Court Opinion

ID: 4613045
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:52:33.884869+00
Date Added: 2024-06-11T07:54:33.313616
License: Public Domain

FANNIE C. RICHARDSON, WALTER M. CAMPBELL, AND L. REVEL MILLER, TRUSTEES FOR CHARLES RICHARDSON, JR., LETHA R. MORRIS AND ANNA R. KNIGHT, PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Richardson v. CommissionerDocket No. 18303.United States Board of Tax Appeals20 B.T.A. 728; 1930 BTA LEXIS 2043; September 10, 1930, Promulgated 1930 BTA LEXIS 2043">*2043  1.  Where a life insurance policy issued on the life of decedent reserved a right of revocation by the insured permitting him full power to change the beneficiary, the proceeds of the policy in the hands of the beneficiaries are taxable under provisions of section 402(f) of the Revenue Act of 1921.  2.  In such circumstances the transfer, which is the subject of tax, does not occur until the death of the insured and the exhaustion of the right of revocation, and accordingly the taxing statute is not retroactive although the policy was issued prior to the passage of the Act.  Ralph W. Smith, Esq., for the petitioners.  Frank T. Horner, Esq., for the respondent.  VAN FOSSAN 20 B.T.A. 728">*729  The respondent determined a deficiency in estate taxes of $1,133.42.  Petitioners allege error in the amounts fixed by respondent as the value of certain stocks and in failing to allow the sum of $45,560.13 as a deduction on account of a debt owing by decedent and, by amendment at the hearing, that the statute of limitations has run against collection.  Respondent by amended answer avers error on his part in allowing a deduction of the wife's interest in certain community1930 BTA LEXIS 2043">*2044  property and in the omission from the taxable estate of the value of the proceeds of a certain insurance policy on the life of decedent, who died September 17, 1923.  FINDINGS OF FACT.  It was stipulated by the parties: That on or about October 22, 1923, Fannie C. Richardson, wife of Charles Richardson, the decedent in the above-entitled case; Charles Richardson, Jr., son of the decedent, and Walter M. Campbell, were appointed by the Superior Court of Los Angeles County, California, as executors of the last will and testament of the decedent.  That the executors referred to in paragraph above duly qualified as such, but prior to May 12, 1926, upon which date the respondent mailed to them his 60-day notice of his determination of a deficiency in estate tax in this case, the said executors were discharged by the said court, and since the date of such discharge of said executors and by virtue of such discharge of said executors, no one has acted as executor of the decedent's last will and testament; provided, however, that the respondent denies the materiality to these proceedings of such discharge of the said executors.  That no notice has been given to the respondent at any1930 BTA LEXIS 2043">*2045  time under the provisions of section 317 of the Revenue Act of 1926.  That Fannie C. Richardson, widow of the decedent, and heir at law and beneficiary under the will of decedent, and Walter M. Campbell and L. Revel Miller, as trustees for Charles Richardson, Jr., Letha R. Morris, and Anna R. Knight, children of the decedent, and heirs at law and beneficiaries under the will of decedent, have now, and at all times since the death of the decedent have had, actual possession of the property of the said Charles Richardson, the decedent in the above-entitled proceeding.  20 B.T.A. 728">*730  The policy, the proceeds of which are here involved, bears date of May 3, 1913, and was executed to take the place of a policy dated April 25, 1911.  It is on the life of decedent, Charles Richardson, carries a principal sum of $100,000, and names as the beneficiaries "Letha Richardson Morris, Anna Richardson, Peter Richardson and Charles Richardson, Jr., children of the insured, in equal shares, the survivors or survivor; should none of them survive the insured, then to the insured's executors, administrators or assigns"; the principal sum is payable in twenty annual installments of $5,000 each, or $76,6001930 BTA LEXIS 2043">*2046  in one sum.  The policy contained the following provision: The right of revocation is reserved by the insured.  When the right has been reserved, the insured shall have full power while this policy is in force (subject to any previous assignment) to change the present beneficiary or beneficiaries.  Such change shall be made in writing and shall be valid only upon its endorsement on this policy by the Company at the Home Office.  The policy also provided for loans to the insured at a fixed interest rate on the sole security of the policy and carried paid-up insurance and surrender values in fixed amounts.  Premium payments by insured were to be made annually for a period of ten years unless insured sooner died.  At the hearing the parties stipulated that the value of the stock of Tacoma Iron Co. in question was $54,000; that the value of the stock of Seattle Iron Co. was $84,037.88; that the value of the stock of Pacific Co. was $267,627.74; that the estate is entitled to a deduction in the amount of $45,379.54 in lieu of amount claimed by petitioner, $45,650.13.  It was further stipulated that the proceeds of the life insurance policy were $100,419.77.  OPINION.  1930 BTA LEXIS 2043">*2047  VAN FOSSAN: The issue as to the statute of limitations raised by petitioners is decided adversely to petitioners on authority of Sybil J. Morrison, Administratrix,18 B.T.A. 336">18 B.T.A. 336. The timely initiation of a proceeding before the Board suspends the running of the statute of limitations in estate-tax cases.  Respondent presented no evidence on the issue raised by him as to omission from the taxable estate of the value of the wife's interest in certain community property and in his brief abandons the issue.  There remains only the question of the inclusion in the gross estate of the sum of $60,419.77, being the amount realized on the life insurance policy above the $40,000 exemption provided by section 402(f) of the Revenue Act of 1921, which provides that the value of the gross estate shall be determined by including the value at the time of death of all property, real or personal, tangible or intangible, wherever situated - (f) 20 B.T.A. 728">*731  To the extent of the amount receivable by the executor as insurance under policies taken out by the decedent upon his own life; and to the extent of the excess over $40,000 of the amount receivable by all other beneficiaries as1930 BTA LEXIS 2043">*2048  insurance under policies taken out by the decedent upon his own life.  No brief having been filed by counsel for petitioners, we are unadvised of the grounds of their defense against this affirmative allegation and can only conjecture as to the arguments they would advance.  Respondent contends that the case falls squarely within the rule of the Supreme Court in Chase National Bank v. United States,278 U.S. 327">278 U.S. 327. In that case the court had for determination two questions certified by the Court of Claims under section 288, title 28, U.S. Code, 43 Stat. 939, i.e.: (1) "Whether the tax imposed by the final clause of section 402(f), Revenue Act of 1921, 42 Stat. 278, on life insurance policies payable in terms to beneficiaries 'other than the decedent or his estate' is a direct tax on property and void because not apportioned." (2) "Whether the $9,146.76 tax imposed bears such an unreasonable relation to the subject matter of the tax as to render it void." The court sustained the constitutionality of the Act and held that the tax was not void because unreasonable.  If it be assumed that petitioners are here urging the unconstitutionality of1930 BTA LEXIS 2043">*2049  the Act and the unreasonableness of the tax imposed, this decision is conclusive on these questions.  If, on the other hand, petitioners rely on Lewellyn v. Frick,268 U.S. 238">268 U.S. 238, in which it was held that the Revenue Act of 1918 did not apply to the proceeds of insurance policies the right to which had vested in the beneficiary before the passage of the Act, suffice it to say that in the instant case the power of revocation reserved to the insured postponed the vesting of any rights in the beneficiaries until the death of the insured.  See Saltonstall v. Saltonstall,276 U.S. 260">276 U.S. 260; 278 U.S. 327">Chase National Bank v. United States, supra; and Reinecke v. Northern Trust Co.,278 U.S. 339">278 U.S. 339. The respondent is sustained in his contention. Decision will be entered under Rule 50.