Court Opinion

ID: 4631567
Source: CourtListenerOpinion
Date Created: 2020-11-21 03:09:55.749554+00
Date Added: 2024-06-11T07:57:44.697071
License: Public Domain

ELIZABETH C. MCCOY, ADMINISTRATRIX, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.McCoy v. CommissionerDocket No. 78952.United States Board of Tax Appeals39 B.T.A. 822; 1939 BTA LEXIS 970; April 25, 1939, Promulgated *970  Under the community property laws of California one-half of the proceeds of insurance policies attributable to premiums paid from community property after July 29, 1927, should be excluded from the taxable estate.  Claude I. Parker, Esq., and John Moore Robinson, Esq., for the petitioner.  Frank T. Horner, Esq., for the respondent.  VAN FOSSAN *822  This proceeding was brought to redetermine a deficiency in the estate tax of the estate of George W. McCoy, deceased, in the sum of $26,234.59.  The petitioner has waived all allegations of error originally charged in his petition with the exception of the following issues: thereof as the total premiums paid out of community property cludable in the gross estate of George W. McCoy or only such portions thereof as the total premiums paid out of community property acquired prior to July 29, 1927, and one-half of those paid from such property acquired subsequent thereto, bear to the entire premiums paid on those policies?  :2) In computing the estate tax, is the estate entitled to deduct in full all valid claims against it as allowed by the probate court although the estate is insolvent?  This*971  issue is now conceded in the respondent's brief.  FINDINGS OF FACT.  The facts were stipulated substantially as follows: George W. McCoy died April 21, 1932, a resident of the City of Los Angeles, County of Los Angeles, State of California.  Elizabeth C. McCoy was duly appointed administratrix of the decedent's estate by the Superior Court of the State of California in and for the County of Los Angeles, on the 13th day of June 1932, and immediately thereafter duly qualified as such administratrix, and has been continuously since and now is the duly appointed, qualified, and acting administratrix of such estate.  At the time of the decedent's death there were issued and outstanding and in full force and effect certain life insurance policies in the principal sum of $807,882.85, as more particularly set forth hereinafter in schedule A.  Such policies were each issued on the life of the decedent by the insurers named in column A of schedule A on the dates set forth in column B, and were payable to named individual beneficiaries other than the estate of the decedent, i.e., the wife and/or children of the decedent.  At the time that each of *823  the policies was issued by*972  the respective insurers and during the life of the respective policies, the decedent and Elizabeth C. McCoy were husband and wife and bona fide residents of the State of California.  All premiums payable on the policies were paid on the due date of each from the most recently earned current professional earnings of the decedent.  From and after July 29, 1927, all premiums paid on the policies were paid out of earnings of the decedent personally earned by him after July 29, 1927, for professional services rendered by him after that date; As of the date of his death, the decedent had the unrestricted right under the policies to change the beneficiary of each policy of life insurance herein mentioned and he also had the unrestricted right under the policies, as of the date of his death, to borrow money upon the policies and to surrender each of the policies for cash.  SCHEDULE AABCName of CompanyDate :of issuance)ValuePenn. Mutual Life Ins. Co.:Item 3 - 16/25/23$39,691.7226/25/237,938.8336/25/2319,793.9147/13/2617,032.4357/13/2617,033.4467/13/2621,290.2974/15/2712,461.0784/23/268,833.16Aetna Life Insurance Co.:Item 4 - 13/15/2844,116.71Metropolitan Life Ins. Co. of New York:Item5 - 110/10/2685,169.0026/6/2721,502.0033/1/2743,004.0046/6/2721,837.6656/6/2721,837.6666/6/2721,837.66Mass. Mut. Life Ins. Co.:Item 6 - 16/18/2683,602.8326/18/2641,802.51Equitable Life Ins. Co.:Item 7 - 14/9/2852,823.9421/11/2219,344.5831/11/2211,130.0041/11/2211,130.0051/11/2211,130.00Northwestern Life Ins. Co.:Item 8 - 16/17/3117,302.2526/17/3139,652.0036/11/3139,652.0046/11/3139,652.00New England Mut. Life Ins. Co.:Item 9 - 11/12/2237,281.20Totals$807,882.85*973 *824  Valid claims aggregating $124,337.16 against the estate of George W. McCoy at the time of his death were presented to and approved by the Superior Court of the State of California and have been claimed by the petitioner as allowable deductions.  Certain portions of such claims were originally allowed by the Commissioner, additional amounts were recognized in the stipulation as allowable deductions, and now the full amount, as stated, is conceded by the respondent to represent proper and allowable deductions from the gross estate for the purpose of computing the estate tax.  The respondent also recognizes as allowable deductions administratrix commissions, $953.24, attorneys' fees, $978.24, and other attorneys' fees, $6,000, aggregating $7,931.48.  Additional attorneys' fees to be paid to Claude I. Parker and Ralph W. Smith are also allowable deductions from gross estate, when paid, presented, and proved.  OPINION.  VAN FOSSAN: The sole question now at issue is whether or not the entire proceeds from insurance policies carried by the decedent upon his life, payable to beneficiaries other than his estate, and aggregating $807,822.55, are includable in the decedent's*974  estate.  The petitioner relies on , in which the Supreme Court held that only one-half of such proportion of the proceeds of policies of life insurance of a decedent domiciled in the State of Washington, in favor of his wife and child, as represents premiums paid out of funds of the marital Community is to be reckoned :less the permitted exemption) as a part of the gross estate for Federal estate tax purposes.  The decision in the Lang case is predicated on the principle that the laws of Washington establish a community between spouses which is a separate entity and that life insurance purchased with its funds is community property, the character of which the husband can not defeat through change of beneficiary.  The court cited as supporting this view , in which it was held that a wife in the State of Washington was entitled to file a separate income tax return of her one-half interest in the community income because she had a vested interest in the community property and the income therefrom.  In the Lang case the Supreme Court expressly placed its stamp of disapproval*975  on the language and holding of the court in Bank of America National Trust & Savings Associationv. Commissioner, 90 Fed.:2d) 981.  See also United Statesv. Goodyear, 99 Fed.:2d) 523.  In construing the community property statutes of California the Supreme Court, in , answered in the affirmative the certified question, of the Civil Code of California,£ effective July 29, 1927] such an *825  interest in the community income that she should separately report and pay her tax on one-half of such income? ;  :Ariz.); and  :Texas).  With respect to the basic principle underlying the decisions in both the Lang and Malcolm cases, the Court recognized the essential similarity of the Washington and California community property laws.  In , we considered the applicability of the gift tax to a gift, made by the husband, of his right, title, and interest in insurance policies, as affected by the community property laws of Texas, which*976  differ materially from corresponding statutes in California and Washington.  In that case we said: * * * Nor is it of consequence that the community property laws of the State of Washington lay down a different rule from those of the courts of the State of Texas, cf. , or that the laws of the State of California appear to be like those of Washington.  * * * We believe that the decisions in the Lang and Malcolm cases have laid down the rule which we must follow in the case at bar.  Respondent cites no authority in support of his position, nor have we found any.  We affirm the position of petitioner.  That portion of the proceeds of the life insurance policies in which the wife of George W. McCoy had a community property interest as measured by the amount of premiums paid from community property since July 29, 1927, the effective date of section 161a of the Civil Code of California, must be excluded from the gross estate of the decedent.  Decision will be entered under Rule 50.