Grimm v. Comm'r of Internal Revenue
| Decision Date | 06 October 1987 |
| Docket Number | Docket No. 40673-84 |
| Citation | 89 T.C. No. 52,89 T.C. 747 |
| Parties | MAXINE T. GRIMM, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Prior to D's death, D and P, American citizens, were husband and wife and resided in the Philippines. Following D's death, P moved back to the State of Utah where D's estate was probated. Under Philippine law the relationship between a husband and wife is classified as a ‘conjugal partnership,‘ a concept substantially similar to the relationship under the community property laws of the State of Washington. At the time of D's death, the ‘conjugal partnership‘ between D and P was owed approximately $3,000,000, due and payable, in accord with a prior agreement, in the remaining three of five installments. The first two installments were received by the ‘partnership‘ prior to D's death. The outstanding installments were paid to the representatives of D's estate and reported as income of D’ s estate. HELD, following the law of the Ninth Circuit, upon D's death P became the sole owner of one-half o all community income received by the representatives of D's estate, therefore, P is taxable on one-half of such income. HELD FURTHER, the Fifth Circuit's Barbour opinion no longer has any vitality, and if i t does we are not bound by it in this case because any appeal of the parties would lie in the Tenth Circuit. Bert B. Rand, for the petitioner.
Joel A. Lopata, for the respondent.
Respondent determined deficiencies in petitioner's Federal income tax liabilities for 1978, 1979 and 1981, in the amounts of $289,958, $217,555 and $32,999, respectively. The issues for our consideration are: (1) whether 50 percent of community income, all of which was received by decedent's estate, is taxable to petitioner when received by petitioner's husband's estate; and (2) whether the statute of limitations on assessment of a deficiency has expired for the taxable year 1978.
At the time of filing the petition in this case petitioner resided in Tooele, Utah. This case was submitted for decision on fully stipulated facts pursuant to Rule 122. 1 The stipulation of facts and attached exhibits are incorporated by this reference.
Petitioner filed a Federal income tax return for the 1978 taxable year on June 18, 1979. An amended return was filed for this taxable year on April 20, 1982, and a second amended return was filed on May 7, 1982. On January 19, 1981, petitioner filed an income tax return for the taxable year 1979. An amended return for this taxable year was filed on April 15, 1983. Petitioner filed a tax return for the 1981 taxable year on October 15, 1982.
On March 21, 1983, petitioner and respondent executed a written agreement pursuant to the provisions of section 6501(c)(4) extending the period for the assessment of tax due for the taxable year 1979.
In 1945 petitioner, an American citizen, married Edward M. Grimm (decedent or spouse), also an American citizen, who resided in the Philippines from 1919 until his death on November 27, 1977. Petitioner resided in Manila, Philippines, as wife of decedent, from 1945 until 1981. During his residence in the Philippines, decedent, a business executive, accumulated great wealth in the form of real estate, stocks and bonds, and other property, located both in the State of Utah and the Philippines. Because petitioner and her spouse were domiciled in the Philippines, upon the death of either petitioner or her spouse, Philippine law governed the disposition of the property they acquired during their marriage. The Civil Code of the Philippines defines the relationship between a married couple as a ‘conjugal partnership,‘ a concept analogous to the community property laws of several states in the United States, including the State of Washington.
On May 28, 1976, the ‘conjugal partnership‘ of petitioner and decedent acquired the right to installment payments from the Everett Steamship Corporation, S.A. (Everett). These payments represented the redemption price of 255 shares of Everett stock, issued in decedent's name and redeemed by Everett on May 28, 1976. The purchase price was payable in five annual installments, with the first payment due on or before June 30, 1976, and the fifth and final payment due on or before June 30, 1980. The first and second payments were made prior to decedent's death and the remaining three payments were made in June 1978, 1979 and 1980, respectively, to the personal representatives of decedent's estate. Each of the final three payments was in the amount of $984,092.31, for a total of $2,952,276.93.
After her husband's death, petitioner returned to the United States and established permanent residence in the State of Utah. On February 3, 1978, petitioner, as decedent's surviving spouse, petitioned the Third Judicial District Court of Tooele County, Probate Division, for a formal probate of decedent's will, and appointment of personal representatives of decedent's estate. The court, on April 10, 1978, issued an order for the formal probate of decedent's estate and appointed petitioner and her brother, E. LaVar Tate, of Tooele, Utah, as the personal representatives. Under this order, petitioner and her brother had the same fiduciary duties and limitations of any other personal representative, with the exception of the following limitation which the court placed on their power:
Until further order of the Court, THE AUTHORITY AND POWER OF THE SUPERVISED PERSONAL REPRESENTATIVES, E. LaVar Tate and Maxine Tate Grimm IS LIMITED AND RESTRICTED TO DEALING WITH THE REAL AND PERSONAL PROPERTY OF THE DECEDENT, Edward M. Grimm, WHICH IS LOCATED IN THE STATE OF UTAH, OR IN THE UNITED STATES OF AMERICA AND WITHIN THE JURISDICTION OF THE THIRD JUDICIAL DISTRICT COURT OF TOOELE COUNTY, State of Utah, and to representing the estate in matters pending before the Internal Revenue Service or before the Tax Court of the United States. »Emphasis added.† Most of the assets of decedent's estate, with the major exception of the payments due from Everett, were placed in a trust established prior to decedent's death.
Decedent's estate filed a United States estate tax return. A marital deduction in the amount of $3,530,751.76, 50 percent of the adjusted gross estate, was claimed by the estate. Additionally, decedent's estate filed United States fiduciary income tax returns for its fiscal years ending May 3, 1979, 2 through May 31, 1981, reflecting Distributable Estate Income (DEI) allocated to petitioner as follows:
+-------------------------------------------------+
¦FYE May 31---¦ ¦ ¦ ¦
+-------------+------------------+-------+--------¦
¦1979 ¦ ¦ ¦$267,056¦
+-------------+------------------+-------+--------¦
¦1980 ¦ ¦ ¦33,000 ¦
+-------------+------------------+-------+--------¦
¦1981 ¦Sec. 1248 dividend¦$16,074¦ ¦
+-------------+------------------+-------+--------¦
¦ ¦Interest ¦81,156 ¦ ¦
+-------------+------------------+-------+--------¦
¦ ¦Other dividend ¦1,690 ¦ ¦
+-------------+------------------+-------+--------¦
¦ ¦Long-term gain ¦206,202¦ ¦
+-------------+------------------+-------+--------¦
¦ ¦ ¦ ¦305,122 ¦
+-------------------------------------------------+
During its fiscal years ending May 31, 1978 through 1982, the estate made payments on account of Federal fiduciary income tax, Federal estate tax, Utah State inheritance tax, and Federal income tax deficiencies and interest for the years 1956 through 1964, inclusive, as follows:
Petitioner received payments from decedent's estate as follows:
+-----------------------------------------------------------+
¦1978¦07/10/78¦$36,571.23 ¦(Repayment of funds advanced ¦
+----+--------+------------+--------------------------------¦
¦ ¦ ¦ ¦to the estate by petitioner) ¦
+----+--------+------------+--------------------------------¦
¦1979¦04/16/79¦36,000.00 ¦(Described as widow's allowance)¦
+----+--------+------------+--------------------------------¦
¦ ¦05/18/79¦18,000.00 ¦(Described as widow's allowance)¦
+----+--------+------------+--------------------------------¦
¦ ¦05/23/79¦400,000.00 ¦ ¦
+----+--------+------------+--------------------------------¦
¦1980¦04/15/80¦33,000.00 ¦(Described as...To continue reading
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