Newman v. Comm'r of Internal Revenue (In re Estate of Newman), 17516–96.

• Citation: 111 T.C. No. 3,111 T.C. 81
• Decision Date: 28 July 1998
• Docket Number: No. 17516–96.,17516–96.
• Parties: Estate of Sarah H. NEWMAN, Deceased, Mark M. Newman, Co–Executor and Minna N. Nathanson, Co–Executor, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: United States Tax Court

111 T.C. 81

111 T.C. No. 3

Estate of Sarah H. NEWMAN, Deceased, Mark M. Newman, Co–Executor and Minna N. Nathanson, Co–Executor, Petitioner

v.COMMISSIONER OF INTERNAL REVENUE, Respondent.

No. 17516–96.

United States Tax Court.

July 28, 1998.

Mark M. Newman (a co-executor), for petitioner.

Charles M. Ruchelman and William J. Gregg, for respondent.

RUWE, Judge:

Respondent determined a deficiency in petitioner's Federal estate tax of $46,724. After concessions, the sole issue for decision is whether funds in decedent's bank account, upon which checks were written before but paid after decedent's death for purported noncharitable gifts, are includable in the gross estate.

FINDINGS OF FACT

Some of the facts have been stipulated. The stipulation of facts, the supplemental stipulation of facts, the second supplemental stipulation of facts, and the stipulation of agreed adjustments are incorporated herein by this reference.

Unless otherwise indicated, all section references are to the Internal Revenue Code in effect as of the date of decedent's death, and all Rule references are to the Tax Court Rules of Practice and Procedure.

Sarah H. Newman, hereinafter referred to as decedent, died testate on September 28, 1992. She was domiciled in Washington, D.C., at the time of her death. Her son Mark M. Newman (Mark) and daughter Minna N. Nathanson (Minna) were appointed personal representatives by the Register of Wills, Superior Court of the District of Columbia. Mark resided in Washington, D.C., at the time of filing the petition for redetermination. At the time of her death, decedent had another surviving child, Paul H. Newman (Paul).

On May 14, 1985, decedent and her husband, Simon M. Newman,¹ granted Mark a written power of attorney. This power of attorney provided that Mark, as attorney-in-fact, could:

1) collect, recover and receive any and all moneys, sums, profits, dividends, interests, claims, debts, things, and assets regardless of what form and including real and personal property whatsoever now due or in the future to become due to anyone or group of us; and to execute and deliver receipts, releases and other discharges of debt to anyone or group of us;

2) pay, settle, compromise, arbitrate and adjust all monies, sums, claims, and debts whatsoever now or in the future owed by anyone or group of us;

3) receive, endorse and collect any checks payable to the order of anyone or group of us now or in the future in existence;

4) make, negotiate, sell, deliver any lease, mortgage or deed pertaining to or including any real property, real estate, lands, minerals or other rights now or in the future, anyone or group of us owns or has any ownership or controlling (full or partially) interest in;

5) to take possession of and/or enter upon any real property, real estate, lands, tenements or hereditaments which may now or in the future belong to anyone or group of us, the possession of which anyone or group of us now or in the future will be entitled; and

6) to employ, hire, retain and contract for attorneys, architects, contractors, clerks, laborers and others, to remove them and/or appoint others in their place and to pay such persons fees, wages, salaries, expenses and other remuneration as he/she shall deem proper.

The power of attorney also provided a clause which ratified Mark's actions in carrying out the powers granted above:

Each of us further gives and grants to said Attorney–In–Fact full power and authority to do and perform every act necessary and proper to be done in the exercise of any of the foregoing powers as fully as either of us might or could do if personally present hereby ratifying and confirming all that said Attorney–In–Fact shall lawfully do or cause to be done for us.

Finally, the power of attorney granted to Mark was not to be changed orally. No reference to making gifts is contained in this document.

From December 15, 1989, until her death, decedent maintained checking account No. 05–011258–6 with Columbia First Bank (CFB). Decedent maintained this account solely in her name until sometime between September 14 and October 14, 1992, when Mark's name was added to the account. The following checks drawn on this account are relevant to the issue in this case:

