39 T.C. 580 (1962), 80418, Findlay v. C. I. R.

Docket Nº:80418, 87262.
Citation:39 T.C. 580
Opinion Judge:MULRONEY, Judge:
Party Name:HELEN RICH FINDLAY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Attorney:Lewis Stanton Bowdish, Esq., for the petitioner. Arthur S. O'Neill, Jr., Esq., and John J. O'Toole, Esq., for the respondent.
Judge Panel:FORRESTER, J., concurs in the result.
Case Date:December 27, 1962
Court:United States Tax Court

Page 580

39 T.C. 580 (1962)

HELEN RICH FINDLAY, PETITIONER,

v.

COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Nos. 80418, 87262.

United States Tax Court.

December 27, 1962

Page 581

Lewis Stanton Bowdish, Esq., for the petitioner.

Arthur S. O'Neill, Jr., Esq., and John J. O'Toole, Esq., for the respondent.

Decedent, who had solicited insurance for a British firm on a commission basis, executed an agreement in 1936 providing for the payment of commissions after his death in designated amounts and for a limited period. He bequeathed one-half of the commission payments to petitioner, who was divorced from decedent in 1948. Decedent died in 1951, and petitioner agreed in 1952 and 1953 to accept $150,000 in full settlement of her claim, and also agreed to a reduction in her payments for a portion of amounts required to pay British death duty. Petitioner received $50,000 from the British insurance brokers in each of the years 1953 and 1954, and in 1955 she received $19,815.05, with $30,184.95 withheld from the last payment to be applied to British death duty. In 1956 the board of directors of the British insurance firm voted to make annual payments of $26,425 to petitioner. Held, the amounts of $50,000 in each of the years 1953, 1954, and 1955 are includable in petitioner's income for those years as income in respect of a decedent within the meaning of section 126, I.R.C. 1939, and section 691, I.R.C. 1954. No deduction is allowable in 1955 for the amount of $30,184.95, which was withheld for the payment of British death duty. Held, further, since petitioner was bequeathed only one-half of the commission payments, she is entitled to only one-half of the deduction allowed under section 126(c)(1), I.R.C. 1939 (section 691(c)(1)(A), I.R.C. 1954), for the estate tax attributable to these payments in decedent's estate. It is immaterial that the other one-half of the payments, bequeathed to the surviving spouse, gave rise to a marital deduction. Held, further, the payment of $16,425 to petitioner in 1956 by the British firm was not a gift within the meaning of section 102, I.R.C. 1954. Held, further, (1) respondent's failure to return a signed consent form to petitioner extending the statutory period does not make petitioner's waiver inoperative, and (2) petitioner's execution of an acceptance of overassessment does not amount to a closing agreement for the years involved.

MULRONEY, Judge:

The respondent determined deficiencies in the petitioner's income tax for the years 1953 through 1956 as follows:

