DiMarco v. Comm'r of Internal Revenue (In re Estate of DiMarco)

• Citation: 7 Employee Benefits Cas. 2239,87 T.C. No. 39,87 T.C. 653
• Decision Date: 24 September 1986
• Docket Number: Docket No. 18965-83.
• Parties: ESTATE OF ANTHONY F. DiMARCO, DECEASED, JOAN M. DiMARCO, PERSONAL REPRESENTATIVE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
• Court: United States Tax Court

7 Employee Benefits Cas. 2239

87 T.C. 653

87 T.C. No. 39

ESTATE OF ANTHONY F. DiMARCO, DECEASED, JOAN M. DiMARCO, PERSONAL REPRESENTATIVE, Petitioner

v.COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 18965-83.

United States Tax Court

Filed September 24, 1986.

Decedent's spouse was paid a survivors income benefit pursuant to a plan that was established and maintained by decedent's employer. Under the terms of the Plan, the survivors income benefit was payable by decedent's employer only to decedent's eligible survivors upon his death. Decedent's participation in the Plan was involuntary. He had no power to select or change the beneficiaries of the survivors income benefit; no power to change the amount, form, or timing of the survivors income benefit payments; no power to substitute other benefits for the survivors income benefit; and, other than by resigning his employment, no power to terminate his coverage under the Plan. In addition, decedent's employer reserved the right, in its discretion, to modify the Plan at any time.

HELD, decedent did not make a taxable gift of the survivors income benefit to his spouse within the meaning of sec. 2503, I.R.C. 1954, and the present value of the survivors income benefit is not, therefore, an adjusted taxable gift within the meaning of sec. 2001, I.R.C. 1954. John M. Vine and David N. Heap, for the petitioner.

Warren P. Simonsen, for the respondent.

OPINION

STERRETT, CHIEF JUDGE:

By notice of deficiency dated May 4, 1983, respondent determined a deficiency in petitioner's Federal estate tax of $17,830.88. As a result of concessions by both parties, ¹ the only issue presented in this case is whether the present value of a survivors income benefit payable with respect to the decedent by decedent's employer is an adjusted taxable gift within the meaning of section 2001. ²

The parties submitted this case fully stipulated pursuant to Rule 122. The stipulation of facts and exhibits attached thereto are incorporated herein by this reference.

Petitioner is the Estate of Anthony F. DiMarco, Joan M. DiMarco, Personal Representative. Joan M. DiMarco is and at all relevant times has been the sole personal representative of petitioner. At the time the petition was filed in this case, Joan M. DiMarco resided in Wappingers Falls, New York. The Federal estate tax return of Anthony F. DiMarco was filed with the Office of the Internal Revenue Service at Andover, Massachusetts.

Anthony F. DiMarco (hereinafter referred to as the decedent) was born on August 31, 1925. He died on November 16, 1979, survived by his wife, Joan M. DiMarco, and five children. He had been employed continuously by the International Business Machines Corporation (IBM) as an active, regular, full-time, permanent employee from January 9, 1950, until his death. On May 2, 1953, decedent and Joan M. DiMarco were married; he had not been previously married. Decedent's parents were not dependent upon him for their support at any time between the date when his employment with IBM began and the date of his marriage to Joan M. DiMarco. At the time of his death, decedent was employed as an electrical engineer at a salary of $5,250 per month. He was not an officer of the corporation and did not have a written employment contract.

On November 16, 1979, and at all other times relevant to this proceeding, IBM maintained a non-contributory Group Life Insurance and Survivors Income Benefit Plan (hereinafter referred to as the Plan) for the benefit of its regular employees. IBM established the Plan in September of 1934, and while the Plan has been amended on many occasions since that time, it has, since January of 1935, provided two basic benefits: (i) group term life insurance, and (ii) an uninsured and unfunded survivors income benefit.

The Plan provided group term life insurance pursuant to a group contract between IBM and the Prudential Life Insurance Company of America. The amount of insurance payable under the Plan was dependent on the length of the employee's service with the company.

