Van Wye's Estate v. U.S., 81-1020

• Decision Date: 23 August 1982
• Docket Number: No. 81-1020,81-1020
• Citation: 686 F.2d 425
• Parties: 82-2 USTC P 13,485, 3 Employee Benefits Ca 2055 ESTATE OF Glen J. VAN WYE, and the Detroit Bank and Trust Company, a Michigan banking corporation, Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 425

686 F.2d 425

82-2 USTC P 13,485, 3 Employee Benefits Ca 2055

ESTATE OF Glen J. VAN WYE, and the Detroit Bank and Trust

Company, a Michigan banking corporation, Plaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant.

No. 81-1020.

United States Court of Appeals, Sixth Circuit.

Argued March 23, 1982.

Decided Aug. 23, 1982.

Richard A. Rossman, U. S. Atty., Detroit, Mich., John F. Murray, Michael L. Paup, David I. Pincus, Tax Division, Dept. of Justice, Washington, D. C., for defendant-appellant.

John J. Collins, Jr., Detroit, Mich., for plaintiffs-appellees.

Before KEITH and MERRITT, Circuit Judges, and CELEBREZZE, Senior Circuit Judge.

MERRITT, Circuit Judge.

The issue on appeal here appears to be precisely the same as the issue treated by Judge Friendly for the Second Circuit in Schelberg v. Commissioner, 612 F.2d 25 (2nd Cir. 1979): Whether survivor benefits payable by a company to its deceased employee's widow are taxable as part of the deceased employee's estate under section 2039(a) ¹ of the Internal Revenue Code because the deceased employee during his lifetime had contingent, future rights to disability benefits while employed. We agree with the reasoning of the Second Circuit that the Commissioner's effort to read the disability benefit plan in tandem with the survivor benefit plan and thereby create an "annuity" covered by section 2039(a) is unreasonable; and we, therefore, affirm the judgment of the District Court that the survivor benefits are not includible in the decedent's gross estate.

Glen J. Van Wye, a management employee of Dana Corporation, died on September 28, 1974, survived by his wife. He was covered by several company benefit plans, including the following:

1. A retirement income plan "qualified" under section 401 of the Internal Revenue Code so that any survivor's benefits received thereunder are expressly excluded from the decedent's gross estate under section 2039(c).

2. A disability plan covering the Dana Corporation's employees who have worked for the corporation a full year. In order to qualify for disability benefits, an employee must first use up all sickness and accident benefits under separate plans providing for sickness and accident benefits for a period of 91/2 months. Disability benefits are based on total, but not necessarily permanent, disability. An employee's case may receive an annual review to determine if disability benefits should continue. The disability benefits end upon death, termination of employment, return to work, or upon reaching the age of 65, at which time benefits begin under the retirement program.

3. Under the survivor income plan, the company pays benefits to any surviving spouse in the amount of one percent of the decedent's final monthly salary multiplied by the decedent's years of service with Dana.

Mr. Van Wye was receiving sickness and accident benefits at the time of his death in 1974 and had those benefits run out before his death, he would have been eligible to receive disability benefits. Mrs. Van Wye, after her husband's death, began receiving $615.05 per month under the survivor income plan. That amount was not included as part of the gross estate when the estate tax return was filed. The Commissioner determined that the commuted value of the monthly benefits under the survivor income plan was $68,504.85 and increased the decedent's estate by that amount. Accordingly, a deficiency of $8,496.73 was issued against the estate. The estate paid the deficiency plus interest and then brought an action in the District Court for a refund, claiming that the survivor income benefits were improperly included in the decedent's gross estate.

We need not tarry long with the question presented here for the Schelberg case, supra, as District Judge Cook concludes in his opinion below, is directly on point and appears to be clearly correct. In Schelberg an IBM management employee died on the job, and the company paid his widow survivor's benefits. The Commissioner argued that these benefits should be linked to the employee's right to receive disability benefits had he remained alive but sick, and the two characterized as an annuity under section 2039. In an opinion analyzing the purpose of section 2039, its legislative history and analogous cases in revenue rulings, Judge Friendly concludes:

Courts have, consistent with basic principles of statutory construction, recognized that "annuity or other payment" (under section 2039(a) ) does not mean "annuity or any payment," but that the phrase is qualitatively limited by the context in which it appears .... The Service itself has acquiesced in and furthered this view. See Rev.Rul. 77-183, (1977-1 C.B. 274)...