Estate of Wilson v. Comm'r of Internal Revenue

Full title: ESTATE OF HENRY WILSON, FRANCIS A. WILSON, BENEFICIARY, TRANSFEREE AND…

Court: Tax Court of the United States.

Date published: Nov 30, 1943

2 T.C. 1059 (U.S.T.C. 1943)

Opinion

Docket Nos. 92262 92263 92264.

1943-11-30

ESTATE OF HENRY WILSON, FRANCIS A. WILSON, BENEFICIARY, TRANSFEREE AND CONSTRUCTIVE EXECUTOR; MARY H. WILSON, BENEFICIARY, TRANSFEREE AND CONSTRUCTIVE EXECUTRIX; AND WINIFRED T. WILSON, BENEFICIARY, TRANSFEREE AND CONSTRUCTIVE EXECUTOR, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Louis Janin, Esq., for the petitioners. Alva C. Baird, Esq., for the respondent.

ARNOLD

Petitioners failed to file a return for decedent's estate. Respondent filed a return for the estate under section 3176, Revised Statutes, upon information furnished by one of the petitioners. The information furnished was so incomplete, so inaccurate, and so greatly understated the gross estate that it amounted to fraudulent representation and concealment. Upon the discovery of other assets he later determined deficiencies against each petitioner as executor, transferee, and beneficiary. Held, the return was insufficient to set in motion the running of the statute of limitations.

Held, further, each of the petitioners was an ‘executor‘ within the meaning of the Federal estate tax law charged by statute with the duty of filing a timely estate tax return, and their failure to do so without showing reasonable cause makes imposition of the 25 percent delinquency penalty mandatory.

Held, further, the petitioners have the burden of proving that the Commissioner's determination is invalid, and that burden can not be shifted by alleging the final determination was arbitrary, unreasonable, and capricious.

Held, further, respondent may properly join the liability of an executor with his liability as a transferee and a beneficiary in one deficiency notice.

The community, separate, or joint nature of various properties held by the decedent at the date of death, and the effect of certain transfers made by him, determined from the facts and circumstances of record. Louis Janin, Esq., for the petitioners. Alva C. Baird, Esq., for the respondent.

These consolidated proceedings involve an estate tax deficiency and penalties on the transfer of the net estate of Henry Wilson, deceased. The respondent determined a deficiency of $169,580.66, a 25 percent penalty of $42,395.17 for failure to file a return, and a 50 percent penalty of $84,790.33 for evasion of tax in filing a fraudulent claim for refund of Federal estate tax, or a total of $296,766.16. A deficiency and penalties were determined separately against each petitioner as beneficiary, transferee, and constructive executor of the estate of Henry Wilson.

Respondent concedes that no return was filed by petitioners on which a fraud penalty could be based. Admissions in the pleadings and stipulations read into the record have reduced to some extent the questions otherwise arising under the issues presented. Effect will be given to such admissions and stipulations in the recomputation under Rule 50.

The detailed assignments of error contained in the original pleadings and the numerous amendments thereto present, broadly speaking, two principal issues, namely, (1) whether these petitioners are liable for additional estate tax and penalties upon the transfer of the net estate of Henry Wilson, deceased, and, if so, the amount and the character of that liability, and (2) whether various items of property, hereinafter more fully described, should be included in the gross estate of Henry Wilson (a) as jointly owned property, taxable under section 302(e), Revenue Act of 1926, and (b) as transfers in contemplation of or intended to take effect in possession or enjoyment at or after death, taxable under section 302(c), Revenue Act of 1926. The contentions advanced by the parties with respect to the various items of property to be included in or excluded from the gross estate, and with respect to the liabilities of these three petitioners will be stated in connection with our consideration of the items of property and the liability of the petitioners.

The items of property included in the gross estate by respondent, either as jointly owned property or as transfers taxable under section 302(c), supra, are as follows:

+--------------------------------------------------------------------------+ ¦A. Jointly Owned Property Taxable under Section 302 (e). ¦ +--------------------------------------------------------------------------¦ ¦ ¦ +--------------------------------------------------------------------------¦ ¦1. ¦Account #68036 in the names of Henry Wilson and Mrs. Henry ¦ +---+----------------------------------------------------------------------¦ ¦ ¦Wilson in the American Trust Co., Oakland, California ¦$63,845.14 ¦ +---+----------------------------------------------------------------------¦ ¦2. ¦Account #18013 in the same names payable to either or survivor ¦ +---+----------------------------------------------------------------------¦ ¦ ¦in the Farmers & Merchants' Savings Bank of Oakland ¦11,619.72 ¦ +---+---------------------------------------------------------+------------¦ ¦3. ¦Account #329758 in the names of Henry Wilson or Mary H. ¦ ¦ +---+----------------------------------------------------------------------¦ ¦ ¦Wilson (wife) payable to either or survivor in the Grant Avenue ¦ +---+----------------------------------------------------------------------¦ ¦ ¦and Market Branch of American Trust Co., San Francisco ¦18,666.00 ¦ +---+---------------------------------------------------------+------------¦ ¦4. ¦Joint commercial account in the names of Mary and Henry ¦ ¦ +---+---------------------------------------------------------+------------¦ ¦ ¦Wilson at United Bank & Trust Co. (this account was not ¦ ¦ +---+---------------------------------------------------------+------------¦ ¦ ¦included in determining deficiency herein) ¦4,778.95 ¦ +---+----------------------------------------------------------------------¦ ¦5. ¦Realty at 22 Seaview Avenue, Piedmont, jointly owned by Henry ¦ +---+----------------------------------------------------------------------¦ ¦ ¦Wilson and Mary Wilson (included in return prepared by ¦ ¦ +---+---------------------------------------------------------+------------¦ ¦ ¦Commissioner for estate of Henry Wilson) ¦45,000.00 ¦ +---+---------------------------------------------------------+------------¦ ¦ ¦ ¦ ¦ +--------------------------------------------------------------------------¦ ¦B. Transfers Taxable under Section 302 (c). ¦ +--------------------------------------------------------------------------¦ ¦ ¦ ¦ ¦ +---+----------------------------------------------------------------------¦ ¦6. ¦Account #194242 in name of Mary H. Wilson in Oakland Bank ¦ +---+----------------------------------------------------------------------¦ ¦ ¦of Savings, succeeded by Bank of America, Oakland ¦386,401.05 ¦ +---+---------------------------------------------------------+------------¦ ¦7. ¦Account #700074 in name of Mary H. Wilson in the San ¦ ¦ +---+---------------------------------------------------------+------------¦ ¦ ¦Francisco Bank ¦75,000.00 ¦ +---+---------------------------------------------------------+------------¦ ¦8. ¦Account #244275 in name of Winfred T. Wilson in the San ¦ ¦ +---+---------------------------------------------------------+------------¦ ¦ ¦Francisco Bank ¦41,932.41 ¦ +---+----------------------------------------------------------------------¦ ¦9. ¦Winfred T. Wilson Trust #1470 with the Crocker First Federal ¦ +---+----------------------------------------------------------------------¦ ¦ ¦Trust Co., executed Sept. 6, 1929 ¦220,000.00 ¦ +---+---------------------------------------------------------+------------¦ ¦10.¦Account #246913 in name of Francis A. Wilson in the San ¦ ¦ +---+---------------------------------------------------------+------------¦ ¦ ¦Francisco Bank ¦199,750.69 ¦ +---+----------------------------------------------------------------------¦ ¦11.¦Value of assets included in the balance sheet of Wilson Bros. & ¦ +---+----------------------------------------------------------------------¦ ¦ ¦Co., a Nevada corporation, not represented in above items¦1,096,114.11¦ +---+----------------------------------------------------------------------¦ ¦12.¦Account #248082 in name of Henry Wilson in the San Francisco ¦ +---+----------------------------------------------------------------------¦ ¦ ¦Bank, transferred June 1, 1928, to account #700480 in the¦ ¦ +---+---------------------------------------------------------+------------¦ ¦ ¦name of Francis A. Wilson and Mary H. Wilson (included in¦ ¦ +---+---------------------------------------------------------+------------¦ ¦ ¦the return prepared by Commissioner for Estate of Henry ¦ ¦ +---+---------------------------------------------------------+------------¦ ¦ ¦Wilson) ¦427,649.17 ¦ +--------------------------------------------------------------------------+

Respondent seeks an increased deficiency because of the $4,778.95 balance in the joint commercial account of Mary and Henry Wilson in the United Bank & Trust Co. (item 4, supra) at the date of decedent's death. Petitioners ask us to determine an overpayment of tax.

Prior to the hearing on the merits and on October 9, 1939, hearing was had upon petitioners' motion for judgment on the pleadings. The motion was denied by order entered November 22, 1940, which order was accompanied by a memorandum opinion setting forth the reasons for denying said motion. On February 23, 1939, after hearing had on February 15, 1939, petitioners' motion for a severance of the issues and a separate hearing upon the issues of law was denied.

FINDINGS OF FACT.

The petitioners are the widow and sons of Henry Wilson, who died from myocarditis at his place of domicile in Piedmont, California, on June 5, 1928. At the time of his death Henry Wilson, sometimes hereinafter referred to as the decedent, was 79 years of age.

A short history of decedent's marital and business life will aid in the consideration of the issues. The decedent and the petitioner, Mary H. Wilson, were married at Portland, Oregon, in 1883. Thereafter they resided in various places until 1885 or 1886, when they moved to Grays Harbor, Washington, where they resided during the construction of a sawmill by decedent and his brother, Charles R. Wilson, in what is now Aberdeen, Washington. The tract of land upon which the sawmill was constructed was acquired by Charles and Henry Wilson on or about June 11, 1887. After the sawmill was constructed decedent and his wife moved back to Portland and in the latter part of 1890 or the first part of 1891 they moved to Oakland, California. They lived together in Oakland or Piedmont until decedent's death.

At the time of his marriage Henry Wilson had little or no property or money. His wife had about $2,400 or $2,500 of her own money. Some of her money went into the partnership organized by decedent and Charles R. Wilson and the balance into the construction of a house in Portland that was built in or about 1889. The capital invested in the original partnership of Wilson Bros. & Co. by decedent and Charles R. Wilson in or about 1887 is not disclosed, but the business conducted by this and its successor partnerships by the same name grew and prospered. At some time prior to 1908 A. B. Johnson became a member of the partnership. In or about 1908 Charles R. Wilson died. His heirs formed a corporation, and thereafter the partnership of Wilson Bros. & Co. consisted of Henry Wilson, owning a 15/32 interest, A. B. Johnson, owning a 2/32 interest, and the estate of Charles R. Wilson, owning a 15/32 interest. This partnership, like its predecessor, was engaged in the general logging and lumber business, and the operation of steam and sailing vessels. Decedent actively participated in the management and operation of the partnerships until his death. From time to time he went to Washington to consult on business matters with Charles R. Wilson, or the latter came down to San Francisco for consultations with decedent and Johnson. After the death of Charles R. Wilson these consultations were held with Jonathan H. Wilson, who became manager of the Aberdeen, Washington, branch of the partnership's business.

In 1918 decedent's sons became partners in Wilson Bros. & Co. Under date of January 10, 1918, the decedent and his wife, Mary H. Wilson, joined in executing separate deeds of gift to Francis A. Wilson and Winfred T. Wilson, their twin sons, whereby the mother and father, in consideration of the love and affection which they had for their sons, ‘do by these presents give, grant alien and confirm‘ unto each them, ‘and to his heirs and assigns forever, an undivided five thirty seconds (5/32) interest in all the real and personal property operated or held under the firm name of Wilson Bros. & Co. ‘ the principal places of business of which were San Francisco, California, and Aberdeen, Washington. The deeds of gift describe the partnership property as consisting of ‘money, securities, accts. and bills receivable, contracts, merchandise, vessels, real estate, and improvements, sawmills, wharfs, machinery and equipment, timber and timber lands, railways, logs and logging equipment, situate in the states of California and Washington. Together with all and singular the tenements, hereditaments, etc. * * * .‘ Deeds conveying a 5/32 interest to each son in numerous parcels of real property in Lewis County, and in Grays Harbor County, Washington, were executed by decedent and his wife on the same fate. Said deeds were recorded on or before August 9, 1919.