The Plan also provided a survivors income benefit on an uninsured and unfunded basis; that is, all survivors income benefits were paid out of IBM's general assets. With the exception of fewer than 30 top executives, all regular IBM employees, including decedent, were covered automatically by the survivors income benefit portion of the Plan. At the time of decedent's death, the amount of the survivors income benefit was equal to three times the employee's regular annual compensation. Under the terms of the Plan, the benefit was payable only to an employee's surviving spouse, certain minor and dependent children, and dependent parents. Payment was made semi- monthly, at the monthly rate of one-quarter of the employee's regular monthly compensation, and continued until the total benefit was paid. However, payments continued only so long as there remained at least one eligible survivor, and if the employee left no eligible survivor at death, no benefit was payable.

Decedent never had any power to alter, amend, revoke, or terminate the Plan in whole or in part. He had no power to select or change the beneficiaries of the survivors income benefit; no power to change the amount, form, or timing of the survivors income benefit payments; no power to substitute other benefits for the survivors income benefit; and, other than by resigning his employment with IBM, no power to terminate his coverage under the Plan. However, IBM expressly reserved the right, in its discretion, to modify the Plan if it determined that it was advisable to do so.

Joan M. DiMarco, as decedent's surviving spouse, was entitled under the Plan to receive a survivors income benefit, payable semi- monthly, in the amount of $656.25. ³ Decedent did not report the survivors income benefit as a gift on a gift tax return, and petitioner did not report it either as part of the gross estate or as an adjusted taxable gift on decedent's Federal estate tax return. However, the existence of the survivors income benefit was reported by petitioner on Schedule I of decedent's Federal estate tax return.

In his notice of deficiency, respondent ‘determined that an adjusted taxable gift of the present value of the IBM Survivor Annuity was made by the decedent on the date of death as it was not susceptible of valuation until the date of death.‘ Respondent then determined that the present value of the survivors income benefit was $135,885.00, ⁴ and he added this amount, as an adjusted taxable gift, to the taxable estate of decedent in computing the amount of the deficiency.

The only issue for decision in this case is whether the present value of the survivors income benefit that is payable by IBM to Joan M. DiMarco is an adjusted taxable gift within the meaning of section 2001. The term ‘adjusted taxable gifts‘ is defined by section 2001(b) as ‘the total amount of the taxable gifts (within the meaning of section 2503) made by the decedent after December 31, 1976, other than gifts which are includible in the gross estate of the decedent.‘ ⁵ Section 2503(a) in turn defines ‘taxable gifts‘ as the ‘total amount of gifts‘ made during the applicable period less certain statutory deductions. ⁶ Thus, the survivors income benefit that is payable by IBM to Joan M. DiMarco is an adjusted taxable gift within the meaning of section 2001 only if it is also a taxable gift within the meaning of section 2503 that was made by decedent after December 31, 1976.

We begin our analysis by noting that it is unclear precisely what respondent argues in this case. On brief, he proposes that we adopt as an ultimate finding of fact that ‘Decedent made a completed gift of the Survivor's Benefit to unnamed beneficiaries upon the commencement of his employment on January 9, 1950.‘ Two pages later in the same brief he argues that ‘the transfer should be treated as a completed gift in 1979.‘ In the statutory notice of deficiency and the stipulation of facts, respondent appears to take the position that decedent actually made a completed gift of the survivors income benefit at the time of his death in 1979. Respondent finally attempts to clarify his position by stating in his reply brief that it is his ‘position that the gift of the Survivor's Benefit occurred in 1950 and the inability to value said gift requires * * * »respondent† to treat the gift as complete on the date of death when the gift finally became subject to valuation.‘

After reviewing carefully respondent's briefs, the statutory notice of deficiency, and the stipulation of facts, it appears to us that respondent is making two arguments in this case. First, it appears that respondent argues that decedent made a completed transfer of a property interest in the survivors income benefit for gift tax purposes on January 9, 1950, but that because the interest could not be valued at that time, it was necessary to treat the transfer as an open transaction and to value the transferred property and impose the gift tax on the date of decedent's death, when the property interest finally became subject to valuation. In the alternative, respondent appears to argue that decedent made an incomplete transfer of a property interest in the survivors income benefit for gift tax purposes on January 9, 1950, because the property interest could not be valued at that time, but that the transfer became complete on November 16, 1979, when decedent died, because the transferred property could then and for the first time be valued.

Petitioner argues, for a variety of reasons, that decedent never made a taxable gift of the survivors income benefit. Petitioner argues that decedent never owned a property interest in the survivors income benefit that he was capable of transferring. Petitioner further contends that, even if decedent owned such an interest, he never transferred it, and if he did transfer it, he never did so voluntarily. Petitioner also asserts that transfers...