Abrams v. U.S.

• Citation: 797 F.2d 100
• Decision Date: 04 August 1986
• Docket Number: No. 1277,D,1277
• Parties: -6351, 86-2 USTC P 13,683 Barbara ABRAMS, as Executrix of Lillian Hyman, Deceased, Plaintiff-Appellant, v. The UNITED STATES of America, Defendant-Appellee. ocket 86-6054.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

Page 100

797 F.2d 100

58 A.F.T.R.2d 86-6351, 86-2 USTC P 13,683

Barbara ABRAMS, as Executrix of Lillian Hyman, Deceased, Plaintiff-Appellant, v. The UNITED STATES of America, Defendant-Appellee.

No. 1277, Docket 86-6054.

United States Court of Appeals, Second Circuit.

Argued May 7, 1986.

Decided Aug. 4, 1986.

Charles R. Van De Walle, Great Neck, N.Y. (Martin, Van de Walle, Guarino & Donohue, Great Neck, N.Y., on brief), for plaintiff-appellant.

Jordan Stanzler, Asst. U.S. Atty., New York City (Rudolph W. Giuliani, U.S. Atty. for S.D.N.Y., Steven E. Obus, Asst. U.S. Atty., New York City, on brief), for defendant-appellee.

Before VAN GRAAFEILAND, KEARSE and MINER, Circuit Judges.

KEARSE, Circuit Judge:

Plaintiff Barbara Abrams, suing as executrix of the estate of her mother Lillian Hyman, appeals from a judgment of the United States District Court for the Southern District of New York, Robert L. Carter, Judge, dismissing her complaint seeking a refund of $26,220 in estate tax assessed on Lillian Hyman's estate and paid under protest. The district court granted the government's motion for summary judgment dismissing the complaint on the ground that, within three years of her death, Lillian had paid some $67,000 to a bank on a debt incurred by her husband Charles Hyman, and this amount was therefore includable in Lillian's estate under 26 U.S.C. Sec. 2035(a) (1982) as a gift in contemplation of death. On appeal, Abrams contends that summary judgment should have been entered in her favor because the payment by Lillian was not in fact a gift to Charles but rather was either a payment of income taxes owed jointly by Charles and Lillian or a payment to recover property of Lillian that had been pledged to secure the debt incurred by Charles. Because the record reveals the existence of a genuine issue of material fact that has not been resolved, we vacate the judgment and remand for further proceedings.

I. BACKGROUND

In the district court, the parties entered into a stipulation of facts, following which both sides moved for summary judgment. The facts to which the parties stipulated are as follows.

In January 1976, Charles obtained a $50,000 demand loan from Manufacturers Hanover Trust Co. (the "Bank"). In March 1976, Lillian delivered to the Bank $100,000 in New York State 6% bearer bonds to serve as security for Charles's loan. The bonds, due to mature in December 1980, had been purchased by Lillian with her own funds in July 1975.

On April 4, 1977, the Internal Revenue Service ("IRS") billed Charles and Lillian $89,021.82 for additional federal income tax, including interest, due on their joint returns for the years 1973-1975. Charles paid the $89,021.82 by two checks dated April 27, 1977, drawn on his account at the Bank. The date stamps on the backs of the checks indicate that the Bank made payment to the IRS on May 4, 1977.

On May 4, 1977, Charles increased his demand loan from the Bank from $51,359.75 to $140,000. The increase of $88,640.25 was used to pay the two checks Between June 1977 and January 1978, Charles repaid $50,216.66 of the loan, reducing the balance to $89,783.34. In February 1978, Lillian withdrew money from five savings accounts belonging to her and repaid $67,231.19 of the loan, reducing the balance to $22,552.15.

totalling $89,021.82, to the IRS. Lillian's bonds served as collateral for the increase in the loan.

Charles died in February 1979. In May 1979, Lillian, as executrix of his estate, repaid the balance of the loan out of the assets of that estate and obtained the release of her bonds that had secured the loan.

Lillian died in June 1980. The bonds that had been pledged to the Bank and recovered through repayment of Charles's loan were included in Lillian's estate. The IRS took the position, however, that the estate should also include the $67,231 that Lillian paid the Bank in 1978, on the ground that that payment was a gift to Charles made less than three years prior to her death. After adding this amount, the IRS assessed Lillian's estate an additional estate tax of $26,220 plus interest. Abrams, as Lillian's executrix, paid the additional tax and interest and filed a claim for a tax refund. The IRS took no action on the refund claim, and more than six months after filing the refund claim, Abrams brought this action.

