Northern Trust Co. v. Comm'r of Internal Revenue (In re Estate of Gilruth), Docket No. 6509-65.
| Decision Date | 11 September 1968 |
| Docket Number | Docket No. 6509-65. |
| Citation | 50 T.C. 850 |
| Parties | ESTATE OF MAY H. GILRUTH, THE NORTHERN TRUST COMPANY, EXECUTOR, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Guilford R. Windes, for the petitioner.
Sheldon S. Rosenfeld, for the respondent.
The decedent was the sole beneficiary under the will of her husband, who died within 6 years prior to her death. Her husband's estate incurred and paid certain executor's and attorney's fees which it elected to deduct on its fiduciary income tax return and not on its estate tax return. Held, in determining the value of the property transferred to the decedent by her husband for purposes of the credit for tax on prior transfers provided by sec. 2013, I.R.C. 1954, such expenses must be deducted from the gross estate of the decedent's husband, even though not claimed on her husband's estate tax return.
The respondent determined a deficiency in the Federal estate tax of the Estate of May H. Gilruth in the amount of $3,441.69. The only question remaining with respect to this asserted deficiency concerns the proper method of computing the credit for tax on prior transfers under section 2013 of the Internal Revenue Code of 1954.1 Specifically, the question is whether, for purposes of determining the ‘value of the property transferred’ to the decedent on the death of her husband, amounts paid by his estate as executor's and attorney's fees should be subtracted from his gross estate when his estate elected not to deduct such fees from the gross estate, but to deduct them from the income of the estate for purposes of the Federal income tax.
All the facts have been stipulated, and those facts are so found.
Irwin T. Gilruth, a lawyer, died testate on August 11, 1957. His will directed that ‘all * * * (his) just debts be paid in the due course of administration.’ All of the property passing under his will, and part of the proceeds of life insurance policies owned by him payable at his death, went to his wife, May H. Gilruth, the decedent.
A Federal estate tax return for Irwin T. Gilruth's estate was filed with the district director of internal revenue, Chicago, Ill. It showed a taxable estate of $194,645.55, computed as follows:
+----------------------------------------------------------+
¦Gross estate ¦ ¦$514,177.03¦
+-----------------------------------+----------+-----------¦
¦Less: ¦ ¦ ¦
+-----------------------------------+----------+-----------¦
¦Funeral and administration expenses¦$4,885.94 ¦ ¦
+-----------------------------------+----------+-----------¦
¦Marital deduction ¦254,645.54¦ ¦
+-----------------------------------+----------+-----------¦
¦Specific exemption ¦60,000.00 ¦ ¦
+-----------------------------------+----------+-----------¦
¦ ¦ ¦319,531.48 ¦
+-----------------------------------+----------+-----------¦
¦Taxable estate ¦ ¦194,645.55 ¦
+----------------------------------------------------------+
A Federal estate tax in the amount of $46,582.18 was assessed against and paid by the Estate of Irwin T. Gilruth. No claim for refund or for deficiency has ever been instituted with respect to the tax on that estate.
In addition to the administration expenses deducted from the gross estate on the Federal estate tax return, the Estate of Irwin T. Gilruth, pursuant to an order of the Cook County Probate Court entered November 23, 1959, paid total executor's fees of $14,500 and total attorney's fees of $8,986. These administration expenses, totaling $23,486, were, pursuant to the election provided in section 642(g), claimed by the Estate of Irwin T. Gilruth as a deduction under section 212 on its fiduciary Federal income tax return, and not as a deduction for administration expenses under section 2053 from the gross estate for estate tax purposes.
May H. Gilruth, widow of Irwin T. Gilruth, died on October 23, 1962, and the Northern Trust Co. of Chicago, Ill., was duly qualified as the executor of her estate. A Federal estate tax return for her estate was filed with the district director of internal revenue, Chicago, Ill. It showed a net estate tax in the amount of $98,753.67, which was duly paid.
