Schuster v. Comm'r of Internal Revenue
| Decision Date | 31 July 1959 |
| Docket Number | Docket No. 65075. |
| Parties | MELBA SCHUSTER, FORMERLY MELBA D. BAKER, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Walter C. Fox, Jr., Esq., and Robert E. Senghas, Esq., for the petitioner.
Nat F. Richardson, Esq., for the respondent.
Decedent, William P. Baker, died in 1951. Petitioner was appointed executrix of the will of her deceased husband. She duly filed an estate tax return on October 7, 1952, and reported in Schedule G ‘for disclosure purposes only’ a transfer made by the decedent in trust in 1941. She did not include any part of the corpus of this trust in the decedent's gross estate but did attach to the return a copy of the trust deed. Within 3 years from the filing of the return Commissioner Andrews determined a deficiency in estate tax but did not include any part of the corpus of the 1941 trust in the gross estate. This deficiency was paid. After 3 years but within 4 years from the filing of the return Commissioner Harrington determined a further liability of $49,698.63 in estate taxes on the ground that the undistributed corpus of the 1941 trust on the date of decedent's death was includible in the gross estate. He further determined that petitioner was personally liable for this additional tax as a transferee. The decedent's estate has not yet been distributed and has assets in excess of $700,000. Petitioner as a surviving joint tenant received jointly owned property held by her and the decedent which had a value on the date of decedent's death of over $303,000. This jointly owned property was included as a part of the decedent's gross estate under section 811(e) of the 1939 Code but was allowed as a part of the marital deduction under section 812(e). Held, the undistributed corpus of the 1941 trust on the date of decedent's death is property includible in the decedent's gross estate under section 811(d), I.R.C. 1939; the statute of limitations for proceeding against petitioner as transferee has not run; Commissioner Harrington was not bound in this matter by the determination of his predecessor; and petitioner is personally liable as a transferee under sections 900(a)(1) and (e) and 827(b) of the 1939 Code, as amended, for the additional tax now due and unpaid.
Respondent determined for assessment against petitioner the amount of $49,698.63, plus interest as provided by law, as constituting petitioner's liability as a transferee of property of the estate of William P. Baker, deceased. Petitioner contests the entire determination. Errors have been assigned from (a) to (t). The assignments are grouped and summarized as follows:
1. Respondent erroneously included in the decedent's gross estate the undistributed corpus of an inter vivos trust dated September 12, 1941;
2. Respondent's determination is barred by the statute of limitations;
3. Respondent erred in not being bound by the determination of his predecessor in office of the tax liability of decedent's estate;
4. That since the estate has not been distributed, is solvent, and has ample marketable assets, respondent erred in determining petitioner liable as a transferee and in so doing violated the fifth amendment of the Constitution; and
5. Respondent erred in failing to allow the family allowance ordered by the California court as a part of the marital deduction from the decedent's gross estate.
Respondent in his brief concedes that petitioner's transferee liability is $48,306.63 instead of $49,698.63 which is due to an additional credit for Federal gift taxes for the difference.
The stipulation of facts, together with the attached exhibits, is found as stipulated and is incorporated herein by reference.
William P. Baker (hereinafter referred to as the decedent) died July 11, 1951, and his will was admitted to probate in the Superior Court of the State of California in and for the city and county of San Francisco on August 16, 1051. Petitioner was duly appointed the executrix of the will, and has been and now is the duly qualified and acting executrix thereof (hereinafter referred to as the executrix) and of all the matters and affairs affecting the probate of his estate.
The decedent left a will under which he bequeathed and advised the property subject to his testamentary disposition as follows:
A. Miscellaneous personal property (valued herein at $2,822) to his surviving wife, Melba Baker;
B. $5,000 to his niece, Martha Wolpert;
C. $5,000 to his sister, Liesel Papkalla; and
D. The residue in trust with the income payable to his surviving wife, Melba Baker, for life, and the remainder over to the children of his daughter, Patricia B. Englert.
