Before MARIS, GOODRICH and KALODNER, Circuit Judges.
These are petitions to review decisions of the Tax Court holding Mary Stoumen, Kenneth Stoumen, Lois Stoumen Deutsch and Eileen Stoumen, the widow and children, respectively, of Abraham L. Stoumen, deceased, liable as transferees for Abraham's unpaid income tax, additions to tax, and interest thereon, for the years 1943, 1944 and 1945, to the extent of the proceeds of insurance policies on the life of Abraham paid to them as the designated beneficiaries.*fn1 The insurance proceeds thus received by Mary amounted to $83,775.00, by Kenneth $9,991.90, by Lois $10,018.10 and by Eileen $9,991.90, a total of $113,776.90. In addition, the Tax Court decided that Mary, who was the executrix of Abraham's estate, was also liable as transferee to the extent of $77,950.00 which she had received and deposited as executrix but had later withdrawn and deposited in her personal bank account. Mary concedes in this court that the decision of the Tax Court was correct as to this item of $77,950.00.
With respect to the insurance proceeds the Tax Court's decisions were based upon its holding, in line with its prior decisions, that the proceeds of the insurance policies on the life of Abraham were his property, within the meaning of section 311 (a) (1) of the Internal Revenue Code of 1939,*fn2 since he had retained until his death the right to change the beneficiaries of the policies, and that under the applicable rules of federal law the beneficiaries were liable as transferees, to the extent of the insurance proceeds which they had received, for Abraham's unpaid income tax liability. 27 T.C. 1014.
The petitioners urge in this court that the Tax Court's holding in this regard was erroneous in the light of the subsequent decision of the Supreme Court in Commissioner of Internal Revenue v. Stern, 1958, 357 U.S. 39, 78 S. Ct. 1047, 2 L. Ed. 2d 1126. In the Stern case the Court held that section 311 neither creates nor defines a substantive liability but merely provides a new procedure by which the Government may collect taxes, that the existence and extent of the liability of a transferee is to be determined by state law rather than by federal decisional law, and that the Government's substantive rights against a transferee are precisely those which other creditors would have under the applicable state law. The statute of Pennsylvania,*fn3 where the insured was domiciled and the beneficiaries resided and where Abraham's estate is being administered, has been held to provide that the net amount payable under a policy of life insurance to the wife or children of the insured as beneficiaries shall inure to their benefit, free from claims of creditors of the insured, whether he was solvent or insolvent and whether or not he had reserved the right to change the beneficiary. Potter Title & Trust Co. v. Fidelity Trust Co., 1934, 316 Pa. 316, 175 A. 400; In re Kenin's Trust Estate, 1942, 343 Pa. 549, 559-561, 23 A.2d 837, 843. The Government concedes that this is the law of Pennsylvania and admits that under the rule of the Stern case the Pennsylvania law is applicable to defeat its transferee claims against the children and all but $60,000 of that portion of its transferee claim against the widow which is based upon the receipt of insurance proceeds.
The Government urges that there is an exception to the general Pennsylvania rule, however, under which it is entitled to charge the widow with transferee liability as to the proceeds of four insurance policies amounting to $60,000 which she received, and it seeks an opportunity at another hearing in the Tax Court to prove facts which, it asserts, would establish its right in this regard. The Government's contention is that it has been held in Pennsylvania that when an insured makes a transfer of an insurance policy to a wife or child for the purpose of defrauding his creditors the statute exempting such life insurance proceeds from the claims of his creditors does not apply and that the provisions of section 7 of the Pennsylvania Uniform Fraudulent Conveyance Act*fn4 become applicable instead. We need not decide whether there is such an exception to the general rule in Pennsylvania, however. Nor need we determine whether we would have power to remand the case to the Tax Court in order to give the Government another opportunity to prove the facts necessary to bring the case within the suggested exception. For we must reject the Government's contention since the facts disclosed in the present record clearly negative the possibility of the Government succeeding in such an endeavor.
The background facts of this case are set out in detail in Estate of Abraham L. Stoumen, Deceased, Mary Stoumen, Executrix v. Commissioner, 1953, 12 T.C.M. 1399, and Stoumen v. Commissioner of Internal Revenue, 3 Cir., 1953, 208 F.2d 903. No useful purpose would be served in repeating them here. It is sufficient to state merely the following pertinent facts: Under a partnership agreement dated January 2, 1943, between Abraham L. Stoumen and his brother, Bernard Stoumen, it was provided:
"14. Upon the death of either party, the survivor agrees to purchase the decedent's interest in the firm * * *.
"15. To provide funds to enable the survivor to purchase the interest in said firm of his deceased partner, as provided in paragraph 14 hereof, the parties have had the following specified policies of insurance on their respective lives made payable to each other as sole beneficiary thereunder, viz:
"On the Life of Bernard Stoumen
[Here followed a list of the policies in controversy]
"The premiums on all of the said policies shall be paid out of the firm's profits or capital (as the parties may agree) * * *. Each party agrees not to borrow on said policies or to change the beneficiary therein without the written consent of the other party. The proceeds of said policies * * * are for the express purpose of enabling the survivor to purchase decedent's interest in said firm as above set forth and shall not be used for any other purpose, and the survivor is to be deemed as trustee thereof for said purpose for the decedent's estate * * *."
The four policies which the Government questions here, $60,000 in face amount, were those specified in the agreement on the life of Abraham. Bernard was the sole beneficiary thereunder as agreed.
On March 23, 1946, about six weeks before Abraham died by his own hand, he applied to the insurance company to change the beneficiary on each policy to his wife Mary. The change was made on March 29, 1946 and after his death Mary, rather than Bernard as trustee for his estate, received the sum of $60,000 as the proceeds of the policies. The Government's contention is that this change of beneficiary was a fraudulent transfer which was void under the Pennsylvania Uniform Fraudulent Conveyance Act because it was made in violation of Abraham's agreement with his brother Bernard and at a time when he was insolvent. Since ...