+---------------------------------------------------------------+
                ¦         ¦       ¦                   ¦Date on¦Date Accepted and¦
                +---------+-------+-------------------+-------+-----------------¦
                ¦Check No.¦Amount ¦Payee              ¦Check  ¦Paid by CFB      ¦
                +---------+-------+-------------------+-------+-----------------¦
                ¦         ¦       ¦                   ¦       ¦                 ¦
                +---------+-------+-------------------+-------+-----------------¦
                ¦1652     ¦$10,000¦Mollie Nathanson   ¦9/23/92¦10/05/92         ¦
                +---------+-------+-------------------+-------+-----------------¦
                ¦1653     ¦5,000  ¦Minna Lev          ¦9/23/92¦10/07/92         ¦
                +---------+-------+-------------------+-------+-----------------¦
                ¦1654     ¦60,000 ¦Paul & Joyce Newman¦9/24/92¦10/02/92         ¦
                +---------+-------+-------------------+-------+-----------------¦
                ¦1655     ¦5,000  ¦Robert Davidson    ¦9/24/92¦10/02/92         ¦
                +---------+-------+-------------------+-------+-----------------¦
                ¦1656     ¦10,000 ¦Mark & Diana Newman¦9/24/92¦10/01/92         ¦
                +---------+-------+-------------------+-------+-----------------¦
                ¦1657     ¦5,000  ¦Tina Reiss         ¦9/24/92¦10/05/92         ¦
                +---------------------------------------------------------------+
                

All the above checks were signed by Mark and dated prior to decedent's death. However, none of these checks were accepted or paid by the drawee bank until after decedent's death. Petitioner claims that the above checks were gifts made during decedent's lifetime. Petitioner also contends that it was decedent's desire that the $60,000 given to Paul be distributed amongst himself, his children, and his grandchildren and that each of the distributees received $10,000 or less per person.

On or about June 1, 1993, a United States Estate (and Generation–Skipping Transfer) Tax Return, Form 706, was filed on behalf of decedent's estate. This return indicated that decedent did not make any taxable gifts during her lifetime. Furthermore, the Schedule C attached to the Form 706 reflects the value of decedent's checking account No. 05–011258–6 as $5,212 at the date of her death.

OPINION

The sole issue in this case is whether the funds in decedent's bank account represented by the six checks, which were outstanding at the time of decedent's death are includable in her gross estate. Petitioner argues that the amount in question constitutes nontaxable completed gifts and should be excluded from decedent's gross estate. Respondent, however, argues that the checks do not represent completed nontaxable gifts and that the value of the underlying funds should be included in decedent's gross estate. Respondent bases his argument on the fact that the checks were not accepted or paid by CFB before decedent's death and that, therefore, decedent maintained dominion and control over the underlying funds until her death with the result that the gifts were incomplete during decedent's lifetime.² Furthermore, respondent disagrees with petitioner's argument that the payment of the checks by CFB after decedent's death relates back to the date on the checks.

Section 2001(a) imposes a tax on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States. The taxable estate is defined in section 2051 as the gross estate less deductions. Pursuant to sections 2031 and 2033, the value of the gross estate generally includes the value of all property to the extent of the interest therein of decedent at the time of her death. Estate of Gagliardi v. Commissioner, 89 T.C. 1207, 1210, 1987 WL 257913 (1987). Section 20.2031–5, Estate Tax Regs., provides that “The amount of cash belonging to the decedent at the date of his death, whether in his possession or in the possession of another, or deposited with a bank, is included in the decedent's gross estate.” If the checks in question constitute completed gifts during decedent's lifetime, the funds represented by those checks would not be includable in decedent's gross estate.³

A gift is not consummated until put beyond the donor's recall. Burnet v. Guggenheim, 288 U.S. 280, 286, 53 S.Ct. 369, 77 L.Ed. 748 (1933). Section 25.2511–2(b), Gift Tax Regs., provides in relevant part:

(b) As to any property, or part thereof or interest therein, of which the donor has so parted with dominion and control as to leave in him no power to change its disposition, whether for his own benefit or for the benefit of another, the gift is complete. But if upon a transfer of property (whether in trust or otherwise) the donor reserves any power over its disposition, the gift may be wholly incomplete, or may be partially complete and partially incomplete, depending upon all the facts in the particular case. Accordingly, in every case of a transfer of property subject to a reserved power, the terms of the power must be examined and its scope determined. * * *

Therefore, a gift is not considered complete until the donor has parted with dominion and control so as to leave her with no power to change its disposition. Estate of Metzger v. Commissioner, 100 T.C. 204, 208, 1993 WL 80579 (1993), affd. 38 F.3d 118 (4th Cir.1994).

We turn to local law to determine whether decedent parted with dominion and control over the funds in her checking account such that she had no power to change their disposition. Estate of Dillingham v. Commissioner, 88 T.C. 1569, 1575, 1987 WL 31366 (1987), affd. 903 F.2d 760 (10th Cir.1990). In the District of Columbia, a check is generally considered conditional payment. Daine v. Price, 63 A.2d 767, 768 (D.C.1949). Under the law of the District of Columbia, in effect in 1992, “A check or other draft does not of itself operate as an assignment of any funds...