Bales v. Comm'r of Internal Revenue

• Decision Date: 20 May 1954
• Docket Number: Docket No. 37232.
• Citation: 22 T.C. 355
• Parties: AURA GRIMES BALES, TRANSFEREE, NATHAN W. BALES, DECEASED, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

22 T.C. 355

AURA GRIMES BALES, TRANSFEREE, NATHAN W. BALES, DECEASED, PETITIONER,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 37232.

Tax Court of the United States.

Filed May 20, 1954.

1. The unexpired portion of the statute of limitations remaining at the time the deficiency notice was mailed may be carried over and added to the 60-day period allowed in section 277 of the Internal Revenue Code for the purpose of assessing a taxpayer for income taxes. Olds & Whipple, Inc. v. United States, (Ct. Cl.) 22 F. Supp. 809, followed.

2. The petitioner is the transferee of the proceeds of certain life insurance policies in which she was named as beneficiary, the insured having died insolvent. North Carolina constitutional and statutory provisions exempting proceeds of life insurance received by a widow from claims of her husband's creditors do not bar the respondent from reaching these proceeds. J. E. Lyon, Esq., for the petitioner.

James R. Harper, Jr., Esq., for the respondent.

This proceeding involves the determination of the petitioner's liability, as transferee, for deficiencies in income tax assessed against her deceased husband. The amounts are $3,315.91 for the year 1946 and $100.02 for the year 1947. Two questions are involved: (1) Whether the statute of limitations has barred assessment against petitioner; and (2) whether the insurance proceeds which petitioner received as beneficiary in policies on her husband's life are transferred assets which render her liable for her husband's taxes.

The facts have been stipulated.

FINDINGS OF FACT.

On July 22, 1949, Nathan W. Bales, who was the husband of the petitioner in this proceeding, died in High Point, North Carolina. He had filed his individual income tax returns on Form 1040 for the calendar years 1946 and 1947 with the collector of internal revenue for the district of North Carolina. The 1946 return was filed on March 12, 1947, and the 1947 return was filed on April 15, 1948.

On December 28, 1949, a statutory notice of deficiency was mailed to the estate of Nathan W. Bales, deceased, Aura G. Bales, administratrix, which set forth deficiencies in income taxes for the calendar years 1946 and 1947 in the amounts of $3,315.91 and $100.02, respectively. No proceedings were initiated with the Tax Court as a result of the notice, and on April 20, 1950, the determined deficiencies were assessed. The tax was not paid and was uncollectible from the estate.

On July 30, 1951, a notice of liability was mailed to Aura G. Bales in which it was determined that she was liable ‘as transferee of the assets of Nathan W. Bales, deceased.’

Decedent was insolvent on February 19, 1947, and at all times thereafter until his death on July 22, 1949. His estate during its entire period of administration was at all times insolvent and unable to pay his income tax liabilities or any general claims against the estate.

On July 22, 1949, the following life insurance policies issued to and owned by decedent on his life were in full force and effect:

(a) Provident Mutual Life Insurance Company of Philadelphia. Policy No. 733093.

This policy was issued to Nathan W. Bales May 12, 1934. The original beneficiary was the petitioner, Aura G. Bales. No change of beneficiary was ever made. Proceeds of the policy in the amount of $1,000 were paid to Aura G. Bales, petitioner, less an indebtedness to the company in the amount of $201.22. The cash value of this policy as of July 22, 1949, was $176.52. The insured reserved the right to change the beneficiary.

(b) Occidental Life Insurance Company. Policy No. C–788.

This policy, in the face value of $5,000, was issued on December 4, 1925, with Aura G. Bales named as beneficiary. The beneficiary was changed to the Bales Hosiery Corporation by the insured on October 28, 1938, and the policy was assigned to the Carolina Bank and Trust Company of Denton, North Carolina, as collateral security on 2 notes. The proceeds of this policy, in the sum of $5,000, were applied to the liquidation of the 2 notes payable to the aforesaid bank totaling $11,700.

(c) Occidental Life Insurance Company. Policy No. C–4348.