The alleged deficiency arises out of a dispute over the proper computation of the credit to which the Estate of May H. Gilruth is entitled under section 2013 on account of tax paid by the Estate of Irwin T. Gilruth with respect to the property transferred to May H. Gilruth. Section 2013 allows a credit against estate tax for all or part of the estate tax paid with respect to property transferred to a decedent by or from a prior decedent, the ‘transferor.’ It is not disputed that Irwin Gilruth died in the sixth year preceding the death of May Gilruth, nor that, pursuant to section 2013(a)(2), 60 percent of that part of the estate tax paid by Irwin Gilruth's estate attributable to property transferred to May Gilruth is allowable as a credit against the estate tax on her estate. The dispute arises over the proper method of determining the amount so attributable. Section 2013(b) provides that the tax attributable to the property transferred to the decedent:
shall be an amount which bears the same ratio to the estate tax paid * * * with respect to the estate of the transferor as the value of the property transferred bears to the taxable estate of the transferor (determined for purposes of the estate tax) decreased by any death taxes paid with respect to such estate and increased by the ($60,000) exemption provided for by section 2052 * * *
For purposes of this case, the amount attributable to the property transferred to the decedent is determined by multiplying the estate tax paid with respect to the estate of the transferor by a fraction. The numerator of the fraction is the value of the property transferred to the decedent, and the denominator is the taxable estate of the transferor increased by the exemption under section 2052 and reduced by all death taxes paid with respect to such estate. See Lowndes and Kramer, Federal Estate and Gift Taxes 544 (2d ed. 1962). The parties agree that the Federal estate tax paid by the Estate of Irwin T. Gilruth was $46,582.18. They further agree that the denominator of the fraction is $191,513.24, computed as follows:
+-----------------------------------------------+
¦Net taxable estate ¦ ¦$194,645.55¦
+------------------------+----------+-----------¦
¦Plus specific exemption ¦ ¦60,000.00 ¦
+------------------------+----------+-----------¦
¦ ¦ ¦254,645.55 ¦
+------------------------+----------+-----------¦
¦Less: Federal estate tax¦$46,582.18¦ ¦
+------------------------+----------+-----------¦
¦Illinois inheritance tax¦16,550.13 ¦63,132.31 ¦
+------------------------+----------+-----------¦
¦ ¦ ¦191,513.24 ¦
+-----------------------------------------------+
The disagreement lies in the computation of the numerator— the value of the property transferred to the decedent. Section 2013(d) provides that:
SEC. 2013. CREDIT FOR TAX ON PRIOR TRANSFERS.
(d) VALUATION OF PROPERTY TRANSFERRED.— The value of property transferred to the decedent shall be the value used for the purpose of determining the Federal estate tax liability of the estate of the transferor but—
(1) there shall be taken into account the effect of the tax imposed by section 2001 or 2101, or any estate, succession, legacy, or inheritance tax, on the net value to the decedent of such property;
(2) where such property is encumbered in any manner, or where the decedent incurs any obligation imposed by the transferor with respect to such property, such encumbrance or obligation shall be taken into account in the same manner as if the amount of a gift to the decedent of such property was being determined; and
(3) if the decedent was the spouse of the transferor at the time of the transferor's death, the net value of the property transferred to the decedent shall be reduced by the amount allowed under section 2056 (), or the corresponding provision of prior law, as a deduction from the gross estate of the transferor.
The parties agree that in determining the numerator, the following amounts should be deducted from the gross estate:
+-------------------------------------------------------------------------+
¦Gross estate ¦ ¦$514,177.03¦
+--------------------------------------------------+----------+-----------¦
¦Less: Value of property transferred to others than¦ ¦ ¦
+--------------------------------------------------+----------+-----------¦
¦May H. Gilruth ¦$41,330.67¦ ¦
+--------------------------------------------------+----------+-----------¦
¦Funeral and administration expenses claimed on the¦ ¦ ¦...To continue reading
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