Estate of McCoy v. Commissioner

• Decision Date: 21 February 1961
• Docket Number: Docket No. 65895.
• Citation: 1961 TC Memo 40,20 TCM (CCH) 224
• Parties: Estate of Bryan S. McCoy, Sr., Deceased, Bryan S. McCoy, Jr., Executor v. Commissioner.
• Court: U.S. Tax Court

20 T.C.M. (CCH) 224 (1961)

T. C. Memo. 1961-40. Estate of Bryan S. McCoy, Sr., Deceased, Bryan S. McCoy, Jr., Executor v. Commissioner.

Docket No. 65895.

United States Tax Court.

Filed February 21, 1961.

J. W. Jones, Esq., 915 Kentucky Home Life Building, Louisville, Ky., for the petitioner. Arthur Clark, Jr., Esq., for the respondent.

Memorandum Findings of Fact and Opinion

BRUCE, Judge:

This proceeding involves a deficiency in Federal estate tax in the amount of $22,126.25. The issues are: (1) whether the net fair market value of the Eldorado Apartments as of the date of decedent's death is includible in his gross estate under section 2036(a), Internal Revenue Code of 1954; (2) whether the proceeds of certain life insurance are includible in his gross estate under section 2042; and (3) whether certain attorneys' fees are properly deductible from the value of the gross estate under section 2053(a). Other issues presented by the pleadings and relating to the fair market value of certain stock in McCoy Realty Company and McCoy Builders, Inc., have been settled by the parties in the stipulation and will be given effect in the Rule 50 computation.

Findings of Fact

The stipulated facts are so found and are incorporated herein by this reference.

Bryan S. McCoy, Sr., the decedent herein, died testate, a resident of Louisville, Jefferson County, Kentucky, on September 10, 1954. Bryan S. McCoy, Jr., the decedent's son, qualified and is the duly appointed and acting executor of decedent's estate. The estate tax return for decedent's estate was filed on December 12, 1955, with the district director of internal revenue for the district of Kentucky.

For many years prior to his death, decedent was engaged in the business of subdividing and developing real estate for sale and in the real estate rental business. He conducted these businesses through the operation of three corporations: McCoy Realty Company, McCoy Builders, Inc., and Bryan S. McCoy, Inc., and through a proprietorship which he operated in his own name.

Elizabeth McCoy, decedent's then wife, hereinafter referred to as Elizabeth, held 3 shares of the capital stock of McCoy Realty Company, the decedent held 9 shares, and Maggie McCoy, the decedent's mother, held the remaining 3 shares. Elizabeth also held joint title with her husband in certain real estate used in the operation of her husband's real estate business. Elizabeth was a housewife, and took no active part in the operation of the said businesses.

On April 30, 1947, Elizabeth commenced a proceeding in the Circuit Court of Jefferson County, Kentucky, Docket No. 301-354, wherein she sought a judgment of divorce, alimony and a division of property from the decedent.

On June 11, 1947, Elizabeth, as party of the first part, and decedent, as party of the second part, entered into a property settlement agreement, which provided as follows:

1. The McCoy Realty Company, a Kentucky corporation, of which Party of the First Part is Secretary-Treasurer, Party of the Second Part is President and their son, Bryan S. McCoy, Jr., is Vice-President, is the owner of a certain lot, together with an apartment building thereon, located on the northeast corner of Belview and Woodlawn Streets in the City of Louisville, Kentucky and Party of the Second Part herein and hereby guarantees that he will cause said corporation to immediately deed said property to the Party of the First Part for and during her natural life, with remainder in fee and in equal shares to the children of the parties hereto, viz: Bryan S. McCoy, Jr., Marie McCoy and Paul McCoy.

(a) There are at the present time three mortgages on said property for the principal sum of Sixteen Thousand Four Hundred Dollars ($16,400.00) each, or an aggregate amount of Forty-nine Thousand Two Hundred Dollars ($49,200.00). It is agreed that Party of the First Part shall immediately cause to be paid one of the said mortgages, all of which are held by the Franklin Title & Trust Company of Louisville, Kentucky, in the sum of Sixteen Thousand Four Hundred Dollars ($16,400.00), leaving a balance of the mortgage indebtedness thereon of Thirty-two Thousand Eight Hundred Dollars ($32,800.00), which the Party of the First Part assumes and agrees to pay.

(b) In addition to the mortgages aforementioned, there are certain outstanding bills due and payable for services and materials incurred in the construction of apartment building aforementioned, all of which are to be immediately paid by the Party of the Second Part.