During 1919 the partnership of Wilson Bros. & Co. was partially dissolved and its activities curtailed by virtue of an agreement entered into on September 30, 1919, between the members of the Wilson family of San Francisco. By the terms of the agreement the San Francisco Wilsons (Henry, Francis, and Winfred Wilson) sold, assigned, transferred and set over to the Aberdeen Wilsons, their heirs and assigns forever, all their undivided 15/32 interest in and to the business of Wilson Bros. & Co. in Aberdeen, including the sawmill, all buildings, machinery, equipment, cash on hand, money in banks, bills, notes, accounts receivable, securities, and property of all kinds owned by the firm in and around Aberdeen, and as part of the consideration for the transfer the Aberdeen Wilsons assumed and agreed to pay all of the firm's obligations in connection with the Aberdeen sawmill branch of the business.

In like manner the Aberdeen Wilsons sold, assigned, transferred, and set over to the San Francisco, including all cash, money in banks, all bills, notes and accounts receivable, all securities of all kinds and all tangible and intangible property comprising what was known as the San Francisco branch of Wilson Bros. & Co. As part consideration therefor the San Francisco Wilsons assumed and agreed to pay all obligations of the partnership connected with the San Francisco branch of the business. The agreement further provided that from and after the execution and delivery thereof the activities of the firm of Wilson Bros. & Co. should be confined to the logging and timber operations conducted at Independence and vicinity, Lewis County, Washington. Execution of the agreement was acknowledged by the Aberdeen Wilsons on November 29, 1919, and by the San Francisco Wilsons on December 5 and 8, 1919.

Statements attached to the above agreement, for the purpose only of describing all assets and property intended to be transferred thereby, show a trial balance of the San Francisco branch and the assets and liabilities of the Aberdeen branch as of September 30, 1919. The trial balance statement showed an aggregate of debit and credit items of $467,733.19; the other statement showed total assets of $607,428.82 and total liabilities of $72,035.92. The difference between the net partnership assets at San Francisco and Aberdeen was adjusted by the Aberdeen Wilsons giving the San Francisco Wilsons a promissory note for $125,000 payable on or before one year from date with interest at 6 percent, payable semiannually. The note was secured by a mortgage on real property dated September 30, 1919. In addition the Aberdeen Wilsons transferred their 15/32 interest in the steamship ‘Oregon‘ to the San Francisco Wilsons, i.e., 5/32 interest each to decedent and his two sons.

On or about January 24, 1920, Wilson Bros. & Co. contracted with W. J. Patterson and others for the sale of its remaining assets, the logging outfit at Independence, Washington, together with all timber of every kind and character upon therein described lands located in Lewis County, Washington. The price for the logging outfit, exclusive of the timber, was $200,000. The price for the timber was $555,000. Title to the property was to remain in the vendor's possession until the purchase price was paid. All deferred payments bore interest at 6 percent, payable monthly. The purchase price was paid by December 1, 1923, except for a small balance. After this sale Henry Wilson's interest in the partnership of Wilson Bros. & Co.was confined to the San Francisco business, which was owned by him and his two sons with a 10/32 interest each, and A. B. Johnson with a 2/32 interest. A portion of the proceeds of this sale was used by the Aberdeen Wilsons to pay off their $125,000 note with interest aforementioned.

In October 1921 A. B. Johnson withdrew from the San Francisco partnership, receiving $7,048 in cash as his 2/32 part of the firm's capital. Thereafter Henry Wilson and his two sons owned equal interests in the partnership.

In December 1926 Henry Wilson withdrew his proportionate part of the capital from the San Francisco partnership, leaving his two sons as the only partners in the business. His proportionate part of the firm's capital t December 31, 1926, amounted to $34,039.93. He continued, however, to participate in the partnership business in an advisory capacity. During the last half of 1927 his drawing account was $12,000, but he had no interest in the firm after December 31, 1926.

In 1927 Henry Wilson paid a stockholder's assessment of $28,840 upon stock in a bank in Aberdeen, Washington, which had failed in 1926 or 1927.

Decedent's first serious illness was in June 1925 when his prostate gland was removed. He convalesced slowly but satisfactorily from this operation and in the spring of 1927 he was about back to his former state of health. At or about this time decedent began to experience a slight shortness of breath with exertion. In January or February 1928 decedent had a more pronounced spell of shortness of breath and a doctor was called, who confined decedent to his room and gave him some medicine. During a week of this treatment the shortness of breath gradually cleared up. For several weeks thereafter decedent was apparently all right, and then the shortness of breath began to return again with increased severity and frequency.

On April 20, 1928, decedent visited a doctor in San Francisco, who found him to be seriously ill, suffering from weakness of the heart and arteriosclerosis. He was immediately hospitalized and remained in the hospital until May 20, 1928. Decedent left the hospital because he felt better and particularly because he wanted to return home. Thereafter he was attended by a doctor in Piedmont, who had been advised professionally of his treatment in the hospital and of his condition. His wife and son were acquainted with his condition and understood that decedent had ‘very little reserve and that the outlook for the immediate future is poor.‘ He died June 5, 1928, sixteen days after leaving the hospital.

Subsequent to decedent's death and within 60 days thereafter, F. A. Wilson notified the collector of internal revenue at San Francisco that Henry Wilson had died on June 5, 1928, that there ‘has been no probate of the estate of Mr. Wilson as his property had been transferred prior to his death,‘ that he (F. A. Wilson) was endeavoring to prepare a full and complete statement which in due course would be submitted to the collector, that ‘This notice is sent to you so that I may have complied with the necessary provisions of the Internal Revenue Act of the United States,‘ and that ‘all communications relative to the estate of Henry Wilson be sent to me.‘

No petition for letters testamentary or of administration on the estate of Henry Wilson was ever filed in any probate court, and no one was ever appointed executor or administrator of said estate by order of any court. Henry Wilson and his wife discussed the ownership of property standing in his name on a number of occasions. In a discussion in 1913 he told his wife that anything he had was due to her efforts as well as his own and that half of the property belonged to her. In 1918, when gifts of a 5/32 interest in the partnership were made to F. A. and W. T. Wilson, decedent told his sons that the gifts were from their mother as well because she owned half of the property. Upon distribution of the proceeds from the sale of the partnership's logging interest in Washington, Henry Wilson instructed F. A. Wilson to carefully invest Mary Wilson's share of the community income as she had worked hard for it.

In the final decision entered in Abraham B. Johnson, 7 B.T.A. 820, decedent's income tax liability was adjusted to reflect Mary H. Wilson's community interest in that portion of partnership income derived from the Washington branch of the partnership business. The portion so derived from the Washington branch was stipulated by the parties as settlement under Rule 50, as the Board was unable to determine from the evidence before it that any part of the partnership income was from sources within the State of Washington and therefore divisible upon a community property basis.

The original source of Henry Wilson's wealth, income, and property was the several partnerships of Wilson Bros. & Co. Decedent kept no books of account and it is impossible to determine his capital investment in the business or the distributions received by him prior to 1919. Beginning in 1919 the ‘Capital Investment‘ account of the San Francisco partnership shows distributions from 1919 until Henry Wilson's withdrawal of his proportionate part of the capital investment at December 31, 1926. The distributions to Henry Wilson as reflected by this account were as follows:

+-------------------------------------------------------------+ ¦1919 ¦4th Liberty Loan bonds ¦$7,500.00 ¦ +------+-------------------------------------------+----------¦ ¦( ¦Steamer “Oregon” 10/32 of $109,613.85 ) ¦ ¦ +------+-------------------------------------------+----------¦ ¦1920 (¦) ¦49,254.33 ¦ +------+-------------------------------------------+----------¦ ¦( ¦Cash 10/32 of $48,000.00 ) ¦ ¦ +------+-------------------------------------------+----------¦ ¦1921 ¦ ¦17,935.38 ¦ +------+-------------------------------------------+----------¦ ¦1922 ¦ ¦23,169.68 ¦ +------+-------------------------------------------+----------¦ ¦1923 ¦ ¦None ¦ +------+-------------------------------------------+----------¦ ¦1924 ¦ ¦None ¦ +------+-------------------------------------------+----------¦ ¦1925 ¦ ¦None ¦ +------+-------------------------------------------+----------¦ ¦1926 ¦Withdrawal of proportionate part of capital¦34,093.03 ¦ +------+-------------------------------------------+----------¦ ¦ ¦Total ¦131,953.32¦ +-------------------------------------------------------------+

Decedent's other chief sources of income, as reflected by his income tax returns for 1917, and 1920 to 1923, inclusive, were salary, dividends, interest on bank deposits, etc., interest on U.S. obligations, and income from the operation of steamships. The aggregate income reported from these sources by decedent for these five years was: salary, $36,000; dividends, $14,597; interest on bank deposits, etc., $10,708; interest on U.S. obligations, $10,507; and income from operations of steamships, $46,825.

During his lifetime Henry Wilson transferred numerous properties or interests therein to his wife and two sons. The principal transfers, other than cash gifts for special occasions, such as birthdays, for a trip, a car, a suit of clothes, etc., were as follows:

+-----------------------------------------------------------------------------+ ¦1903¦To Mary H. Wilson, the home at 1403 Madison St., Oakland. ¦ +----+------------------------------------------------------------------------¦ ¦1906¦To Mary H. Wilson, an undivided 14/64 interest in the steamship “Svea.” ¦ +----+------------------------------------------------------------------------¦ ¦1917¦To Mary H. Wilson, $58,000, being one-half of the proceeds from the sale¦ ¦ ¦of the steamship “Columbia” in which Henry Wilson owned a 28% interest. ¦ +----+------------------------------------------------------------------------¦ ¦1917¦To Mary H. Wilson, an undivided 20% interest in the steamship “Idaho.” ¦ +----+------------------------------------------------------------------------¦ ¦or ¦ ¦ +----+------------------------------------------------------------------------¦ ¦1918¦To Francis A. Wilson, an undivided 5% interest in the “Idaho.” ¦ +----+------------------------------------------------------------------------¦ ¦ ¦To Winfred T. Wilson, an undivided 5% interest in the “Idaho.” ¦ +----+------------------------------------------------------------------------¦ ¦ ¦To Francis A. Wilson, $25,000. ¦ +----+------------------------------------------------------------------------¦ ¦ ¦To Winfred T. Wilson, $25,000. ¦ +----+------------------------------------------------------------------------¦ ¦1918¦To Francis A. Wilson, a 5/32 interest in the partnership of Wilson Bros.¦ ¦ ¦& Co. ¦ +----+------------------------------------------------------------------------¦ ¦ ¦To Winfred T. Wilson, a 5/32 interest in the partnership of Wilson Bros.¦ ¦ ¦& Co. ¦ +----+------------------------------------------------------------------------¦ ¦1924¦To Mary H. Wilson, an undivided 16/64 interest in the steamship “Svea.” ¦ +----+------------------------------------------------------------------------¦ ¦ ¦To Mary H. Wilson, an undivided 35/100 interest in the steamship ¦ ¦ ¦“Idaho.” ¦ +----+------------------------------------------------------------------------¦ ¦ ¦To Mary H. Wilson, an undivided 10/32 interest in the steamship ¦ ¦ ¦“Oregon.” ¦ +----+------------------------------------------------------------------------¦ ¦1927¦To Francis A. Wilson and Winfred T. Wilson, the property at 1413 Madison¦ ¦ ¦St., Oakland. Mary H. Wilson joined with decedent in executing the deed.¦ +----+------------------------------------------------------------------------¦ ¦1928¦To Francis A. Wilson and Mary H. Wilson, Account #248082 in The San ¦ ¦ ¦Francisco Bank. ¦ +-----------------------------------------------------------------------------+

At the date of decedent's death the following property was jointly held by Henry Wilson and/or Mrs. Henry Wilson or Mary H. Wilson:

Joint commercial account at the United Bank & Trust Co. of California, San Francisco, California; balance, June 5, 1928, $4,778.95.

