Maxwell Trust v. Comm'r of Internal Revenue
| Decision Date | 12 June 1972 |
| Docket Number | Docket Nos. 4516-70,4517-70. |
| Citation | 58 T.C. 444 |
| Parties | MAXWELL TRUST, TRANSFEREE, CENTRAL NATIONAL BANK AND TRUST COMPANY AND ROSS H. SIDNEY, TRUSTEES, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Thomas W. Carpenter and Roland E. Grefe, for the petitioners.
Ronald M. Frykberg, for the respondent.
The decedents were killed simultaneously in an airplane crash over Japan. An action was filed against the airline and the manufacturer of the airplane on account of their deaths in Illinois on behalf of their minor children by the decedents' executors and by the next friend of the children. If there had not been a settlement of the action, the Illinois court would have applied the wrongful-death acts of Japan, which create a separate cause of action in certain relatives and dependents of a decedent. Held, because decedents had no interest in the cause of action created on account of their deaths, sec. 2033 does not require inclusion of any part of the settlement proceeds in the gross estates of the decedents.
Respondent determined the following deficiencies in estate taxes:
Docket No. . . . . . Taxpayer . . . . . Deficiency
After settlement of all other issues the only question for determination is whether settlement payments received in wrongful-death actions for the deaths of Howard C. Maxwell and Betty J. Maxwell are to be included in their gross estates either under section 2033 or section 2041.1
All of the facts have been stipulated and are found accordingly.
The Maxwell Trust is petitioner in each case by virtue of being the transferee of assets from the estates of Howard C. and Betty J. Maxwell. Ross H. Sidney, an attorney and resident of Des Moines, Iowa, at the time the petitions were filed, and the Central National Bank & Trust Co., a corporation chartered and existing under the laws of the United States with its offices in Des Moines, Iowa, at the time the petitions were filed, are the duly qualified and acting trustees under the Maxwell Trust.
Howard C. Maxwell and Betty J. Maxwell, husband and wife, died on March 4, 1966. At the time of their deaths the decedents were domiciled in and residents of the State of Iowa: Estate tax returns for the estates of Howard C. Maxwell and Betty J. Maxwell were filed with the district director of internal revenue, Des Moines, Iowa, on June 2, 1967.
On March 4, 1966 (March 5, 1966, in Japan), the decedents were passengers on a Boeing 707 jetliner, en route from Tokyo, Japan, to Hong Kong, China, operated by British Overseas Airways Corp. (BOAC), which crashed on the eastern slopes of Mt. Fuji, Japan, and caused the deaths of the decedents. The jetliner was manufactured by the Boeing Co. (Boeing) and sold to BOAC prior to March 4, 1966, for the use in its business as a common carrier of passengers for hire upon aircraft. The parties stipulated that there is no evidence that the decedents died otherwise than simultaneously.2
The decedents were survived by their two daughters, JoRita Maxwell Gorman, residing at the time of death in Omaha, Nebr., and Charlene Maxwell, residing at the time of death in Altoona, Iowa. Howard C. Maxwell was also survived by his parents, Lawrence and Ethel Maxwell, who resided in Altoona, Iowa, and a brother, Francis H. Maxwell, who resided in Bedford, Iowa. Betty J. Maxwell was also survived by her parents, Weldy and Velma Black, who resided in Des Moines, Iowa, a brother, Donald B. Black, who resided in Muscatine, Iowa, and a brother, Richard L. Black, who resided in Altoona, Iowa.
Howard C. Maxwell and Betty J. Maxwell died testate. Their wills were admitted to probate by the District Court of the State of Iowa, in and for Polk County (Polk County District Court) on March 7, 1966, and on such date Ross H. Sidney and Central National Bank & Trust Co. were appointed executors of each estate by the Polk County District Court. Ross H. Sidney was appointed guardian of the property of Charlene Maxwell, a minor, on April 4, 1966.
