dollars and One Cent ($108,-142.01) and your Executrix has issued notes as follows:
1. Mrs. Nellie W. Carson_$81,273. 64
2. Louise Carson Bishop_ 11,868.37
3. Florida National Bank_ 15,000.00
108,142.01
Your Executrix further states that as shown by the inventory substantially all of the assets of the estate are in stocks of four closely owned corporations: Southern Brewing Company, Tampa, Florida; Evansville Coca-Cola Bottling Company', Evansville, Indiana; Paducah Coca-Cola Bottling Company, Paducah, Kentucky; Bloomington Coca-Cola Bottling Company, Blooming-ton, Illinois; that these stocks all pay excellent dividends so that your Executrix does not feel that any of the assets of the estate should be sold in order to repay this indebtedness as it can be paid gradually out of the income of the estate, thus resulting in no sacrifice of valuable assets; that such a program would require that the estate remain open so that this Court should instruct your Petitioner as to what program to carry out.
Wherefore, your Petitioner prays for instructions as to the course to pursue in repaying the indebtedness of the estate as above outlined.

54. On the same day, March 24, 1947, the Florida court issued the following order:

On this day is presented to the Court the petition for instructions filed by NELLIE W. CARSON, as Executrix of the Estate of John F. Carson, deceased, and upon consideration of the said petition and the files of the estate, the Court finds that approximately Two Hundred Seventy-Five Thousand Dollars ($275,000.00) has been paid in estate taxes and that with other expenses, the total paid out by the Executrix has been Three Hundred Thirty-Nine Thousand Two Hundred Ninety-Seven Dollars and Ninety-Nine Cents ($339,297.99) up to this date; that because of this large expenditure, it has been necessary for the Executrix to borrow One Hundred Eight Thousand One Hundred Forty-Two Dollars and One Cents ($108,142.01); that the file shows that substantially. all of the assets of the estate are in closely held corporations and that in the judgment of the Executrix these stocks should not be sold but retained for the residuary legatees; that the estate has a large income out of which this indebtedness can be paid resulting in the saving of the assets of the estate from sales at a sacrifice.
It is therefore considered, adjudged and ordered that the Executrix may carry out the program of paying the indebtedness of the estate, including the amount borrowed for the payment of estate taxes from the income of the estate until further orders of this Court and that the estate remain open and further reports made from time to time to the Court of the progress of the Executrix in paying the indebtedness above described.

55. (a) For the most part, the loans referred to in the petition to the Florida court were made in 1939 and 1940. During those years, in addition to spending $148,886.67 on the Snell Island home (finding 41), the estate paid $21,155.10 as Florida inheritance and estate tax (finding 42), and $123,-026.99 as Federal estate tax (finding 43).

(b) As of December 31, 1940, the estate was indebted to plaintiff for $89,353.64, to Mrs. Bishop for $89,353.64, and to Luther Carson for $25,000. These early borrowings did not conform to a consistent pattern. Some of the loans were evidenced by demand notes, including, in the case of a loan or loans from the plaintiff on July 17,1939, two demand notes of the same date, one for $60,000, the other for $60,000.35, at different rates of interest. For two of the loans from Mrs. Bishop in 1940 and one in 1939 from Luther Carson, the plaintiff produced no notes.

(c) $71,095.89 of additional estate taxes including interest was paid by the estate in 1943 without additional borrowing. In 1946, the estate paid an aggregate amount of $84,099.63 as taxes and interest to the Federal and state taxing authorities. These payments were accompanied by an increase in indebtedness of the estate in 1946 of $6,181.89.

