Bishop v. United States

• Decision Date: 19 June 1970
• Docket Number: No. WC 6943.,WC 6943.
• Citation: 338 F. Supp. 1336
• Parties: Vasser BISHOP, as Executrix of the Estate of David H. Bishop, Deceased, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Northern District of Mississippi

338 F. Supp. 1336

Vasser BISHOP, as Executrix of the Estate of David H. Bishop, Deceased, Plaintiff, v. UNITED STATES of America, Defendant.

No. WC 6943.

United States District Court, N. D. Mississippi, W. D.

June 19, 1970.

Lomax B. Lamb, Jr., Marks, Miss., Thomas R. Ethridge and Lowell E. Grisham, of Ethridge & Grisham, Oxford, Miss., for plaintiff.

H. M. Ray, U. S. Atty., Oxford, Miss., Jack D. Warren, Refund Trial Section No. 2, Dept. of Justice, Washington, D. C., for defendant.

MEMORANDUM OPINION

ORMA R. SMITH, District Judge.

This case is before the Court on plaintiff's Motion For Summary Judgment and on defendant's Cross-Motion For A Summary Judgment on the First and Second Counts of the complaint. The Third Count of the complaint is not involved in either of the motions aforesaid.

Dr. David H. Bishop and his wife, Mary H. Bishop, resided for many years at Oxford, Mississippi, where Dr. Bishop was engaged as a professor at the University of Mississippi. Mrs. Bishop died October 3, 1961, at the age of 76 years. Dr. Bishop died January 9, 1963, at the age of 92 years.

Mrs. Bishop¹ left a Last Will and Testament by which she devised and bequeathed her estate to Dr. Bishop, should he survive her, if not, to her three daughters.²

Dr. Bishop, as the executor of his wife's estate, filed an Estate Tax Return (Form 706) with the Jackson, Mississippi Office of the Internal Revenue Service on February 21, 1962. In Schedule E (Jointly Owned Property) of the return, the Executor listed jointly owned and held stocks and bank accounts.³ The schedule reflects that the Securities were held by the Decedent and Dr. Bishop as "joint tenants with the right of survivorship". The schedule contained two groups of Securities. One group, said to contain Securities inherited by Decedent from her mother, were listed at full value. The other group, said to have been acquired by the Decedent and Dr. Bishop through joint effort and contributions, were listed at one-half the full value. The total value of the Securities listed under Schedule E of the return was $166,929.21.

Schedule M (Bequests, etc., To Surviving Spouse — Marital Deduction) of the return lists the entire estate of the value of $172,929.21. The entire estate passed to Dr. Bishop by the Will of the Decedent. The Executor deducted from the value of the entire estate the sum of $82,838.25, representing the value of certain Securities said to have been disclaimed and released by Dr. Bishop to the contingent legatees of Decedent. The deduction of this amount left a total of $90,090.96, which amount was further reduced by federal and other death taxes payable out of the interest passing to Dr. Bishop, as the surviving spouse, under the Will. Thus, the net value of that part of the marital deduction, constituting property passing to Dr. Bishop as the surviving spouse, after deducting the value of the property disclaimed by him, amounted to $86,687.54.

Schedule O, the Recapitulation Schedule of the return, reflects an adjusted gross estate in the sum of $167,270.48. The Executor reduced this amount by one-half, or $83,635.24, the maximum marital deduction to which the estate was entitled.

The funeral expenses, administration expense and debts of the decedent amounted to $5,658.73. Thus, the total allowable deductions amounted to $89,293.97. Deducting this amount and the exemption of $60,000.00, resulted in a taxable estate of $23,635.24. The estate tax due on the return was $2,108.93.

On November 27, 1961, after the death of Mrs. Bishop, but before the estate return was filed, Dr. Bishop executed a disclaimer and release by which he undertook to disclaim and renounce any interest which he had, as the surviving registered joint owner, in a portion of the Securities shown in the Estate Tax Return and listed under Schedule E thereof.

In the disclaimer Dr. Bishop referred to the Securities covered thereby as being stocks inherited by Decedent from her parents. The disclaimer was executed in favor of the three daughters of Dr. Bishop and Decedent, contingent legatees of Decedent. The Securities, prior to Decedent's death, were held by her and her husband as joint tenants with the right of survivorship. The disclaimer recited that it was the intention of Dr. Bishop to comply with the provisions of Sections 2056(d) of the Internal Revenue Code of 1954,⁴ and Sections 672-71 through 672-81, Mississippi Code, 1942, Ann. Recompiled.⁵

Contemporaneously with the disclaimer Dr. Bishop transferred a portion of the Securities listed in Schedule E of the return to the First National Bank of Memphis in trust for the use and benefit of his three daughters. The aggregate value of these Securities was $63,000.00.

