Source: http://openjurist.org/442/f2d/915/estate-porter-v-commissioner-of-internal-revenue
Timestamp: 2017-05-23 23:55:21
Document Index: 637256876

Matched Legal Cases: ['§ 811', '§ 2033', '§ 2033', '§ 2033', '§ 2035', '§ 2039', '§ 3']

442 F. 2d 915 - Estate Porter v. Commissioner of Internal Revenue HomeFederal Reporter, Second Series 442 F.2d.
Other cases dealing with pre-1954 law have found employee death benefits to be subject to estate taxation.5 Estate of Garber v. CIR, 271 F.2d 97 (3d Cir. 1959), dealt with a pension plan, the funds from which were received by the employee during his life, and after death by a beneficiary that had been designated by him. The court held that the funds received by the beneficiaries were includable in Garber's gross estate under § 811(a) of the Internal Revenue Code of 1939 (the predecessor of § 2033), and laid down the general rule that "death benefits derived from funds which represent deferred compensation to the deceased, or granted under plans which explicitly [give] the decedent direct contractual rights in the funds" are includable in the decedent's gross estate. 271 F.2d at 101. Accord, Rosenberg v. United States, 309 F.2d 724 (7th Cir. 1962); Goodman v. Granger, 243 F.2d 264 (3d Cir.), cert. denied, 355 U.S. 835, 78 S.Ct. 57, 2 L.Ed.2d 47 (1957); Estate of Wolf v. CIR, 29 T.C. 441, 447 (1957), rev'd on other grounds, 264 F.2d 82 (3d Cir. 1959).
The death benefits do not appear to be taxable under 26 U.S.C. § 2033 since Porter had parted with any right to receive payments prior to the "time of his death."7 See the Tax Court opinion below, 54 T.C. No. 103, at 22 (Tannenwald, J., concurring). See also Worthen v. United States, 192 F.Supp. 727, 733 (D.Mass.1961); Kramer v. United States, 406 F.2d 1363, 1369-1370, 186 Ct.Cl. 684 (1969); Estate of Wadewitz v. CIR, 39 T.C. 925, 931-935 (1963), aff'd, 339 F.2d 980 (7th Cir. 1964). In Estate of Garber v. CIR and the cases cited with it supra, in which death benefits were taxed under § 2033, the decedent retained the right to receive payments from the fund in question until the time of his death.
We agree with the Tax Court that these agreements constituted a transfer by Porter to his wife in contemplation of his death, within the meaning of § 2035.8 The term "transfer" "must, we think, at least include the transfer of property procured through expenditures by the decedent with the purpose, effected at his death, of having it pass to another." Chase National Bank of City of New York v. United States, 278 U.S. 327, 337, 49 S.Ct. 126, 128, 73 L.Ed. 405 (1929); accord, Worthen v. United States, supra, 192 F.Supp. at 733-734; Davis v. CIR, 27 T.C. 378 (1956); Estate of Nevin v. CIR, 11 T.C. 59 (1948). The consideration for the death benefit payments came from Porter in that he continued in the employ of the company until his death and by virtue of the reciprocal agreement that the companies would provide for his brothers' widows. The benefits were, in effect, a gift from Porter to his wife; the companies made the payments to her in return for the consideration that had been received from him. The fact that it would have been difficult to determine the value of her interest at the time the agreements were made is irrelevant. "The taxable event is a transfer inter vivos. But the measure of the tax is the value of the transferred property at the time when death brings it into enjoyment." Helvering v. Hallock, 309 U.S. 106, 111, 60 S.Ct. 444, 447, 84 L.Ed. 664 (1940).
Petitioners take the position that the statutory presumption that this transfer was made in contemplation of death, see note 8 supra, is rebutted by the facts of the case. They stress that, although Porter entered the hospital for gall bladder surgery the day after the agreements were executed, the surgery was elective in nature, the statistical probability of death from this type of surgery is less than one per cent, and Porter's death did not in fact result from it. While these arguments are persuasive, they are not adequate to rebut the statutory presumption as a matter of law. The test is the decedent's own apprehensions at the time the transfer is made, not the statistical probability that he will actually die. Allen v. Trust Co. of Georgia, 326 U.S. 630, 635, 66 S.Ct. 389, 90 L.Ed. 367 (1946). Viewed in this light, Porter's execution of the agreements one day prior to undergoing surgery raises an extremely strong inference of contemplation of death. Moreover, as stated above, he had been ill for several months immediately prior to the operation.
The only case cited by petitioners in which a court has held that a death benefit was not subject to estate taxation, without explicitly finding the benefit to be a mere gratuity, is Libbey v. United States, 147 F.Supp. 383 (N.D.Cal.1956). In that case the employee had to choose whether to accept a ten-year annuity granted by the company which provided death benefits for his wife or to convert the ten-year annuity into a life annuity, which would have deprived his wife of any death benefits. The court held that the employee's failure to convert the annuity was not sufficient action on his part to constitute a "transfer" to his wife under the Code. The theory under which we decide this case might require the contrary result inLibbey since it suggests that Porter's agreement to render services to the company was the type of consideration that might make the death benefits agreements a "transfer" under the Code. See discussion infra.
We note that the taxpayers in many of the pre-1954 cases citedsupra would now be taxed under § 2039, e. g., Hanner v. Glenn, supra; Estate of Barr, supra; and Estate of Saxton, supra. See Gray v. United States, 410 F.2d 1094 (3d Cir. 1969).
Most of the cases cited by the Tax Court and by respondent deal with a statutory exception to the rule, which allows certain third-partycreditor beneficiaries to bring a "bill to reach and apply" in equity. Mass.Gen.Laws ch. 214, § 3(7). The one case cited involving a third party donee beneficiary makes clear that such a beneficiary can sue only if some of the consideration for the agreement moves from him. Green v. Green, 298 Mass. 19, 21, 9 N.E.2d 413, 415 (1937). Despite the broad dictum in Choate v. Assessors of Boston, 304 Mass. 298, 303-304, 23 N.E.2d 882, 886 (1939), the only cases that we have found in which a beneficiary was allowed to sue in the name of the party who made the contract are Grime v. Borden, 166 Mass. 198, 44 N.E. 216 (1896), and Fay v. Guynon, 131 Mass. 31 (1881). Both are cases in which a husband and wife made a covenant with a third party solely for the purpose of making an agreement between themselves enforceable at law.