56. (a) In February 1949, the plaintiff filed her first report to the Florida court, stating that the indebtedness of $108,142.01, described in the original petition for instructions, had been reduced by $30,000, that to February 15,1949, the estate had paid $5,205.85 in interest, and that the remaining indebtedness was $78,142.01, represented by three notes, as follows:

1. To Nellie W. Carson_$30, 715.15
2. To Louise Carson Bishop_ 32,436. 66
3. To Florida National Bank at St. Petersburg, Florida_ 15,000.00

The plaintiff stated in the report that the inventory of the estate remained unchanged, that good dividends were being paid by all of the stock, and that the plaintiff, as executrix, felt that none of the assets should be sold to pay the indebtedness but, as good business policy, she should continue to collect the income and use surplus income to pay off the indebtedness. The report concluded with a prayer for permission to continue the policy of paying the indebtedness of the estate from income.

(b) On February 23, 1949, the Florida court ordered that the instructions given in its order of March 24, 1947, be continued and that, until further order of the court, the executrix “may continue to carry out the program of paying the indebtedness of the estate from income.”

57. (a) Beginning in 1950, the income of the estate from dividends of the several Coca-Cola bottling companies began to decline, in part, because of expenditures by those companies in modernizing their procedures and equipment. Payments in reduction of the estate’s indebtedness were curtailed and, in May 1951, plaintiff, as executrix, reported to the Florida court that the estate had been unable to reduce the indebtedness from approximately the amount shown in the February 1949 report described in finding 56. In this report the plaintiff asked the Florida court to approve the sale of 300 shares of Coca-Cola Company stock and the application of the proceeds in reduction of the estate’s indebtedness.

(b) On May 9, 1951, the Florida court authorized the plaintiff, as executrix, to sell the 300 shares of Coca-Cola Company stock at the market price on the date of sale and directed that she continue, until further order of the court, to carry out the program, previously established, of paying the balance of the estate’s indebtedness out of income.

(c) In May 1951, the plaintiff, as executrix, sold the 300 shares of Coca-Cola Company stock to herself and Mrs. Bishop for a total amount of $34,605. This purchase price was paid by reducing the estate’s indebtedness to them by $34,605.

58. (a) In September or October of 1953, the plaintiff filed a further report and petition for instructions with the Florida court which stated that the estate’s indebtedness had been reduced to $31,710.50 and requested the court’s permission to continue its policy of paying the indebtedness as and when funds were available from income.

(b) On October 14, 1953, the Florida court issued an order authorizing and directing the plaintiff, as executrix, to continue to carry out the previously inaugurated program “by paying the balance of the indebtedness of the estate from income or such other funds as may come into the estate and to report her further proceedings.”

59. (a) In October 1955, the plaintiff, as executrix, filed a further, similar report showing a reduction of the estate’s indebtedness to $21,365.28, represented by three notes as follows:

To Nellie W. Carson_$3,409. 74
To Louise C. Bishop_ 3, 760.54
To the Florida National Bank at St. Petersburg, Florida _,._14,195.00

and requesting permission to continue the policy previously described of paying the indebtedness as and when the funds were available from income.

(b) On October 19, 1955, the court issued another order similar to that described in finding 58 (b).

60. In 1956 the International Brewing Company offered approximately $3 per share for the stock of the Southern Brewing Company, of which the estate had about forty thousand shares originally bought by John F. Carson at $1 per share. These shares were valued on the estate’s tax return at about 50 cents a share. The International Brewing Company offer was accepted, the estate’s shares of the Southern Brewing Company were sold for approximately $122,000, and promptly thereafter the remaining debts were paid and the estate was closed.

61. During the entire period while the estate was being administered, its assets were worth more than $1,000,000.

62. (a) The distributions of income, hereafter listed in this finding in table II, were made to the plaintiff and to Mrs. Bishop during the administration of the estate. In each case the distribution was made pursuant to an order issued by the Florida court in response to a petition filed by the plaintiff, as executrix.

Table XI. — Distributions of income by the estate

(b) Of the total of $502,000 listed in finding 62(a), $95,000 or more was distributed between 1989 and 1946 in equal shares to the plaintiff and Mrs. Bishop. No reason is apparent from this record why these amounts could not have been treated as reductions of the estate’s indebtedness to the plaintiff and to Mrs. Bishop rather than as distributions of income, if the plaintiff had chosen to so treat them and had procured the Florida court’s approval of that alternative course.

