Keck v. CIR, 18766

• Citation: 415 F.2d 531
• Decision Date: 12 September 1969
• Docket Number: 18767.,No. 18766,18766
• Parties: George W. and Mary Ann KECK, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. Mary Ann KECK, Transferee of the Estate of Arthur D. Shaw, Deceased, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

415 F.2d 531 (1969)

George W. and Mary Ann KECK, Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

Mary Ann KECK, Transferee of the Estate of Arthur D. Shaw, Deceased, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

Nos. 18766, 18767.

United States Court of Appeals Sixth Circuit.

September 12, 1969.

Duane L. Isham, Akron, Ohio, for petitioners, Wise, Roetzel, Maxon, Kelly & Andress, S. C. Andress, Timothy G. Ireland, Akron, Ohio, on brief.

Stanley L. Ruby, Atty., Dept. of Justice, Washington, D. C., for appellee, Mitchell Rogovin, Asst. Atty. Gen., Lee A. Jackson, William A. Friedlander, Attys,. Dept. of Justice, Washington, D. C., on brief.

Before PECK and McCREE, Circuit Judges, and McALLISTER, Senior Circuit Judge.

McALLISTER, Senior Circuit Judge.

The Commissioner of Internal Revenue determined a deficiency in the income tax of George W. Keck and Mary Ann Keck, and also asserted transferee liability against Mary Ann Keck, as transferee of the assets of the Estate of Arthur D. Shaw, deceased. Mary Ann Keck, prior to her marriage to George W. Keck, was the widow of Mr. Shaw. The issue in the above captioned cases, which were consolidated for trial, is whether certain amounts received in 1960 by Mary Ann Keck, and by the Estate, were taxable as income in respect of a decedent under the provisions of Section 691 of the Internal Revenue Code of 1954. The Tax Court decided that the amounts received by Mary Ann Keck and the Estate of Arthur D. Shaw were taxable under the provisions of the statute above mentioned, and assessed deficiencies in income, and transferee liability for income tax against Mary Ann Keck; and review of the Tax Court's decision is here sought by petitioners.

Arthur D. Shaw owned stock in three affiliated corporations as of March 1, 1956. On that date an agreement was entered into anticipating the sale of the assets of the corporation. A condition precedent to the sale was the approval of the Interstate Commerce Commission. Pending such approval and favorable ruling, the shares were placed in escrow.

On May 3, 1956, the attorneys for Mr. Shaw and other owners of the shares, requested a tax ruling relative to the application of Section 337 of the Internal Revenue Code of 1954 to the proposed sale; and, by letter dated July 15, 1956, the Internal Revenue Service ruled that Section 337 would be applicable. On May 25, 1956, application was made to the Interstate Commerce Commission for approval of the proposed sale.

Mr. Shaw, the owner of the shares in question, died November 27, 1958. On May 5, 1960, the Interstate Commerce Commission approval, above mentioned, was obtained.

On July 21, 1960, pursuant to the agreement to sell the assets of the three companies by the duly constituted directors and officers, acting on behalf of the stockholders, and pursuant to the authority granted by the Interstate Commerce Commission, the three companies were liquidated, and the cash received from the sale thereof was distributed in exchange for, and in cancellation of, stock of the shares of the three companies. The Executor of the Estate of Mr. Shaw paid over to Mrs. Keck, the widow of Mr. Shaw, as above mentioned, $314,328.53 in exchange for 100 shares of one of the companies liquidated, which was acquired by her in manner as follows:

On February 8, 1960, in order to obtain funds for payment of the federal estate tax, the First National Bank of Akron, as Executor of the Estate of Arthur D. Shaw, sold 48 shares in one of the companies to petitioner, Mary Ann Keck, for $150,877.68, and distributed to her, as distribution in kind, an additional 52 shares of stock in the same company. In order to pay the Estate of Arthur D. Shaw for the 48 shares purchased, as aforesaid, Mrs. Keck borrowed $150,000 from the Executor bank, pledging the entire 100 shares of the stock of the company in her possession as security for the loan. It was this money, plus $877.68, which was paid to the Executor as the full purchase price of the 48 shares purchased.

On or before December 4, 1961, the Executor of the Estate of Mr. Shaw transferred to Mrs. Keck, as distribution of such Estate, in accordance with the will of Arthur D. Shaw, property having a value in excess of $250,000. Upon such transfer and at all times subsequent thereto, the Shaw Estate has been without any assets.

On January 27, 1965, Mrs. Keck executed an instrument for a valuable consideration to the Commissioner of Internal Revenue, in which she admitted that she was the transferee of assets received from the transferor-executor, and agreed to pay any federal income taxes finally determined as due and payable by the transferor-executor for the taxable year ended December 31, 1960, to the extent of her liability as a transferee within the meaning of Section 6901 of the Internal Revenue Code of 1954.

Petitioners, including Mary Ann Keck, the aforesaid widow of Mr. Shaw, reported distribution of stock at the liquidation sale price, and also reported that price to be its acquisition base; and thus reported no taxable income.

The chief issue is whether the amounts received upon the liquidation of the three companies in question were "income in respect of a decedent" under Section 691 of the Internal Revenue Code of 1954, which provides:

"(1) General rule. — The amount of all items of gross income in respect of a decedent which are not properly includible in respect of the taxable period in which falls the date of his death or a prior period * * * shall be included in the gross income, for the taxable year when received, of:

(A) the estate of the decedent, if the right to receive the amount is acquired by the decedent\'s estate from the decedent;

(B) the person who, by reason of the death of the decedent, acquires the right to receive the amount, if the right to receive the amount is not acquired by the decedent\'s estate from the decedent; or

(C) the person who acquires from the decedent the right to receive the amount by bequest, devise, or inheritance, if the amount is received after a distribution by the decedent\'s estate of such right."

Under the prior law, only the items which were accruable to a taxpayer at the time of his death were required to be included in the last return. This discriminated against accrual-basis taxpayers and allowed much income of cash-basis taxpayers to escape income tax. To correct this situation, Congress provided that in the case of both cash and accrual taxpayers, the last return must include all items accruable at death. The Supreme Court, in Helvering v. Enright, 312 U.S. 636, 61 S.Ct. 777, 85 L.Ed. 1093 held that the term "accrual" in the statute was not to be...