Robinson v. Comm'r of Internal Revenue (In re Estate of Duval), Docket No. 4731.
| Decision Date | 02 February 1945 |
| Docket Number | Docket No. 4731. |
| Citation | 4 T.C. 722 |
| Parties | ESTATE OF ETHEL M. DUVAL, DECEASED, BY THOMAS M. ROBINSON, JR., AND WESTON SHATTUCK ROBINSON, AS EXECUTORS OF HER LAST WILL AND TESTAMENT, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Where a bank, owner of a claim against decedent as guarantor of notes, consented to distribution of the estate without payment of its claim, reserving, however, a claim against a co-guarantor, and where the estate will never be required to pay the claim, held, such claim is not deductible from the gross estate of decedent, although formally allowed by a court having jurisdiction of the settlement of the estate. M. W. Dobrzensky, Esq., and James H. Anglim, Esq., for the petitioners.
Arthur L. Murray, Esq., for the respondent.
The respondent determined a deficiency of $48,214.31 in estate tax against the estate of Ethel M. DuVal.
The single issue is whether the sum of $175,000 representing the balance due on notes of a corporation, payment of which was guaranteed by the decedent and another, may be deducted from gross estate as a debt of the decedent, where the maker of the notes was financially able to pay them.
Ethel M. DuVal, hereinafter referred to as the decedent, died testate on April 9, 1942, and at the time of her death, was a resident of Alameda County, California. The petitioners, Thomas M. Robinson, Jr., and Weston Shattuck Robinson, are the duly qualified and acting executors of the decedent's will, which was admitted to probate by the Superior Court of Alameda County. The estate tax return was filed by them on April 15, 1943, with the collector of internal revenue for the first district of California.
On August 17, 1937, the M. K. Blake Estate Co., hereinafter called the company, secured a loan from the Bank of America National Trust & Savings Association of Oakland, California, hereinafter called the bank, in the sum of $162,000, payable three years thereafter, evidenced by the company's promissory note of the same date and secured by a deed of trust executed the same day.
At the same time, and at the bank's request, the decedent and her sister, Mary J. Robinson, endorsed the note as follows:
For value received, I hereby guarantee payment of the within obligation and all renewals or extensions thereof and I hereby waive presentment, demand, protest, notice of protest and notice of nonpayment.
(Signed) ETHEL M. DUVAL MARY J. ROBINSON.
On November 2, 1941, the company borrowed from the bank an additional $20,000, payable August 2, 1944, giving its promissory note therefor. This second obligation was also secured by the deed of trust above referred to. The note was endorsed by the decedent and her sister in the following manner:
For value received, I hereby guarantee payment of the within obligation and all renewals or extensions thereof and all taxes and insurance premiums and any other sums that may become due and payable under and by virtue of the provisions of the deed of trust (or mortgage) securing the aforesaid note, and I hereby waive presentment, demand, protest, notice of protest and notice of nonpayment.
I also hereby waive (a) the right, if any, to the benefit of, or to direct the application of, any security hypothecated to the holder until all indebtedness of the maker of the holder, howsoever arising, shall have been paid; (b) the right to require the holder to proceed against the maker, or to pursue any other remedy in the holder's power; and agree that the holder may proceed against the undersigned directly or independently of the maker, and that cessation of liability of the maker for any reason other than payment, any extension, forbearance, change of rate of interest or acceptance, release or substitution of security or any impairment or suspension of the holder's remedies or rights against the maker, shall not in anywise affect the liability of the undersigned hereunder.
At the time the above notes were executed and endorsed the decedent and her sister, Mary J. Robinson, were the owners of a majority of the company's outstanding capital stock. The decedent was president of the company and Mary J. Robinson was its secretary.
On August 26, 1941, the company and the bank joined in an agreement extending the maturity date of the note for $162,000 to August 2, 1944. The decedent and Mary J. Robinson gave their written consent to the extension.
At the decedent's death the unpaid balance of the principal of the two notes amounted to $175,000. No part of this amount has been paid since her death.
After the decedent's death the bank presented its claim for $175,000 against her estate, said claim providing that it was made ‘by virtue of the guaranty of said deceased of two promissory notes of M. K. BLAKE ESTATE CO., a corporation, dated August 17, 1937, and November 2, 1941, respectively.‘ The claim was delivered to the executors in June 1942 and allowed by them July 1942 for its full amount.
The decedent, by her will, created a residuary trust, naming M. W. Dobrzensky as trustee and as residuary devisee and legatee in trust. Shortly prior to March 15, 1943, a plan was agreed upon between the executors and their attorney (M. W. Dobrzensky) whereby the decedent's estate could be distributed. The plan provided that the entire estate should be distributed to the trustee, subject to the payment of the bank's claim. This plan has never been carried out.
In response to a request by the trustee, Dobrzensky, the bank, on March 17, 1943, sent to him a ‘consent to distribution‘ providing that the bank ‘hereby consents to the distribution of the above entitled estate without payment of its claim, reserving, however, its claim against Mary J. Robinson, who, with said decedent, guaranteed said promissory note.‘
At the same time, the bank sent to the trustee a ‘Withdrawal of Request for Special Notice.‘
On April 7, 1943, the claim was approved by the judge of the Superior Court of Alameda County, California.
On October 25, 1943, the executors of the decedent's will filed with the probate court their first account, in which they reported the claim for $175,000 as an allowed and approved claim. This account was approved by order of the court on November 5, 1943.
At the date of the decedent's death, and at all times since, to the date of the hearing herein, both the maker of the notes, the M. K. Blake Estate Co., and the co-guarantor, Mary J. Robinson, have been solvent and fully able to pay the notes in question.
At schedule K of the estate tax return the...
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