63.This record discloses no reason why the estate’s indebtedness of $15,000 to the Florida National Bank of St. Petersburg, as of December 31, 1946, could not have been satisfied then by application to that purpose of $15,000 of $82,681.86 tben beld by tlie estate in cash, bank deposits, and Government bonds, if the plaintiff had chosen that course and had procured the Florida court’s approval.

64. The estate never filed an inventory of its assets with the Florida court.

65. No one ever filed any objection to any of the petitions filed by the estate with the Florida court.

66. At any time between December 31, 1946, and 1956, the estate had sufficient resources to satisfy its indebtedness by any of various arrangements or combinations of arrangements for:

(a) transfer of assets to the plaintiff and Mrs. Bishop in satisfaction or reduction of the estate’s indebtedness to them,

(b) use of the funds distributed to them as income, instead, as a means of reducing the estate’s indebtedness to them, and

(c) use of cash and Government bonds belonging to the estate to reduce or satisfy the estate’s indebtedness.

67. In the years 1947 through 1951, plaintiff, as executrix, distributed to herself and Mrs. Bishop a total of $235,000. During this same period the estate borrowed a total of $40,000 from the plaintiff and Mrs. Bishop and made a net reduction in its indebtedness of $69,62'8.51, from $111,142.01 to $41,513.50.

68. As of December 31, 1951, the estate had $74,132.44 in cash, bank deposits, and Government bonds, and its indebtedness was $41,513.50. During that year, plaintiff, as executrix, had distributed a total of $44,000 to herself as an individual and Mrs. Bishop.

69. On August 1, 1955, the estate owed the plaintiff $8,409.74. On that day, the estate issued a check for $10,000 to plaintiff. Instead of treating $8,409.74 of the $10,000 as in full payment of the estate’s debt to plaintiff, only $5,000 was treated as a payment against the indebtedness and $5,000 was treated as a loan by the estate to the plaintiff. On November 9, 1955, the plaintiff paid $5,000 to the estate in satisfaction of her loan of August 1, 1955.

70. On the last day of each of the years between 1946 and 1956, the estate had total cash, bank deposits, and Government bonds in the amounts shown in column 2 of the table immediately below and on December 1 of each such year, had checkbook balances as shown in column 1 of this table:

71. The estate borrowed funds and repaid it as shown in table III which appears hi finding 75. During the years 1941 through 1956, the estate paid the expenses of operating and maintaining the home known as Snell Island which was occupied by plaintiff and her daughter. These expenses for 1952 through 1956 are summarized below in lines 3-5 of the table included in finding 74(a).

72. For the years 1951 to 1956, inclusive, the estate of John F. Carson filed fiduciary income tax returns showing the following amounts due as income tax, which were paid in each case during the succeeding year:

year Net tax
1951_$21,982.28
1952_ 15,779. 93
1953_ 17,656.31
1954_ 12,650. 04
1955_ 9,488.23
1956_ 25,358.15

73.During the years 1952 through 1956, the estate paid other taxes, fees, and interest as follows, all of which were claimed as deductions on the income tax return filed by the estate:

1952_$23, 528. 84
1953_ 20,100. 78
1954_ 18, 869. 01
1955_ 18, 965. 37
1956_ 26,239.85

74. (a) During the period 1952-1956, inclusive, the estate paid the following expenses:

(b) Included among the items described in finding 75(a) as general upkeep and yard are $431.50 in 1955 and $20 in each of the other years for cemetery and mausoleum expenses, $5,470 in 1954 for sea wall repairs at Snell Island, and varying amounts for furniture and appliances, carpeting, flowers, yard work, repairs, painting, hardware, iron gates, and lawn sprinklers. In addition the estate spent $200 on December 15,1954, for an automobile for one of the Snell Island servants, and $340.45 on December 2, 1952, and $257.94 on May 4,1953, for railroad tickets.