Docket No. 87262

Year Deficiency

1953 $6,744.05

1954 6,590.52

1955 22,777.20

Docket No. 80418

Year Deficiency

1956 $8,384.00

The issues in these consolidated cases are (1) whether the years 1953, 1954, and 1955 are barred by the statute of limitations; (2) whether a purported accord and satisfaction in 1957 prevents respondent from making further adjustments in petitioner's income taxes in the years 1953, 1954, and 1955; (3) whether certain amounts received by petitioner in the years 1953, 1954, and 1955 constitute income in respect of a decedent within the meaning of sections 126 of the Internal Revenue Code of 1939 and 691 of the Internal Revenue Code of 1954, or whether such payments are testamentary bequests excludable from income; (4) whether the payments thus received by petitioner in Page 582 1955 should include the amount of $30,184.95 in addition to the $19,815.05 reported by the petitioner; (5) whether the taxation of these payments in the years 1953, 1954, and 1955 as income in respect of a decedent would be unconstitutional; (6) whether petitioner was entitled to a deduction in excess of that allowed by respondent for the estate tax applicable to the payments received by petitioner in the years 1953, 1954, and 1955; and (7) whether the payment received by petitioner in 1956 from Willis, Faber & Dumas, Ltd., was a gift. By an amendment to his answer in Docket No. 80418 respondent claims (as an alternative to issue No. 4 above) an increase in the deficiency for 1956 ‘ to allow the inclusion in income the amount of $30,184.95, which is the amount withheld by the executor of the estate of J. Wilfred Findlay and utilized by petitioner’ in an agreement executed by her in 1956. FINDINGS OF FACT. Some of the facts were stipulated and they are herein included by this reference. Helen Rich Findlay, hereinafter sometimes called the petitioner, is a resident of New York, N.Y. Petitioner filed her income tax returns for the years 1953 through 1956 with the district director of internal revenue, Manhattan District, New York, N.Y. During these years petitioner kept her books and prepared her returns on a cash basis. Petitioner was 69 years old at the time of the trial. She married J. Wilfred Findlay in 1919 and remained married to him until 1948 when they were divorced. Findlay then married Lois Elliman. He died in 1951 and Lois subsequently married Irving S. Wright. For many years prior to his death in 1951, J. Wilfred Findlay solicited insurance business on behalf of Willis, Faber & Dumas, Ltd., insurance brokers and underwriters of London, England, for which he received commissions. He was also a member of a partnership in New York City that was engaged in the insurance business. On or about March 27, 1936, J. Wilfred Findlay and Willis, Faber & Dumas, Ltd., entered into a commission agreement which provided in part as follows: (a) In the event of my death (J.W.F.) commission to be applied to all business transacted in the current year in which death occurred, and (b) for succeeding 5 years (c) thereafter commission to be 25% of existing commission, but limited to 1,500 pounds sterling. (d) all payments to cease either on death of my wife (Mrs. F.) or 1955, whichever occurs first. J. Wilfred Findlay died on May 31, 1951, a citizen of the United States and resident of New York, leaving a Last Will and Testament dated February 17, 1949, which was duly admitted to probate in the Surrogate's Court of the County and State of New York. The will provided, in part, as follows: Page 583 THIRD: All of the commissions and other payments payable to my Executor by WILLIS, FABER & DUMAS, LTD., of 54 Leadenhall Street, London, E.C. 3, England, pursuant to a memorandum dated the 27th day of March, 1936, and any subsequent memorandum or agreement hereinafter entered into regarding the payment of the same, I give, and bequeath as follows: Fifty (50%) per cent thereof to my wife, Lois Elliman Findlay: Fifty (50%) per cent thereof to my former wife, HELEN RICH FINDLAY. FOURTH: (a) All the rest, residue and remainder of my estate, real and personal, of whatsoever kind and wheresoever situate, of which I may die seized or possessed, and property over which I shall have any power of disposition, I give, devise and bequeath to my wife, LOIS ELLIMAN FINDLAY. An agreement dated May 6, 1952, was executed by petitioner, Lois E. Findlay, and the Schroder Trust Co. (a New York corporation), as executor of the will of J. Wilfred Findlay, under which the Schroder Trust Co. purported to assign the testator's rights to commissions payable by Willis, Faber & Dumas, Ltd., to petitioner and Lois E. Findlay. The agreement provides, in part, as follows: WHEREAS the said Testator under Article THIRD of said Last Will and Testament did bequeath all of the commissions and other payments payable to his executor, pursuant to a certain contract between himself and Willis, Faber & Dumas, Ltd. of No. 54 Leadenhall Street, London, E.C. 3, England unto the parties of the first part, share and share alike, a copy of which agreement is annexed hereto and made a part hereof; and WHEREAS the parties are agreed that said bequest constitutes a specific legacy of the testator's rights under said contract and of the benefits therein provided, and the said party of the second part (Schroder Trust Co.) is therefore willing to assign unto the parties of the first part (Lois Elliman Findlay and Helen Rich Findlay), and the parties of the first part are willing to receive an assignment of the testator's rights under said agreement in satisfaction of said bequest; * * * On May 29, 1952, a contract was executed by petitioner, Lois Elliman Findlay, the Schroder Trust Co., the Standyards Agency, Ltd. (London, England), the General Assets & Agency Co., Ltd. (London, England), and Willis, Faber & Dumas, Ltd., under which the petitioner and Lois Elliman Findlay agreed to accept $150,000 each in settlement of the obligations of Willis, Faber & Dumas, Ltd., under the agreement of March 27, 1936. Payment to each was to be made in two equal installments, one in 1952 and one in 1953 (but not later than May 31, 1953). The contract of May 29, 1952, recited that in view of certain ambiguities in the construction of the March 27, 1936, agreement and in view of uncertainties as to the future of said agreement, the parties of the May 29, 1952, contract ‘ agreed upon the sum of THREE HUNDRED THOUSAND DOLLARS ($300,000) as the fair amount for which they are willing to settle and liquidate said indeterminate contract.’ Page 584 A supplemental agreement dated November 11, 1953, was executed by the same parties to modify the details of payment of the May 29, 1952, contract so that the sums payable would be as follows:

(a) $50,000 each to Lois Elliman Wright and Helen Rich Findlay upon the execution and delivery of these presents; (b) $25,000 each to Lois Elliman Wright and Helen Rich Findlay on January 10, 1954; (c) $25,000 each to Lois Elliman Wright and Helen Rich Findlay on December 10, 1954; and (d) $50,000 each...

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