Bridges v. Comm'r of Internal Revenue

Citation64 T.C. 968
Decision Date28 August 1975
Docket Number6322-71.,Docket Nos. 6313-71
PartiesJ. T. BRIDGES, JR., AND DORIS E. BRIDGES, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENTADDIE BELLE BRIDGES EDWARDS, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
CourtUnited States Tax Court

OPINION TEXT STARTS HERE

Hugh R. Dowling, Howard O. Morris, Jr., and John W. Mooers, for the petitioners.

Robert J. Shilliday, for the respondent.

Petitioners received long-term capital gains from a ground lease and timber-cutting contract which was income in respect of a decedent which, after deducting 50 percent thereof under sec. 1202, I.R.C. 1954, exceeded the deduction allowable for estate tax attributable to such income in respect of a decedent allowable under sec. 691(c), I.R.C. 1954. Held, the deduction allowable for estate tax attributable to income in respect of a decedent under sec. 691(c), I.R.C. 1954, in these circumstances need not be offset against the long-term capital gain before allowance of the 50-percent deduction thereon under sec. 1202, I.R.C. 1954, but is allowable as an itemized deduction against adjusted gross income which includes the remaining 50 percent of the long-term capital gains representing income in respect of a decedent.

GOFFE, Judge:

The Commissioner determined deficiencies in petitioners' Federal income tax as follows:

+---------------------------------------------------------------+
                ¦                                        ¦Taxable  ¦            ¦
                +----------------------------------------+---------+------------¦
                ¦Petitioner                              ¦year     ¦Deficiency  ¦
                +----------------------------------------+---------+------------¦
                ¦                                        ¦         ¦            ¦
                +----------------------------------------+---------+------------¦
                ¦J. T. Bridges, Jr., and Doris E. Bridges¦1963     ¦$2,177.00   ¦
                +---------------------------------------------------------------+
                
                            1964 1,631.81
                Addie Belle Bridges Edwards 1963 22,392.90
                
 1964 6,936.67
                

These cases were consolidated for trial, briefs, and opinion. The sole issue for decision is whether the deduction allowable for estate tax attributable to income in respect of a decedent (sec. 691(c))1 which is long-term capital gain must be offset against the long-term capital gain or is allowable as an itemized deduction where the deduction does not exceed such net long-term capital gain.

FINDINGS OF FACT

Some of the facts are stipulated. The stipulation of facts and exhibits are incorporated by reference.

Petitioners J. T. Bridges, Jr., and Doris E. Bridges, husband and wife, resided in Jasper, Fla., when they filed their petition. Their joint Federal income tax returns for the taxable years 1963 and 1964 were filed with the District Director of Internal Revenue, Jacksonville, Fla.

Petitioner Addie Belle Bridges Edwards (formerly Addie Belle Bridges) resided in Clearwater, Fla., when she filed her petition. She is the widow of J. T. Bridges, Sr., and filed her individual Federal income tax returns for the taxable years 1963 and 1964 with the District Director of Internal Revenue, Jacksonville, Fla.

J. T. Bridges, Sr., owned approximately 16,324 acres of timberland located in Hamilton County, Fla., and in Clinch and Echols Counties, Ga. On December 29, 1958, he and his wife, Addie Belle Bridges, entered into a lease agreement and timber-cutting contract with Owens-Illinois Glass Co. effective on January 1, 1959. J. T. Bridges, Sr., died testate on April 6, 1962, and the said timberland encumbered with the lease agreement and timber-cutting contract was valued for estate tax purposes on the Federal estate tax return at an aggregate value of $682,588.54 as of the date of death. That was the value finally determined for estate tax purposes. In his will, the decedent devised and bequeathed one-half of his estate to his wife and the remainder in trust for the benefit of his four children, equally, of which J. T. Bridges, Jr., a petitioner herein, is one.

A fiduciary income tax return was filed for the estate of J. T. Bridges, Sr., with the District Director of Internal Revenue, Jacksonville, Fla., for its initial taxable period commencing April 6, 1962, through February 28, 1963.

In each of the taxable years of the estate ended, February 28, 1963, and February 29, 1964, Owens-Illinois paid the estate and heirs the total of $73,453.73 pursuant to the ground lease and timber-cutting contract.

In 1964, Addie Belle Bridges transferred to her four children in equal shares a 171/683 interest in the Owens-Illinois ground rent and timber-cutting contract which was approximately one-half of the half interest she received under the will of J. T. Bridges, Sr.

The estate and beneficiaries which are petitioners in the instant case reported the receipts from Owens-Illinois in the manner reflected on the following schedule:

+-----------------------------------+
                ¦OWENS-ILLINOIS RECEIPTS REPORTED ON¦
                +-----------------------------------¦
                ¦FEDERAL INCOME TAX RETURNS         ¦
                +-----------------------------------¦
                ¦        ¦        ¦        ¦        ¦
                +-----------------------------------+
                
 Returns Returns
                of of J. T
                Addie Jr., and
                Fiduciary Belle Doris E
                TYE 2/28/63 of estate and 1963 of individuals returns Bridges Bridges  
                Gross receipts from Owens-Illinois              $73,453.73
                Less cost                                       64,778.84
                Long-term capital gain                          8,674.89
                
Net long-term capital gain distributed to
                beneficiaries and reported by them as
                long-term capital gain                    8,674.89 $4,337.45 $1,084.36
                
50 percent thereof included by beneficiaries
                in gross income                               2,168.72 542.18
                
TYE 2/29/64 of estate and 1964 of individuals
                
After gift by Addie Belle Bridges of 171/683
                interest to her four children in equal
                shares
                Gross receipts from Owens-Illinois           55,063.41  4,597.58
                Less cost                                    44,963.35  3,754.26
                Long-term capital gain                       10,100.06  843.32
                
Long-term capital gain from
                Owens-Illinois distributed
                to beneficiaries and reported
                by them as long-term capital gain 10,100.06 4,666.19 1,683.34
                
Long-term capital gain from
                Owens-Illinois reported by
                beneficiaries as long-term
                capital gain                 4,666.19 2,526.66
                
50 percent thereof included by
                beneficiaries in gross income   2,333.09 1,263.33
                

The Commissioner, in his statutory notices of deficiency, determined that the entire $73,453.73 received by the estate rom Owens-Illinois in each of the taxable years ended February 28, 1963, and February 29, 1964, constituted ordinary income instead of long-term capital gain as reported, and he allowed no recovery of cost basis.

