Estate of Britenstool v. Comm'r of Internal Revenue, Docket No. 4170-64.
| Decision Date | 02 September 1966 |
| Docket Number | Docket No. 4170-64. |
| Citation | 46 T.C. 711 |
| Parties | ESTATE OF HARRY BRITENSTOOL, DECEASED, BY MANUFACTURERS HANOVER TRUST COMPANY (SUCCESSOR BY MERGER TO THE HANOVER BANK), AS SOLE SURVIVING EXECUTOR, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Harold J. Raby, for the petitioner.
Charles M. Costenbader, for the respondent.
1. Held, in computing the amount of a charitable deduction under section 2055, I.R.C. 1954, when there has been an election under section 642(g), I.R.C. 1954, to deduct administrative expenses in computing the income of the estate rather than in computing the taxable estate, and when the income beneficiary is required under State law to reimburse a charity for a reduction in a charitable contribution resulting from such election, the charitable contribution includes the amount of such reimbursement.
2. Held, a payment by petitioner in satisfaction of a claim against the estate was approved by a State court, and since the decree of the State court affected the property rights of the estate, this Court accepts the State court decree as establishing the validity of the claim to the extent it was not clearly erroneous.
The respondent determined a deficiency in estate tax in the amount of $69,204.58. There are three issues remaining for decisions: (1) Whether a payment by the estate in satisfaction of a claim against the estate approved by a State court is deductible under section 2053, I.R.C. 1954;1 (2) whether the payment by the estate of 2 months' rent on decedent's apartment after his death is deductible under section 2053 as an administration expense; and (3) whether, in computing the amount of a charitable deduction when there has been an election under section 642(g) to deduct administration expenses in computing the income of the estate rather than in computing the taxable estate and when the income beneficiary is required under State law to reimburse a charity for a reduction in a charitable contribution resulting from such election, the charitable contribution includes the amount of such reimbursement.
Some of the facts were stipulated, and those facts are so found.
Petitioner is the sole, surviving executor of the Estate of Harry Britenstool, who died on March 7, 1960, a resident of New York, N.Y. The last will and testament of decedent was admitted to probate in the Surrogate's court, New York County, on March 23, 1960. Under the provisions of the will, decedent's sister, Blanche B. Ostheimer, and Manufacturers Hanover Trust Co. (then the Hanover Bank) were appointed executors.
The estate tax return for the estate of the decedent was filed by the executors with the district director of internal revenue, Manhattan, New York, on June 7, 1961. Blanche B. Ostheimer (Ostheimer) died on May 12, 1963, and no successor as executrix was appointed thereafter.
The total gross estate of the decedent, valued as of the date of decedent's death, amounted to $2,288,595.27. Under the terms of decedent's will, Ostheimer received a cash legacy of $100,000, together with all of the decedent's personal effects. All of the rest of the decedent's estate was placed in trust with Ostheimer having the right to the income during her lifetime and the power to invade the corpus up to $10,000 in any one year. Upon her death, the corpus was to go to the following charitable remaindermen in the proportions indicated: 60 percent to the Hospital for Joint Diseases; 10 percent to St. Claire's Hospital; 15 percent to the trustees of Columbia University in the City of New York; and 15 percent to the Federation of Jewish Philanthropies of New York. The decedent's will provided that all estate taxes be paid out of his residuary estate.
Petitioner claimed on the estate tax return as a deductible debt $23,177.39 paid by the estate to Blanche B. Ostheimer. Ostheimer asserted, as the basis for the claim, that she had advanced her personal funds to pay medical and other expenses of the decedent during his lifetime.
Ostheimer resided with decedent in a 12-room apartment leased by decedent. Decedent was a medical doctor, and a part of the apartment was used as his office. Ostheimer's claim against decedent's estate included payments for food, rent, household expenses, medical expenses, and electricity, during a period prior to decedent's death. Since Ostheimer resided with the decedent, she also received some benefit from these payments.
Ostheimer was not reimbursed by decedent during his life for any of the payments, although the payments were made over a 6-year period prior to his death. She made the payments from her personal checking accounts, although she held a power of attorney to draw checks on decedent's checking account. Decedent's checking account contained ample funds at all times to make the payments.
