Hellstrom v. Comm'r of Internal Revenue (In re Estate of Hellstrom) , Docket No. 52812.

• Decision Date: 19 August 1955
• Docket Number: Docket No. 52812.
• Citation: 24 T.C. 916
• Parties: ESTATE OF ARTHUR W. HELLSTROM, DECEASED, SELMA M. HELLSTROM, EXECUTRIX AND SELMA M. HELLSTROM, INDIVIDUALLY, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
• Court: U.S. Tax Court

24 T.C. 916

ESTATE OF ARTHUR W. HELLSTROM, DECEASED, SELMA M. HELLSTROM, EXECUTRIX AND SELMA M. HELLSTROM, INDIVIDUALLY, PETITIONERS,

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Docket No. 52812.

Tax Court of the United States.

Filed August 19, 1955.

Petitioner, Selma M. Hellstrom, was paid $28,933.32 in 1952 by the corporation of which her husband had been president and a director until his death on February 20, 1952. Such sum was equivalent to the amount of salary he would have drawn had he lived for the remainder of the year. Held, such payment was a gift and, hence, excludible from gross income under section 22(b)(3) of the 1939 Code. Jacob Logan Fox, Esq., and Thane T. Swartz, Esq., for the petitioners.

J. Bruce Donaldson, Esq., for the respondent.

This proceeding involves a deficiency of $10,742.42 for the year 1952 determined by the respondent against the Estate of Arthur W. Hellstrom and his surviving spouse, Selma M. Hellstrom (hereinafter referred to as the petitioner). The estate is involved in this proceeding only because a joint return was filed for that year.

The only issue is whether the amount of $28,933.32, paid to petitioner in 1952 by the corporation of which her deceased husband had been president and a director, was a gift and, hence, excludible from her gross income for such year pursuant to section 22(b)(3) of the 1939 Code.¹

The petitioner claimed an overpayment in tax for the year in question by virtue of the fact that the corporation had withheld tax in the amount of $815.30 on wages which her husband received prior to his death, and the total tax liability disclosed on the return for the year showed actual liability of $701.76.

Some of the facts were stipulated.

FINDINGS OF FACT.

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

During the year in issue, petitioner was a resident of Chicago, Illinois. Petitioner's husband died on February 20, 1952. She filed a timely joint income tax return for the year 1952 with the collector of internal revenue for the first district of Illinois.

Petitioner's husband, together with others, organized the Hellstrom Corporation under the laws of the State of Illinois in 1944. The corporation was engaged in the manufacture and sale of steel forgings. Petitioner's husband held 250 of the original 505 shares of the corporation's stock. From the time of its incorporation until his death, he was president and a director of the corporation. At the time of his death, he owned 426 of the 1,685 outstanding shares of the corporation's stock. Petitioner owned 175 such shares. Decedent's salary as president of the corporation for the year 1952 would have been $33,600. From January 1 until the date of his death, he received $4,66.68 of such sum, on which the corporation withheld tax in the amount of $815.30.

On March 1, 1952, ten days after the death of Arthur W. Hellstrom, the board of directors of Hellstrom Corporation met and passed the following resolution:

RESOLVED, that in recognition of the services rendered to this corporation for many years by Arthur W. Hellstrom, its founder and late president, and in conformity with the policy of this corporation to make reasonable provision for the surviving dependents of its deceased officers and employees, although it is under no obligation so to do, this Board of Directors does hereby authorize and direct the Treasurer of this corporation to pay monthly to Selma M. Hellstrom, the surviving wife of said Aurthur W. Hellstrom, a sum equal to his last salary per month, said monthly salary to continue until this Board of Directors shall require the reduction or discontinuance of such payments.

At a subsequent meeting of the board of directors of Hellstrom Corporation, held on October 11, 1952, the question was raised as to the period for which such payments should continue. It was agreed by the directors that such payments should continue only until the end of the year 1952, and the following resolution was thereupon adopted:

RESOLVED, that the payments heretofore on March 1, 1952 directed to be made by the Treasurer of this corporation to Mrs. Selma Hellstrom in recognition of the services of Arthur W. Hellstrom be continued to include all payments due on and prior to December 31, 1952.

Hellstrom Corporation, pursuant to such resolutions, paid to petitioner during the calendar year 1952 the sum of $28,933.32. This sum represented the salary which petitioner's husband would have received for the remainder of 1952 had he lived. On its Federal income tax returns filed for its fiscal years ending July 31, 1952, and July 31, 1953, Hellstrom Corporation claimed as a deduction the amounts paid to petitioner in each respective fiscal year.

On the joint return which petitioner filed for the calendar year 1952, she reported the receipt...