Neese v. Commissioner, Docket No. 3283-62
| Decision Date | 04 November 1964 |
| Docket Number | 3286-62.,Docket No. 3283-62,3284-62,3285-62 |
| Citation | 23 TCM (CCH) 1748,1964 TC Memo 288 |
| Parties | Elbert H. Neese, Jr., and Margaret K. Neese, et al. v. Commissioner. |
| Court | U.S. Tax Court |
Hiram M. Nowlan, 17 N. Franklin St., Janesville, Wis., for the petitioners. Rex A. Guest, for the respondent.
The Commissioner determined deficiencies in petitioners' income taxes as follows:
------------------------------------------------------------------------------------------------
Taxable Year
Docket No. Petitioner Ended Amount
------------------------------------------------------------------------------------------------
3283-62 Elbert H. Neese, Jr. and Margaret K. Neese ............ 12/31/59 $12,364.53
3284-62 Howard Teague and Elizabeth Teague .................... 12/31/59 11,268.77
3285-62 Alonzo A. Neese and Jean S. Neese ..................... 12/31/59 12,344.05
3286-62 Elbert H. Neese Trust of 1938 ......................... 12/31/59 13,914.00
------------------------------------------------------------------------------------------------
The only issue for decision is whether the petitioners realized long-term capital gain or ordinary income upon the assignment of single premium, 20-year endowment contracts to a bank shortly before their maturity dates.
All of the facts have been stipulated, are so found, and the stipulation of facts, together with the exhibits attached thereto, is incorporated herein by this reference. Those facts necessary to an understanding of our inquiry are recited below.
Petitioners Elbert H. Neese, Jr., (hereinafter referred to as Elbert, Jr.) and Margaret K. Neese are husband and wife with their residence at Pittsfield, Massachusetts. They filed a timely joint income tax return for the taxable year 1959 with the district director of internal revenue at Milwaukee, Wisconsin. Elbert, Jr., is, and was at all times material hereto, an officer of Beloit Corporation, Beloit, Wisconsin, and a director of the Beloit State Bank, Beloit, Wisconsin, (hereinafter referred to as the Bank).
Petitioners Howard Teague and Elizabeth Teague (hereinafter referred to as Elizabeth) are husband and wife with their residence at Pully-Lausanne, Switzerland. They filed their timely joint Federal income tax return for the taxable year 1959 with the director of international operations at Washington, D. C.
Petitioners Alonzo A. Neese (hereinafter referred to as Alonzo) and Jean S. Neese are husband and wife with their residence at Clinton, Wisconsin. They filed their timely joint Federal income tax return for the taxable year 1959 with the district director of internal revenue at Milwaukee, Wisconsin. Alonzo is, and was at all times material hereto, an officer of Beloit Corporation, Beloit, Wisconsin.
Elbert H. Neese (hereinafter referred to as Elbert) and Laura J. A. Neese (hereinafter referred to as Laura) are the parents of Elbert, Jr., Elizabeth and Alonzo (hereinafter referred to collectively as the Neese children).
Petitioner Elbert H. Neese Trust of 1938 (hereinafter referred to as the 1938 trust) has a post office address in Beloit, Wisconsin. The 1938 trust is a 30-year irrevocable trust created by Elbert, as settlor, under an agreement dated September 27, 1938. This trust has been in existence continuously from the date of its creation to the present time and has at all times been administered in Wisconsin. The 1938 trust filed a timely Federal fiduciary income tax return for the taxable year 1959 with the district director of internal revenue at Milwaukee, Wisconsin. Alonzo and Elbert, Jr., have been the duly appointed, qualified and acting trustees of the 1938 trust since 1954. They were appointed successor trustees to the original trustees consisting of H. A. Von Oven (hereinafter referred to as Von Oven), P. J. E. Wood (hereinafter referred to as Wood) and Laura. The Neese children are the beneficiaries of the 1938 trust and as such are entitled to share equally in the distribution of the trust assets upon termination and also are entitled under certain circumstances to income distribution during the existence of the trust.
