Porter v. Commissioners of Internal Revenue (In re Estate of Porter)
| Decision Date | 25 May 1970 |
| Docket Number | Docket No. 1397-68. |
| Citation | 54 T.C. 1066 |
| Parties | ESTATE OF BERNARD L. PORTER, DECEASED, RUTH R. PORTER, ALEXANDER H. PORTER, AND SAUL A. SEDER, ADMINISTRATORS D/B/N/C/T/A, PETITIONERS, v. COMMISSIONERS OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
J. Robert Seder, for the petitioners.
Richard K. Seltzer, for the respondent.
Decedent, approximately 3 weeks before his death, entered into identical contracts with three corporations of which he was an officer and employee, under which as an inducement to the decedent to remain in their employ, the corporations agreed to make certain payments to his surviving spouse or issue if the decedent was in the employ of each of those corporations at his death. The contracts provided that they were to be binding on the successors, heirs, executors, and administrators of the parties and could not be terminated or altered without the written consent of all parties. Held, the commuted value of the payments provided for in the contracts is includable in the gross estate of decedent under sec. 2035, I.R.C. 1954.
The Commissioner determined a deficiency in the Federal estate tax of the Estate of Bernard L. Porter, deceased, in the amount of $12,041.89. Petitioners, the administrators of the estate, all were residents of Worcester, Mass., at the date of the filing of the petition in this case. The estate tax return was filed with the district director of internal revenue at Boston, Mass.
The issues presented for decision are:
(1) Whether certain contracts between the decedent and his employers gave rise to an interest in property which was transferred by decedent under such circumstances as to cause it to be includable in his estate under section 2035, 2036, or 2038, I.R.C. 1954,1 and if not, whether these contracts gave rise to an interest in property includable in decedent's estate under section 2033.
(2) The value, if any, of the interest to be included in any interest is includable in the decedent's estate.
The facts have been stipulated. The stipulation of facts and exhibits thereto are incorporated herein by this reference.
Decedent died testate on February 16, 1964. Decedent and his two brothers had owned all the stock of Oxford Mills, Inc., and Quabbin Spinners, Inc., from prior to February 3, 1955, and these two corporations had owned all the stock of Fiber Processing Co., Inc., from the date of Fiber's incorporation in 1961. Decedent and his two brothers also constituted the board of directors of each corporation during these same periods of time. Decedent was continuously employed by Oxford Mills, Inc., from its incorporation in 1935 and by Quabbin Spinners, Inc., from its incorporation in 1946 and by Fiber Processing Co., Inc., from the date of its incorporation until his death.
On January 29, 1964, each of the corporations, by unanimous action of their respective boards of directors, entered into identical agreements with the decedent which provided in pertinent part as follows:
The Employee is employed by the Company and is active in the day to day management of the Company. The Company wishes to assure itself of the continued services, advice, and experience of the Employee. The Company wishes as an inducement to the Employee to remain in the Company's employ, to make provisions for the Employee's family in the event of the Employee's death while in the employ of the Company.
NOW, THEREFORE, in consideration of the premises, and in consideration of One Dollar ($1.00) paid by each party to the other, the receipt of which is hereby acknowledged, the parties hereto agree as follows:
1. Upon the decease of the Employee and if the Employee was in the employ of the Company at the time of his decease, the Company shall pay to the widow of the Employee a sum of money equal to twice the total compensation, including salary, bonuses, and commissions, received by the Employee from the Company in the fiscal year next preceding the fiscal year in which the Employee deceased, said sum of money to be payable in One-Hundred and twenty (120) equal installments, the first such installment to be paid on the first day of the month immediately following the month in which the Employee deceased, and the remaining installments to be paid on the first day of each succeeding month thereafter until all 120 installments have been paid in full.
2. In the event that the Employee should decease and leave no widow surviving or in the event that the Employee should decease leaving a widow surviving, but said widow should decease prior to all of the installments having been paid as set forth above, then the said installments shall be paid or continued to be paid to the living children and living issue of deceased children of the Employee as follows: * * * If at any time the said deceased Employee shall have no widow, children, or other issue who survive him and who are living at the time the equal installment is to be paid, no further payments shall be made pursuant to this Agreement.
3. In the event that the Company is in default of the payment of any two equal installments hereunder, all of the unpaid installments hereunder shall immediately become due and payable without notice or demand of any kind. All unpaid installments shall similarly become due and payable without notice or demand of any kind in the event of the dissolution, termination, insolvency, cessation by the Company of operations as a going concern, bankruptcy, receivership, or an assignment for the benefit of the creditors by the Company.