(c) The apartment building aforementioned, together with the garages connected with same and certain improvements have not been fully completed. The Party of the Second Part is to complete all of the improvements provided for in the original plans and specifications and those contemplated by the Second Party before entering into this contract, as speedily as possible and not in any event to exceed a period of six (6) months from the date of the signing of this agreement, at his expense.

2. Party of the First Part is to become the sole owner of the premises where Party of the First Part now resides, located at 948 South Forty-seventh Street, Louisville, Kentucky and Party of the Second Part is to immediately pay the mortgage indebtedness thereon amounting to the sum of approximately Twelve Thousand Dollars ($12,000.00).

3. Party of the Second Part is to pay to the Party of the First Part the sum of Two Thousand Dollars ($2,000.00) which Party of the Second Part has heretofore borrowed from the Party of the First Part.

4. Party of the Second Part agrees to pay the costs of the above styled action, together with an attorney's fee for Party of the First Part's attorney in the sum of $ sum omitted.

5. The McCoy Realty Company, a Kentucky corporation, is the owner of the Eldorado Apartments located east of Floyd Street on Eastern Parkway in the City of Louisville, Kentucky, the address being 415 Eastern Parkway. It is agreed by and between the parties hereto that said apartment building shall be immediately transferred to Party of the Second Part for and during his natural life, with remainder in fee in equal parts to the three infant children of the parties hereto, viz: Bryan S. McCoy, Jr., Marie McCoy and Paul McCoy.

6. Party of the Second Part agrees to pay for the education of the three infant children of the parties, to-wit: Bryan S. McCoy, Jr., Marie McCoy and Paul McCoy as he has heretofore done.

7. Party of the First Part is to immediately execute quit claim deeds to any and all property jointly owned by the parties hereto or in any property in which the title is held by Party of the First Part, save and except the property or properties above described, and Party of the First Part further agrees to sign any and all necessary writings and papers in order to place the title to said property in the Party of the Second Part. Party of the Second Part is to assume all indebtedness now existing on the property now jointly owned by the parties or on property owned by the Party of the First Part, save and except the two mortgages above referred to on the property located at the corner of Bellview and Woodlawn Streets referred to in paragraph 1 herein and Party of the Second Part agrees to save Party of the First Part harmless from any and all liability by reason of said indebtedness. Party of the First Part further agrees to immediately resign her position as a director and officer of the McCoy Realty Company above referred to and to transfer her stock therein to Bryan S. McCoy, Jr.

8. Party of the First Part is to have the care and custody of the infant children, Marie McCoy and Paul McCoy, with the right upon the part of the Party of the Second Part to see said children and have them with him at all reasonable times and on all reasonable occasions.

9. This writing is to evidence a full, final and complete settlement of any and all claims of every nature, character and description which either of the parties hereto may have against the other growing out of their marital and business relationship and including alimony and maintenance, past, present and future and all curtesy and dower rights.

10. It is further agreed by and between the parties hereto that this agreement shall be made a part of any judgment entered in the above styled action.

On June 19, 1947, the parties agreed to certain supplemental stipulations to the foregoing property settlement agreement which are embodied in letters dated June 13, 1947, and June 19, 1947. These letters relate principally to the execution of the deeds and mortgages referred to in paragraph 7 of the property settlement agreement and the terms of the conveyance to Elizabeth of the apartments located at Bellevue¹ and Woodlawn Streets per paragraph 1 of the said agreement. Paragraph 12 of the stipulation of facts notes: "Prior to October 14, 1947 * * * Elizabeth owned three shares of McCoy Realty Company stock * * *." The letter dated June 13, 1947, addressed to decedent's attorney and attached to the settlement agreement states the certificate for such stock endorsed in blank by Elizabeth was enclosed therewith. The supplemental agreement also provided that "Mrs. McCoy further agrees to execute any and all other documents which may be necessary for the consummation of loans or sales which Mr. McCoy may request * * *."

On July 14, 1947, pursuant to paragraph 5 of the property settlement agreement, the decedent executed a deed on behalf of the McCoy Realty Company wherein the Eldorado Apartments, theretofore owned by the said corporation, were conveyed to the decedent for life with remainder to his three children, Bryan McCoy, Jr., Carl Paul McCoy, and Marie McCoy (Habig). The deed stated it was for the consideration of one dollar and other good and valuable consideration and for the further consideration as set forth in Action #301354, Jefferson Circuit Court, Chancery Branch, Second Division — the divorce action between...