Account #68036 with the American Bank, which later became account #11866 with the American Trust Co., San Francisco; balance, Dec. 31, 1927, $63,855.14.

Account #18013 with Farmers and Merchants Savings Bank; balance Jan. 1, 1928, $11,619.72.

Account #329758, also known as Account #32473, with American Trust Co.; balance, Dec. 31, 1927, $18,666.

Realty at 22 Seaview Avenue, Piedmont, California, valued at $45,000.

The joint commercial account of Henry Wilson and his wife with the United Bank & Trust Co. was a large account extending over a great period of years in which hundreds of thousands of dollars were deposited. Prior to the United Bank & Trust Co. the account was carried in the Merchants National Bank. The funds of both Henry and Mary Wilson were deposited in this account. Checks were drawn against the account for the purpose of buying securities, to make deposits in various bank accounts hereinafter more fully considered, and for other purposes. The balance in this account at June 5, 1928, of $4,778.95 constituted a part of decedent's gross estate.

Account #68036. This joint account was opened with the American Bank of San Francisco by a $10,000 deposit on January 5, 1925. Two other deposits of $25,000 each were made, one on September 22, 1926 and one on October 7, 1926. No withdrawals were made therefrom. It was opened for the purpose of showing separately the amount of earnings derived by Mary H. Wilson from her one-fifth interest in the steamship Idaho. As the steamship earnings were distributed the amount thereof was deposited in the joint commercial account of Henry Wilson and Mary H. Wilson, with the United Bank & Trust Co. The earnings were then invested in securities for Mary H. Wilson consisting principally of certificates of indebtedness of the United States and other obligations of the United States. As the securities matured and were converted into cash deposits were made in this account by check drawn on the joint commercial account except for the deposit of September 22, 1926, which was in currency. The account was handled almost exclusively for Mary H. Wilson by her son Francis A. Wilson, who, after 1919, invested her funds for her. The funds in this account, including interest accumulations, constituted the separate property of Mary H. Wilson and no part thereof should be included in decedent's gross estate.

Account #18013. This joint account payable to either or the survivor, was opened with the Farmers & Merchants Savings Bank by a deposit of $5,000 on April 23, 1917. Two other $5,000 deposits were made on January 5, 1925, and September 22, 1926. Two withdrawals, one of $3,000 on July 15, 1919, and one of $2,000 on July 1, 1920, were made to purchase gold, which was held in a safety deposit box. The opening deposit represented a portion of the accumulated rentals from the house constructed by Mary H. Wilson in Portland, Oregon, in or about 1889. The rentals therefrom had been collected and used by decedent for approximately 27 years and were in excess of $8,000. This account was opened and the deposit made upon Mary H. Wilson's insistence that these rentals be turned over to her. The first two deposits were by check drawn on the joint commercial account in the United Bank & Trust Co. The January 5, 1925, deposit was a redeposit of the 1919 and 1920 withdrawals, and the 1926 deposit was of funds inherited by Mary H. Wilson from her mother in 1918 as increased by investment. The funds deposited in this account and the accumulated interest thereon constituted the separate property of Mary H. Wilson and no part thereof is includible in decedent's gross estate.

Account #329758. This joint account, payable to either or the survivor, was opened with the American Trust Co. of San Francisco on January 31, 1927, with a deposit of $18,000. It reflects no other deposits or withdrawals. It does reflect semiannual accruals of interest. The occasion for this deposit was an argument between decedent and his wife over the rentals, the sale price, and the earnings thereon from the Portland house that were still in decedent's possession. Francis A. Wilson was instructed to compute the amount due Mary H. Wilson, which he fixed at $18,000, consisting of $3,000 for additional rentals, $2,000 for the sale price of the house in 1917 or 1918, and $13,000 interest accumulated since 1890. Mary H. Wilson drew a check on the joint commercial account with the United Bank & Trust Co. for $18,000 on January 31, 1927, and decedent signed the check. The funds deposited in this account and the accumulated interest thereon constituted the separate property of Mary H. Wilson and no part thereof is includible in decedent's gross estate.

The jointly owned realty at 22 Seaview Avenue in Piedmont was decedent's home at the time of his death. It cost around $75,000 and was occupied by decedent, his wife, and his son Francis. The agreed value of the property at decedent's death was $45,000. No part of the cost of this property was shown to have originally belonged to Mary H. Wilson, and the entire value thereof is includible in decedent's gross estate.

Shortly prior to his death decedent transferred, or caused to be transferred, the properties hereinafter listed and described to his wife, or to his wife and his son Francis A. Wilson, or to his two sons.

Account #194242 with the Oakland Bank in the name of Mrs. Mary H. Wilson. This account was originally joint account #119285 in the names of Henry or Mary H. Wilson with the Oakland Bank of Savings. It was opened January 6, 1917, with a deposit of $60,877.90. A deposit of $3,650 was made on January 6, 1919. In July 1919 withdrawals of $50,000 and $15,000 and a withdrawal of $5,500 on July 1, 1920, reduced the balance in the account to $676.90. Deposits of $30,000 on January 5, 5, 1925, $10,000 on March 23, 1926, $25,000 on October 7, 1926, and $50,000 on October 8, 1926, were made by checks drawn on the joint commercial account. Deposits of $100,000 on September 22, 1926 and $101,750 on June 16, 1927, are also reflected in this account. By March 29, 1928, the above deposits, plus interest thereon, aggregated $333,276.05. On that date the joint account was closed out by a transfer of said balance to account #194242 in the name of Mrs. Mary H. Wilson with the Oakland Bank. On May 3, 1928, a further deposit of $53,125 was made, resulting in a balance of $386,401.05. Francis A. Wilson explained the transfer of March 29, 1928, as merely the removal of his father's name from an account that had always been considered the account of Mary H. Wilson. The decedent's name was taken off the account in accordance with the advice of their tax attorney that the accounts of decedent and Mary H. Wilson should be put in the sole name of the owner of the account so as to obviate future difficulties with the Internal Revenue Bureau. The transfer on March 29, 1928, two months and seven days prior to decedent's death, was a transfer in contemplation of death and the balance on that date and the deposit on May 3, 1928, are includible in decedent's gross estate, as no part thereof was shown to have originally belonged to Mary H. Wilson.

Account #700074 in the name of Mary H. Wilson with the San Francisco Bank. This account was opened April 10, 1928, with a deposit of $75,000. The deposit was made with funds from the joint commercial account with the United Bank & Trust Co., no part of which was shown to have originally belonged to Mary H. Wilson. The transfer of funds occurred one month and twenty-five days before decedent's death. This transfer was made in contemplation of death and the amount thereof is properly includible in decedent's gross estate.

Account #700480 in the joint names of Francis A. Wilson and Mary H. Wilson with the San Francisco Bank. This account was opened on April 23, 1917, in the names of Henry Wilson or Mary H. Wilson with the German Savings & Loan Society of San Francisco as account #224553 with a deposit of $90,000. In August 1927 the account was transferred to Henry Wilson as account #248082 with the San Francisco Bank. On June 1, 1928, four days prior to his death, decedent transferred the balance in this account of $427,649.16, plus accrued interest of $3,088.56, to Francis A. Wilson and Mary H. Wilson with the account number first above mentioned. This transfer was impressed with a trust of $5,000 by decedent in favor of the Fred Finch Orphanage in Oakland and the balance was for the use and benefit of his wife and sons in the proportions of four-sixths to Mary H. Wilson and one-sixth each to the sons. The expenses of decedent's last illness, his funeral expenses, and some of his other debts, totaling $24,646.21, were paid out of the account so transferred, which left a net amount for Mary H. Wilson of $270,727.68, and $67,681.92 for each of the sons. The transfer of this account was made in contemplation of death and the amount thereof is conceded by petitioners to be properly includible in decedent's gross estate.

Under date of December 27, 1927, decedent transferred the premises at 1413 Madison Street, Oakland, California, to his two sons for a nominal consideration. Mary H. Wilson joined decedent in executing the deed, which was recorded April 2, 1928. This property was assessed for the fiscal years 1928 and 1929 at $7,700 for the land and $1,750 for the improvements. Shortly after decedent's death and on September 19, 1928, Winfred T. Wilson conveyed his interest in this property to Francis A. Wilson, who conveyed it to Wilson Bros. & Co., a Nevada corporation, on December 17, 1930. The property was carried on the books of the corporation at $50,000. The value of this property at the date of decedent's death was $10,000. The transfer by decedent on December 27, 1927, was in contemplation of death and the value of the property is includible in decedent's gross estate.

The value of each of the vessels, Svea, Idaho, and Oregon, in which decedent transferred undivided interests to Mary H. Wilson in June 1924, as hereinabove mentioned, is stipulated to be $60,000. The value of the 10/32 interest transferred by decedent at that time in the Oregon was $18,750. The value of the 35/100 interest in the Idaho at that time was $21,000. The value of the 16/64 interest in the Svea at that time was $15,000. It is stipulated that these transfers (which were recorded two days after decedent's death) were intended to be and operated as gifts to become effective in possession and enjoyment after death. The value of each interest is includible in decedent's gross estate.

Mary H. Wilson's chief sources of income, as reflected by her income tax returns for the years 1917 to 1927, inclusive, were interest on bank deposits, etc., interest on United States and tax free obligations, and income from her undivided interest in vessels. Her returns were usually prepared and filed for her by her son, F. A. Wilson, who also invested and reinvested her funds and managed her financial affairs. A summary of her returns for those years shows her total income from bank interest, etc., to have been $72,431, from United States and tax free obligations, $107,164, and from vessels, $50,817. For these years Mary H. Wilson reported a total gross income of $224,692 and a total net income of $146,428. Her principal deductions were for depreciation on her vessel interests, costs and expenses in connection therewith, and taxes.

Prior to March 29, 1928, when joint account #119285 was transferred from the joint names of decedent and wife to Mrs. Mary H. Wilson, account #194242, as aforementioned, Mary H. Wilson had no separate bank account of her own. Her securities were kept by her son, Francis A. Wilson, in a safe deposit box in an envelope marked with her name. As the securities matured or were converted into cash the proceeds were invested in other securities or deposited in the bank.

Francis A. Wilson's chief sources of income and the aggregate amounts thereof, as reflected by his income tax returns for 1917 to 1923, inclusive, and 1927 and 1928, were salary from Wilson Bros. & Co., $26,750; dividends, $14,459; partnership, $74,911; vessels, $27,227; interest on bank deposits, notes, bonds, etc., $37,797; interest on tax free bonds, $12,169; interest on United States obligations, $18,662; and in 1927 unexplained profits from the sale of real estate, stocks, bonds, etc., of $43,361. For the nine years he reported a total gross income of $260,625, and a total net income of $181,685. The salary aggregate was received during the years 1919 to 1923, inclusive, and the partnership income from 1918 to 1923, inclusive.

