
    SARA LEAVITT MEYER AND CHARLES G. MEYER, AS ADMINISTRATORS WITH THE WILL ANNEXED OF THE GOODS, CHATTELS, AND CREDITS OF AMELIA W. LEAVITT, DECEASED, v. THE UNITED STATES
    [No. C-1054.
    Decided April 6, 1925]
    
      On the Proofs
    
    
      Internal revenue; estate taco; conveyance in contemplation of death.— Section 402 of the revenue act of 1918, that “ any transfer of a material part of his property in the nature of a final disposition or distribution thereof, made by the decedent within two years prior to his death without such a consideration [i. e., a fair consideration in money or money’s worth], shall, unless shown to the contrary, be deemed to have been made in contemplation of death * * declares a presumption which may be rebutted by circumstances liberally construed in favor of the taxpayer.
    
      The lief oner’s statement of the case:
    
      Mr. T. Ludlow Ghrystie for the plaintiffs. Sprague, Seymour & Sprague were on the briefs.
    
      Mr. Fred K. Dyar, with whom was Mr. 4-ssistant Attorney General William J. Donovan, for the defendant. Messrs. Nelson T. Hartson and Thomas H. Lewis, jr., were on the brief.
    The following are the facts as found by the court:
    I. Amelia W. Leavitt died a citizen of the State of New York and a resident of the county of Queens, city and State of New York, on the 1st day of December, 1919, and thereafter on the 18th day of December, 1919, letters testamentary were duly issued by the Surrogate’s Court of the said county of Queens to G. Howland Leavitt, as the executor of the last will and testament of said Amelia W. Leavitt, deceased, who thereupon duly qualified as such executor and continued to act as such executor until his death on the 7th day of April, 1923. Thereafter, on the 11th day of May, 1923, letters of administration with the will annexed of the goods, chattels, and credits of said Amelia W. Leavitt, were duly issued by said Surrogate’s Court to Sara Leavitt Meyer and Charles G. Meyer, the plaintiffs herein, who thereupon duly qualified as such administrators with the will annexed and are now acting as such. The plaintiffs as such administrators are the owners of the claim upon which the above-entitled suit is brought.
    II. The said G. Howland Leavitt, as executor as aforesaid, duly filed on the 19th day of November, 1920, with the collector of internal revenue of the United States for the first district of New York a return for Federal estate tax, Form 706. Thereafter, on the 20th day of January, 1921, tbe said executor paid to the said collector of internal revenue for the first district of New York the sum of $35,909.14, as payment for the Federal estate tax upon the estate of said Amelia W. Leavitt, deceased.
    III. The said return for the estate tax made as aforesaid by the executor did not include in the gross estate of the said Amelia W. Leavitt, deceased, the value of certain real property which had been duly conveyed on the 7th day of October, 1919, by the said Amelia W. Leavitt to her daughter, Sara Leavitt Meyer, by deed dated and duly delivered on the 7th day of October, 1919; the said estate tax, computed by the said executor on the said return in the sum of $35,909.14 and paid by him, was based upon the gross estate exclusive of the value of the aforesaid real estate. A copy of the said deed was annexed to Schedule “ E ” of said Federal estate-tax return, and the facts of said conveyance of October 7, 1919, were, as required by the regulations of the Secretary of the Treasury, set forth in Schedule “ E ” of said return, but the sum of $238,000, the value of said real property conveyed by said deed of October 7, 1919, was not extended for inclusion in the gross estate because the said executor claimed that the transfer in question was not made in contemplation of death.
    IY. Thereafter, over the protest of the said executor, the Commissioner of Internal Kevenue added the value of the real property transferred on the said 7th day of October, 1919, to wit, $238,000, to the gross estate and increased the gross estate by other additions, not here material, whereby the net estate was increased from the sum of $805,115.66, returned by the said executor, to the sum of $1,047,784.62, and thereupon assessed an additional Federal estate tax of $20,369.32, making a total Federal estate tax of $56,278.46, of which amount said executor had already paid $35,909.14. Of said additional Federal estate tax of $20,369.32 the sum of $19,995.69 was the additional estate tax resulting from the inclusion in the gross estate of the decedent of the value of the said real property conveyed by the