This policy, in the face value of $5,000, was issued on January 7, 1930, with Aura G. Bales named as beneficiary. The beneficiary was changed to the Bales Hosiery Corporation by the insured on July 25, 1939, and the policy was assigned to the Carolina Bank and Trust Company of Denton, North Carolina, as collateral security on 2 notes. The proceeds of this policy, in the sum of $5,000, were applied to the liquidation of the 2 notes payable to the aforesaid bank totaling $11,700.

(d) Occidental Life Insurance Company. Policy No. 72657.

This policy, in the face value of $5,000, was issued August 14, 1936. Aura G. Bales was the original and only named beneficiary. This policy was assigned to the Carolina Bank and Trust Company as additional collateral security for 2 aforesaid notes totaling $11,700. The cash surrender value of this policy as of July 22, 1949, was $1,285. The insurance company paid $5,000 as proceeds of the policy by check payable to the petitioner and the Carolina Bank and Trust Company. Out of this check the amount of $406.30 due the Carolina Bank and Trust Company on the 2 notes totaling $11,700 was paid, and the amount of $4,593.70 was received by the petitioner. The unpaid balance of the notes due the bank in the amount of $1,235.90¹ was paid by applying the bank balance of the Bales Hosiery Corporation which was on deposit with the bank. Nathan W. Bales reserved the right to change the beneficiary in this policy.

(e) On July 22, 1949, Nathan W. Bales had an accident policy with the Provident Life and Accident Company of Chattanooga, Tennessee, in the face value of $5,000. As a result of the death of Nathan W. Bales, Aura G. Bales received a cash payment from the Provident. Life and Accident Company in the amount of $1,500.

(f) Sun Life Assurance Company of Canada. Policy No. 1,272,806.

This policy was issued February 25, 1931, on a joint Annual Life Dividend Plan, upon the joint lives of Nathan W. Bales and wife, Aura G. Bales. There was no named beneficiary, the proceeds being payable to the survivor. The dividends had been applied to the purchase of additional insurance causing the principal sum due at death of $5,000 to increase to $5,878. There was a loan against the cash value to be deducted in the sum of $1,097.13. The cash surrender value as of July 22, 1949, was $1,924.86.

As a result of death and accident benefits provided on the life of Nathan W. Bales described in the preceding paragraphs, Aura G. Bales, the petitioner, realized $11,673.35.

The statute of limitations does not bar the respondent from assessing petitioner as transferee for her husband's unpaid income taxes.

OPINION.

ARUNDELL, Judge:

Before turning to the merits of the question of petitioner's liability as transferee, we will consider whether the statute of limitations bars the respondent from proceeding against her.

In issue are her husband's income taxes for 1946 and 1947. In the view we take, the facts concerning the 1946 return are critical and if the petitioner's liability is not extinguished by the statute of limitations for that year, then her liability for 1947 is also open.

When the respondent mailed his notice of deficiency to the petitioner as administratrix of her husband's estate, 78 days remained in the 3-year period in which an assessment could have been made. The question is whether the respondent is entitled to add the unexpired 78 days after the end of the 60 days provided in section 277 of the Internal Revenue Code,² to lengthen further the time in which the transferor could have been assessed. The petitioner contends that the respondent has forfeited the 78 days and that assessment against her husband had to be made, if at all, in the 60-day period allowed in section 277 following the 90-day period which began with the mailing of the deficiency notice.

The principal difficulty with the petitioner's contention is that it would have the effect of shortening the normal 3-year statute of limitations in which her husband could have been assessed. Adoption of her argument would also mean that the statute of limitations had no effect after the respondent mailed his deficiency notice to a delinquent taxpayer, and would mean that the Commissioner would have only the 60 days provided in section 277 to make his assessment after the decision of the Court became final, or after the 90-day waiting period expired.

What we have to decide is the meaning of the phrase in section 277 which provides that the mailing of the deficiency notice ‘suspends' the running of the statute of limitations. This question was before us in Hoosac Mills Corporation, 29 B. T. A. 1057, revd. 75 F. 2d 462, and American Locker Co., 21 B. T. A. 408. We...