## Facts

- Johann Heinrich Karl Wehrli (also known as Charles Wehrli), a Swiss citizen and resident, died on November 2, 1948.
- Wehrli owned and operated a bank in Zurich; his son, Peter Wehrli, was fully authorized to act for him in business and investments.
- In 1939, Wehrli and associates arranged for formation of two Argentine corporations, Stella S.A. and San Juan S.A., to hold transferred funds and securities as an asset-protection measure during wartime.
- Stella (1939) and San Juan (1942) opened securities custody accounts with Guaranty Trust Company of New York.
- Account instructions designated Peter (or specified alternatives acting jointly) as the person(s) whose directions Guaranty Trust would follow, including authority to buy/sell and to withdraw securities without payment.
- At death, the Guaranty Trust accounts held securities including U.S. corporate stocks and Uruguay government bonds; the assets were later distributed to Wehrli’s heirs.
- The estate filed a federal estate tax return as a nonresident, noncitizen; the IRS asserted a deficiency on the ground that Wehrli owned securities held in the New York custody accounts but they were omitted from the U.S. gross estate.
- The ancillary administrator sued for a refund of estate tax and interest collected under the Internal Revenue Code of 1939.

## Issues

1. Whether, at death, the decedent “owned” (beneficially or in substance) securities physically held in New York but registered in the names of Argentine corporations, for purposes of inclusion in the gross estate under the 1939 Code.
2. Whether such securities constituted property within the United States taxable in the U.S. estate of a nonresident alien under the 1939 Code’s situs rules.

## Decision

- The Court of Claims held that the decedent was, in substance, the owner of the securities in the Guaranty Trust custody accounts despite title in the Argentine corporations.
- The court sustained the IRS’s inclusion of those securities in computing the decedent’s U.S. taxable estate.
- The court denied the estate’s refund claim and upheld the assessment of estate tax and interest.

## Legal Principles

- Federal estate tax “ownership” may be determined by substance rather than formal title; nominal interposition of foreign corporations does not control when the decedent retained the incidents of ownership.
- Retained power to direct investment activity and to withdraw securities from a U.S. custodian is strong evidence of beneficial ownership for estate tax inclusion.
- U.S.-situs treatment applies to certain securities physically held in the United States for a nonresident decedent; once beneficial ownership is found, such assets are includible in the U.S. gross estate under the 1939 Code.

## Conclusion

The court treated the Argentine corporations as nominal holders and concluded that, because the decedent (through his son’s broad authority) retained effective control and beneficial ownership over U.S.-custodied securities, the securities were properly included in the nonresident decedent’s U.S. taxable estate and no refund was due.


Fillman v. United States, 355 F.2d 632 (Ct. Cl. 1966)