4. This agreement shall be binding upon and inure to the benefit of the parties, their successors, heirs, executors, administrators or other legal representatives. As used in this Agreement, the term successor shall include, but not be limited to, any person, firm, corporation or other business entity, which at any time, and from time to time, whether by merger, consolidation, purchase or otherwise acquired all or substantially all of the assets or business of the Company.
5. This Agreement may only be terminated, altered or amended with the written consent of all of the parties hereto.
Identical agreements were also entered into by each corporation with each of the other two directors who were also employees. These agreements were intended to supplant other agreements previously executed by the same parties. The prior agreements between each of the three director-stockholders and Oxford Mills, Inc., and Quabbin Spinners, Inc., were executed on February 3, 1955, and the prior agreement of each director-stockholder with Fiber Processing Co., Inc. was executed on December 27, 1963. Each of these prior agreements was identical and provided in part as follows:
NOW THEREFORE, in consideration of the premises, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties hereto agree as follows:
In the event of death of the Employee, while employed by the Corporation, the Corporation shall pay to his widow, if living, or if not, to his surviving children, for a period of six (6) months after his death the same salary he was receiving at the time of his death; thereafter for a period of six (6) months seventy-five per cent (75%) of the salary he was receiving at the time of his death, and for a period of two (2) years thereafter fifty per cent (50%) of the salary he was receiving at the time of his death.
In the event of bankruptcy or the making of an assignment for the benefit of creditors by the Corporation, the within obligation on the part of the Corporation to provide payment to widow and children of the Employee shall cease.
In the event the Employee leaves the employ of the Corporation or his employment is discontinued by the Corporation, this agreement shall terminate.
It is the intention of the Corporation to continue this agreement indefinitely.
These prior agreements were canceled by unanimous action of the board of directors of each corporation on January 29, 1964.
At all times while employed by each of the corporations, and irrespective of any benefits to be paid upon his death, the decedent's compensation, consisting of salary, bonuses, and commissions, was fair, reasonable, and adequate. During his employment by each of the three corporations, decedent was an employee at the will of the corporation and at no time was he a party to an employment contract with any of them.
By appointment made prior to January 29, 1964, upon recommendation of his physician, decedent entered a hospital to undergo surgery for the removal of gallstones on January 30, 1964. The estate tax return filed on behalf of the estate of the decedent shows decedent's date of birth as July 24, 1913, the cause of his death as acute myocardial infarction, and the length of his last illness as about 4 months.
Decedent and each of his brothers were married and had children prior to February 5, 1955.
The commuted value of the payments to be received by decedent's spouse and children on account of the three contracts is the sum of $83,162. No amount was included in decedent's estate on the estate tax return for the value of these contracts or payments.
Respondent in his notice of deficiency increased the taxable estate as reported in the return by the amount of $83,162 designated as ‘Other miscellaneous property’ explaining the addition as follows:
It is determined that the proceeds payable to the decedent's surviving spouse by virtue of three separate agreements entered into by the decedent and Fiber Processing...
To continue reading
Request your trial
-
Estate of Porter v. CIR
...Tax Court. The Tax Court held that the death benefits were taxable as a gift made in contemplation of death under 26 U.S.C. § 2035, 54 T.C. 1066 (1970),1 and petitioners The parties agree that the death benefits in question are not taxable under § 2039 — the provision under which most emplo......
-
Estate of Kleemeier v. Comm'r of Internal Revenue
...to fall within the provisions of section 2039(a) and (b). Estate of Porter v. Commissioner, 442 F.2d 915 (C.A. 1, 1971), affirming 54 T.C. 1066 (1970). See also Estate of Firmin D. Fusz, supra, in which we specifically pointed out in footnote 2, p. 215, that respondent in that case relied o......
-
Estate of Kopperman v. Commissioner
...estate tax provisions having a requirement comparable to that contained in section 2035." Estate of Porter v. Commissioner Dec. 30,124, 54 T.C. 1066, 1077 (1970) (Tannenwald, J. Concurring). See Rosenberg v. United States 62-2 USTC ¶ 12,119, 309 F. 2d 724, 727 (7th Cir. 1962); Worthen v. Un......
-
Industrial Valley Bank & Trust Co. v. Comm'r of Internal Revenue (In re Estate of Levin )
...with the purpose, effected at his death, of having it pass to another‘ is a transfer by a decedent of property. Estate of Porter v. Commissioner, 54 T.C. 1066, 1070 (1970), affd. 442 F.2d 915 (1st Cir. 1971), citing Chase Nat. Bank v. United States, 278 U.S. 327 (1929). In order for the pos......