Estate of Thieriot v. Comm'r of Internal Revenue

• Decision Date: 08 November 1946
• Docket Number: Docket No. 8573.
• Citation: 7 T.C. 1119
• Parties: ESTATE OF CHARLES H. THIERIOT, FRANCES T. THIERIOT, AS EXECUTRIX, AND CHARLES H. THIERIOT, JR., AS EXECUTOR, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

7 T.C. 1119

ESTATE OF CHARLES H. THIERIOT, FRANCES T. THIERIOT, AS EXECUTRIX, AND CHARLES H. THIERIOT, JR., AS EXECUTOR, PETITIONERS,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 8573.

Tax Court of the United States.

Promulgated November 8, 1946.

1. Where a certificate of overassessment was issued by the Commissioner, but no final statutory closing agreement was entered into between the Treasury Department and taxpayer, the Commissioner was not estopped from reopening the case within the statutory period and making such adjustments as he deemed proper.

2. Decedent took out a policy of insurance on his own life, naming his wife the life beneficiary, and death beneficiary if she survived the insured. The life beneficiary had the right to borrow money on the policy, to receive the cash or surrender value, and to change the beneficiary. The policy provided that if the death beneficiary did not survive the insured the proceeds were to be paid to the executors, administrators, and assigns of the insured. This provision was in effect at the decedent's death. Held, the proceeds of insurance in excess of $40,000 are includible in decedent's gross estate under section 811(g) of the Internal Revenue Code. Helvering v. Hallock, 309 U.S. 106; Goldstone v. United States (1945), 325 U.S. 687. Eugene L. Bondy, Esq., for the petitioners.

J. Frost Walker, Jr., Esq., for the respondent.

This proceeding is for the redetermination of a deficiency in the Federal estate tax liability of the estate of Charles H. Thieriot, deceased, in the amount of $22,947.49. Petitioners claim an overpayment in the amount of $6,821.21.

The notice of deficiency was dated March 26, 1945.

Three questions are raised by the pleadings:

1. Were the proceeds of a certain policy of life insurance, issued on the life of the decedent by the Aetna Life Insurance Co., includible in the gross estate of the decedent, pursuant to the provisions of section 811(g) of the Internal Revenue Code?

2. Was the value of a certain life insurance policy, issued on the life of the decedent by the Aetna Life Insurance Co., includible in the gross estate of the decedent pursuant to the provisions of section 811(c) of the Internal Revenue Code as a transfer intended to take effect in possession or enjoyment at or after death?

3. Was the Commissioner estopped from asserting the deficiency herein?

The case was submitted on a stipulation of facts and documentary evidence admitted at the hearing.

FINDINGS OF FACT.

Charles H. Thieriot, the decedent herein, and hereinafter referred to as such, a resident of Nassau County, Long Island, New York, died testate at 2:30 o'clock in the morning of January 10, 1941. His will was proved and admitted for administration in the Surrogate's Court of Nassau County on January 22, 1941. He was survived by his wife, Frances T. Thieriot, and two children, Charles H. Thieriot, Jr., and Lucille Thornton Thieriot Walker.

The petitioners were appointed executors under the last will and testament of Charles H. Thieriot, deceased, qualified as such, and have since January 22, 1941, been acting as such executors. They filed the said estate tax return for the estate of Charles H. Thieriot with the collector of internal revenue for the first district of New York on April 10, 1942.

On January 9, 1922, the Aetna Life Insurance Co. issued a policy of life insurance, No. N 308890, upon the life of the decedent in the sum of $100,000. All premiums on this policy were paid by the decedent.

As originally drawn the policy provided that the sum payable upon the death of the decedent should be paid to Frances T. Thieriot, wife of the insured, if she survived the insured, otherwise to the executors, administrators, or assigns of the insured.

The policy provided for two types of beneficiaries, a so-called ‘death beneficiary‘ and a ‘life beneficiary.‘ The death beneficiary was designated to receive all payments due from the insurance company resulting from the death of the insured. The life beneficiary was entitled to all of the privileges granted by the policy, effective during the life of the insured. These privileges included the right to borrow money on the policy, to receive the cash or surrender value thereof, and to change the designated beneficiary of the policy.

