Commissioner of Internal Revenue v. Siegel
| Decision Date | 06 November 1957 |
| Docket Number | No. 15432.,15432. |
| Citation | 250 F.2d 339 |
| Parties | COMMISSIONER OF INTERNAL REVENUE, Petitioner, v. Mildred Irene SIEGEL, Respondent. |
| Court | U.S. Court of Appeals — Ninth Circuit |
Charles K. Rice, Asst. Atty. Gen., C. Guy Tadlock, Ellis N. Slack, Lee A. Jackson, Helen A. Buckley, Attys., Dept. of Justice, Washington, D. C., for petitioner.
Dana Latham, A. R. Kimbrough, Grover Heyler, Henry C. Diehl, Los Angeles, Cal., for respondent.
Before FEE and BARNES, Circuit Judges, and YANKWICH, District Judge.
The question involved in this petition by the Commissioner of Internal Revenue to review1 a decision of the Tax Court rendered October 3, 1956, turns on the correctness of the determination by the Tax Court of a deficiency, arising under the federal gift tax law for the taxable year 1950, of the respondent Mildred Irene Siegel, to be referred to hereinafter as the taxpayer.2
On February 8, 1954, the Commissioner of Internal Revenue mailed to the taxpayer a notice of a deficiency in the total amount of $51,144.24. The assessment was based on a determination which read in part:
"The transfer by the above-named donor to her son of a remainder interest in her one-half interest in community property which she transferred to a testamentary trust established under the last will and testament of Irving Siegel, Deceased, is determined to constitute a transfer by said donor without consideration in money or money\'s worth, and a gift within the meaning of Section 1000 of the Internal Revenue Code."
On April 29, 1954, the taxpayer filed a petition with the Tax Court for a redetermination of the deficiency.3 The Tax Court entered its decision on October 3, 1956, determining, in effect, that the taxpayer's transfer having been made in consideration of her waiver of her community rights and her acceptance of the benefits under the will, only the excess of the value of her transfer over what she received was a taxable gift. The Tax Court determined the amount to be $4,314.87, which has been paid.
Facts Admitted or Uncontroverted.
In the main, the facts are not in dispute, either because they were stipulated or found by the Court on evidence which stands uncontradicted. So, unless the facts warrant different legal conclusions, the decision of the Tax Court must stand.4
In outline, the facts are:
The taxpayer and Irving Siegel, to be referred to as Siegel, were husband and wife and residents of the State of California. Siegel died in California on January 4, 1949. The Siegels had an adopted son, Richard Bruce Siegel, who was born on May 14, 1943, and who resides with the taxpayer. Siegel left an estate consisting entirely of community property acquired by him, as the Tax Court found, and his wife since 1927.5 The Tax Court also found that on the date of Siegel's death, the gross value of the community property was $1,422,897.14, and the gross value of the taxpayer's half share in it was $711,448.57. At the time of the hearing, the Tax Court determined that on January 5, 1950, the date of the taxpayer's election to take under the Will, to be referred to later on, the net value of Siegel's share to be $295,076.54 and that of the taxpayer's $584,035.44. The computation was arrived at in this manner:
The taxpayer was named one of three trustees and the will specifically provided that should she determine to take her community property share, "she should take nothing as a beneficiary under the trust". The three clauses relating to these matters are set forth in the margin.6 The reference to the standard of living in the will is important in view of the fact that the Tax Court found that in 1948, the year preceding his death, the living expenses of the taxpayer and her husband before income taxes were $46,500.
On January 5, 1950, the taxpayer executed and filed with the Superior Court an instrument electing to take under Siegel's last will and testament in lieu of all community property rights which she had in the estate. The Tax Court found that since that time, she received and expended from the trust the following amounts:
Federal
and
State
income
taxes
included
Received Total in total
from the expenditures expenditures
trust
1950 .............. $24,0001 $31,720.32 $ 4,500.00
1951 .............. 54,000 50,462.11 18,524.23
1952 .............. 54,000 43,313.60 20,296.83
1953 .............. 52,000 46,656.79 18,413.06
1954 .............. 48,000 47,267.98 22,329.39
In setting up these tables, the Tax Court made the following additional findings:
On the basis of these findings, it concluded that the surrender by the taxpayer of her community property rights was a gift to the estate to the extent that the value of the interest thus surrendered exceeded the value of the interest she acquired under the terms of the will.
In determining the values the Tax Court ruled that the amount of the gift should be measured by the taxpayer's community interest reduced by the present value of her life interest in the entire community property and a specific bequest of $35,000 granted to her by the terms of the will.
In sum, the Tax Court treated the transfer as being one in which what the taxpayer surrendered was the consideration for what she received.
In this petition for review, the Commissioner contests this basic principle and the reasons upon which it is grounded.
The Problem of Consideration.
It is the contention of the Commissioner that in this manner the Tax Court misapplied to the facts Section 1002 of the Revenue Code of 1939, which reads:
"Where property is transferred for less than an adequate and full consideration in money or money\'s worth, then the amount by which the value of the property exceeded the value of the consideration shall, for the purpose of the tax imposed by this chapter, be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year."7
We are of the view that the Commissioner's contention that the transaction was donative and that, as his brief puts it, "the taxpayer received no consideration whatsoever, adequate or not, for making the election" is without merit. The issue must be determined in the light of the community property law of California and the law of wills.
The election made by the taxpayer reads:
"Dated this 5th day of January, 1950."
Elections to take under a will by one of the spouses instead of property that he or she may be entitled to under state law have long been recognized as transactions in which the property surrendered is considered the consideration for the offer made in the will and accepted at the time of the execution of the will in a contemporaneous instrument or thereafter. In all instances, the effect of the election is determined by the status of the property under the law of the state.8
"The gift by will in lieu of the other right is said to be equivalent to an offer, and to offer something to the devisee in return for his property or interest."9...
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...1959, Mrs. Bedie Lee Kuhn, Taxpayer at 2-4 (April 29, 1960). Gift tax liability arose as the result of this transfer, Commissioner v. Siegel, 250 F.2d 339 (9th Cir. 1957), and the taxpayer paid a gift tax on $113,496.12, representing the excess of the value of her community property interes......
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