Looney v. United States
| Decision Date | 13 September 1983 |
| Docket Number | Civ. A. No. 81-20-ATH. |
| Parties | Joyce B. LOONEY, Administratrix of the Estate of William J. Brown, deceased, Plaintiff, v. The UNITED STATES of America, Defendant. |
| Court | U.S. District Court — Middle District of Georgia |
Gary L. Pleger, Athens, Ga., John M. Vine, Washington, D.C., for plaintiff.
Lenore Distefano, Tax Div., Dept. of Justice, Washington, D.C., for defendant.
This is a civil action for a refund of estate taxes paid by plaintiff, Joyce B. Looney, as Executrix of the Estate of William J. Brown. At issue is whether survivor benefits payable by a company to its deceased employee's widow are taxable under section 2039(a) of the Internal Revenue Code as part of the deceased employee's estate because the deceased employee during his lifetime had contingent, future rights to disability benefits while employed.
Presently before the court are the parties' cross-motions for summary judgment. The parties having agreed upon a stipulation of facts and the issue being one of law under the Internal Revenue Code, the court now finds and concludes the following:
Findings of Undisputed Material Fact
Decedent William J. Brown died on January 8, 1979. He was survived by his wife, Reta, and daughter, Elizabeth. He had been employed continuously since 1953 by International Business Machines Corporation (IBM); at the time of his death he was employed as a systems engineer at a salary of $2,810.00 per month.
At decedent's death and at all other times relevant to this action, IBM maintained a variety of employee benefit plans, each adopted at a different time and separately administered. Those pertinent to this action are the Group Life Insurance and Survivors Income Benefit Plan (Survivor Benefits Plan), the Retirement Plan, the Sickness and Accident Income Plan (Sickness and Accident Plan), and the Total and Permanent Disability Income Plan (Disability Plan). Each plan was noncontributory with the exception of the Retirement Plan which permitted employee contributions in certain limited circumstances. IBM shouldered the entire cost of all of the benefits under each plan.
The Survivor Benefits Plan provided two basic benefits: a group term life insurance benefit (not here at issue) and an uninsured and unfunded survivors income benefit. The survivors income benefit was payable only to an employee's "eligible survivors," as defined by the plan. The total amount of the survivors income benefit was equal to three times the employee's regular annual compensation. Payment was made monthly at the rate of one-fourth of the employee's regular monthly compensation, until either the total benefit had been exhausted or there were no remaining "eligible survivors," whichever occurred first.
The Retirement Plan, a qualified pension plan under section 401(a) of the Internal Revenue Code, provided benefits to all employees who retired at age 65 with at least one year of service with IBM.
The Sickness and Accident Plan entitled all employees who were unable to work due to sickness or accident to receive full salary (reduced by any workmen's compensation payments) for a maximum of 52 weeks in any 24-month period. At IBM's discretion, benefits could be extended beyond 52 weeks in individual cases. These extended benefits were known as "individual consideration" benefits.
The Disability Plan covered all regular IBM employees who became totally and permanently disabled after having been employed by IBM for at least five years. In order to be considered totally and permanently disabled under the plan, an employee had to be unable to perform any employment for pay or profit and had to have no reasonable expectation of doing so in the future.
Disability benefits commenced only after a totally and permanently disabled employee had received benefits for at least 52 weeks under the Sickness and Accident Plan, plus any additional period of individual consideration benefits. The benefits were calculated on the basis of the employee's regular compensation prior to disability, taking into account any eligibility for Social Security benefits and workmen's compensation. The benefits continued until the employee either reached age 65 or recovered from his disability. If the employee reached age 65, the disability benefit ceased and he became eligible to retire and receive benefits under the Retirement Plan.
During an employee's period of disability, he remained covered by a variety of the plans making up IBM's benefit program (i.e., the medical plans, the Survivor Benefits Plan, the Adoption Assistance Plan, and the Special Care for Children Plan). As of January 1, 1979, 809 of IBM's 190,000 employees were receiving disability benefits.
At the time of his death (at age 57), decedent had not received any payments under the Retirement Plan, Sickness and Accident Plan, or the Disability Plan. Furthermore, after his death, neither his estate nor any beneficiary received any payments from IBM under the Sickness and Accident Plan or the Disability Plan.
As a result of his death, decedent's surviving spouse, Reta, was entitled to and received payments of $411.24 per month under the Pre-Retirement Spouse Option benefit provided under the Retirement Plan. Furthermore, under the Survivor Benefits Plan, she received a group-term life insurance benefit of $50,000.00 in respect of decedent and is presently receiving $702.50 per month in survivors income benefit payments. The present value of the survivors income benefit on decedent's date of death was $72,626.07.
Plaintiff included the then present value of the survivors income benefit in decedent's gross estate which resulted in her paying $3,593.44 in estate taxes. Subsequently, on February 21, 1980, plaintiff filed a timely claim for refund with the Internal Revenue Service alleging that the recent decision of the United States Court of Appeals for the Second Circuit in Estate of Schelberg v. Commissioner, 612 F.2d 25 (1979), indicated that the present value of the survivors income benefit should not have been included in decedent's gross estate and thus she had erroneously paid $3,593.44 in estate taxes.
On October 1, 1980, the Internal Revenue Service notified plaintiff of its intention to disallow her claim for refund. Thereafter, on or about October 30, 1980, plaintiff filed a "Waiver of Statutory Notification of Claim Disallowance" with the Internal Revenue Service, thereby entitling her to bring this action for refund in this United States District Court.
As stated earlier, the only issue to be decided is whether the present value of the survivors income benefit is properly includible in decedent's gross estate pursuant to section 2039(a) of the Internal Revenue Code. If so, decedent's estate is not entitled to any refund of estate taxes or interest thereon. If not, decedent's estate is entitled to a refund of $3,593.44 plus interest and costs as allowed by law.
In applying section 2039 to the undisputed facts of this case, this court does not presume to pass judgment upon the merits of the code section (i.e., whether it is fair or equitable to the taxpayer or his estate, or whether its application produces a result "at war with common sense"). This court is concerned only with the proper application of section 2039, decided in the light of the basic purpose of the estate tax scheme, the intent of Congress in enacting section 2039, the pertinent Treasury Regulations, and the applicable case law.
The court in Broderick v. Keefe, 112 F.2d 293 (1st Cir.1940) pointed out that the basic purpose of the estate tax "is to bring within the gross estate of the transferor that which he gave `upon a contingency terminable at his death.'" Id. at 296. In other words, the estate tax is an excise imposed upon the individual's privilege to transfer property at his death, based upon its value. See, United States Trust Co. v. Helvering, 307 U.S. 57, 59 S.Ct. 692, 83 L.Ed. 1104 (1939).
When section 2039 was enacted by Congress in 1954, it was new and did not correspond to any prior provision of existing law. S.Rep. No. 1622, 83rd Cong., 2d Sess., reprinted in 1954 U.S.Code Cong. & Ad. News 4621, 4756-57, 5113-15; H.R.Rep. No. 1337, 83rd Cong., 2d Sess., reprinted in 1954 U.S.Code Cong. & Ad.News 4017, 4117, 4457-59. The intent of Congress in enacting section 2039 was to clarify existing law as to whether a joint and survivor annuity purchased by a decedent's employer, or an annuity to which both the decedent and his employer made contributions, was includible in the decedent's gross estate. Id. The broad language chosen by Congress in framing section 2039 suggests, however, that it was intended to encompass more than joint and survivor annuities only.
26 U.S.C.A. § 2039 provides in pertinent part that:
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