Most of the property originally owned by Francis A. Wilson came from the decedent. This property was augmented by the investment and reinvestment of the income and profits therefrom. In July 1925 Francis C. Wilson and W. T. Wilson each purchased a 5 percent interest in the Idaho from A. B. Johnson and wife at a cost of $11,716.67 for the 10 percent interest. Also during July 25 each purchased from the same source a 1/32 interest in the Oregon at a cost of $2,477.36 per 1/32. During the years 1920 to 1929, inclusive, Francis A. Wilson's account at a San Francisco brokerage house showed security purchases, principally of bonds, in excess of $475,000. The account shows that many of the bonds purchased were held until they matured and that irrigation district bonds formed a considerable portion of his purchases. His purchases were much larger in 1922 than any other year, amounting to $169,000.

Account #246913 with the San Francisco Bank was the personal account of Francis A. Wilson. He made the deposits in this account, which shows a balance brought forward on March 31, 1927, of $5,602. The account shows various deposits and withdrawals after March 31, 1927, in addition to entries of interest. The balance in the account on April 2, 1928, was $199,750.69. The funds in this account were the separate property of Francis A. Wilson and no part thereof is includible in the gross estate of Henry Wilson.

Winfred T. Wilson's chief sources of income and the aggregate amounts thereof, as reflected by his income tax returns for 1917 to 1928, inclusive, except 1920, were: salary, $26,750; dividends, $20,993; partnership, $65,455; vessels, $34,236; interest on bank deposits, notes, bonds, etc., $63,698; interest on tax free bonds, $19,853; and interest on United States obligations, $19,993. Winfred T. Wilson's returns show no salary received from the partnership of Wilson Bros. & Co. after 1925. The returns also show that his distributive share of the partnership loss in 1925 was $6,889, which would make his aggregate net income from the partnership $58,566, and that after 1925 there was no income or loss from the partnership. The returns for the eleven years reported a total gross income of $255,864, and a total net income of $147,181.

On April 2, 1926, Winfred T. Wilson transferred $75,000 from his account with the United Bank & Trust Co. of California, San Francisco, to the San Francisco Savings & Loan Society, account #244275, in the name of Winfred T. Wilson. Various deposits in and withdrawals from this account occurred between April 2, 1926, and April 6, 1928, when the account shows a deposit of $6,000 and a balance of $41,932.41. The funds in this account were the separate property of Winfred T. Wilson and no part thereof is includible in the gross estate of Henry Wilson.

Under date of September 6, 1929, Winfred T. Wilson executed a trust indenture creating a revocable trust for the benefit of his two children. The Crocker First Federal Trust Co. was named as trustee thereof. The trust corpus had a face value of $220,000, consisting of $219,000 of bonds and $1,000 of equipment trust certificates. These securities were purchased by Winfred T. Wilson from time to Time over a period of years with his own funds, and no part thereof is includible in decedent's gross estate.

In December 1928 F. A. and W. T. Wilson organized Wilson Bros. & Co. formerly conducted by them. The corporation had an authorized capital stock of 200,000 shares, par value $25 each. Its principal office was in San Francisco. F. A. Wilson and W. T. Wilson each purchased 20 shares of the capital stock, paying $1,000 cash therefor. During 1929 the following assets were transferred to the corporation without stock or other consideration therefor, which were valued on the corporate books as indicated:

+----------------------------------------+ ¦100 percent of Oregon ¦$100,000¦ +-------------------------------+--------¦ ¦75 percent of Idaho ¦75,000 ¦ +-------------------------------+--------¦ ¦Trans America Corporation stock¦115,000 ¦ +-------------------------------+--------¦ ¦Anglo Corporation stock ¦21,000 ¦ +-------------------------------+--------¦ ¦Weedon & Co. stock ¦80,000 ¦ +-------------------------------+--------¦ ¦Real estate, 1413 Madison St. ¦50,000 ¦ +-------------------------------+--------¦ ¦Furniture and fixtures ¦5,000 ¦ +-------------------------------+--------¦ ¦Total ¦446,000 ¦ +----------------------------------------+

In addition to the above items the two Wilsons contributed certain cash to the corporation, so that as of the beginning of 1929 its balance sheet attached to its 1929 return showed assets of cash, $200,000; investment, $641,000; land, $30,000; buildings, $20,000; and furniture and fixtures, $5,000. The only liabilities shown were notes payable of $200,000 and common stock of $696,000. In July 1929 the Wilsons contributed $50,000 cash and in November 1930, $54,000 more. On March 20, 1931, the balance of $480,372.24 in account #700480 with the San Francisco Bank, in the joint names of Francis A. Wilson and Mary H. Wilson, was transferred to the corporation. The corporation's balance sheet for 1931, schedule K of its 1931 return, shows common stock at the beginning of the year of $800,000 and at the end of the year of $2,500,000. The increase in the capital stock account was represented by the $480,372.24 transfer and I.O.U.'s from Francis A. Wilson and Winfred T. Wilson of $1,219,627.76. The capital stock outstanding at the end of 1931 was the 40 shares originally issued to F. A. and W. T. Wilson.

Prior to May 1, 1930, Lester C. Guernsey, an internal revenue agent, made an investigation with respect to the assets owned by decedent at and prior to his death. Mary H. Wilson disclaimed knowledge of all financial matters and referred Guernsey to F. A. Wilson. F. A. Wilson, although at first reluctant, later revealed the transfers by decedent of the Madison Street property in 1903, the partnership interest in 1918, account #248082 in the San Francisco Bank with its $427,649.17 balance on June 1, 1928, and the jointly owned property at 22 Seaview Avenue in Piedmont, the value of which was agreed to be $45,000. Guernsey had no prior knowledge of these properties except the last mentioned. F. A. Wilson stated that decedent had no other items of property as he had converted everything he owned into cash.

Following his investigation and as a result of information furnished by Francis A. Wilson, Guernsey prepared an estate tax return on Form 706. This return set forth decedent's name, residence, date and place of death, that he had two children, that his heirs, next of kin, etc., were Mary H. Wilson, wife, and Francis A. Wilson, son (the other son's name was omitted), and that his assets consisted of the jointly owned property at 22 Seaview Avenue valued at $45,000 and the bank account of $427,649.17 transferred on June 1, 1928. Transfers of property in 1903 to Mary H. Wilson and partnership interests in 1918 to the sons were set forth but not included in the decedent's gross estate. The return set forth a gross estate of $472,649.17 ($427,649.17 plus $45,000), allowed a specific exemption of $100,000 but no deductions, determined the net estate to be $372,649.17, and fixed the estate tax liability as $11,405.97. The return was prepared for F. A. Wilson's signature as a beneficiary, but he refused to sign it. On May 17, 1930, the estate tax return was ‘made and subscribed under authority of Section 3176 Revised Statutes‘ by Robert V. Lucas, Commissioner of Internal Revenue.

Under date of June 3, 1930, Francis A. Wilson, beneficiary, estate of Henry Wilson, was notified by respondent that a deficiency in estate tax of $11,405.97 had been tentatively determined. On August 14, 1930, a deficiency notice in like amount was issued to Francis A. Wilson, beneficiary. No appeal was taken therefrom to the Board of Tax Appeals. In October 1930 an estate tax of $11,405.97 plus interest of $1,021.85 was assessed against the estate of Henry Wilson, Francis A. Wilson, beneficiary. This assessment was paid December 20, 1930 '

On November 16, 1932, Mary H. Wilson, F. A. Wilson, and W. T. Wilson each executed a claim for refund of $12,072.84 estate taxes which was filed with the collector of internal revenue. Deductions were claimed therein upon the ground that one-half of the bank account was Mary H. Wilson's community share thereof, that one-half of the realty owned in joint tenancy was purchased with community funds, that a charitable contribution of $5,000 was made at the direction of the decedent, that expenses of last illness and funeral and burial expenses aggregated $4,042.15, and that decedent owed debts amounting to $16,574.51. The deductions claimed, including the specific exemption, totaled $363,485.52, leaving a net estate of $109,163.65, on which the estate tax liability was $1,774.91. Against this tax liability a credit of 80 percent was claimed for state inheritance taxes paid to the State of California.

After the refund claim was filed Guernsey made a second investigation of the taxable estate of Henry Wilson, which he completed in March 1933. This investigation was confined to the matter of proper deductions and the credit, if any, to which the estate was entitled because of inheritance taxes paid the State of California. No inheritance tax had been paid to California at the time of Guernsey's first investigation and no credit could be determined in the estate tax return prepared by him. Guernsey discussed the deductions with F. A. Wilson, but there was no discussion with respect to any jointly owned property other than the residence, or any transfers, other than those set forth in the return, as Guernsey had no knowledge thereof, and Wilson made no disclosures other than those aforementioned.

On or about June 15, 1933, the claim for refund was allowed by respondent to the extent of $10,103.70, and a certificate of overassessment for a $10,103.70 refund and $938.71 interest was issued to ‘Mary H. Wilson, Beneficiary, Estate of Henry Wilson.‘ On July 14, 1933, the amounts so certified were refunded to Mary H. Wilson. No certificates of overassessment were issued or refunds made to F. A. Wilson and W. T. Wilson as a result of the filing of said claims for refund.

On or about October 12, 1937, Guernsey completed his third investigation of the estate of Henry Wilson. An examination of the returns of the Nevada corporation for 1935, which showed a capital of $2,500,000, beginning in 1931, convinced Guernsey that the income of F. A. and W. T. Wilson did not warrant their ownership of the large amount of money shown by the corporate balance sheets. He concluded that a great many items of property belonging to decedent had not been disclosed.

After the discovery of the existence of the joint accounts in the Oakland banks at decedent's death, as hereinabove mentioned, Guernsey requested two different tax attorneys of the Wilsons to get in touch with F. A. Wilson and see what his attitude was about making an entirely new disclosure. Each of the attorneys contacted Wilson, but he refused to do anything. Guernsey then personally made several unsuccessful efforts to contact the Wilsons, following which he prepared his 1937 report upon the taxable estate of Henry Wilson from the available office records, revenue agents' reports, and files relating to the affairs of all the Wilson's, without ever contacting any one of them.

This report contained the basic data for the deficiency notices of November 29, 1937, and December 4, 1937. The gross estate was determined to be $2,585,978.20, including the two items of property previously included in the estate tax return filed by respondent. Deductions of $118,520.13 were allowed and the net estate was determined to be $2,467,458.16. The estate tax liability was computed as $180,245.82, against which a credit of $8,532.13 was allowed for state inheritance taxes paid and a credit of $2,133.03 for estate taxes paid, leaving a deficiency of $169,580.66. A 25 percent penalty for failure to file a return as prescribed by section 3176 of the Revised Statutes was invoked and also a 50 percent fraud penalty ‘for evasion of tax in filing a fraudulent claim for refund of Federal estate tax,‘ or a total of deficiency and penalties of $296,766.16.

Guernsey's report started with the capital account of the corporation, Wilson Bros. & Co., at the end of 1935 in the amount of $2,585,978.29. His theory was that by that time most of the outside capital formerly owned by decedent had been brought into the corporation, principally in 1929, 1930, and 1931, and that prior to the transfer of these assets to the corporation it was unknown where the assets were, how they were kept, or the form thereof. As he was able to identify the assets held by the corporation, he eliminated them from the capital account until he arrived at the figure of $1,096,114.11, which is designated in the deficiency notice as ‘Value of assets included in balance sheet of Wilson Bros. and Co. not represented in the items above.‘ This figure represents ‘the difference between the identified items (in the deficiency notice) belonging to the Estate of Henry Wilson and items which could not be identified which were held by Wilson Bros. & Co., a corporation.‘ The amount of $1,096,114.11 was composed principally of I.O.U.'s of F. A. and W. T. Wilson, executed long after the death of the decedent and no part of said I.O.U.'s is includible in decedent's gross estate.