said deed dated October 7, 1919. The Commissioner of Internal Kevenue thereafter assessed said additional tax. The collector of internal revenue for the first district of-New York thereafter, under date of February 23,1922, notified tbe said executor of tbe said additional tax and of tbe said assessment by transmitting to tbe said executor a letter dated February 18, 1922, addressed to tbe said executor by the said commissioner, and demanded payment of tbe aforesaid additional tax. Upon said notice and demand said additional Federal estate tax of $20,369.32, which sum included said $19,995.69, Avas paid by said executor to said collector internal revenue for tbe first district of Nexv York, under duress, to prevent distraint and to avoid penalty for nonpayment, and under specific protest, on the 24th day of March, 1922, and accompanying the said payment by said executor to said collector of internal revenue was a communication, dated March 24, 1922, a copy of which is annexed to the petition and marked “ Exhibit B.”
    Y. On the 2d day of August, 1922, the said G. Howland Leavitt, as executor, duly filed a claim for refund of said $19,995.69 with the said Commissioner of Internal Revenue, Avhich claim for refund included an affidavit of said G. How-land Leavitt, verified the 31st day of July, 1922.
    The Commissioner of Internal Revenue on the 6th day of March, 1923, rendered a decision rejecting said claim for refund in its entirety, and thereafter a rehearing was held on said claim for refund, and after reconsideration of the evidence submitted by the claimant in support of its claim the commissioner, on June 22, 1923, confirmed the rejection.
    VI. In addition to the said real property conveyed on said 7th day of October, 1919, by Amelia W. Leavitt to Sara Leavitt Meyer, said Amelia W. Leavitt owned “ Shoreacres,” consisting of about 41 acres, with dwelling and outbuildings, situated on Bell Avenue, Bayside, Long Island, which Avas assessed at $249,500 in the Federal estate-tax proceeding.
    VII. The real property conveyed on said 7th day of October, 1919, by said Amelia W. Leavitt to Sara Leavitt Meyer was also at said Bayside, Long Island, and consisted of two farms, xvith antiquated buildings, one of about 68 acres being situated on said Bell Avenue and the other of- about 27 acres. The property was not suitable for development for large country places or other development without very expensive improvements. It was property inherited by Mrs. Leavitt many years ago and had never been improved, and Mrs. Leavitt had never received any income from it. Said real property was of the value of $238,000.
    VIII. Amelia W. Leavitt, in the summer time, lived at said “ Shoreacres,” Bayside, Long Island, and her daughter, Sara Leavitt Meyer, also lived at Bayside at a house half a mile away.
    Charles Garrison Meyer married in 1902 the said Sara Leavitt Meyer, daughter of G. Howland Leavitt and Amelia W. Leavitt, and at the solicitation of said G. Howland Lea-vitt bought in 1904 property at Bayside near “ Shoreacres ” and quite close to the projjerty in question subsequently conveyed to Mrs. Meyer by Mrs. Leavitt. The property so bought by Mr. Meyer blocked off development from the village and thus protected the property of Mrs. Leavitt and also near-by property owned by Mr. Leavitt.
    Before and at the time said Charles Garrison Meyer bought his property at Bayside in 1904 the said Amelia W. Leavitt talked to said Charles Garrison Meyer of conveying to said Sara Leavitt Meyer the real property in question. The whole thing was considered as an entirety. At that time Mr. Meyer was just starting in business and Mr. and Mrs. Leavitt agreed to help him take care of said property bought by him until he could support it himself. Mr. Meyer was in the real-estate business and engaged in the development of Long Island property.
    IX. Amelia W. Leavitt frequently, during several years preceding the conveyance in question, spoke to her daughter, Mrs. Meyer, with reference to the conveyance to her of said real estate, and it was frequently a- subject of family discussion. Some three or four years before her death she spoke to her son-in-law, Mr. Meyer, about the matter, stating that she and her husband would never have any use for this property; that the*carrying charges were growing each year, and that they thought it wise to convey it to Mrs. Meyer. Some two or three years before her death, in a conversation with her daughter, Mrs. Meyer, about the matter, she said to her: “ I want you to ha,ve this land, and I think that your father has gotten to the point now where he does not want the responsibility of carrying on the repairs of the property and also the taxes, and I think we are getting to the age where you children should take over the responsibility and the troubles.”