The above disposes of the whole of the probate estate of the decedent, viz, all of the property subject to his power of testamentary disposition. The remainder of the property which comprises all of the marital deduction allowed, except $2,822, was drawn into the estate pursuant to the statutory provisions of section 811(c), (e), and (g) of the Internal Revenue Code of 1939. 1
On October 7, 1952, in accordance with, under, and within the time required by chapter 3 of said Code, the executrix filed a return in duplicate on Form 706 setting forth the matters prescribed in Code section 821. In the return the executrix reported a gross estate made up as set forth in the following prescribed schedules (with reference to Code sections):
+---------------------------------------------------------------------------+
¦Schedule A—Real Estate ¦$10,000.00 ¦
+-------------------------------------------------------------+-------------¦
¦Schedule B—Stocks and Bonds ¦838,717.00 ¦
+-------------------------------------------------------------+-------------¦
¦Schedule D—Insurance ¦44,234.00 ¦
+-------------------------------------------------------------+-------------¦
¦Schedule E—Jointly-owned Property ¦303,099.59 ¦
+-------------------------------------------------------------+-------------¦
¦Schedule F—Other Miscellaneous Property ¦51,207.08 ¦
+-------------------------------------------------------------+-------------¦
¦Schedule G—Transfers during decedent's lifetime (said note to¦ ¦
+-------------------------------------------------------------+-------------¦
¦petitioner ¦10,000.00 ¦
+-------------------------------------------------------------+-------------¦
¦ ¦$1,257,257.67¦
+---------------------------------------------------------------------------+
In said return the executrix claimed deductions under section 812(b) of $83,832.08, and under section 812(e) a marital deduction of $466,570.18, and reported a net estate of $408,590.41 for the basic tax and $448,590.41 for the additional tax; and paid a tax thereon to the collector of internal revenue on October 7, 1952, $116,177.18 being the total tax disclosed in and by said return.
Attached to and as a part of said return, the executrix included therein a trust agreement dated September 12, 1941, between the decedent and the San Francisco Bank as trustee (hereinafter sometimes called the living trust) for the use and benefit of Patricia Englert, the daughter of decedent, and her heirs. The executrix reported said living trust without value for purposes of said tax.
During the tenure in office of T. Coleman Andrews as Commissioner of Internal Revenue of the United States, and under his direction and instructions, an audit of the estate of decedent was made in accordance with the provisions of Code section 824, and as a result of said audit he determined the gross estate to be as follows:
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¦Schedule A—Real Property (Required under sec. 811(a)) ¦ ¦$10,000.00¦
+--------------------------------------------------------+---------+----------¦
¦Schedule B—Stocks and Bonds (Required under sec. 811(a))¦ ¦650,452.00¦
+--------------------------------------------------------+---------+----------¦
¦Schedule D—Insurance (Required under sec. 811(g)) ¦ ¦44,234.00 ¦
+------------------------------------------------------------------+----------¦
¦Schedule E—Jointly-owned Property (Required under sec. 811(e)) ¦303,099.59¦
+------------------------------------------------------------------+----------¦
¦Schedule F—Miscellaneous Property, Personal Property ¦ ¦ ¦
+--------------------------------------------------------+---------+----------¦
¦and Receivables (Required under sec. 811(a)) ¦$6,207.08¦ ¦
+--------------------------------------------------------+---------+----------¦
¦Partnership Property (Required under sec. 811(e)) ¦45,000.00¦ ¦
+--------------------------------------------------------+---------+----------¦
¦ ¦ ¦51,207.08 ¦
+------------------------------------------------------------------+----------¦
¦Schedule G—Transfers during decedent's lifetime reported as ¦ ¦
¦nontaxable—Living Trust of 9-12-41; transfers to petitioner on ¦ ¦
+------------------------------------------------------------------+----------¦
¦Feb. 10, 1951, (note valued at $10,000) ¦None ¦
+-----------------------------------------------------------------------------¦
¦Total gross estate ¦$1,058,992.67 ¦
+-----------------------------------------------------------------------------+
and allowed deductions of $579,372.33, inclusive of a marital deduction of $405,155.59; determined the net estate to be $677,885.34 (exclusive of the specific exemptions of...
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