All of the payments received by the estate and beneficiaries from Owens-Illinois during the years 1963 and 1964 constituted long-term capital gain because the total of the receipts from Owens-Illinois during the years 1963 and 1964 constituted long-term capital gain because the total of the receipts from Owens-Illinois from the date the ground lease and timber-cutting contract was effective until the end of 1964 did not exceed the fair market value of timber standing on the date the contract was executed.

The cost basis of the aggregate of the ground lease and timber-cutting contract with Owens-Illinois in the hands of J. T. Bridges, Sr., was $35,518.05 which is properly apportioned as cost basis to the beneficiaries of the estate in the amounts of $22,618.42 and $12,849.63 for the taxable years 1963 and 1964, respectively. The estate and beneficiaries should have reported the receipts from the Owens-Illinois contract as follows:

+-------------------------------------------+
                ¦CORRECT REPORTING OF OWENS-ILLINOIS        ¦
                ¦RECEIPTS                                   ¦
                +-------------------------------------------¦
                ¦ON FEDERAL INCOME TAX RETURNS              ¦
                +-------------------------------------------¦
                ¦          ¦          ¦          ¦          ¦
                +-------------------------------------------+
                
 Returns Returns
                of of J. T
                Addie Jr., and
                Fiduciary Belle Doris E
                TYE 2/28/63 of estate and 1963 of individuals returns Bridges Bridges  
                Gross receipts from Owens-Illinois              $73,453.73
                Less basis                                      22,618.42
                Long-term capital gain                          50,835.31
                
Net long-term capital gain distributed to
                beneficiaries and reportable by them as
                long-term capital gain                    50,835.31 $25,417.66 $6,354.42
                
50 percent thereof includable by
                beneficiaries in gross income     12,708.83 3,177.21
                
TYE 2/29/64 of estate and 1964 of individuals
                
After gift by Addie Belle Bridges of
                171/683 interest to her four children in
                equal shares
                Gross receipts from Owens-Illinois       73,453.73
                Less basis                               12,849.63
                
Long-term capital gain distributed to
                beneficiaries                         60,604.10 15,128.84 11,386.82
                
50 percent thereof included by
                beneficiaries in gross income   7,564.42 5,684.41
                

The Federal estate tax finally determined for the estate of J. T. Bridges, Sr., was $119.610.92.

The correct amounts deductible by petitioners in the taxable years 1963 and 1964 as Federal estate tax attributable to the Owens-Illinois income in respect of the decedent, J. T. Bridges, Sr., under section 691(c) are as follows:

+------------------------------------------------------------+
                ¦                                        ¦1963     ¦1964     ¦
                +----------------------------------------+---------+---------¦
                ¦                                        ¦         ¦         ¦
                +----------------------------------------+---------+---------¦
                ¦Addie Belle Bridges Edwards             ¦$5,529.38¦$2,556.16¦
                +----------------------------------------+---------+---------¦
                ¦J. T. Bridges, Jr., and Doris E. Bridges¦1,382.35 ¦1,920.86 ¦
                +------------------------------------------------------------+
                
OPINION

The parties agree that the receipts from...

To continue reading

Request your trial
4 cases
  • Monen v. Comm'r of Internal Revenue (In re Estate of Sidles)
    • United States
    • United States Tax Court
    • January 29, 1976
    ...before us is precisely the one considered in Goodwin and Quick, although those cases involved section 1202. See and compare J. T. Bridges, Jr., 64 T.C. 968 (1975). We are convinced that the rationale of those cases is correct. We think the purpose of section 691(c) is only: to provide appro......
  • Graves v. Comm'r of Internal Revenue (In re Estate of Graves), Docket No. 39100-87
    • United States
    • United States Tax Court
    • June 19, 1989
    ...See Fraternal Order of Police v. Commissioner, 87 T.C. 747, 756-757 (1986), affd. 833 F.2d 717 (7th Cir. 1987); Bridges v. Commissioner, 64 T.C. 968, 973 (1975). Respondent argues on brief that ‘the trust was not completely irrevocable because the grantor had expressly reserved the right to......
  • B.C. Cook & Sons, Inc. v. Comm'r of Internal Revenue
    • United States
    • United States Tax Court
    • December 1, 1975
    ...of that error would not have been the allowance of a deduction. * * * See also Estate of Viola E. Bray, 46 T.C. 577 (1966); J. T. Bridges, 64 T.C. 968(1975). The mitigation provisions are extremely complex and are written with great precision. ‘Deduction’ appears several times in section 13......
  • Bridges v. Commissioner
    • United States
    • United States Tax Court
    • August 1, 1979
    ...of the sale of timber, but rather are consideration for the use of land and constitute ordinary income. See also Bridges v. Commissioner Dec. 33,401, 64 T.C. 968, 971 (1975), in which we stated with respect to payments under the same contract here in issue that "The parties agree that recei......

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT