Petersen v. Comm'r of Internal Revenue
| Decision Date | 22 March 1961 |
| Docket Number | Docket Nos. 73870,73871,75864. |
| Citation | 35 T.C. 962 |
| Parties | EDWIN M. PETERSEN, ET AL.,1 PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Petitioner and his deceased wife were copartners in a ranching and cattle business. After her death, and during the administration of her estate, petitioner reported one-half of the income from the business, and decedent's estate the other half. Held:
1. Joint tenancy property passed to petitioner upon the death of his wife by right of survivorship, and all of the income therefrom is taxable to him.
2. Administration of this decedent's estate during the years here in issue was reasonable since substantial outstanding contested claims were pending.
3. During the proper period of administration of a wife's estate in California, a community property State, one-half of the income from the assets properly being administered is taxable to the estate and not to the surviving husband who is also the sole beneficiary of his deceased wife's will. Samuel Taylor, Esq., and Robert M. Winokur, Esq., for the petitioners.
Joseph D. Holmes, Jr., Esq., and Aaron S. Resnik, Esq., for the respondent.
Respondent has determined the following deficiencies in income tax:
+-----------------------------------------------------------------------------+
¦Docket¦Petitioner ¦Year¦Amount ¦
+------+-------------------------------------------------------+----+---------¦
¦No. ¦ ¦ ¦ ¦
+------+-------------------------------------------------------+----+---------¦
¦73871 ¦Estate of Flora M. Petersen, Deceased, Edwin M. ¦1953¦$1,425,62¦
¦ ¦Petersen, Executor, and Edwin M. Petersen ¦ ¦ ¦
+------+-------------------------------------------------------+----+---------¦
¦73870 ¦Edwin M. Petersen ¦1954¦4,875.56 ¦
+------+-------------------------------------------------------+----+---------¦
¦75864 ¦Edwin M. Petersen ¦1955¦13,233.84¦
+------+-------------------------------------------------------+----+---------¦
¦ ¦Edwin M. Petersen ¦1956¦6,972.33 ¦
+-----------------------------------------------------------------------------+
The issues now remaining for our determination are whether certain assets were properly included in the decedent's estate, and if the income from these assets was properly reportable by the estate or the surviving husband.
Some of the facts have been stipulated and are so found.
Petitioner Edwin M. Petersen (hereinafter called Petersen or petitioner) is the surviving spouse of Flora M. Petersen (hereinafter called Flora) who died on August 13, 1953. Petersen duly qualified as executor of her estate in the Superior Court of the State of California in and for the County of Santa Cruz on September 11, 1953, and at all times thereafter material has been its duly qualified and sole executor. The Petersens have, at all times herein relevant, resided in Santa Cruz County. Petitioner filed a joint income tax return with Flora for 1953 and individual returns for the years 1954 through 1956, all with the district director of internal revenue in San Francisco, California.
Flora's will, bequeathing her entire estate to her husband, was duly admitted to probate on September 11, 1953. Petersen, as executor, caused the required notice to creditors to be published starting on September 15, 1953, and within 4 months after notice was first given, claims in the aggregate amount of $29,390.91 were presented, and all but one were duly paid by the executor. The disallowed claim was made by Clarence W. Ramsay for damages in the amount of $26,000, allegedly caused by the negligent use of insecticides on property adjacent to that of Ramsey, owned of record by Flora and her son, Allan E. Petersen, and known as the Rogers Ranch. Shortly after the disallowance of his claim, and in March 1954, Ramsay brought a civil action in the Superior Court in Santa Cruz County for the identical amount as his claim, naming as defendants Petersen, both individually and as executor, Allan E. Petersen, and unnamed persons. The action was dismissed as to Petersen in his individual capacity in 1955. On or about April 18, 1957, the claim was settled for the sum of $5,500, a release being executed in favor of the remaining named defendants, and a satisfaction of claim against the estate being filed on the same day.
In June 1954, Petersen, as executor, caused an inventory and appraisement of the assets of the estate to be filed. The assets listed included the following:
Item
Record title to the joint tenancy real property was held in the names of Edwin M. Petersen and Flora M. Petersen as joint tenants at the time of her death, but dates of incidence of said joint tenancies are not shown in this record.
On September 25, 1953, Petersen, acting as executor, filed a preliminary estate tax notice, and on September 14, 1954, filed a Federal estate tax return for the estate. Respondent proposed certain adjustments increasing the tax due, and an additional assessment in the net amount of $10,495.78, increasing the tax to about $45,000, was agreed to by the executor in April 1957. The additional sum, together with the reported tax liability, was paid prior to July 1957. In October 1958, the executor filed a claim for refund of the additional payment, which claim was denied in September 1959.
No timely claims to specific assets or against Flora's will were filed.
In July 1957, Petersen, as executor, filed his report and petition for final accounting, pursuant to which a decree ordering final distribution of the estate was entered on July 26, 1957, by the Superior Court.
Petitioner and Flora were married in 1910. In 1931 they signed an instrument by which they did ‘certify and declare’ that all property then owned or held, and all property to be held in the future ‘is the community property of the * * * parties hereto.’ There is no provision in California law for recording such a document and it was not recorded.
For many years prior to 1938 Petersen had been in the cattle-feeding, ranching, and wholesale butcher business. During 1937, the business was known as Petersen's Wholesale Butchers. That year Petersen, in his income tax returns, allocated one-fourth of the income from this business to Flora, and she reported it as such in her separate return. In 1939 Petersen filed a timely gift tax return in which he recited the gift to Flora on January 1, 1938, of a one-quarter interest in the wholesale butcher business located in Watsonville, California, and Flora filed an information return to the same effect.
On January 9, 1938, Flora and Petersen signed articles of copartnership, forming a firm to be known as Petersen's to carry on the meat business. Each partner had an equal one-half interest. Article 7 provided that:
All property of every kind and character carried on the books of the partnership, or of the business as heretofore carried on by said E. M. Petersen, shall be considered as partnership property and first party (Petersen) does hereby give and grant to second party (Flora) such interest in said business and the assets thereof as will vest in second party an equal one-half interest in said partnership and the assets thereof.
In their separate income tax returns for 1938, Flora and Petersen each reported one-half the income from the partnership. This partnership continued in existence through August 13, 1953, both partners being active in the business.
Immediately after the death of Flora in August 1953, Petersen, his son Allan, who had been assisting in the operation of the business, and their accountants met to discuss the future of the business. It was decided to continue the business until the administration of the estate had been concluded, and ledger accounts were set up for the estate and for Petersen, each receiving one-half of the income. Prior to Flora's death there had been only one joint capital account. Estate and individual income tax returns filed for the period in question show one-half of the income from the business reported by the estate and the other half by Petersen. No written partnership agreement between Petersen and the estate existed, and Flora's will did not expressly authorize her executor to continue the partnership or to enter into...
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