    X. For some time previous to her death Mrs. Leavitt had occasionally called in h?r family physician for consultation and treatment. In the year 1919 he had called on her at her request on eight separate occasions between February 17 and August 8, inclusive. On these occasions lier own idea for the most part Avas that she was suffering from bilious attacks, which had been somewhat prevalent in her family, and that while she needed some simple remedies she was not disposed to take anything except upon the advice of her physician. On August 8, 1919, which was the occasion of the last professional call made by her physician before going upon his vacation, she was haAdng an attack of what her physician designates as intestinal indigestion, but was not in bed. Her then treatment consisted of some suggestions with reference to her diet, the prescribing of a cathartic, and the suggestion that she should have an intestinal irrigation. It was her habit, even though not ill at .the time, to request her physician to come in and see her before he went aAvay on his vacation just to check up and see that she Avas taking the right things and whether she should use the same cathartics, diet, etc. Her physician’s next call Avas on October 28,-1919, Avhen she Avas again having one of her intestinal disturbances.
    Mrs. Leavitt had for some time before her death been afflicted with Bright’s disease, but it Avas not acute and Avas only apparent on a urinal analysis. Upon the occasion of her physician’s visit on October 28 there was no evidence of Bright’s disease having developed to an acute stage, and it did not become acute until November 11.
    Her physician knew of her condition and her husband knew that she had Bright’s disease in this form, but neither had eA’-er imparted knowledge to that effect to her and she did not know that she was thus afflicted.
    On NoAmmber 11, 1919, she became ill upon the development of the Bright’s disease to an acute stage. On November 24, trained nurses were called. On the morning of December 1,1919, when her physician saw her she was quite cheerful and chatty, and apparently entertained no i'dea that anything serious was impending. That afternoon she was suddenly attacked by a convulsion and died in a very short time. The disease from which Mrs. Leavitt suffered was of such a nature that it was liable to become acute and cause death at any time, but she had no knowledge that she was so afflicted.
    XI. Amelia W. Leavitt was 64 years of age at the time of her death. Her daughter Sarah Leavitt Meyer, was her only child.
    XII. During the summer and fall of 1919, Mrs. Leavitt was actively engaged in her usual pursuits. She took a great interest in her garden, in which she herself worked; maintained her interest in “ shut-ins,” whom she frequently visited; visited frequently and dined at the home of her daughter and son-in-law; visited among her friends in Flushing, Westbury, and Port Washington; accompanied her grandchildren when they went bathing; and entertained her friends and her daughter and son-in-law at her own home. Following her usual custom she moved from her summer home in Bayside to her home in Flushing in about the middle of October, 1919, and personally supervised the packing incident to such removal.
    XIII. Mrs. Leavitt and her husband had planned a trip to Florida for the winter, and being dissatisfied with hotel accommodations they had rented a house, and she planned to take with her her own servants and keep house while in Florida.
    In anticipation of this trip she had ordered clothing suitable for her stay in that climate; Some of this clothing was delivered, while one. of the nurses was in attendance subsequent to November 24, and Mrs. Leavitt examined the clothing, expressed her satisfacton with it, and talked with the nurse about her approaching trip to Florida.
    On November 26, 1919, Mr. Leavitt, the husband of Amelia W. Leavitt, had written to Florida, inclosing a check in payment of the rent for the house they expected to occupy, stated that they had expected to leave on December 15, that because of the sudden illness of bis wife they might not be able to leave at that time, but if not they would leave on the 26th, and that his chauffeur, with the automobile, would leave on December 11 by the Clyde Line and ought to reach Clearwater by the 15th.
    The court decided that plaintiffs were entitled to recover.
   DowNey, Judge,

