Magill v. Commissioner
| Decision Date | 24 March 1982 |
| Docket Number | Docket No. 9094-74,9126-74,9127-74. |
| Citation | 43 TCM (CCH) 859,1982 TC Memo 148 |
| Parties | Irene Magill, Transferee, et al. v. Commissioner. |
| Court | U.S. Tax Court |
Richard S. Hartford, for the petitioner in Docket No. 9094-74. Richard M. Kates, 33 N. LaSalle St., Chicago, Ill., for the petitioners in Docket Nos. 9126-74 and 9127-74. Bryan R. Sullivan, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent has determined that the petitioners in these consolidated cases are liable as transferees (or, in the case of petitioner Phyllis Berliant, as a transferee of a transferee) for the unpaid estate tax of the estate of Rae Berliant, as follows:2
________________________________________________________________________________________
Addition to
Estate Tax Tax Under
Petitioner Docket No. Deficiency Section 6651(a)(1)3
________________________________________________________________________________________
Irene Magill ................... 9094-74 $67,550.63 $16,887.66
Florence Kraft ................. 9126-74 67,550.63 16,887.66
Phyllis Berliant ............... 9127-74 67,550.63 16,887.66
________________________________________________________________________________________
After concessions we are left with the following issues for decision:
(1) Whether petitioners Irene Magill and Florence Kraft are liable as transferees under section 6901(a) or any unpaid estate tax with respect to the value of stock and liquidation proceeds they received as beneficiaries of the estate.
(2) Whether petitioner Phyllis Berliant is liable as a transferee of a transferee under section 6901(a) for any unpaid estate tax with respect to the value of stock and liquidation proceeds she received following the death of her husband, who was a beneficiary of the estate.
(3) Whether petitioners Florence Kraft and Irene Magill are liable under section 6324(a)(2) for any unpaid estate tax with respect to certain joint tenancy property, totten trust accounts and annuity proceeds which passed to them outside the probate estate by reason of Rae Berliant's death.
(4) Whether certain stocks, bonds and savings accounts in which decedent held an interest as a joint tenant are includable in the gross estate under section 2040.
(5) Whether certain totten trust accounts, of which decedent was trustee and her children or grandchildren beneficiaries, are includable in the gross estate under sections 2036, 2037, or 2038.
(6) Whether the estate is entitled to deduct a fee paid to an attorney who represented certain beneficiaries in litigation concerning the administration of the estate.
(7) Whether the late filing of the estate tax return was due to reasonable cause.
Some of the facts have been stipulated and are found accordingly. The stipulations of fact and the attached exhibits are incorporated herein by reference.
Rae Berliant (decedent) died testate on November 4, 1964, a resident of Chicago, Illinois. Decedent was married to Julius Berliant, a doctor, who died on or about December 31, 1933. Four children were born of this marriage, Sidney Berliant, Ernest Berliant, and petitioners Irene Magill and Florence Kraft (hereinafter individually referred to a Sidney, Ernest, Irene and Florence).
Ernest was born in 1907, married in 1944, and fathered two children during the 1940's or 1950's. Irene was born in 1910, married in 1929, and gave birth to three children during the 1930's. Florence was born in 1915, married in 1939, and gave birth to five children from 1940 to 1954. Sidney was born in 1917, married petitioner Phyllis Berliant (Phyllis) in 1940, and had four children with Phyllis in the 1940's and 1950's. Each of decedent's children resided with decedent until he or she married.
Petitioners Irene, Florence and Phyllis resided in Wilmette, Chicago and Skokie, Illinois, respectively, when they filed their petitions in these consolidated cases.
Decedent's father, Nathan Rosenblat, died in 1931. He left assets valued at $42,930.31, most of which were placed in a trust which named his wife and their five children as life income beneficiaries. Under the terms of the trust the income was generally required to be divided equally among the surviving income beneficiaries. Upon the death of the last surviving income beneficiary the corpus of the trust was to be distributed to Nathan Rosenblat's grand-children. During her lifetime decedent received at least $9,356.52 from this trust.
Decedent's mother, Clara Rosenblat, died in 1937 and left assets valued at $8,975. These assets were placed in an investment company operating under the name of Clara's, Ltd., and each of Clara Rosenblat's children, including decedent, received an interest in the company. During her lifetime decedent received income from Clara's, Ltd., totaling at least $2,425.39.
Upon the death of her husband, Julius Berliant, decedent received the proceeds of a $10,000 life insurance policy and certain other assets of an undetermined amount from his estate.
Decedent was never formally employed during her lifetime. She was, nevertheless, an excellent businesswoman and regularly traded in the bond and stock markets. During the 1920's and 1930's she also actively traded in so-called "gold bonds," which were commonly issued by private individuals during that era in order to finance the construction of real estate. Her shrewd investment dealing and extraordinarily frugal nature enabled her to amass a substantial amount of cash and other assets before she died in 1964.
All four of decedent's children began working fulltime jobs by ages 16 or 17. Until they married and moved out of decedent's home they regularly turned over a portion of their earnings to decedent, who saved or invested some of the money and used the rest to defray the family's living expenses. The children continued to give money to the decedent from time to time after they married and moved out of the family residence. To the extent the money was not needed for her support decedent invested it in stocks, bonds, or interest-bearing savings accounts and certificates. Florence and her husband also supplied decedent with free food from their grocery store from time to time until her death in 1964. None of the children maintained any records of the amounts which he or she had contributed to the decedent. Nor did decedent maintain any such records. None of the children was aware of the total amounts which had been contributed by the other siblings. The contributions were in the nature of gifts rather than conveyances in trust for the benefit of the respective transferors.
Decedent reported the dividend and interest income on all of the money she invested, including the money she received from her children, on her individual income tax returns. None of the children or their spouses ever reported any interest or dividends attributable to the investments on their personal income tax returns, irrespective of whether the underlying investment property was held solely in decedent's name, in decedent's name and the name of any of her childern as joint tenants, or in the name of decedent as trustee for her children or grandchildren.
The children never questioned decedent about any assets she purchased or about the various bank accounts in which she deposited money. Thus, prior to her death they knew little or nothing about the nature, value or state of ownership of these investments, including those bank accounts established by decedent in which the children were named as trust beneficiaries or joint tenants. At no time prior to decedent's death did the children exercise any control over the investments or make any withdrawals from any of the savings accounts. Whenever a signature of one of the children was required on a bank document, such as a signature card on a joint account, decedent would bring the document to the child for signature and then return it to the bank herself.
Beginning in the mid-1950's all of the savings accounts maintained by decedent (including jointly held accounts and totten trust accounts) were located at either Chicago Federal Savings & Loan (CFSL) or Bell Federal Savings & Loan (BFSL). She visited these banks at least once a month to make deposits, open new accounts or transfer funds between accounts. Although she occasionally made cash deposits, the bulk of the deposits were dividend checks she received from her stock investments.
At her death, decedent was a joint tenant with respect to the following joint tenancy property, none of which was reported on her estate tax return:
Date
Surviving of Death
Item Joint Balance
CFSL Savings Accounts: Tenant or Value
#70260-5 Florence $27,894.87
#30818 Ernest 9,000.00
#30847 Irene 7,000.00
#30887 Florence 7,000.00
#30848 Sidney 7,000.00
U.S. Gov't. Bonds Ernest 175.00
Montgomery Ward Stock—
24 Shares Florence 1,026.00
Cities Service Stock—
7 Shares Florence 528.50
__________
$59,624.37
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At her death, decedent was the sole authorized signatory and trustee of the following totten trust accounts, none of which was reported on her estate tax return:
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