The deficiency notice mailed to each of the petitioners herein designates him or her as ‘Beneficiary, Transferee and Constructive Executor (or Executrix) of the Estate of Henry Wilson.‘ The notices state that the deficiency has been determined pursuant to sections 300, 315, and 316, Revenue Act of 1926, and that ‘such amount (plus interest) is proposed for assessment against you as constructive executor of the estate of * * * , also as transferee of property of said decedent. * * * ‘

In January 1938 respondent made a jeopardy assessment against each of the petitioners under the designation ‘Estate of Henry Wilson, * * * (name of petitioner) * * * , Transferee and Statutory Exec.‘ for a deficiency of $169,580.66, with added penalties of $127,185.50, together with interest. Pursuant to said jeopardy assessment the deficiency, penalties and interest were paid to the collector on May 13 and 18, 1938, by distraint on funds standing in the name of Mary H. Wilson in the total amount of $392,213.68.

It is stipulated that the following items are to be taken into account in recomputing the deficiency under Rule 50:

Henry Wilson's federal income tax liability for 1918 and 1919 outstanding at June 5, 1928 in the amount of $5,732 plus interest of $1,082.05.

Attorney fees with counsel herein for services in this proceeding, $30,000.

Costs in connection with this proceeding, $1,340.01.

Petitioners were in actual or constructive possession of property of the decedent and are executors within the meaning of section 300, Revenue Act of 1926. No one of said petitioners filed a return or list at the time prescribed by law.

Transfers by the decedent in contemplation of death rendered his estate insolvent and petitioners are each individually liable as a transferee of property of the estate of Henry Wilson.

OPINION.

ARNOLD, Judge:

Petitioners contend first that the estate tax return made and subscribed by the Commissioner of Internal Revenue on May 17, 1930, instituted the running of the statute of limitations, and that respondent has wholly failed to show any fraud which would remove the bar of the statute. Secondly, petitioners contend that the burden of proof is upon respondent by reason of the affirmative allegations in his answer, and that the presumption of correctness does not apply to his third ‘final determination‘ due to the wide variance between it and his earlier determinations, and because it it not founded upon fact, it is arbitrary, unreasonable, and capricious, and greatly overstates the amount of any possible estate of Henry Wilson. Thirdly, petitioners contend that all the property accumulated by Henry Wilson was community property under the laws of California or Washington, that from time to time and pursuant to an oral agreement between husband and wife, decedent divided the proceeds of or the property itself with his wife, that to the extent of this division the community character of the property was destroyed and Mary H. Wilson's share became and remained her separate property, but that to the extent the property was not divided Mary H. Wilson in 1924 and his account in the San Francisco Bank on June 1, 1928, decedent made no gifts or transfers of property taxable as a part of his gross estate. And, finally, petitioners contend that the 25 percent delinquency penalty is inapplicable because none of them was required by law to file an estate tax return.

We shall consider first petitioners' contention that assessment of the deficiency is barred by the statute of limitations. This contention is bottomed upon the return filed by respondent in May 1930, being the ret specified in section 310(a) of the Revenue Act of 1926, set forth in t e margin.

^{1 1} Concededly, no other return respecting the estate of Henry Wilson, or respecting the transferees or beneficiaries of said estate, has been filed.

1 SEC. 310. (a) Except as provided in section 311, the amount of the estate taxes imposed by this title shall be assessed within the three years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of three years after the return was filed.

1 See memorandum of Judge Van Fossan accompanying orders overruling petitioners' motion for judgement on the pleadings.

The three year period of limitations in section 310 is expressly inapplicable in the case of a false or fraudulent return with intent to evade tax or in the case of a false or fraudulent return with intent to evade tax or in the case of a failure to file a return. In such cases section 311(a), Revenue Act of 1926 set forth in the margin,

² provides that the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time. Respondent determined a fraud penalty upon the theory that the claim for refund filed by petitioners was fraudulent and for the purpose of evading tax. Claim for this fraud penalty has since been abandoned by respondent because there is no statutory authority for the imposition of a fraud penalty for evasion of tax in filing a fraudulent claim for refund.

2 SEC. 311. (a) In the case of a false or fraudulent return with intent to evade tax or of a failure to file a return the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time.

Petitioners look beyond section 311(a) to the provisions of section 3176 of the Revised Statutes, as amended by section 1103, Revenue Act of 1926, the pertinent portions of which appear in the margin.

³ They point out that the only return filed was the one made and subscribed by the Commissioner on May 17, 1930, pursuant to section 3176 of the Revised Statutes, that said section makes this return ‘prima facie good and sufficient for all legal purposes,‘ that this return instituted the running of the statutory period of limitations, citing Joe Goldberg, 14 B.T.A. 465, 467; Douglas L. Edmonds, Administrator, 31 B.T.A. 962, affd., 90 Fed.(2d) 14; certiorari denied, 302 U.S. 713; Estate of Lee R. Farrell, 35 B.T.A. 265, 270; Fred Taylor, 36 B.T.A. 427, 428; and, since more than seven years elapsed between the filing of the return and the notice of deficiency, assessment is barred.

3 SEC. 1103. Section 3176 of the Revised Statutes, as amended, is amended to read as follows:‘SEC. 3176. If any person, corporation, company, or association fails to make and file a return or list at the time prescribed by law or by regulation made under authority of law, or makes, willfully or otherwise, a false or fraudulent return or list, the collector or deputy collector shall make the return or list from his own knowledge and from such information as he can obtain through testimony or otherwise. In any such case the Commissioner of Internal Revenue may, from his own knowledge and from such information as he can obtain through testimony or otherwise, make a return or amend any return made by a collector or deputy collector. Any return or list so made and subscribed by the Commissioner, or by a collector or deputy collector and approved by the Commissioner, shall be prima facie good and sufficient for all legal purposes.‘If the failure to file a return (other than a return under Title II of the Revenue Act of 1924 or Title II of the Revenue Act of 1926) or a list is due to sickness or absence, the collector may allow such further time, not exceeding 30 days, for making and filing the return or list as he deems proper.‘

This argument, it should be noted, is based upon the provisions of a general statute. No similar provision appears in sections 310 and 311 of the 1926 Act, which relate specifically to estate tax returns. None of petitioners' authorities and none of the cases examined in our research expressly hold that a return filed by the Commissioner under section 3176 of the Revised Statutes started the running of the statute of limitations. Some of these authorities indicate that the statute might begin running from the filing of such a return, but in each instance the case turned upon some question other than the statutory bar on assessments. We have carefully examined the Goldberg, Edmonds, Farrell, and Taylor cases, supra, but we do not agree that they establish the rule contended for by petitioners. Each of the cited cases is distinguishable on its facts, each assumes or the facts show that the return under section 3176 contained all necessary data from which the tax could be computed, and each is disposed of upon some ground other than the bar of the statute of limitations.

In the Goldberg and Taylor cases we considered the effect of the statutory language providing that a return under section 3176 ‘shall be prima facie good and sufficient for all legal purposes.‘ In the former case we stated that this language ‘can only mean that Congress intended that a return so filed should answer the same purposes as if filed by the parties themselves.‘ In the latter case we said, ‘The return filed by the respondent (Commissioner) became the return of petitioner, and stands on the same basis as if it had been filed by petitioner.‘ Petitioners insist that these and other cited authorities uniformly call an. treat ‘a return under section 3176, Revised Statutes, as the return for the taxpayer.‘

If, as petitioners contend, the return here should be treated as the taxpayer's return, it would seem logical to judge the sufficiency, completeness, and accuracy of the return by the same standards that prevail where the taxpayer filed the return in the first instance. Assuming that the instant return had been filed by the petitioners, we do not think it would have instituted the running of the statute of limitations, and upon the record now before us, we would have to hold that the return was false and fraudulent with the intent to evade tax. In the case of a false and fraudulent return section 311(a), supra, prevents the running of the statute of limitations and authorizes assessment of the tax at any time.

Heffernan v. Alexander, (D.C.), 48 Fed.(2d) 855, and Roosevelt & San Investment Fund, 34 B.T.A. 38; affirmed in Commissioner v. Roosevelt & Son Investment Fund, 89 Fed.(2d) 706, which are among the other authorities cited by petitioners, do not apply as no fraud was involved in either case and no question was raised in either as to the sufficiency, accuracy, or completeness of the returns filed under section 3176.

While relying on the above cited cases, and numerous others cited, and insisting that they constituted authority for raising the statutory bar in these proceedings, the petitioners, nevertheless, conceded in their closing brief (p. 23) that ‘no case has been discovered which can accurately be cited as on 'all fours' with this proceeding,‘ and we are unable to find any. Resort must be had, therefore, to legislative intent and the guideposts furnished by the decided cases. Decisions of the Supreme Court have held that ‘the return‘ which will start the statute running is one that ‘evinces an honest and genuine endeavor to satisfy the law,‘ Zellerbach Paper Co. v. Helvering, 292 U.S. 283; one that contains all the date from which the tax can be computed, Germantown Trust Co. v. Commissioner, 309 U.S. 304; and one that is verified as a return, Lucas v. Pilloid Lumber Co., 281 U.S. 245. In Corona Coal & Coke Co., 11 B.T.A. 240, 244, the Board stated that, until a return is filed which specifically sets forth the items of gross income and the deductions and credits allowed, the period of the statute of limitations does not begin to run. In Peerless Iron Pipe Exchange, Inc., 23 B.T.A. 900, the Board stated that the ‘purpose and function of all income tax returns, on whatever form, is to furnish such information as will enable the respondent to proceed intelligently in determining the proper amount of tax to be assessed.‘ See also Blenheim Co., Ltd., 42 B.T.A. 1248; affd., 125 Fed. (2d) 906.

Section 304 of the Revenue Act of 1926, set forth in the margin,

⁴ required the filing of a return under oath in duplicate, setting forth (1) the value of the gross estate of the decedent at the time of his death, (2) the deductions allowed under section 303)3) of value of the net estate of the decedent, and (4) the tax paid thereon, and such supplemental data as may be necessary to establish the correct tax.

4 SEC. 304. (a) The executor, within two months after the decedent's death, or within a like period after qualifying as such shall give written notice thereof to the collector. The executor shall also, at such times and in such manner as may be required by regulations made pursuant to law, file with the collector a return under oath in duplicate, setting forth (1) the value of the gross estate of the decedent at the time of his death, or, in case of a nonresident, of that part of his gross estate situated in the United States; (2) the deductions allowed under section 303; (3) the value of the net estate of the decedent as defined in section 303; and (4) the tax paid or payable thereon; or such part of such information as may at the time be ascertainable and such supplemental data as may be necessary to establish the correct tax.(b) Return shall be made in all cases where the gross estate at the death of the decedent exceeds $100,000 and in the case of the estate of every nonresident any part of whose gross estate is situated in the United States. If the executor is unable to make a complete return as to any part of the gross estate of the decedent, he shall include in his return a description of such part and the name of every person holding a legal or beneficial interest therein, and upon notice from the collector such person shall in like manner make a return as to such part of the gross estate.

Petitioners do not contend that the return executed May 17, 1930, meets the above requirements, for their briefs concede that this return is inaccurate, incomplete, and insufficient.

It is evident, therefore, that when the return is filed it must contain the required information. The burden of furnishing the information upon which assessment may be made is cast by law upon the taxpayer. By measuring the period of limitation from the filing of the return the statute manifests a clear legislative intent that:

* * * the period should begin only when the taxpayer had furnished such information in the manner prescribed. Florsheim Bros. Co. v. United States, 280 U.S. 453 * * * . Meticulous accuracy, perfect completeness, or absence of any omission is not exacted. But a return which fails to comply in a substantial degree with the requirements of the statute in respect to disclosing the requisite information essential to the making of assessments does not suffice to start the period of limitation.

Alkire Inv. Co. v. Nicholas (C.C.A., 10th Cir.), 114 Fed.(2d) 607, 610.