By endorsement dated March 24, 1925, the death beneficiary clause was changed to read as follows:

Death Beneficiary:

Subject to any assignment hereof, the amount becoming due from the Company under this policy by reason of the death of the insured is hereby made payable to the insured's wife, Frances T. Thieriot, if she survives the insured and is living at the expiration of Forty-eight (48) hours after the death of the insured; otherwise to the children of the insured and the children of any deceased child of the insured who are then living, the children of the insured to share equally with each other and the children of any deceased child of the insured to take per stirpes the share such deceased child of the insured would have taken if living; if none of said beneficiaries is then living, to the executors, administrators, or assigns of the insured.

No change was made in the death beneficiary clause after March 24, 1925, and the endorsement as of that date was in force upon the death of the insured on January 10, 1941.

The life beneficiary clause as originally issued on January 9, 1922, provided that the cash value or loan value should be payable to the life beneficiary. ‘Frances T. Thieriot, wife of the insured, if living when such value becomes payable, otherwise to the insured.‘

By endorsement dated March 20, 1939, the life beneficiary clause was changed to read as follows:

Life Beneficiary:

Until the death of Frances T. Thieriot, wife of the insured, said wife shall be the life beneficiary.

After the death of said wife and until the death of the survivor of Charles H. Thieriot, Jr., and Lucille Thieriot Walker, children of the insured, said children, jointly, or the survivor, shall be the life beneficiary.

After the death of the last survivor of said wife and said children, the insured shall be the life beneficiary.

The life beneficiary clause was not changed after March 20, 1939, and remained in force upon the death of the insured on January 10, 1941.

The policy contained the following provision for change of beneficiary:

Subject to any assignment hereof, the beneficiary of this policy may be changed as often as desired, and such change shall take effect on receipt at the Home Office of the Company, before the sum insured or any instalment thereof becomes due, of a request signed by the life beneficiary accompanied with the policy for proper endorsement.

The endorsements on the policy dated March 24, 1925, and March 20, 1939, respectively, as set out above, were made upon the request signed in each case by the life beneficiary and the decedent.

The annual premium on the policy was $2,653, payable January 9 in each and every year during the life of the insured. The amount paid the beneficiary on decedent's death was $97,347.

The policy provided that after the payment of three full premiums the company would lend up to the cash value of the policy, but the request for such loan and the required assignment for that purpose could be executed by the life beneficiary alone.

The policy also provided for automatic premium loans at the request of the life beneficiary, and ‘if requested by the life beneficiary‘ the policy could be surrendered to the company and converted into a paid up policy, payable at the death of the insured. It was further provided that upon request of the life beneficiary the policy might be surrendered by her and the company would pay to her the total cash value. The life beneficiary had the right to prescribe the method of payment of the benefit under the policy and to assign it. If the insured became permanently disabled within the definition of the contract, the benefits provided for such event would be paid to him only on the request duly executed of the life beneficiary.

In the estate tax return filed by the executors Aetna Life Insurance Co. policy No. N 308890 was duly reported, but its proceeds in the amount of $97,347 were not included in the gross estate of the decedent, the executors claiming that they were exempt. The Commissioner contested the executors' claim and took the position that the proceeds were to be included in the gross estate. After hearing and negotiations between the parties, the internal revenue agent in charge, Brooklyn, New York, sent the following letter, dated April 14, 1944, to the executors:

Referring to the hearings had on the protest filed in the above named estate, there is enclosed a statement of the basis upon which it is proposed to adjust the tax liability of this estate. If you will signify acceptance, in writing, of the settlement as proposed, further consideration will be given with a view to a closing of this case on that basis. Page 1244, ‘Acceptance of Proposed Overassessment‘, is enclosed for your signature in the foregoing connection.

The statement enclosed with the letter showed an overassessment of $3,047.84.

On April 20, 1944, Frances T. Thieriot, as executrix, signed and delivered Treasury Department Form 1244, accepting the proposed determination and settlement of the Commissioner as indicated in the statement of April 14, 1944. The form, as executed, read as follows:

The proposed determination of the following overassessment or overassessments of tax, as indicated in the statement furnished the undersigned under date of April 14, 1944 is hereby accepted as correct:

ESTATE TAX

Estate of Charles H. Thieriot, deceased

Amount of overassessment $3,047.84

This acceptance contemplates that when executors' commissions and attorneys' fees have been paid in full, the estate will file a claim for refund due to the tentative disallowance at this time of $3,526.23 of said commissions and $12,000.00 of...