(c) Expenses of the estate were paid without specific approval in advance by the Florida court.

75. (a) The estate made no formal distribution of income during the years 1939 through 1942. The plaintiff reported on her tax returns for those years the following amounts as taxable income from the estate:

1939 _$4,650.00
1940 _ 9,836.33
1941 _12,189.80
1942 _ 6,111.00

It appears from the estate’s books of account that the items composing these amounts were largely expenses connected with the Snell Island property, although they were recorded under a heading “Distrib. to Beneficiaries.”

(b) From 1943 through 1956, the plaintiff reported as income from the estate only the amounts formally distributed to her as indicated in finding 62(a), and did not report as income to her amounts paid by the estate to cover expenses of operation of the Snell Island home.

76. (a) The plaintiff filed her petition in this court seeking a refund of income taxes for the years 1952-1956, inclusive, on June 5, 1959. This suit was based on the Commissioner’s refusal to treat the payments of $17,160 made to plaintiff in each of those years by the Bottling Works as nontaxable gifts.

(b) On June 19, 1959, the Commissioner of Internal Revenue mailed to the plaintiff a statutory notice of deficiencies for the years 1952, 1954, 1955, and 1956, described in finding 6.

(c) On October 2, 1959, before filing its answer, the defendant moved the court for stay of proceedings as provided by section 7422(e) of the Internal Revenue Code of 1954. Defendant’s motion was allowed.

(d) On November 23, 1959, more than 150 days after the mailing of the statutory notice of deficiencies on June 19, 1959, the defendant filed its counterclaim in the instant suit with respect to this issue.

This counterclaim was authorized by the Commissioner of Internal Revenue and filed under the direction of the Attorney General.

77. (a) About three-quarters of the value of the estate of John F. Carson was represented by stock in closely held Coca-Cola bottling corporations in which the plaintiff and Mrs. Bishop, as residuary beneficiaries under the will, wished to retain their interest.

(b) Asa means of meeting its estate tax and inheritance tax liabilities without disposing of such securities, the estate borrowed substantial amounts of money before December 31,1946. On that date, having satisfied all of its estate and inheritance tax obligations, it remained indebted to the plaintiff, Mrs. Bishop, and the Florida National Bank, in the aggregate amount of $111,142.01.

(c) The estate’s indebtedness could have been satisfied without disposing of the closely held securities referred to in paragraph (a) to persons other than the plaintiff and Mrs. Bishop by various alternative arrangements or combinations of arrangements such as:

(i) transfer of assets of the estate to the plaintiff and to Mrs. Bishop in satisfaction of the estate’s indebtedness to them;

(ii) use of some of the income of the estate that was distributed as income to the plaintiff and Mrs. Bishop, instead, to satisfy the estate’s indebtedness to them;

(iii) use of cash, bank deposits, and bonds available to the estate in making payments on the estate’s indebtedness;

(iv) avoidance or diminution of expenditures incurred by the estate in connection with the acquisition and maintenance of the Snell Island property, as a home for the plaintiff and Mrs. Bishop, or use of that property as a basis for credit to procure funds to pay the estate’s indebtedness.

(d) Instead of adopting any of the alternatives summarized in paragraph (c) of this finding, the plaintiff, with the approval of the Florida court, and in the absence of any objection by anyone, kept the estate open between 1946 and 1956, and carried out during that period a program, the several major steps of which were specifically approved by the Florida court, which consisted of:

(i) making periodic distributions of income of the estate to herself as an individual and to Mrs. Bishop ;

(ii) from time to time applying, in reduction of the estate’s indebtedness, amounts available as income to the estate that were not so distributed and were not required for expenses of administration or maintenance of the Snell Island home property, together with the proceeds of the sale to the plaintiff and Mrs. Bishop in 1951 of certain stock of the Coca-Cola Company, and

(iii) eventually, in 1956, satisfying the remaining balance of the estate’s indebtedness by application of proceeds of an advantageous sale to outside interests of the estate’s shares in Southern Brewing Company, whereupon the estate was promptly closed and its assets distributed.