On June 30, 1966, after obtaining the permission of the Polk County District Court, the executors commenced a cause of action in the Circuit Court of Cook County, Ill., County Department, Law Division (Cook County Circuit Court) captioned:
JORITA GORMAN; CHARLENE MAXWELL, A Minor, by ROSS H. SIDNEY, Her Guardian and Next Friend in this behalf; and ROSS H. SIDNEY and CENTRAL NATIONAL BANK, as Executors of the Estates of HOWARD MAXWELL and BETTY MAXWELL, Deceased, for the use and benefit of JORITA GORMAN and CHARLENE MAXWELL, (as) Plaintiffs, (against) THE BOEING COMPANY, a corporation; and BRITISH OVERSEAS AIRWAYS CORPORATION, a corporation, (as) Defendants.
and docketed as case No. 66 L 10463.
The complaint made various allegations of negligence and breach of warranty against defendants and prayed for $2 million in damages. Recovery in the complaint was predicated in the main upon articles 709, 710, and 711 of the Civil Code of Japan.
The Civil Code of Japan in effect on March 4, 1966, provided, in part, as follows:
Article 709. A person who violates intentionally or negligently the right of another is bound to make compensation for damage arising therefrom.
Article 710. A person who is liable in compensation for damages in accordance with the provisions of the preceding Article shall make compensation therefor even in respect of a non-pecuniary damage, irrespective of whether such injury was to the persons, liberty or reputation of another or to his property rights.
Article 711. A person who has caused the death of another is liable in compensation for damages to the parents, the spouse, and the children of the deceased, even in cases where no property right of theirs has been violated.
The Code of Iowa in effect on March 4, 1966, provided, in part, as follows: 611.20 * * *
All causes of action shall survive and may be brought notwithstanding the death of the person entitled or liable to the same. 613.15 * * *
In any action for damages because of the wrongful or negligent injury or death of a woman, there shall be no disabilities or restrictions, and recovery may be had on account thereof in the same manner as in cases of damage because of the wrongful or negligent injury or death of a man. In addition she, or her administrator for her estate, may recover for physician's services, nursing and hospital expense, and in the case of both women and men, such person, or the appropriate administrator, may recover the value of services and support as spouse or parent or both, as the case may be, in such sum as the jury deems proper; 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. As amended Acts 1965 (61 G.A.)CH. 427, Secs. 1, 2.
633.336 * * *
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, second, third and fifth classes.
Defendant Boeing filed an answer to the complaint on August 4, 1966, which denied the material allegations of the complaint and denied that Japanese law was applicable.
On February 2, 1967, a motion for summary judgment was filed against defendants which presented evidence tending to show the negligence of defendants.
Sometime prior to March 10, 1967, defendants offered the executors of the decedents' estates $541,000 to compromise the wrongful-death claims. The defendants also required that the executors obtain permission of the Polk County District Court to enter into the settlement and that the executors obtain releases from not only the two children of the decedents but also from the four parents of the decedents. On March 10, 1967, the executors requested and obtained the permission of the Polk County District Court to settle the wrongful-death claims and to pay amounts necessary to obtain releases from the decedents' children and parents and to pay attorneys' fees.
On March 14, 1967, the Cook County Circuit Court dismissed the wrongful-death actions with prejudice by stipulation of the parties.
Respondent determined that $334,666.67 of the settlement proceeds were includable in the gross estate of the decedents. The parties have agreed that if the settlement proceeds are subject to the estate tax at all, two-thirds thereof are includable in the gross estate of Howard C. Maxwell and one-third thereof in the gross estate of Betty J. Maxwell. The amount of $334,666.67 subject to inclusion is computed in the following manner:
Settlement proceeds . . . $541,000.00
Less:
Attorneys' fees . . ..$180,333.33
Attorneys' expenses . . . $4,000.00
Release from Charlene Maxwell . . . $10,000.00
The executors brought suit against BOAC and Boeing in Illinois rather than Iowa for a number of reasons. First, neither defendant was licensed to do business in Iowa nor maintained an office or employees in that State. Although some travel agents sold tickets for BOAC in Iowa, Ross H. Sidney did not feel that the Iowa courts could exercise personal jurisdiction over both defendants. Second, service could be had against both defendants in Illinois. Third, and perhaps more importantly, the executors could employ a well-known attorney as counsel if they brought suit in Illinois. This attorney was recognized for his ability and experience in representing parties in suits against airlines and airplane manufacturers, was already...
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