In support of her claim, Ostheimer submitted to petitioner a schedule of the claimed payments. Prior to payment of the claim, petitioner examined this schedule and also examined decedent's checkbooks for a 3-year period to ascertain whether there was any duplication between payments listed in the schedule and payments listed in the checkbooks. No duplication was found.
After examining Ostheimer's claim, petitioner, by letter in February of 1961, sought the approval of the charitable beneficiaries in order to make payment without awaiting the accounting and the approval of the Surrogate's Court. The charitable beneficiaries approved the claim, and petitioner then paid the claim in its face amount of $23,177.39.
The charitable beneficiaries under the will of decedent had reason to believe that they would also be charitable beneficiaries under the will of Ostheimer, whose personal wealth was estimated to be in excess of $2 million. In fact, the charitable beneficiaries were identical under both wills.
After paying Ostheimer's claim and after her death, petitioner filed a petition, verified October 26, 1964, in the Surrogate's Court of the County of New York, for the settlement of the first intermediate account of the decedent's estate. Among other things, the petitioner specifically asked the court to confirm and approve payment of Ostheimer's claim ‘on the merits as a bona fide obligation of decedent's estate.‘
A hearing was held before the surrogate on February 26, 1965, at which the charitable beneficiaries filed appearances. Testimony was taken by the surrogate in support of the allowance of Ostheimer's claim. Following the hearing, the Surrogate's Court rendered a decision and decree, entered March 24, 1965, in which the court-approved payment of the claim in the amount of $23,177.39.
Petitioner, at the time Ostheimer submitted her claim, did not see fit to question her honesty, since she was coexecutor, as to whether specific claimed expenditures were her personal expenses or for the benefit of decedent. In preparing this case for trial, petitioner's counsel discovered that three checks of Ostheimer's represented her personal expenses rather than expenditures on behalf of decedent. Other errors in Ostheimer's claim can be found in the schedule she submitted in support of her claim and in her personal checkbooks. Accordingly, the petitioner now concedes that, even accepting the validity of Ostheimer's claim, only $22,051.28 should have been paid her.
In addition to the claim of Ostheimer pertaining to the payment of decedent's expenses during his lifetime, Ostheimer submitted a claim to petitioner for reimbursement of payments made by her for two months' rent the apartment, after the decedent's death. Under the lease of the apartment, the decedent was required to give 2 months' notice prior to the termination of the tenancy. After decedent's death, Ostheimer, who remained in the apartment until her death on May 12, 1963, paid the April and May 1960 rent, amounting to $1,200. Petitioner paid this amount to Ostheimer, and the payment was allowed by the surrogate as an administrative expense. Petitioner claimed this $1,200 payment as an administrative expense on decedent's estate tax return.
Pursuant to the provisions of section 642(g), the executors of the estate waived the right to have administration expenses totaling $102,061 allowed as deductions for the purpose of determining estate tax liability under sections 2053 and 2054. The waived amount of administration expenses was claimed on the estate's income tax returns.
In connection with the decision of the executors to deduct administration expenses from estate income, the income deficiency, Ostheimer, agreed to reimburse the charitable remaindermen for any increase in estate tax resulting from the waiver of the right to claim such administration expenses for estate tax purposes. The surrogate's decree approving the first intermediate account provided that the additional estate taxes arising from the use of certain administration expenses as deductions from gross income be allocated against Ostheimer.
In computing the charitable deduction on the estate tax return, the petitioner included in such deduction the amount for which petitioner then estimated that Ostheimer was obligated to reimburse the charitable remaindermen. This amount was $35,537.54, but the actual amount of Ostheimer's reimbursement cannot be ascertained until the estate's final estate tax liability is determined.
OPINIONThe first issue that we shall consider is the deductibility from the value of the gross estate of the payment in the amount of $23,177.39 by petitioner in satisfaction of Ostheimer's claim against the estate.
Respondent contends that the claim of Ostheimer is not a claim against the estate deductible under section 2053. Respondent argues that petitioner has failed to prove that the decedent was under a legally enforceable obligation to repay Ostheimer for the expenditures listed in her claim and that, even if a legally enforceable obligation existed, no deduction is...
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