On the basis of these stipulated facts both sides moved for summary judgment. The government maintained that the $67,231 paid by Lillian to reduce Charles's loan was a gift made within three years of Lillian's death and was thus taxable to Lillian's estate under 26 U.S.C. Sec. 2035(a). Abrams argued that the $67,231 constituted a payment made to secure, pro tanto, the release of Lillian's bonds that had collateralized the loan and was in effect a payment of a joint income tax obligation, and thus was not includable in Lillian's estate.

In an Endorsement dated February 11, 1986, the district court granted the government's motion for summary judgment. Although the court found that "[t]he $67,000 was paid to the bank in part payment of the husband's loan and to have return [sic ] security which [Lillian] had pledged to the bank to secure her husband's loan," it described the argument that Lillian's payment to the Bank constituted a payment of income tax as "disingenuous," stating that "[i]f [Lillian] had wanted to pay $67,000 of the $89,000 the husband paid as his and her joint federal income tax liability, she could have made that payment directly to IRS."

Judgment was entered dismissing the complaint, and this appeal followed.

II. DISCUSSION

On appeal, Abrams contends that for two reasons she, not the government, was entitled to summary judgment. First, she contends that because Lillian's bonds were held by the Bank as collateral for Charles's loan, Lillian's partial repayment of that loan in order to ensure pro tanto the release of her bonds was not a gift but rather was a transfer for full and adequate consideration, and thus the amount paid was excludable from Lillian's estate under 26 U.S.C. Sec. 2035(b) (1982). Second, Abrams contends that, in light of the fact that Charles had borrowed the money to pay his and Lillian's joint income tax liability, Lillian's partial repayment of the loan constituted a payment of income tax, which, under Treas.Reg. Sec. 25.2511-1(d), 26 C.F.R. Sec. 25.2511-1(d) (1986), is not treated as a gift. While we are not persuaded that the district court erred in rejecting Abrams's second argument on the record before it, we conclude that her first argument may well have merit and that, although the record did not permit the entry of summary judgment in her favor, neither did it warrant the entry of summary judgment dismissing the complaint.

A. Summary Judgment Principles

Summary judgment may be granted only if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any The fact that the parties have stipulated to certain facts and that both have moved for summary judgment does not necessarily mean that summary judgment may properly be granted for either party. "Rather, the court must evaluate each party's motion on its own merits, taking care in each instance to draw all reasonable inferences against the party whose motion is under consideration." Schwabenbauer v. Board of Education, 667 F.2d 305, 314 (2d Cir.1981).

                material fact and that the moving party is entitled to a judgment as a matter of law."    Fed.R.Civ.P. 56(c).  The burden of proving that no genuine factual dispute exists rests on the party seeking summary judgment, see Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970), and inferences drawn from the evidence proffered must be viewed in the light most favorable to the party opposing the motion.  Id.;  United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994, 8 L.Ed.2d 176 (1962)
                

Under these principles, the court should not have rejected Abrams's "full and adequate consideration" argument as a matter of law.

B. Whether Lillian's Payment was a Transfer for Full Consideration

With respect to decedents who died prior to January 1, 1982, Secs. 2035(a) and (b)(1) of 26 U.S.C. provide, in pertinent part, as follows:

(a) Inclusion of gifts made by decedent

Except as provided in subsection (b), the value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer, by trust or otherwise, during the 3-year period ending on the date of the decedent's death.

(b) Exceptions

Subsection (a) shall not apply--

(1) to any bona fide sale for an adequate and full consideration in money or money's worth....

26 U.S.C. Secs. 2035(a) and (b)(1). See also Treas.Reg. Sec. 20.2035-1(a), 26 C.F.R. Sec. 20.2035-1(a) (1986) ("A decedent's gross estate includes under section 2035 the value of any interest in property transferred by a decedent in contemplation of death within 3 years before his death, except to the extent that the transfer was for a full and adequate consideration in money or money's worth...."); Treas.Reg. Sec. 20.2043-1(a), 26 C.F.R. Sec. 20.2043-1(a) (1986) (if the value of the property transferred exceeded the value of the consideration, "only the excess of the fair market value of the property ... over the price received by the decedent is included in ascertaining the value of his gross estate."). Abrams argues that under the exception stated in Sec. 2035(b)(1), Lillian's payment to the Bank was not includable in Lillian's estate because the payment secured the removal pro tanto of the Bank's lien on Lillian's bonds and hence was a transfer for full consideration. This argument may well have merit.

The parties' stipulations make clear that Lillian's bonds were at risk to the extent that Charles's loan was unpaid. Lillian had delivered $100,000 worth of bearer...