In 1959, the 1938 trust assigned three paid-up, 20-year, single premium endowment life insurance policies to the Bank, thereby realizing a total gain of $17,639.92. The policies were acquired originally with funds belonging to the trust. A summary description of each policy and the circumstances pertinent to the assignment follows:
THE 1938 TRUST
---------------------------------------------------------------------------------------------
| | MUTUAL LIFE | PRUDENTIAL
| THE TRAVELERS | INSURANCE CO. | INSURANCE CO
INSURER | INSURANCE CO. | OF NEW YORK | OF AMERICA
----------------------------------|-------------------|-------------------|------------------
Policy Number ................ | 2099774 | 5543035 | 10807938
Type of Policy ............... | Single Premium, | Single Premium, | Single Premium
| 20-Yr. Endowment | 20-Yr. Endowment | 20-Yr. Endowment
Date Issued .................. | 9-1-39 | 9-9-39 | 10-10-39
Maturity Date ................ | 9-1-59 | 9-9-59 | 10-10-59
Face Amount .................. | $15,000 | $15,000 | $15,000
Insured ...................... | Elizabeth | Elbert, Jr. | Alonzo
Owner ........................ | Trustees of 1938 | Trustees of 1938 | Trustees of 1938
| Trust | Trust | Trust
Assignee ..................... | Beloit State Bank | Beloit State Bank | Beloit State Bank
Date of Assignment ........... | 6-16-59 | 6-10-59 | 6-15-59
Beneficiary .................. | Trustees of 1938 | Trustees of 1938 | Trustees of 1938
| Trust to 6-16-59 | Trust to 6-10-59 | Trust to 6-15-59
| Beloit State Bank | Beloit State Bank | Beloit State Bank
| from 6-16-59 | from 6-10-59 | from 6-15-59
Single Premium, Amt. Pd....... | $9,112.80 | $ 9,394.80 | $ 9,542.85
Date Paid .................... | 9-30-39 | 9-9-39 | 10-17-39
Dividends Rec'd or Credited .. | None | $ 623.36 | $ 605.34
Cash Surrender Value: | | |
6-16-59 ...................... | $14,854.05 | .......... |
6-10-59 ...................... | .......... | $15,420.66 |
6-15-59 ...................... | .......... | .......... | $15,393.00
7-10-59 ...................... | $14,899.20 | $15,469.87 | $15,424.72
Amt. Rec'd by Trust from Bank | | |
on 7-10-59 .................. | $14,865.00 | $15,461.91 | $15,363.46
Gain Realized ................ | $ 5,752.20 | $ 6,067.11 | $ 5,820.61
Amt. Rec'd by Bank upon Surrender | | |
of Policy at Maturity ....... | $15,000.00 | $15,623.36 | $15,605.34
---------------------------------------------------------------------------------------------
The gain realized on each of the aforesaid policies was reported as capital gain on the Federal income tax return filed by the trust for the taxable year 1959.
By separate instruments dated December 29, 1934, Elbert and Laura each created a 25-year irrevocable trust, which trusts were known as the Elbert H. Neese Trust of 1934 (hereinafter sometimes referred to as the Elbert trust of 1934) and the Laura J. A. Neese Trust of 1934 (hereinafter sometimes referred to as the Laura trust of 1934), respectively. The Neese children were equal beneficiaries of the corpus of these trusts upon termination and also under certain circumstances were entitled to income distribution during the existence of the trusts. Both trusts terminated in 1959.
By separate instruments dated August 14, 1936, Elbert and Laura each created a 20-year irrevocable trust, which trusts were known as the Elbert H. Neese Trust of 1936 (hereinafter sometimes referred to as the Elbert trust of 1936) and the Laura J. A. Neese Trust of 1936 (hereinafter sometimes referred to as the Laura trust of 1936), respectively. The Neese children were equal beneficiaries of the corpus of these trusts upon termination and also under certain circumstances were entitled to income distributions during the existence of the trusts. Both trusts were terminated in 1956, at which time all of the trust assets were then distributed to the Neese children in equal shares.
The original trustees of the said trusts created by Elbert in 1934 and 1936 were Laura, Von Oven and Wood. The original trustees of the said trusts created by Laura in 1934 and 1936 were Elbert, Von Oven and Wood. On May 25, 1950, Laura resigned as trustee of each of said trusts created by Elbert; and Harry C. Moore was duly appointed on that date as successor trustee to Laura of each of said trusts. Von Oven died on December 26, 1950. Alonzo was duly appointed on February 6, 1951, as successor trustee to Von Oven of each of said trusts created by Elbert, and Elbert, Jr., was duly appointed on February 6, 1951, as successor trustee to Von Oven of each of said trusts created by Laura. Wood resigned as trustee of each of said Elbert...
To continue reading
Request your trial