In the last cited case, the Alkire Inv. Co. filed corporate returns for 1926 to 1935, inclusive, on Form 1120, representing that it had disposed of its income-bearing property, had no gross income, was entitled to no deductions or credits, and had no net income. No disclosure was made that income-bearing property had been conveyed in trust, with power of revocation reserved to taxpayer, which provision would have rendered taxpayer liable for tax on income. There was nothing on the returns to put the Commissioner on notice that disposition of income-bearing property was not made in ordinary manner. Notations on the returns as to disposition of property and representation that there was no gross or net income strongly suggested disposition of its property in the usual manner. In denying taxpayer's claim that collection of the tax was barred by the statute of limitations, the Circuit Court stated in addition to above quoted matter as follows:

* * * While there was no intentional fraud, wilful negligence or purposed attempt at evasion of tax on the part of the taxpayer, the returns not only failed to disclose requisite information but were misleading and calculated to prevent discovery of material facts. Returns of that kind are not effective to start the period of limitation running. Compare Florsheim Bros. Co. v. United States, supra; Lucas v. Pilliod Lumber Co., 281 U.S. 245 * * * ; Germantown Trust Co. v. Commissioner, 309 U.S. 304 * * * ; United States V. National Tank & Export Co., 5 Cir., 45 F.2d 1005, certiorari denied 283 U.S. 839, * * * Myles Salt Co. v. Commissioner 5 Cir., 49 F.2d 232; National Contracting Co. v. Commissioner, 8 Cir., 105 ,f.2d 488.

If a return filed by a taxpayer may be so defective and misleading that it will not set in motion the statute of limitations, we fail to see how an equally defective and misleading return filed by the Commissioner from information furnished by the party in possession of all the facts, and whose duty it was to make full disclosure, is any more effective for that purpose. There is no contention here that Francis A. Wilson revealed assets that the Commissioner omitted from the return. As a matter of fact, all assets disclosed by Wilson to the revenue agent were reported in the return, whether taxable or not. The existence of any other assets was denied by Wilson to the revenue agent, although he well knew of various transfers of property by decedent and of various jointly owned bank accounts. These misrepresentations and this withholding of information from the taxing authorities amount to fraud and concealment on the part of petitioners which misled the Commissioner and concealed from him the essential data from which the estate tax could properly be computed. Petitioners not only failed to perform their statutory duty of filing a return ‘disclosing the requisite information essential to the making of assessments,‘ Alkire Inv. Co., supra, but they withheld and concealed from the Commissioner the requisite information that would have permitted him to file a sufficient return. To hold the statute bars the Commissioner from assessing a deficiency under these facts would place a premium on petitioners' own derelictions and permit them to profit by their own misconduct. On this issue, therefore, we hold against the petitioners.

In our memorandum opinion accompanying our order of November 22, 1940, denying petitioners' motion for judgment on the pleadings, we pointed out that the determination of the statute of limitations issue involved the consideration of the adequacy of the return filed by the Commissioner. While we discussed therein certain antecedent or collateral questions, we held that under the facts before us the return was inadequate to set in motion the running of the statute of limitations. In discussing the statutory words ‘prima facie‘ in section 3176, we pointed out that ‘the sufficiency of the return in any given situation depends upon the facts,‘ and that ‘If the facts overcome the prima facie showing of the return, the return ceases to be good and sufficient in the premises.‘ After commenting upon the grossly inaccurate nature of the return, the return ceases to be good and sufficient in the premises.‘ After commenting in amount furnished by Francis A. Wilson, we said: ‘The disparity in amount with the true estate and the circumstances of Wilson's action in furnishing information on behalf of the estate are such as clearly to warrant characterization thereof as fraudulent concealment. (Section 320, Revenue Act of 1926).‘ Our decision herein squares with the conclusion reached in our memorandum opinion entered November 22, 1940, that the return was inadequate to set in motion the statute of limitations.

As an alternative argument petitioners point to the assessment of a deficiency against decedent's estate in October 1930, and contend that the decided cases hold that once the Commissioner has assessed a deficiency in tax the statute of limitations begins to run, citing United States v. Updike, 281 U.S. 489; Commissioner v. Krug, (C.C.A., 9th cir.), 78 Fed.(2d) 57, affirming 30 B.T.A. 1376; Caroline J. Shaw, Executrix, 21 B.T.A. 400; Frank L. Roche, 21 B.T.A. 1139. We fail to see the applicability of the cited cases to the facts here. The assessment of October 1930 was paid and satisfied, but the assessment of one deficiency is not necessarily final, as section 307, Revenue Act of 1926, definitely contemplates that more than one deficiency may be determined and assessed. No other assessment was made prior to the issuance of the deficiency notices herein. In the Updike case a return was filed for the taxpayer by a revenue agent in 1918 and an assessment was made in 1920. The period of limitations there considered was on collection, not on assessment, which was timely. Our principal problem is whether the only return filed was a sufficient return to start the statute of limitations running. If the Commissioner's return was insufficient for that purpose, an assessment based thereon would likewise be insufficient.

We shall next consider petitioners' last contention, that none of them was required by law to file an estate tax return and therefore no delinquency penalty under section 1103, Revenue Act of 1926, amending section 3176 of the Revised Statutes, supra, can be applied. Section 300(a), set forth in the margin,

⁵ defines the term ‘executor,‘ where there is no executor or administrator appointed, qualified and acting, as ‘any person in actual or constructive possession of any property of the decedent.‘ Petitioners contend that they are not ‘executors‘ and therefore could not be required to file a return. Their contention rests upon the fact that they possessed no property subject to probate or administration proceedings and that decedent had, at the time of his death, no property subject to disposition by will or the laws of intestate succession. Differently stated, they contend that transfers prior to decedent's death and joint tenancies at his death had wiped out all his property and left nothing subject to probate.

5 SEC. 300. When used in this title—(a) The term ‘executor‘ means the executor or administrator of the decedent, or, if there is no executor or administrator appointed, qualified, and acting within the United States, then any person in actual or constructive possession of any property of the decedent.

If by such anticipatory arrangements a decedent could defeat the burden of the estate tax, the law would soon be a nullity. The provisions of section 302, subsection (1) to (i), inclusive, were designed to reach and include within a decedent's gross estate the value of all his property, real or personal, tangible or intangible, wherever situated. Subsections (c) and (e) thereof specifically include any interest of the decedent transferred under specified circumstances and any interest held by decedent as joint tenant with another. Since these provisions bring certain transfers and jointly held property of a decedent into his gross estate for the purpose of the Federal estate tax, the transferee and/or the joint tenant are in actual or constructive possession of the property of the decedent within the meaning of section 300, supra. This being so they are ‘executors‘ of decedent's estate for Federal estate tax purposes and are charged by law with the responsibility of filing an estate tax return as executors. Sec. 304, supra.

In our opinion each of these petitioners was an executor for Federal estate tax purposes, as they each held property transferred to them by decedent in contemplation of death. Each of them was charged with filing a return for the estate of Henry Wilson and disclosing therein property of his estate in their possession. If any one of them was unable to make a complete return for the estate of the decedent, he or she was charged with the responsibility of including in the return a description of the part omitted and the name of every person holding a legal or beneficial interest therein. Sec. 304 (c), supra. It is admitted that none of these petitioners filed such a return. Section 1103, supra, makes imposition of the 25 percent penalty mandatory in case of any failure to make and file a return or list within the time prescribed by law except where failure to file is due to reasonable cause. There has been no showing of reasonable cause here and the penalty must be imposed. Scranton, Lackawanna Trust Co., Trustee, 29 B.T.A. 698; affd. , 80 Fed.(2d) 519; certiorari denied, 297 U.S. 723; Edmonds v. Commissioner, supra; National Contracting Co. v. Commissioner, 105 Fed.(2d) 488; John B. Nordholt, 4 B.T.A. 509.

Petitioners' contention that respondent has the burden of proof with respect to his affirmative allegations and the transferee liability is, of course, well founded, but we can not agree that respondent has the burden in other particulars. Petitioners alleged the arbitrary, unreasonable, and capricious nature of respondent's determination and it is their burden to establish the allegation. The rule is stated in Helvering v. Taylor, 293 U.S. 507, as follows: ‘unquestionably the burden of proof is on the taxpayer to show that the Commissioner's determination is invalid.‘ We think the rule is applicable here and petitioners must carry the burden.

Petitioners argue that the Commissioner's return is prima facie good and can only be overcome by clear and competent evidence; that the Commissioner's later determination is no more presumptively correct than his earlier determinations; that the deficiencies herein are predicated upon false assumptions and false inferences, and not upon facts; that the deficiencies are so arbitrary and unreasonable that any presumption in their favor disappears under the established facts; and that because of the inconsistencies of respondent's position transferee liability has not been established.

Much has been said by both parties about the manner in which respondent determined the deficiencies herein, that is, the data used and the basic facts behind his determination. Our findings show that respondent erred in some particulars in that he erroneously included in decedent's gross estate certain jointly held property and certain property erroneously considered to have been transferred by decedent in contemplation of death. Out findings are based upon the evidence adduced by petitioners with respect to these items of property, and the weight, competency, and materiality thereof. To the extent that respondent's determination is disapproved, the petitioners have, in our judgment, sustained their burden of proof.

Petitioners' difficulties here could have been obviated in large measure if they had filed the return which Francis A. Wilson notified the collector would be filed in due course. Instead of following through and complying with the statutory requirements, recognized in the notification to the collector of decedent's death, the petitioners elected not to file. Thereafter, when respondent's investigation included only two items of property in the gross estate they elected to stand on this return as the return for the estate, well knowing that other property was held by decedent and his wife in joint tenancy, even as their home place was so held. We are firmly convinced by this record that petitioners did not act in good faith. They knew, at least Francis A. Wilson knew— he testified that he was personal secretary for his father and managed his mothers affairs— that the information given the respondent's representative was incomplete. Francis A. Wilson knew that he failed to make a full and complete disclosure as to all property transfers made by his father and as to all bank accounts in which decedent held a joint interest with his wife at the time of his death. Petitioners specifically concede that they made no disclosure of the transfer of the steamer interest to Mary Wilson in 1924, and further concede that such transfers are taxable. They point to this concession as evidence of their good faith and willingness to cooperate, but the more pertinent fact, which they overlook, is that the filing of the transfers for record so shortly after decedent's death left them no alternative but to admit the transfers were to take effect in possession and enjoyment at or after death. Furthermore, Mary Wilson's income tax returns for the years subsequent to the transfer show that she continued thereafter to claim depreciation on the same basis that she had in 1921, which is inconsistent with any effective transfer in 1924.

Bearing in mind the duty that rests upon an executor, a transferee, or a beneficiary to report any part of a decedent's estate in their possession, upon notice from the collector (sec. 302(b), supra), it seems clear that petitioners were derelict in their duty. It is no excuse to say that the return filed by respondent was incomplete and inaccurate. Respondent in making a return is forced by the very nature of things to rely upon the information and testimony given by persons knowing the facts. If they fail or refuse to make a disclosure of pertinent facts respecting the estate, or if they deny the existence of assets includible in the gross estate, respondent can not be charged with arbitrary, capricious, and unreasonable action if after discovery of the existence of such assets, coupled with a continued refusal by the interested parties to make any further disclosure as to assets of the estate, he determines the value of the gross estate from such testimony and information as is available to him and includes therein all assets which may have been jointly held by decedent at death or transferred under circumstances which might bring the property within the estate. Much of what has occurred here is due to petitioners' own acts of omission and commission. If because thereof they find themselves in difficulty with the tax authorities, it is a difficulty of their own making and they should not be heard to complain.

We do not mean to say that we fully approve the method respondent used to determine the deficiencies herein. The record convinces us, and in this respect we agree with petitioners, that the return filed on Form 706 for the estate of Henry Wilson was carelessly prepared, contains errors on its fact, and completely omitted all deductions to which the estate would be entitled. Mistakes in preparing the return were admitted on the witness stand by the revenue agent who prepared it. During his testimony he outlined in detail how he prepared the basic data upon which the deficiency notices were predicated. A discussion of his method will in no way aid the decision we have reached, based upon the facts contained in the record.