delivered the opinion of the court:

Amelia W. Leavitt conveyed real estate valued at $238,000 to her daughter, Sarah Leavitt Meyer, an only child, on October 7, 1919, and died, at the age of 64 years, on December 1, 1919.

When her husband, G. Howland Leavitt, who had duly qualified as executor, made return to the collector of internal revenue for Federal estate tax purposes, he reported this conveyance but did not include the value of that real estate in the estate subject to taxation, because, as he maintained, the conveyance, although made within two years of the decedent’s death, was not made in contemplation of death within the meaning of the statute in such cases applicable.

Upon the estate as returned, valued at $805,115.66, the executor, in January, 1921, paid the assessed tax of $35,-909.14. Thereafter, over the protest of the executor, the Commissioner of Internal Revenue added to the gross estate, aside from some small items not in question, the sum of $238,000 as the value of the land so conveyed, on the ground that the conveyance was made in contemplation of death, and assessed an additional tax of $19,995.69 on account thereof, which was paid under protest. An application for refund,- duly made, was refused, and again refused on rehearing.

The question, which is simple, arises under the evidence in the case by reason of the provisions of subdivision (c) of section 402 of the revenue act of 1918, in effect February 25, 1919, which is as follows:

“ Sec. 402. That the value of the gross estate of the decedent shall be determined by including the value at the time of bis death of all property, real or personal, tangible or intangible, wherever situated * * *
“(c) To the extent of any interest therein of which the decedent has at any time made a transfer, or with respect to which he has at any time created a trust, in contemplation of or intended to take effect in possession or enjoyment at or after death (whether such transfer or trust is made or created before or after the passage of this act), except in case of a bona fide sale for a fair consideration in money or money’s worth. Any transfer of a material part of his property in the nature of a final disposition or distribution thereof, made by the decedent within two years prior to his death without such a consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this title; * * * ”

The findings quite fully state the facts as to the conveyance and go somewhat into detail as to the physical and mental condition of the decedent and the circumstances surrounding her death. They need not be repeated except as reference becomes appropriate.

The quoted paragraph of the revenue act does unquestionably declare a presumption arising out of a conveyance within two years of death in the absence of a sale for a fair consideration, but it is equally unquestionable that it is a rebuttable presumption. The purpose is apparent. The revenue act, in this particular feature, contemplated the taxing of estates, and the paragraph quoted was intended to prevent one who saw death staring him in the face from nullifying the statute by conveyance of his property, and this evidently had to be done by creating a presumption in law arising out of a conveyance within a stated time, but it was not intended thereby to prohibit or penalize legitimate conveyances not made for the purpose of evading taxation, and hence the language permitting an escape from the presumption upon a showing to the contrary.

A review of the authorities is scarcely necessary to sustain the proposition that the contemplation of death referred to in the statute is not that contemplation of death which must be present with all of us, mindful of its certainty at some time, we know not when, but it is that state of mind which by reason of advanced age, serious illness, or other producing cause induces the conviction that death in tbe near future is to be anticipated. If it be said that there need not be a conviction that death is imminent, there must at least be a belief that it is to be expected in the very-near future rather than in the usual course of events. And in this state of mind, in this belief in the near approach of death, must be found the motive for the conveyance if it is properly to be characterized as made in contemplation of death.

The question necessarily involves the determination of a mental state, and that, too, the mental state at a given time of one who, at the time the question is for determination, has passed from life. The difficulties are therefore apparent. In the absence of proof as to express declarations of the decedent — seldom, we may assume, available to the Government — the burden of affirmative proof could but rarely, if ever, be successfully assumed; and wisely, therefore, and perhaps of necessity also, the law has relieved the Government, under the condition stated, of the burden and created the presumption.