(e) As a result of the program described in paragraph (d) of this finding, the aggregate income derived from the assets of the estate in the years 1952 through 1956 was divided three ways for tax purposes, whereas if the indebtedness had been satisfied and the estate closed before 1952, income derived during the years. 1952 through 1956 from assets that might then have been held in trust for plaintiff and Mrs. Bishop as a result of steps taken to achieve the earlier closing of the estate would have been divided two ways for tax purposes — half to the plaintiff and half to Mrs. Bishop. Assuming an equivalence of other factors, if the taxable income realized by the plaintiff and Mrs. Bishop from whatever assets they might have held during the years 1952 through 1956 as a result of an earlier closing of the estate would have equaled (or exceeded) the aggregate taxable income in fact realized by the estate, by the plaintiff, and by Mrs. Bishop from the assets actually held by the estate during such years, the aggregate amount of tax payable by the plaintiff and Mrs. Bishop in respect of such income would, because of the progressive rate of the income tax, have exceeded the aggregate tax payable by the estate, by the plaintiff, and by Mrs. Bishop on the income they did receive from the assets held by the estate during such years.

(f) Whether the assets that would have been held by the trust for plaintiff and Mrs. Bishop during the years 1952 through 1956 if the estate had been closed before 1952 would have been the same as those in fact held by the estate during those years, or would have produced an equal aggregate amount of income, is wholly conjectural and would depend, in part, on which, if any, of various alternative programs to achieve the earlier closing of the estate the plaintiff adopted and the Florida court approved and, in part, on other contingent factors that cannot be ascertained from this record. Accordingly, this record affords no basis for finding that, if the estate had been closed sooner than it was:

(i) the aggregate amount of income tax that would have been payable by the plaintiff and by Mrs. Bishop in respect of income they might have realized during the years 1952 through 1956 from assets that might have been distributed from the estate if it had been closed sooner than it was would have been greater than the aggregate amount payable by the estate, by the plaintiff and by Mrs. Bishop on income in fact realized from assets actually held by the estate during those years, or

(ii) plaintiff’s income tax during the years 1952 through 1956 would have been increased by an amount at least equal to the additional amount now claimed by the defendant, namely, the amount of tax payable by the plaintiff on half of the income actually realized by the estate from the assets it held during those years.

(g) The evidence does not show what consideration, if any, was given by the plaintiff to specific relative financial advantages or disadvantages, either taxwise or otherwise, as between the course she followed in the administration of the estate and possible alternative courses she might have followed, if the Florida court had approved, that could have led to an earlier closing of the estate.

(h) The evidence does not afiirmatively show any substantial business reason for plaintiff’s failure to adopt some combination of alternatives, such as those described in paragraph (c) of this finding, as means for terminating administration of the estate before 1952. On the other hand, a paramount objective of the program appears to have been to provide the plaintiff and Mrs. Bishop with income and living accommodations deemed suitable to their needs and the evidence does not dispel the possibility that reasons related to the personal circumstances of the beneficiaries did exist which might reasonably be found to justify the plaintiff’s adoption, and the Florida court’s approval, of the course followed. Nor does the evidence dispel the possibility that there may have been a mere inadvertent failure to recognize tbe expedients which the defendant now shows to have been available to facilitate an earlier closing of the estate. Indeed, when ample funds were obviously available as a result of the sale of the Southern Brewing Company stock, the estate was promptly closed.

(i) There is no direct evidence of a purpose to delay the distribution in order to avoid or evade payment of income taxes at a higher rate. Moreover, the record does not affirmatively show that higher aggregate income taxes would have been payable or could have been foreseen by the plaintiff as an inevitable consequence of an earlier closing of the estate.

(j) The fact that the plaintiff and her advisers either did not recognize or did not utilize all available means of hastening the closing of the estate does not create a necessary inference that plaintiff’s purpose in keeping the estate open was to avoid or evade the payment of income taxes at a higher rate which this record fails to show she would have had to pay if the estate had been closed sooner.

