Estate of Christ v. CIR

• Decision Date: 09 May 1973
• Docket Number: No. 71-1229 to 71-1231.,71-1229 to 71-1231.
• Citation: 480 F.2d 171
• Parties: ESTATE of Daisy F. CHRIST, Deceased, Robert Johnson Christ, Executor, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
• Court: U.S. Court of Appeals — Ninth Circuit

480 F.2d 171 (1973) ESTATE of Daisy F. CHRIST, Deceased, Robert Johnson Christ, Executor, Petitioner-Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

Nos. 71-1229 to 71-1231.

United States Court of Appeals, Ninth Circuit.

May 9, 1973.

Charles J. Leighton, Jr. (argued), Donald B. Falconer, Helzel, Leighton, Brunn & Deal, Oakland, Cal., for petitioner-appellant.

Stephen Schwartz (argued), Johnnie M. Walters, Asst. U. S. Atty., Meyer Rothwacks, Richard W. Perkins, Tax Div., Dept. of Justice, Washington, D. C., for respondent-appellee.

Before GOODWIN and WALLACE, Circuit Judges, and CURTIS,^* District Judge.

ALFRED T. GOODWIN, Circuit Judge:

The only issue in these consolidated income and estate tax cases is the value of the interest received by the decedent, Daisy F. Christ, when she elected to take under the will of her deceased husband, Andrew, in 1952. The Tax Court resolved the issue adversely to the taxpayer, 54 T.C. 493 (1970). We affirm.

When her husband died, Mrs. Christ was faced with a choice open to many California widows: whether to take her share of the community property by operation of state law, or elect to allow her share of the community property to pass under her husband's will to a trust under which she would receive income for life with limited rights in the principal of all the property of the community. She elected to take under the trust.

This election created several federal tax consequences. The widow's surrender of her share of the community property to a trust which will pay her the income from the property for life constitutes a "transfer" under Int.Rev.Code of 1954, § 2036(a)(1). Unless the transfer is a "bona fide sale for an adequate and full consideration in money or money's worth," the property is includible in the widow's gross estate at the time of her death. If the property is included in the widow's estate, it is included at its market value on the date of her death. But the date-of-transfer value of any property received through the exercise of the widow's election is subtracted from the amount included. Int.Rev.Code of 1954, § 2043.

The value placed upon the property received under the election may also be important for federal-income-tax purposes. It has been held in this circuit that the widow's election can be a "purchase," for income tax purposes, of her rights under the trust, justifying amortization deductions from the income she receives from the trust. Gist v. United States, 296 F.Supp. 526 (S.D.Cal.1969), aff'd, 423 F.2d 1118 (9th Cir. 1970).

The amount of the "purchase" price, however, is usually not deemed to be the value of the community property surrendered to the trust, but rather is deemed to be the present discounted value of the right to receive income obtained in the election. The reason for so fixing the value is that where the value of the rights surrendered exceeds the value of the rights received, only a portion of what is surrendered is allocated to the "purchase price" of the rights received and the rest is presumed to be a gift to the remaindermen. It is therefore to the advantage of the taxpayer to have a high value assigned to the right to receive income, for three reasons: (1) a sufficiently high value assures that the transfer will be a "bona fide sale," rendering § 2036 inapplicable and removing the trust corpus from the gross estate altogether; (2) a high value will also reduce the size of the gross estate through the operation of § 2043; and (3) a high value will equal a high "purchase price" for the life income and thereby support larger amortization deductions from that income.

Because the issue before the court is the value of the right to receive income at the time of the exchange, the anticipated value of the income is used, rather than its demonstrated value as viewed from the vantage point of hindsight.

The Commissioner has prepared tables for use in calculating the anticipated values of life estates. The tables were followed in this case.

The taxpayer contends that the Commissioner and the Tax Court should not have used the tables. First, the taxpayer argues that the reasonably anticipated yield of the securities in the trust, by any educated estimate, so greatly exceeded the yield forecast in the Commissioner's tables that the use of the tables was unreasonable. Second, he argues that the fair rental value of the residence given in trust, rather than the "table" value, should have been used. Third, he argues that even if the anticipated yield given in the tables could be defended the implicit life expectancies of the table are outmoded and erroneous. He suggests that the Commissioner's tables for annuitants should be used.

The Tax Court adopted the standard of Hanley v. United States, 63 F.Supp. 73, 81, 105 Ct.Cl. 638 (1945), holding that the Commissioner's tables should be used unless their use would produce "a result substantially at variance with the facts." This standard is essentially the same as that previously enunciated in this circuit. United States v. Past, 347 F.2d 7, 13 n. 3 (9th Cir. 1965); Koshland's Estate v. Commissioner, 177 F.2d 851 (9th Cir. 1949). The taxpayer agrees that this is the correct standard, but urges that the Tax Court either made an error of law or was "clearly erroneous" in finding the facts. There was no error.

The Tax Court held that the taxpayer did not satisfy the burden of proving the tables inapplicable. First, the Tax Court rejected the taxpayer's contention that the past return of the trust was 8.2%, a figure well above the implicit return of 3 ½% then used in the tables. The 8.2% figure was arrived at by valuing the trust as of April 15, 1952, the date of Andrew Christ's death. The correct valuation date, however, was September 30, 1953, the date of the distribution to the trust and the date Daisy's election became irrevocable. Using the correct date, the gross yield for 1953 was 6.18%, and for the period 1948-1953 was 5.48%.

The second reason the Tax Court held that the taxpayer did...