Before MCLAUGHLIN and O'CONNELL, Circuit Judges, and LEAHY, District Judge.
MCLAUGHLIN, Circuit Judge.
This is an appeal from a judgment of the District Court in an action for the recovery of alleged overpayment of estate taxes. The case was tried below without a jury on the complaint, answer, amended answer and stipulation of facts, in accordance with an order allowing a separate trial of the government's affirmative defense that the taxpayer is estopped to maintain the suit. This was the only issue before the court.
The decedent, Edward R. Nichols, died September 30, 1935, a resident of Essex County, New Jersey. His will was duly probated with appellant named as executor and qualifying as such. On December 18, 1936, appellant reported a tax liability in its estate tax return of $3,204,215.41, which it paid on that date. The return included the following items set out in paragraph ten of the complaint:
"(a) Item 1 - 22,987 shares of Allied Chemical & Dye Corp., common stock, no par (New York) at 169 1/2, valued at $3,861,816.00.
"(b) Item 2 - 3,056 shares Allied Chemical & Dye Corp., preferred stock, par $100 (New York) at 125 3/4, valued at $384,292.00.
"(c) Item 8 - 14,505 shares Phelps Dodge Corp. stock par $25. (New York) at 24 3/8, valued at $353,559.37."
On August 28, 1937, the Deputy Commissioner sent appellant a thirty day deficiency letter advising of a proposed deficiency assessment of $1,304,294.94 before allowance of the eighty per cent credit for state inheritance taxes, making a proposed net deficiency of $363,283.90. This was based primarily on the inclusion in the gross estate of property transferred by decedent prior to his death. Three items of stocks and bonds were listed, one of which was item 1 above. The only thing done with reference to these was to add accrued income. Their base valuation was not disturbed. Appellant, through its attorney, answered that letter November 24, 1937, saying:
"1. The above letter proposed to add to the gross estate an amount of $743,700.26 as transfers alleged to have been made in contemplation of death. In order to avoid litigation and to dispose of the entire case promptly, the executor will consent to the addition of $318,722.85 to the gross estate in lieu of the above amount of $743,700.26.
"2. All other items protested by the executor are waived.
"3. The attorneys' fees will be reduced from $200,000 to $150,000.
"4. The executor's commissions will be reduced from $272,666.59 to $180,743.33.
"It is understood that the credit for state, estate and inheritance, legacy or succession taxes paid will be allowed upon the presentation of evidence required under Article 9, Regulations 80.
"It is further understood that if this settlement, which is submitted in the form of a compromise, is not accepted, then this letter is not to be used in any way in any proceedings before the United States Board of Tax Appeals, the ...