Moore, Hays and Feinberg, Circuit Judges.
The Commissioner of Internal Revenue (the Commissioner) petitions to review a decision of the Tax Court which held that a deficiency of $28,286.88 in estate tax was due from the Estate of Donald M. Nelson (the Estate). The Commissioner had previously determined that there was an estate tax deficiency of $354,911.22, and the Estate had sought and obtained a redetermination of that deficiency. The Commissioner and the Estate appeal from the Tax Court's decision.
Donald M. Nelson (Donald; also referred to in the Tax Court's findings of fact as the "decedent") and Helen W. Nelson (Helen) were married on December 18, 1926. They were divorced on January 19, 1945, pursuant to an Illinois decree. They had no issue. Thereafter, Donald married Lena. On September 29, 1959, Donald died. His widow, Lena M. Nelson, became the executrix of his estate.
This tax controversy centers around the events attendant to the 1945 divorce proceedings and the decree therein -- particularly, in relation to a trust agreement dated January 19, 1945, which was a part of the divorce settlement.
The Nelsons' Standard of Living Preceding the Divorce
The Nelsons' way of life and Donald's financial position are succinctly summarized in the Tax Court's findings of facts as follows:
"Decedent was continuously employed by Sears Roebuck & Co. from 1912 until 1942. In 1939 he became executive vice president and chairman of the executive committee. He held these positions until 1942 when he resigned to become Chairman of the War Production Board, a wartime agency of the United States in Washington, D.C., where he remained until 1944. On occasion during the years 1943 and 1944, decedent acted as personal representative of the President of the United States to the Republic of China and the Soviet Union.
"During the period 1939-42, decedent's salary from Sears Roebuck was $75,000 per year and he received an additional $25,000 to $30,000 annually from dividends on his holdings of Sears Roebuck stock. His total income for that period was in excess of $100,000 per year. In 1944, decedent earned approximately $15,000 in salary from the Government and approximately $42,500 of dividends on his Sears Roebuck stock.
"Prior to his marriage to Lena, the decedent had been married to Helen W. Nelson from December 18, 1926 until January 19, 1945. Decedent and Helen had no issue.
"In 1931, after decedent became vice president in charge of merchandising of Sears Roebuck, he and Helen purchased a home at 595 Longwood Drive, Glencoe, Illinois, for $75,000. They lived there together until decedent went to Washington, D.C., in 1942, and Helen continued to live there until their divorce in 1945. The house was a 14-room mansion with three acres of land and a private beach. It required a large domestic staff including a 'live-in' couple, a laundress, and a gardener, as well as extra help for large parties. During their years together in Illinois, the Nelsons maintained four automobiles, entertained lavishly, and led an active social life which involved a circle of wealthy and successful friends and acquaintances.
"During their marriage, the Nelsons traveled to Europe, South America, and the West Indies, as well as extensively within the United States. Decedent was a director of the Union Pacific Railroad and was provided with a private railroad car for trips within the United States. The Nelsons also owned a 65-foot ...