Lang v. Comm'r of Internal Revenue (In re Estate of Lang)
| Decision Date | 12 June 1975 |
| Docket Number | Docket Nos. 7777-72,8176-72. |
| Parties | THE ESTATE OF GRACE E. LANG, DECEASED; RICHARD E. LANG, EXECUTOR, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
George W. Steers and William C. Ruthford, for the petitioner.
Thomas N. Tomashek, for the respondent.
Decedent made a gift in contemplation of death, incurring a liability for Washington gift taxes, but died before the gift taxes were paid. The gift was includable for Washington inheritance tax purposes and the State gift tax posthumously paid was accepted by Washington as a credit against the inheritance tax. Held, the Washington gift tax was allowable as a deduction from the Federal gross estate as a claim against the estate under sec. 2053, even though the estate had claimed, and been allowed by respondent to include, the amount of the gift tax in the inheritance taxes creditable under sec. 2011(a). Rev. Rul. 71-355 and Rev. Rul. 75-63 disapproved. Held, further, decedent's failure to act to collect loans made to her son constituted gifts for Federal gift tax purposes when the statute of limitations was permitted to run on such loans. Held, further, decedent's failure to file gift tax returns on such gifts was not proven to be due to reasonable cause, so that respondent's imposition of penalties under sec. 6651(a) is sustained.
Respondent determined the following deficiencies:
The issues that remain for decision are:
(1) Whether decedent's estate is entitled to a deduction from the Federal gross estate for State gift taxes paid after decedent's death;
(2) Whether decedent made gifts to her son Howard equal to the amount of certain loans to Howard when she permitted the statute of limitations on the loans to expire preventing their collection, or if not, whether the amount of the loans should be included in decedent's gross estate; and
(3) Whether, if the decedent made gifts, the petitioners are liable under section 6651(a) for penalties for failure to file Federal gift tax returns.
All the facts have been stipulated and are found accordingly.
Grace E. Lang, a resident of Seattle, Wash., died testate on June 10, 1968. Petitioner Richard E. Lang, executor for the estate, filed decedent's estate tax return on September 3, 1969, with the District Director of Internal Revenue in Seattle, Wash. Petitioner's legal residence was Seattle, Wash., when he filed the petitions herein.
On May 28, 1968, the decedent transferred stocks and bonds, having a value for State of Washington gift and inheritance tax purposes of $2,427,523.49, to an irrevocable trust for the benefit of her three children. Decedent's representative filed a State of Washington gift tax return for decedent and paid the tax on this gift, amounting to $218,031.96, after decedent's June 10, 1968, death. Decedent's representative thereafter filed a Washington State inheritance tax report which included the May 28, 1968, gift in decedent's gross estate as a transfer in contemplation of death. The State inheritance tax, amounting to $671,237.09, was partially satisfied with an allowable credit for the State gift tax paid. The balance was paid in cash on September 11, 1969.
The May 28, 1968, gift was also reported as includable in decedent's gross estate for Federal estate tax purposes. The same values were used. Decedent's executor took a State death tax credit under section 2011 of $671,237.09 against the estate's Federal estate tax liability. Respondent has conceded that petitioner was entitled to include the State gift tax as part of the State death tax credit. Decedent's executor also claimed a deduction on the Federal estate tax return for gift taxes owed both the United States and the State of Washington resulting from the May 28, 1968, gift. Neither gift tax was paid prior to Mrs. Lang's death. Respondent allowed the deduction for Federal gift tax purposes but disallowed the deduction for the State gift taxes.