But what is the result? Can it go further than to shift the burden of proof, leaving the presumption to prevail in the Government’s favor in the absence of a reasonable showing to the contrary? Taxing statutes, when of doubtful interpretation, are always to be construed in favor of the taxpayer, and the spirit of this rule must be completely ignored if, in determining a question of fact as between the Government and the taxpayer, rigorous rules as to the proof required to overcome the presumption of the law are to be applied. For if the Government was deemed entitled to a presumption in its favor because of the difficulties of proof, it is to be borne in mind that even though a conveyance was in fact not in any degree made in contemplation of death, the personal representatives might and frequently would be beset by many difficulties in proving that negative fact. Circumstances must largely be relied upon, and these should be fairly — indeed, we think liberally — construed in favor of the taxpayer.

But while this is the view properly to be applied in the determination of this case under the evidence as we see it, we see no necessity for the invoking of any rule of liberality in behalf of the taxpayer, for under any conceivable rules of evidence property applicable to the determination of a proposition not in the nature of a tangible fact the plaintiffs have sufficiently assumed the burden which under the law they must assume to relieve the transaction in question of its presumptive character.

We do not find it necessary to review in detail the facts set otit in the findings. Not one, in our judgment, tends to support the presumption in which the Government may indulge under the law, but combined they very successfully rebut that presumption. This conveyance had been contemplated for several years and for manifest reasons. It was substantial, or, in the language of the statute, a material part of the whole estate, but it was less than one-fourth in value of the entire estate, it passed to an only child, and in the hands of the grantor it was an unproductive part of her ■estate. We have not found it necessary to set out in the findings proven facts bearing upon the possible utilization ■of the property for development purposes by the husband ■of the daughter.

The record justifies the conclusion that during 1919 and .at the time of this conveyance Mrs. Leavitt was in about her usual health, cheerful of disposition, discharging her usual duties, indulging in her accustomed pleasures, and planning for the future. True, she had a serious disease, discoverable by urinal analysis, one which might become acute and end her life at any time, but up to the time this conveyance was made it had never reached an acute stage, and she did not know she had it. Of what effect on her mental state could 'be a physical condition of which she knew not ?

Her single-quoted declaration, referred to by the defendant, is that set out in Finding IX, wherein, in connection with one of the many conversations with reference to the conveyance of this property to her daughter, she said to her that her father had gotten to the point where he did not want the responsibility of attending to this property and that “ we are coming to the age where you children should take over the responsibility and the troubles.”. The manifest solicitude was apparently more for her husband than for herself, but in any event the shifting, of some of the burden onto the son-in-law and daughter, especially since it had long-before been determined that she was to have this property, was but natural and justified no interference as to any apprehension for the immediate future.

Some stress is laid upon her age. It is said (italics included) with the above quotation as a basis that “ Her age was in her mind when she talked about the gift. Is it unreasonable to assume that it was in her mind when she made the gift?” With the vigor of youth still flowing through his veins counsel is perhaps not to be blamed if perchance he is not able to look upon life, its beauties and its prospects, through eyes which, though possibly dimmed by the passage of years, yet look with keen anticipation upon the fruition of the years yet to come. Mrs. Leavitt was 64 years old when she made this deed. She had yet remaining to her 6 years of the biblically allotted period, and under the usual rule applicable in the compilation of mortality tables, of which the courts take judicial knowledge, she had an expectancy of 11 years. And, for ought that appears, she, in common with the rest of humanity, expected to outlive her allotted time.

Contrary to the first two contentions by defendant’s counsel. we conclude that the conveyance in question was not made in contemplation of death and that the evidence is amply sufficient to overcome the presumption raised by the law.

The second contention is that the finding of the Commissioner of Internal Revenue is conclusive and may not be reviewed by this court. This latter contention seems to us so clearly untenable as to obviate any need of discussion. To so hold would be to deprive taxpayers of a right accorded them by statute and leave them without remedy where remedy was provided. Authorities are cited in support of the contention, but we do not regard them as applicable to the present case.

We conclude that the plaintiffs are entitled to recover and have directed judgment accordingly.

Graham, Judge; Hay, Judge; Booth, Judge,; and Campbell, Chief Justice, concur.  