In these circumstances, it cannot be found that a purpose to avoid or diminish plaintiff’s income tax existed and dominated her administration of the estate.

CONCLUSION OP LAW

Upon the foregoing findings of fact which are made a part of the judgment herein, the court concludes as a matter of law that plaintiff is not entitled to recover, and her petition is dismissed. Defendant’s counterclaim, in its entirety, is also dismissed. 
      
       The estate also owed a relatively small amount to a bank which could easily have been satisfied at any time out of cash, bank deposits, or Govern, ment bonds held by the estate.
     
      
       Finding 77(h).
     
      
       Section 641|(a) of the 1954 Code provides that “[t]he taxes imposed by this chapter on individuals shall apply to the taxable income of estates * * * including * * * (3) income received by estates of deceased persons during the period of administration or settlement of the estate.” 26 U.S.C. § 641(a) (1958 ed.). The same provision under the 1939 Code was found in § 161(a), 26 U.S.C. § 161(a) (1952 ed.).
      The regulations under the! 1954 Code, slightly expanded but substantively unchanged from prior regulations, provided as follows:
      “§ 1.641 (b)-3 Termination of estates and trusts
      “(a) The income of an estate of a deceased person is that which is received by the estate during the period of administration or settlement. The period of administration or settlement is the period actually required by the administrator or executor to perform the ordinary duties of administration, such as the collection of assets and the payment of debts, taxes, legacies, and bequests, whether the period required is longer or shorter than the period specified under the applicable local law for the settlement of estates. For example, where an executor who is also named as trustee under a will fails to obtain his discharge as executor, the period of administration continues only until the duties of administration are complete and he actually assumes his duties as trustee, whether or not pursuant to a court order. However, the period of administration of an estate cannot be unduly prolonged. If the administration of an estate is unreasonably prolonged, the estate is considered terminated for Federal income tax purposes after the expiration of a reasonable period for the performance by the executor of all the duties of administration. Further, an estate will be considered as terminated when all the assets have been distributed except for a reasonable amount which is set aside in good faith for the payment of unascertained or contingent liabilities and expenses (not including a claim by a beneficiary in the capacity of beneficiary).
      * * $ # &
      “(d) If a trust or the administration or settlement of an estate is considered terminated under this section for Federal income tax purposes (as for instance, because administration has been unduly prolonged), the gross income, deductions, and credits of the estate or trust arq, subsequent to the termination, considered the gross income, deductions, and credits of the person or persons succeeding to the property of the estate or trust.”
      For a history of the early development of the Commissioner’s position on this matter, see Kennedy, Federal Income Taxation of Trusts & Estates § 5.19 (1948 & Supp. 1958.). The regulation in its present form has not only survived statutory reenactment, thus assuming much the force of law, see Helvering v. Winmill, 305 U.S. 79, 83 (1938), but also appears in relevant part in the Senate Report on the 1954 Code provisions. S. Rep. No. 1622, 83d Cong., 2d Sess. 340.
      Taxpayer does not challenge the validity of this regulation, but argues only that the administration of the estate was not unreasonably prolonged.
     