As a part of their contention relating to the burden of proof issue, petitioners argue that the conjunctive liability asserted against each of them as beneficiary, transferee, and constructive executor is indicative of the arbitrary ‘shot in the dark‘ determination made by respondent. It is contended that if respondent had based his determination upon facts he could and would have determined which one of these divergent and inconsistent liabilities applied to petitioners. It is also asserted that Congress never intended a transferee to be an executor by reason of the same transfer which made his a transferee, and that, by the statutory term ‘any property of the decedent,‘ Congress meant property subject to probate proceedings, expenses of administration, and claims of creditors.

The deficiency herein was proposed for assessment against each of these petitioners pursuant to sections 300, 315, and 316 of the Revenue Act of 1926. Section 300 has been set forth above and the provisions of sections 315 and 316 are set forth in the margin.

⁶ Section 315(b), it should be noted, specifically deals with transfers in contemplation of or intended to take effect in possession or enjoyment at or after decedent's death, and with the proceeds of an insurance contract passing to a specific beneficiary. If the estate tax of the decedent is not paid when due this section makes the transferee, trustee, or beneficiary, as the case may be, personally liable for the tax to the extent of the decedent's interest in the property at the time of transfer, or to the extent of the beneficiary's interest under the insurance contract, and subjects the property to a lien in the amount of the tax.

6 SEC. 315. (a) Unless the tax is sooner paid in full, it shall be a lien for ten years upon the gross estate of the decedent, except that such part of the gross estate as is used for the payment of charges against the estate and expenses of its administration, allowed by any court having jurisdiction thereof, shall be divested of such lien. If the Commissioner is satisfied that the tax liability of an estate has been fully discharged or provided for, he may, under regulations prescribed by him with the approval of the Secretary, issue his certificate, releasing any or all property of such estate from the lien herein imposed.(b) If (1) the decedent makes a transfer, by trust or otherwise, of any property in contemplation of or intended to take effect in possession or enjoyment at or after his death (except in the case of a bona fide sale for an adequate and full consideration in money or money's worth) or (2) if insurance passes under a contract executed by the decedent in favor of a specific beneficiary, and if in either case the tax in respect thereto is not paid when due, then the transferee, trustee, or beneficiary shall be personally liable for such tax, and such property, to the extent of the decedent's interest therein at the time of such transfer, or to the extent of such beneficiary's interest under such contract of insurance, shall be subject to a like lien equal to the amount of such tax. Any part of such property sold by such transferee or trustee to a bona fide purchaser for an adequate and full consideration in money or money's worth shall be divested of the lien and a like lien shall then attach to all the property of such transferee or trustee, except any part sold to a bona fide purchaser for an adequate and full consideration in money or money's worth.SEC. 316. (a) The amounts of the following liabilities shall, except as hereinafter in this section provided, be assessed, collected, and paid in the same manner and subject to the same provisions and limitations as in the case of a deficiency in a tax imposed by this title (including the provisions in case of delinquency in payment after notice and demand, the provisions authorizing distraint and proceedings in court for collection, and the provisions prohibiting claims and suits for refunds):(1) The liability, at law or in equity, of a transferee of property of a decedent or donor, in respect of the tax (including interest, additional amounts, and additions to the tax provided by law) imposed by this title or by any prior estate tax Act or by any gift tax Act.(2) The liability of a fiduciary under section 3467 of the Revised Statutes in respect of the payment of any such tax from the estate of the decedent of donor.Any such liability may be either as to the amount of tax shown on the return or as to any deficiency in tax.(b) The period of limitation for assessment of any such liability of a transferee or fiduciary shall be as follows:(1) Within one year after the expiration of the period of limitation for assessment against the executor or donor; or(2) If the period of limitation for assessment against the executor expired before the enactment of this Act but assessment against the executor was made within such period,— then within six years after the making of such assessment against the executor, but in no case later than one year after the enactment of this Act.(3) If a court proceeding against the executor or donor for the collection of the tax has been begun within either of the above periods— then within one year after return of execution in such proceeding.(c) The running of the period of limitation upon the assessment of the liability of a transferee or fiduciary shall after the mailing of the notice under subdivision (a) of section 308 to the transferee or fiduciary, be suspended for the period during which the Commissioner is prohibited from making the assessment in respect of the liability of the transferee or fiduciary, and for 60 days thereafter.(d) This section shall not apply to any suit or other proceeding for the enforcement of the liability of a transferee or fiduciary pending at the time of the enactment of this Act.(e) As used in this section, the term ‘transferee’ includes heir, legatee, devisee, and distributee.

We see no inherent difficulty under the present facts and circumstances in joining the liabilities of an executor with the liabilities of transferee and beneficiary in one deficiency notice. Petitioners cite our decision in Milk Bottle Exchange, Inc., 43 B.T.A. 33, as prohibiting this joinder of liabilities. But there the deficiency notice was sent to petitioner, as transferee; a petition was filed with the Board by petitioner; an answer was filed by the Commissioner alleging facts to sustain the transferee liability; and a reply thereto was filed by petitioner. Thereafter, the Commissioner discovered that the petitioner therein was not a transferee, but the same corporate entity with a mere change in name, and he then sought to amend his answer so as to hold petitioner either as a taxpayer or as a transferee. Upon the authority of Edward Michael, 22 B.T.A. 639, and Hulburd v. Commissioner, 296 U.S. 300, we held that determination of a taxpayer proceeding and a transferee proceeding ‘may not be made in a single proceeding instituted upon a notice of determination of only one of the two liabilities.‘ But the opinion does not hold that a taxpayer liability and a transferee liability cannot be determined where the notice of deficiency joins the two liabilities.

The facts here show that prior to his death decedent had so depleted his personal estate by transfers and by placing his assets in joint accounts that probate proceedings with respect to his estate were deemed unnecessary by his widow and sons. In fact, the said transfers, together with property placed in joint tenancy, had so thoroughly disposed of and distributed decedent's assets that the Circuit Court of Appeals for the Ninth Circuit held he was insolvent when he died, Wilson v. United States, 100 Fed.(2d) 552. In the cited case the Circuit Court affirmed a decree of the Federal District Court impressing a trust upon the funds transferred by Henry Wilson to his widow and others on June 1, 1928, and affirmed a judgment of the District Court in favor of the Government in the amount of certain income tax deficiencies. The Circuit Court further held that the transfer of decedent's bank account on June 1, 1928, to his wife and son was fraudulent as to creditors, that decedent was rendered insolvent by said transfer, and that the wife and son received the money in said account impressed with a trust for the benefit of creditors. Clearly, therefore, the amount of decedent's gross estate for estate tax purposes is solely dependent upon property transferred to and in possession of these petitioners at June 5, 1928, which property should be included in his gross estate under section 302, Revenue Act of 1926. No duly appointed, qualified or acting executor existed against whom respondent could proceed. If he had proceeded against the petitioners only as constructive executors, and established the estate tax liability, he would still have had to proceed against the same parties as transferees and beneficiaries to collect the tax. The procedure adopted avoids multiplicity of proceedings, and under the circumstances of this se we can not see any logical objection thereto.

Under section 3467, Revised Statutes, referred to in section 316, supra, and set forth in the margin,

⁷ Every executor or other person who pays any debt due from the decedent's estate before he satisfies and pays debts due the United States becomes personally answerable for the debts due the United States. Petitioners were beneficiaries of inter vivos gifts from decedent properly a part of his gross estate. Our findings show that they paid debts of the decedent without providing for estate taxes due the United States out of funds transferred as a gift on June 1, 1928. These beneficiaries were ‘other persons‘ within the meaning of section 3467. They must, under the present facts, be charged with knowledge of an estate tax liability and with failure to pay the same, i.e., prior to the jeopardy assessment made by respondent. Therefore, they were personally liable as well as liable as executors and transferees.

7 Section 3467 R.S. (U.S. Code, Title 31, Money and Finance, ch. 6, sec. 192.):‘Section 192, Liability of Fiduciaries. Every executor, administrator, or assignee, or other person, who pays any debt due by the person or estate from whom or for which he acts, before he satisfies and pays the debts due to the United States from such person or estate, shall become answerable in his own person and estate for the debts so due to the United States, or for so much thereof as may remain due and unpaid.‘

The next issue relates to the community property interests of decedent and his spouse. Petitioners urge that decedent accumulated his property in two community property states, but that as a result of divisions from time to time Mary Wilson acquired her share of some of the community property, which thereafter became her separate property and estate. It is argued, however, that to the extent that no division was made by Henry Wilson the community interest of Mary Wilson remained unimpaired. As we understand petitioners now, this contention involves primarily the residence at 22 Seaview Avenue in Piedmont, which it is contended was acquired with community funds.

Respondent's position on this issue is that the gross estate is an accumulation of California community property, that decedent acquired no property after July 29, 1927, except his $12,000 salary, and that it wasn't until July 29, 1927, that the California Code was amended so as to give the wife a vested interest in community property instead of the mere expectancy she had prior thereto, United States V. Robbins, 269 U.S. 315, and therefore all the community property is includible in decedent's gross estate.

Petitioners, apparently recognizing the weakness of their position, have insisted that all community property traceable to Wilson Bros. & Co., a Washington partnership, is community property in which Mary H. Wilson had a vested one-half interest. In other words they seeks to apply the community property laws of the State of Washington. One difficulty with this argument is that decedent moved to California in 1891 and resided there until his death. Another is that the transfers made to Mary from time to time would normally be considered a distribution in complete satisfaction as to her community share. A third difficulty is that, after the dissolution of the partnership in 1919 and the sale of the logging interests in 1920, decedent had no further partnership interests in the State of Washington, but only in California. It is a matter of record that Mary Wilson insisted upon decedent turning her separate property over to her and we think it unlikely, in view of her tax returns and the various other transfers made to her, that she was less insistent upon receiving her share of the community property. Her tax returns indicate and the Board found as a fact in Henry Wilson, 16 B.T.A. 1280, that she had substantial income from her separate property in 1920-1924, inclusive.

Furthermore, we are in no better position here to trace the community property of Henry Wilson and his spouse back to the Washington partnership through the various distributions than the Board was in Abraham B. Johnson, 7 B.T.A. 820. We there held that there was no satisfactory evidence whereby we could determine what portion, if any, of the distributive shares of the decedent from the Washington partnership was subject to division with his wife upon a community property basis. This record shows certain distributions to Mary H. Wilson by decedent in recognition of her community interest in his property, but the evidence is insufficient to determine how much her community share amounted to or how much of the property was transferred to her in recognition of her community interest. Certainly any distributions from the San Francisco and not Washington community property, and as to this property and as to decedent's salary, respondent must be sustained. Herbert Marshall, 41 B.T.A. 1064; Shea v. Commissioner (C.C.A., 9th Cir.), 81 Fed.(2d) 937.

Petitioners' contention that Mary H. Wilson held a community interest in the residence and only one-half of the value thereof should be included in decedent's gross estate is answered by the Circuit Court's opinion in Wilson v. United States, supra. There the court pointed out that the character of the ownership of property, whether separate or community, is to be determined by the proof showing the mode of acquisition rather than by any declaration of one of the parties that the property was or was not community. The Circuit Court upheld the District Court's finding that decedent and Mary H.Wilson owned the property as joint tenants with the right of survivorship. We are in no better position from the evidence adduced here to determine the mode of acquisition of this property than the court was in the cited case. That the funds used in acquiring the home may have come from the joint commercial account of decedent and his wife is no basis for inferring that the funds were community property. Actually numerous withdrawals from and deposits to this account were made with funds constituting the separate property of Mary H. Wilson. We are unable to determine what funds she had, if any, in the account at the time the home was acquired. We will not assume that half of the funds invested belonged to her as her community interest or her separate property. Cf. Rosenberg v. Commissioner (C.C.A., 9th Cir.), 115 Fed.(2d) 910; Commissioner v. Larson (C.C.A., 9th Cir.), 131 Fed.(2d) 85. If we had to indulge in inferences, we would infer that decedent's funds were used, since Francis A. Wilson testified that all living expenses were borne by decedent. But the burden of proof rests upon petitioners to show that the home was acquired with community funds. That burden, in our opinion, has not been sustained.