Petitioner claims the estate is entitled to deduct State gift taxes incurred prior to decedent's death which were a claim against the estate and paid after decedent's death. Section 2053 specifically provides that for estate tax purposes ‘the value of the taxable estate shall be determined by deducting from the value of the gross estate * * * claims against the estate.’ Ordinarily there would be no question of the propriety of this garden variety deduction. But the respondent has conceded (whether correctly or not is not in issue in this case) that under the facts of this case for purposes of section 2011 2 the gift tax is to be treated like an inheritance tax and may be taken as a credit for State death taxes. Therefore, respondent argues, the State gift tax must be treated like an inheritance tax for deduction purposes, and section 2053(c)(1)(B) specifically precludes the deduction of State inheritance taxes. The position respondent takes in this case is based on Rev. Rul. 71-355, 1971-2 C.B. 334.3 A revenue ruling, without more, of course, is simply the contention of one of the parties to the litigation, and is entitled to no greater weight.4 Stubbs, Overbeck & Associates v. United States, 445 F.2d 1142, 1146-1147 (5th Cir. 1971); D. B. Anders, 48 T.C. 815, 821(1967), Revd. on other grounds 414 F.2d 1283 (10th Cir. 1969), cert. denied 396 U.S. 958(1969).
We find nothing in the statute, the regulations, the legislative history, or the cases supporting respondent's denial of the deduction by the estate of the State gift taxes in issue. On the contrary, the deduction is specifically supported by the statute (section 2053(a)(3), and the regulations (section 20.2053-6(d)).
Respondent allowed the State gift tax as part of the State death tax credit on the theory that it was somehow transformed into an inheritance tax by the State's permitting it to be treated as an advance payment on State Inheritance tax due. The respondent's allowance of the State gift taxes to be credited as though they were State inheritance taxes may or may not have been improvident, but such allowance cannot now be used as the mechanism whereby respondent treats what are admittedly State gift taxes, unconditionally payable before and without regard to death, as State inheritance taxes. State inheritance taxes specifically are not deductible from the gross estate under section 2053(c)(1) (B). We find no authority, other than respondent's own ruling, for treating a State gift tax as a constructive State inheritance tax, and we decline to do so. The Federal tax law is confusing enough with its constructive dividends, constructive receipt, et cetera, without our recognizing a constructive State inheritance tax merely because the parties so treated a State gift tax for State death tax credit purposes.
We recognize that our decision in this case gives decedent's estate a double advantage for State gift taxes paid, namely, a credit and a deduction. However, in this case the Federal gift taxes paid by the estate on the decedent's gift in contemplation of death were allowed both as a credit against the estate tax (section 2012) and as a deduction as a debt of decedent (section 2053). Regulations section 20.2012-1(a) so provides:
Sec. 20.2012-1 Credit for gift tax— (a) In general. A credit is allowed under section 2012 against the Federal estate tax for gift tax paid under chapter 12 of the Internal Revenue Code, or corresponding provisions of prior law, on a gift by the decedent of property subsequently included in the decedent's gross estate. The credit is allowable even though the gift tax is paid after the decedent's death and the amount of the gift tax is deductible from the gross estate as a debt of the decedent.
Moreover, if the gift tax (State or Federal) had been paid prior to death, thereby reducing the amount of the gross estate by the amount of the gift tax paid, and the gift were includable in the estate as a gift in contemplation of death, both the Federal gift tax credit and the State inheritance tax credit (under the concession of respondent) would, ue believe, clearly have been allowable. Respondent does not deny that the Federal gift tax paid prior to death, with respect to a gift in contemplation of death, is not includable in the donor's gross estate. However, respondent, in a very recent ruling (Rev. Rul. 75-63, 1975-8 I.R.B. 23), contends that a State gift tax paid under such circumstances becomes ‘an asset for the benefit of (decedent's) estate and its value is includible in his gross estate.’ First, Rev. Rul. 75-635 relies on Rev. Rul. 71-355, which we specifically disapprove herein. Second, Rev. Rul. 75-63 relies on certain State court decisions which we find either distinguishable because they deal with the ‘pick-up’ tax6 or with which we specifically disagree.7 Rev. Rul. 75-63 theorizes that the State gift tax paid on a gift in contemplation of death is only a contingent liability of the donor that disappears upon his death and/or is transformed into an inheritance tax liability. As a prepayment of inheritance tax, the ruling concludes, the gift tax is an asset of the estate the value of which is includable in the decedent's gross estate.8 In fact, however, the gift tax is an...
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