      
       Cases in which it has been held that the administration of an estate has been unreasonably prolonged despite conformity with state law include the following: Stewart v. Commissioner, 196 F. 2d 397 (C.A. 5, 1952) ; Chick v. Commissioner, 166 F. 2d 337 (C.A. 1, 1948), cert. denied, 334 U.S. 845 ; Williams v. Commissioner, 16 T.C. 893 (1951) ; Hargis v. Commissioner, 19 T.C. 842 (1953) ; LeFiell v. Commissioner, 19 T.C. 1162 (1953) ; Caratan v. Commissioner, 14 T.C. 934 (1950) ; Koffman v. United States, 300 F. 2d 176 (C.A. 6, 1962). See 6 Mertens, Federal Income Taxation § 36.47 (1957) ; Glassmoyer, Termination Problems of Estates & Trusts, N.Y.U. 17th Annual Institute on Federal Taxation 1227-29 (1959). Frederich v. Commissioner, 145 F. 2d 796 (C.A. 5, 1944), is surely the strongest ease to the contrary ; however, that decision has repeatedly been distinguished and is of questionable vitality even in the circuit from which it came. Compare Stewart v. Commissioner, supra; Brown v. Commissioner, 215 F. 2d 697 (C.A. 5, 1954). In any event it does not control here since the decision was premised, whether rightly or wrongly, on the assumption that the probate court had affirmatively ordered the administrator to keep the estate open, 145 F. 2d at 799. Here, the taxpayer requested permission not to close the estate, and the probate court merely granted the taxpayer’s request. (“It is therefore, considered, adjudged and ordered that the Executrix may carry out the program of paying the indebtedness of the estate * * * and that the estate remain open. * * *”) There is no reason to believe that the court would have refused to sanction the termination of the estate in 1947.
     
      
      
         There are now six parent bottlers In tie united States. Five are owned by the Coca-Cola Company. One, the Coca-Cola Bottling Company, Thomas, Incorporated, of Chattanooga, is independent.
     
      
       As appears in finding 11, a balance of $6,938.74 was due Mr. Carson as salary from the Bottling Worts at the time of his death. This appears to have been paid to his estate.
     
      
       From 1939 through 1948, Luther Carson continued to serve as president, at $18,000 a year, and Mo Cool as secretary-treasurer, at $16,000. For 1949, Luther Carson’s salary as president was raised to $23,400 and McCool’s salary as secretary-treasurer to $20,800. For the years 1954 through 1956, Luther Carson’s salary as president was $25,740. The Internal Revenue Service disallowed, as excessive compensation, $10,740 of the deduction of $25,740 claimed by the Bottling Works for Luther Carson’s salary for 1954, 1955, and 1956, and the company made no claim for refund.
     
      
       On April 6, 1944, the plaintiff, as executrix, had sold to herself as an individual for $11,800, 100 of the 400 shares of Coca-Cola Company stock originally held by the estate. The estate had also sold, in 1944, one share of the Bottling Works stock for $350 to Jerry Wilbur, plaintiff’s brother who, as her agent or manager, had charge of her books and records and tax returns. In 1950, the estate sold five shares of the Bottling Works stock to Mrs. Bishop and four shares to Wallace Bishop for $320 a share.
     
      
       Section 7422(e) provides as follows:
      If the Secretary or his delegate prior to the hearing of a suit brought by a taxpayer in a district court or the Court of Claims for the recovery of any income tax, estate tax, or gift tax (or any penalty relating to such taxes) mails to the taxpayer a notice that a deficiency has been determined in respect of the tax which is the subject matter of taxpayer’s suit, the proceedings in taxpayer’s suit shall be stayed during the period of time in which the taxpayer may file a petition with the Tax Court for a redetermination of the asserted deficiency, and for 60 days thereafter. If the taxpayer files a petition with the Tax Court, the district court or the Court of Claims, as the case may be, shall lose jurisdiction of taxpayer’s suit to whatever extent jurisdiction is acquired by the Tax Court of the subject matter of taxpayer’s suit for refund. If the taxpayer does not file a petition with the Tax Court for a redetermination of the asserted deficiency, the United States may counterclaim in the taxpayer’s suit, or intervene in the event of a suit as described in subsection (c) relating to suits against officers or employees of the United States), within the period of the stay of proceedings notwithstanding that the time for such pleading may have otherwise expired. The taxpayer shall have the burden of proof with respect to the issues raised by such counterclaim or intervention of the United States except as to the issue of whether the taxpayer has been guilty of fraud with intent to evade tax. This subsection shall not apply to a suit by a taxpayer which, prior to the date of enactment of this title, is commenced, instituted, or pending in a district court or the Court of Claims for the recovery of any income tax, estate tax, or gift tax (or any penalty relating to such taxes).
     