United States v. Bess
| Decision Date | 07 September 1955 |
| Docket Number | Civ. A. 1248-52. |
| Citation | 134 F. Supp. 467 |
| Parties | UNITED STATES of America, Plaintiff, v. Molly G. BESS, Defendant. |
| Court | U.S. District Court — District of New Jersey |
Raymond Del Tufo, Jr., U. S. Atty., Newark, N. J., by George H. Barlow, Asst. U. S. Atty., Trenton, N. J., H. Brian Holland, Asst. Atty. Gen., Andrew D. Sharpe, H. Eugene Heine, Jr., Special Assts. to the Atty. Gen., of counsel, for plaintiff.
The complaint in this case alleges that the defendant, Molly G. Bess, owes the plaintiff, the United States, for income taxes due from her deceased husband in the aggregate of $9,428.84.
The facts are stipulated.
Herman Bess, a resident of New Jersey, died on June 29, 1950, leaving the defendant, his widow, a resident of Deal, Monmouth County, New Jersey, surviving him. On July 17, 1952 his estate was adjudged insolvent by the Monmouth County Court, Probate Division. Claims were filed by the Government for the years, in the amounts, and upon which payments were ordered to be made as follows:
Payment Pursuant
Year Amount to Order of Court
1945 ..... $ 4,713.59 ....... $ 554.28
1946 ..... 3,789.32
1947 ..... 925.94
1948 ..... 1,411.19 |
|
>...... 3,990.71
| ___________
1949 ..... 2,579.52 |
__________
Total ....$13,419.56 ...... 4,544.99
__________ ___________
Balance due ..................$8,874.571
Interest on the above amounts was also claimed. It was further stipulated that Mrs. Bess succeeded to approximately $55,000 of property held in the joint names of herself and her husband;2 that she was the named beneficiary in eight policies of insurance on the life of her husband from which she received a total of $63,576.95; that on seven of the policies the deceased had had the right to borrow against the cash surrender value, to change the beneficiary, and to assign the policies; that he did change the beneficiary on several of the policies; that the eighth policy was in group insurance and that under it he had only the right to change the beneficiary; that the deceased paid all of the premiums on the policies and that he was solvent at the time he made such payments and that the cash surrender value of the policies at the date of his death was $3,362.53.
No facts were left disputed and the case poses only questions of law. It is the proceeds received by Mrs. Bess which the Government is now trying to reach on the theory that the defendant is a "transferee" under § 311 of the 1939 Code (now § 6901 of the 1954 Code), 26 U.S.C. § 311:
It is the theory of the Government that Mrs. Bess is a "transferee" of "property of a taxpayer" by virtue of having been beneficiary of his life insurance and that she is under a "liability, at law or in equity * * * in respect of the tax".
Implicit in this theory of the case is that the life insurance proceeds received by Mrs. Bess were property of the deceased taxpayer transferred to her burdened with a liability for his tax delinquency. The Government concedes, however, that several recent cases in the Courts of Appeals have been decided to the contrary. United States v. Truax, 5 Cir., 1955, 223 F.2d 229; United States v. New, 7 Cir., 1954, 217 F.2d 166; Rowen v. Commissioner, 2 Cir., 1954, 215 F. 2d 641; Tyson v. Commissioner, 6 Cir., 1954, 212 F.2d 16.3 Each of these cases distinguishes, or differs from Pearlman v. Commissioner, 3 Cir., 1946, 153 F.2d 560, upon which the Government places heavy reliance.
Rowen v. Commissioner, supra, is representative of this problem. There multiple beneficiaries of a decedent's life insurance policies contested the Commissioner's transferee assessment against them. It was held that since life insurance proceeds were not "property" of the insured even though he had reserved the right to change beneficiaries, there was no transfer of property of a taxpayer and therefore as to the proceeds there could be no transferee liability on the part of the beneficiaries. The court held otherwise as to the cash surrender value, deciding that during the lifetime of the taxpayer the cash value represented property which upon his death merged with the proceeds and was thus transferred to the beneficiaries. But even though the beneficiaries were held to be "transferees of property of a taxpayer" in the amount of the cash surrender value, there was no liability "at law or in equity * * * in respect of the tax" because the Government's rights as a creditor were to be governed by local law and under the applicable New York statutes the entire proceeds of life insurance, including that representing cash surrender value, were beyond the power of creditors to reach.
But the Court of Appeals of this circuit treated such tax liability from a different viewpoint in the case of Pearlman v. Commissioner, supra. The facts in that case were not materially different from those here and in Rowen, except in one particular — there the decedent had paid premiums while insolvent whereas the Government and Mrs. Bess have stipulated that Herman Bess paid all premiums while solvent. This difference was thought controlling in Tyson v. Commissioner, supra, which distinguished the Pearlman case on this ground. But although the prior insolvency of the decedent was mentioned in Pearlman no particular significance is attached to it in the opinion. Pearlman seems rather to be laying down a broad policy of transferee tax liability wherever life insurance proceeds are distributed to beneficiaries named by an insured who dies owing the Government for back income taxes and who had reserved the right in the policies to change the beneficiary.
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United States v. Bess Bess v. United States
...for 1945, $3,789.32 for 1946, and $925.94 for 1947. The District Court held Mrs. Bess liable for the total taxes owing of $8,874.57. 134 F.Supp. 467. The Court of Appeals for the Third Circuit reduced the judgment to the amount of the total cash surrender value of the policies of $3,362.53.......
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United States v. Mitchell
...311 (§ 6901) to recover the amount of Bess's taxes due; she was sued as a "transferee" of the taxpayer's property. The District Court, 134 F.Supp. 467, found her to be such and awarded the Government $8,874.00. Mrs. Bess had received $63,576 on the policy, the cash surrender value as of dea......
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United States v. Hoper
...of the rights of the tranferor's creditors. See Tyson v. Commissioner of Internal Revenue, 6 Cir., 212 F.2d 16. But see United States v. Bess, D.C.N.J., 134 F.Supp. 467. Liability at law exists where, for example, the transferee agrees to pay the obligations of the taxpayer-transferor. See ......
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