Lang v. United States

• Decision Date: 30 March 1973
• Docket Number: No. 11-331-C-1.,No. 4-976-D,4-976-D,11-331-C-1.
• Parties: Raymond M. LANG, Administrator with Will Annexed for the Estate of Ray R. Beckett, Deceased, Plaintiff, v. UNITED STATES of America, Defendant. Richard C. MORGAN, Executor of the Estate of Marijane S. Morgan, Deceased, et al., Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Southern District of Iowa

356 F. Supp. 546

Raymond M. LANG, Administrator with Will Annexed for the Estate of Ray R. Beckett, Deceased, Plaintiff, v. UNITED STATES of America, Defendant.

Richard C. MORGAN, Executor of the Estate of Marijane S. Morgan, Deceased, et al., Plaintiffs, v. UNITED STATES of America, Defendant.

Nos. 4-976-D, No. 11-331-C-1.

United States District Court, S. D. Iowa, Davenport Division United States District Court, S. D. Iowa, C. D.

March 30, 1973.

John H. Smith, Smith, Dickey & Smith, Keokuk, Iowa, for plaintiff in No. 4-976-D.

Allen L. Donielson, U. S. Atty., Robert L. Fanter, Asst. U. S. Atty., Des Moines, Iowa, for defendants.

Bruce B. Graves, Swift, Brown, Rogers, Winick & Randall, Des Moines, Iowa, for plaintiffs in No. 11-331-C-1.

MEMORANDUM

STUART, District Judge.

As the essential facts and claims in the above entitled actions are identical, the Court has considered them together although they have not been consolidated because of objections raised by counsel. A copy of this memorandum will be filed in each case.

Both cases involve claims for refund of federal estate tax paid on the proceeds from wrongful death settlements which proceeds were included as part of the estate of the deceased for estate tax purposes. The government claims these proceeds were properly includible in the decedent's gross estate either under 26 U.S.C. § 2033 or § 2041(a)(2).

The sole issue is whether the proceeds recovered in Iowa as damages under the wrongful death statutes are includible in decedent's estate for federal estate tax purposes.

The facts in both actions have been fully stipulated and the pertinent facts may be summarized as follows:

Morgan Estate

Marijane Morgan was killed instantaneously in an automobile accident in Greene County, Iowa, on September 27, 1964. A claim was made against the tort-feasor's estate by her executor which was settled by payment of $20,000. The amount paid in settlement consisted solely of the settlement proceeds for Mrs. Morgan's wrongful death. A deficiency of $1,837.10 was assessed against Mrs. Morgan's estate by the Internal Revenue Service because the settlement proceeds were not included in the estate. After payment of the deficiency and filing of claims for refund, this suit was timely filed.

Beckett Estate

Ray Beckett and his wife Violet were killed as a result of an explosion in the National Guard Armory in Keokuk, Iowa, on November 24, 1965. Mrs. Beckett died the day of the explosion but Mr. Beckett survived until December 2, 1965. Ray Beckett was his wife's sole heir. Raymond Lang was appointed administrator of Ray Beckett's Estate. Wrongful death claims were made on behalf of Mr. and Mrs. Beckett against the Keokuk Gas Company and settled by payments of $85,000 and $60,000 respectively. The Internal Revenue Service concluded that each recovery should have been included in Ray Beckett's Estate and assessed a deficiency of $39,312.48 against it. This suit was timely filed after the deficiency was paid and a claim for refund denied.

I

The first issue to be determined is whether the recovery for wrongful death under the Iowa law is includible in decedent's gross estate under 26 U.S.C. § 2033, which provides:

"The value of the gross estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death."

Most states adopted a "Lord Campbell's Act" which created a new cause of action for wrongful death for the benefit of the spouse and children. Recoveries for wrongful death under these statutes are not taxed under 26 U.S.C. § 2033. Rev.Rul. 69-8, 1969 Cum.Bul. 219; Rev.Rul. 68-88, 1968 Cum.Bul. 397; Rev.Rul. 54-19, 1954 Cum.Bul. 179.

The problem arises because Iowa adopted a "survival statute" Iowa Code § 611.20, which provides: "All causes of action shall survive and may brought notwithstanding the death of the person entitled or liable to the same."

Section 611.22 provides: "Actions by or against legal representatives—substitution. Any action contemplated in sections 611.20 and 611.21 may be brought, or the court, on motion, may allow the action to be continued, by or against the legal representatives or successors in interest of the deceased. Such action shall be deemed a continuing one, and to have accrued to such representative or successor at the time it would have accrued to the deceased if he had survived."

Damages for wrongful death are covered by these statutes because Iowa Code § 633.336 provides: "When a wrongful act produces death, damages recovered therefor shall be disposed of as personal property belonging to the estate of the deceased, but if the deceased leaves a spouse, child, or parent, it shall not be liable for the payment of debts of the estate, except debts and charges of the first court costs, second other costs of administration, third funeral expenses and fifth medical expenses of last illness classes."

Section 613.15 provides that a recovery for wrongful death may include "the value of services and support as spouse or parent or both, as the case may be, * * * provided, however, recovery for these elements of damage may not be had by the spouse and children, as such, of any person who, or whose administrator, is entitled to recover same." (Effective date July 4, 1965).

The government argues the tax is upon the transfer of the taxable estate because of decedent's death and is not assessed against the decedent but against the administrator and is determined by the interest that passes rather than that which is terminated or created. United States v. Land (5th Cir., 1962), 303 F.2d 170, cited as support for the italicized statement, is not in point. It states that the value of property in the estate is determined by its value as of the instant of death. It is no authority for the proposition stated in the brief. The fact that the tax may be on the transfer of the taxable estate valued as of the instant of death does not aid in determining what property interests should be included in such estate.

The Second Circuit Court of Appeals considered the exact issue involved here in Connecticut Bank and Trust Company v. United States (2nd Cir., 1972), 465 F.2d 760, 763. The Connecticut statute is similar to Iowa's statute. The Court said:

"The differences in results under the two types of statutes may be more theoretical than real, * * * but in any event, these differences have little relevance concerning the question of whether or not the right of action for wrongful death was property owned at death.

"Simple logic mandates the conclusion that an action for wrongful death cannot exist until a decedent has died, at which point, he is no longer a person capable of owning any property interests. The Government's reply to this is that at the very instant of death the right of action arose which the decedent was then capable of owning at death. The only authorities cited for this position,...