A short time later on January 29, 1962 Dr. Bishop executed a supplement to the original disclaimer, disclaiming and releasing to his said daughters, any interest which he had, as surviving registered joint owner and as legatee of decedent, in a portion of the securities shown on Schedule E of the return. Unlike the original disclaimer the supplement thereto described the Securities therein disclaimed as stocks owned equally by Dr. Bishop and Decedent.

Contemporaneously with the execution of the supplement to the original disclaimer, Dr. Bishop transferred additional Securities of the value of $27,000.00 to the First National Bank of Memphis to be held and administered under the trust indenture hereinbefore mentioned. The disclaimers were executed and recorded in all respects as required by Mississippi Statutes. (Release Of Powers Of Appointment Act, Mississippi Code, 1942, Ann., Recompiled §§ 672-71 et seq.)

As has been hereinbefore mentioned, subsequent to the execution of the disclaimers, on February 21, 1962, Dr. Bishop filed the Estate Tax Return for the estate of the Decedent. With reference to the deduction of $82,833.05 shown in Schedule M of the return, Dr. Bishop described the deduction as being justified in the language as follows:

"By written instrument executed on November 27, 1961, and recorded in Book 314, at page 251, of Chancery records of Lafayette County, Mississippi, and a supplement thereto executed January 29, 1962, and recorded in Book , at page , of the Chancery records of Lavayette County, Mississippi, surviving spouse disclaimed and released to contingent legatees of decedent the following stocks:"

On January 30, 1962, before the filing of the Estate Tax Return for the estate of Decedent, Dr. Bishop filed with the Jackson, Mississippi office of Internal Revenue Service a Gift Tax Return for the year 1961. Dr. Bishop included as a taxable gift for the calendar year 1961, the transfer of Securities amounting to $63,000.00 to the First National Bank of Memphis by his trust indenture of November 27, 1961. Dr. Bishop did not mention or in any way refer to the disclaimer of November 27, 1961, nor did he attach a statement to the return regarding such transaction. The return was entirely silent in regard to the disclaimer. After deducting the exclusions to which Dr. Bishop was entitled and the specific exemption of $30,000.00 there was no tax due by Dr. Bishop on the return for that year.

After Dr. Bishop's death plaintiff, as the Executrix of his estate, filed a gift tax return for the estate for the calendar year 1962. The return was filed with the Jackson, Mississippi office of the Internal Revenue Service on February 26, 1963. Plaintiff reported the additional Securities transferred by Dr. Bishop during 1962 to the First National Bank of Memphis under the trust indenture aforesaid, amounting to $27,000.00. After deducting the exclusions to which Dr. Bishop was entitled, the estate paid a tax of $165.00 on taxable gifts of the value of $6,000.00. The return for the calendar year 1962 omitted reference of any kind to the supplement to the disclaimer, which supplement was executed during the calendar year 1962.

The Estate Tax Return for decedent's estate was processed in the Jackson, Mississippi office by an Estate Tax Examiner.⁶ In the course of examining the return, the Agent received knowledge of and reviewed the facts relative to the disclaimers executed by Dr. Bishop during the calendar years 1961 and 1962.

Pursuant to a prior request, copies of the disclaimers were sent to the Agent by the attorney for the estate. The disclaimers were discussed on several occasions by the agent and the attorney for the estate. Suffice it to say that the Agent charged with the responsibility of examining decedent's Estate Tax Return was fully informed in respect to the disclaimers.

In the District Director's closing letter on the Estate Tax Return he made reference to the disclaimers. It is important to note, however, as mentioned in a letter written on December 30, 1963 to the attorney of the estate by the agent that the disclaimers had no bearing on the estate liability. The maximum marital deduction was obtained in any event.

On July 5, 1966⁷ the Commissioner made deficiency assessments of gift taxes for both years. The Commissioner included in the 1961 return the Securities disclaimed by Dr. Bishop on November 27, 1961, and included in the 1962 return the Securities disclaimed by him on January 29, 1962. The Commissioner held that the disclaimers executed by Dr. Bishop for the years in question constituted transfers of property by gift within the meaning of Section 2501 of the Internal Revenue Code of 1954,⁸ and were therefore taxable gifts.

It is not disputed that the Securities which were the subject of the alleged disclaimers exceed in amount twenty five per cent of the total amount of gifts stated in the return for each of the calendar years 1961 and 1962. For this reason the District Director contended that the six-year rather than the three-year statute of limitations applied to the assessments.

The Securities involved were transferred from the joint ownership of Dr. Bishop and Decedent to the contingent legatees and were never...