The remaining issue requires consideration of the various items of property which respondent determined should be included in the gross estate. We have found the facts with respect to each item of property after carefully weighing, checking, and considering the voluminous and at times contradictory evidence in the record. We have carefully analyzed the returns and copies of returns of the three petitioners and the decedent for such years as were received in evidence. We have with equal care studied the photostatic copies and originals of the many accounts involved, together with the deposits, withdrawals, and transfers from one account to another, shown thereon, and the accruals of interest. We have analyzed the record of payments received and distributions made to the partners of Wilson Bros. & Co. from the sale of the timber lands and logging equipment in Washington, and the dissolution of the partnership by a mutual transfer of interests therein by the Wilsons of Aberdeen and the Wilsons of San Francisco, including the additional payments received from the Aberdeen Wilsons by decedent and his sons. We have examined and considered the several decisions of the Board and the courts involving decedent and the immediate members of his family in so far as they throw light upon the property acquired, disposed of, and held by Henry Wilson from 1887 until the date of his death. We have considered the financial histories of decedent, his wife, and their sons with relation to the property acquired, held, and disposed of by Henry Wilson during his lifetime. We have attempted to trace as far as the record permits each item of property from its source into the possession of the parties before us and determine whether said property was the separate property of one of them or decedent's gross estate under section 302. We have likewise considered the prior hearings, orders, and opinions in these proceedings and the transcript of the record on appeal of Wilson Bros. & Co., a corporation, as well as the Circuit Court's opinion in that case which appears in Wilson Bros. & Co. v. Commissioner (C.C.A., 9th Cir), 124 Fed.(2d) 606. We have examined and weighted the testimony of the several witnesses for both parties in connection with the documentary evidence in determining which items of property included in the gross estate properly belong therein. We will not therefore discuss the evidence in detail but will state as briefly and succinctly as possible the principal facts that influenced our decision.

We have found as a fact that three of the joint accounts of decedent and his wife represented the separate funds of the wife. Section 302(e), Revenue Act of 1926, set forth in the margin,

⁸ excludes from the gross estate of a decedent such part of a joint account as may be shown to have originally belonged to the other joint tenant and never to have been received or acquired by the latter from the decedent for less than an adequate and full consideration in money or money's worth. The evidence convinces us and our findings show that accounts numbered 68036, 19013, and 329758 represented the separate earnings and property of Mary H. Wilson, and accordingly we have excluded these accounts from the gross estate.

8 SEC. 302. The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated—(e) To the extent of the interest therein held as joint tenants by the decedent and any other person, or as tenants by the entirety by the decedent and spouse, or deposited, with any person carrying on the banking business, in their joint names and payable to either or the survivor, except such part thereof as may be shown to have originally belonged to such other person and never to have been received or acquired by the latter from the decedent for less than an adequate and full consideration in money or money's worth:Provided, That where such property or any part thereof, or part of the consideration with which such property was acquired, is shown to have been at any time acquired by such other person from the decedent for less than an adequate and full consideration in money or money's worth, there shall be excepted only such part of the value of such property as is proportionate to the consideration furnished by such other person: Provided further, That where any property has been acquired by gift, bequest, devise, or inheritance, as a tenancy by the entirety by the decedent and spouse, then to the extent of one-half of the value thereof, or, where so acquired by the decedent and any other person as joint tenants and their interests are not otherwise specified or fixed by law, then to the extent of the value of a fractional part to be determined by dividing the value of the property by the number of joint tenants.

We have hereinabove considered the realty at 22 Seaview Avenue and no further comment is required to justify its inclusion in the gross estate as jointly held property.

We have found as a fact that accounts numbered 194242, 700074, and 248082, whether jointly or individually held, were transferred by decedent in contemplation of death and therefore are includible in his gross estate under section 302(c), Revenue Act of 1926.

⁹ As to the last mentioned account little need be said, as petitioners concede its taxability. Account numbered 700074 was opened April 10, 1928, less than two months before decedent's death, in his wife's name by a transfer of funds from the joint commercial account. Francis A. Wilson identified the deposit as the separate funds of Mary H. Wilson, but could do no more than categorically state that her funds and not decedent's were deposited in the account. He had no record or corroborating evidence of any sort. He was unable to tie up the transfer of funds with any separate property of Mary H. Wilson or the liquidation of any specific security. We are not persuaded by his conclusion that the funds were his mother's separate property. Decedent had just been through a pronounced spell of shortness of breath which confined him to his room. At or about that time the shortness of breath began to return with increased severity and frequency. Within ten days of the transfer he was confined to a hospital, a seriously ill man suffering from weakness of the heart and arteriosclerosis. Considering his age, his recent recovery from a serious operation, and his condition in February, March, and April of 1928, we are of the opinion that this transfer of funds by decedent was in contemplation of death. Cf. Commonwealth Trust Co. v. Driscoll (C.C.A., 3d. Cir.) 137 Fed. (2d) 65 3.

9 (c) To the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, in contemplation of or intended to take effect in possession or enjoyment at or after his death, (including a transfer under which the transferor has retained for his life or any period not ending before his death (1) the possession or enjoyment of, or the income from, the property or (2) the right to designate the persons who shall possess or enjoy the property or the income therefrom): except in case of a bona fide sale for an adequate and full consideration in money or money's worth. Where within two years prior to his death but after the enactment of this Act and without such a consideration the decedent has made a transfer or transfers, by trust or otherwise, of any of his property, or an interest therein, not admitted or shown to have been made in contemplation of or intended to take effect in possession or enjoyment at or after his death, and value or aggregate value, at the time of such death, of the property or interest so transferred to any one person is in excess of $5,000, then, to the extent of such excess, such transfer or transfers shall be deemed and held to have been made in contemplation of death within the meaning of this title. 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 but prior to the enactment of this Act, without such consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death within the meaning of this title;

The facts with respect to the transfer of account numbered 194242 are in many respects the same as the facts with respect to account numbered 700074. The interval of time between the two transfers was less than two weeks. Petitioners explain this transfer by stating that it was in accordance with the advice of their tax attorney, and the transfer was made to separate Mary H. Wilson's property from decedent's. Oddly enough, this advice had no application to other joint accounts which we have held belonged to Mary H. Wilson. We do not question that the advice was given, but we think the dominant motive for the transfer was contemplation of death and not the following of the advice of tax counsel.

The inclusion in decedent's gross estate of the separate bank accounts of Francis A. Wilson and Winfred T. Wilson, and the trust created by the latter for his children, was clearly error. We can find no justification for holding that this property of these petitioners represented taxable transfers of the decedent because he had made gifts to them in the past of substantial amounts of property. Petitioners have sustained their burden of proof as to these items and respondent's action is disapproved.

As previously stated herein, we have been unable to follow respondent's method or agree with his determination that $1,096,114.11 should be included in decedent's gross estate representing unidentified assets in the balance sheets of Wilson Bros. & Co., a corporation. A large portion of this sum consisted of I.O.U.'s given by the two Wilsons to their corporation which was organized subsequent to decedent's death. Obviously, there is no statutory authority to include such sums as are represented by these I.O.U.'s in the gross estate. Lacking access to any records and faced with the refusal of Francis A. Wilson to make any further comment or disclosure regarding his father's estate, this sum was included for the purpose of reaching any hidden unrevealed, and undisclosed assets. While the premise has been shown to be erroneous and the amount included for the purpose of reaching any hidden, unrevealed, and undisclosed assets. While the premise has been shown to be erroneous and the amount included has been largely accounted for, the respondent's assumption was not altogether in error. Decedent's interest in three vessels otherwise unaccounted for have been brought to light as previously undisclosed assets, and it is now stipulated that the value of his interests in said vessels should be included as transfers under 302(c), supra. The transfer of the real property at 1413 Madison Street to his two sons on December 28, 1927, was also brought to light and the statutory presumption that this transfer was in contemplation of death has not been overcome. The existence of a balance in the joint commercial account of decedent and his wife, while not included specifically in the amount of unidentified assets, was as a matter of fact disclosed at the hearing and was made the basis for an amendment by respondent requesting an increase in the deficiency. These facts, while not discussed in connection with the petitioners' argument as to the arbitrary, unreasonable, and capricious nature of respondent's determination, were considered in disposing of the argument, leaving the discussion of the facts for this portion of our opinion.

In redetermining the deficiency in accordance with our determination on the various issues and contentions, the stipulation of the parties respecting the additional deductions to which decedent's estate is entitled should be taken into consideration.

Attention is also directed to the omission from the record of portions of two exhibits, namely, copy of the collector's reply to the letter of Francis A. Wilson giving notice of decedent's death, Exhibit 74, and Exhibit 43, regarding dissolutions of the partnership of Wilson Bros. & Co. The substance of the collector's reply appears elsewhere in the record and the notice of dissolution of one of the partnerships is cumulative in effect and is also established by other facts of record, so that decision need not be delayed by these omissions.

Since the respondent has collected by jeopardy assessment and distraint an amount largely in excess of the deficiency and penalty which will result from our determination of estate tax liability, there will be an overpayment in tax. Therefore petitioners' prayer for relief in this respect will be granted, the amount of the overpayment will be determined under Rule 50, and decision will be entered accordingly.

Reviewed by the Court.

Decision will be entered under Rule 50.

STERNHAGEN, J., concurs only in the result.

TURNER, J., concurring: In my opinion, the reasonable and logical interpretation of sections 310 and 311 of the Revenue Act of 1926 is that existence or nonexistence of limitation on the period within which estate tax may be assessed depends solely on the act or failure to act by the party charged under section 304 and the regulations thereunder with the filing of the estate tax return, and the adequacy or inadequacy of a return made by a collector or by the Commissioner under section 3176 of the Revised Statutes, as amended, has nothing to do with it.

SMITH and OPPER, J J., agree with the above.

MELLOTT, J., concurring: Implicit in the language of the majority are two theories with with I do not agree: (1) That the filing of a return by the Commissioner under section 3176 R.S. may start the running of the statute of limitations; and (2) that the Commissioner may combine in one notice of deficiency and that we may hear and decide in one proceeding the joint, primary and representative liability of the executors and the several, secondary and personal liabilities of the same individuals as transferees. As to the first, we have already announced in this case

¹ that the statute of limitations begins to run only if a return, which is not false or fraudulent, is filed by the executor. If extant decisions of this tribunal stand for any other view, then I think they should be overruled. As to the second, orderly procedure requires that the Commissioner elect whether he will determine liability against the estate, which may be overturned only if the petitioners sustain their burden of proof, or proceed against the transferees in the manner contemplated by the statute (sec. 316, Revenue Act of 1926), assuming the attendant burden of proof. For a fuller discussion of the principles which the instant proceedings ignore or discard see Edward Michael, 22 B.T.A. 639; affd., 75 Fed.(2d) 966; certiorari denied, 296 U.S. 579; Milk Bottle Exchange, Inc., 43 B.T.A. 33; Paul, Federal Estate and Gift Taxation, Sec 13.47 and 13.48; Mertens, Law of Federal Income Taxation, ch. 53 .

MURDOCK, VAN FOSSAN, and HARRON, J J., agree with the above.

LEECH, J., concurs with the second point herein.