1956 U.S. Tax Ct. LEXIS 65">*65
27 T.C. 107">*107 OPINION.
Respondent determined a deficiency in Federal estate taxes against petitioner estate in the sum of $ 2,801.71 as a result 27 T.C. 107">*108 of his disallowance of a deduction taken by the estate on account of a "widow's allowance" of $ 10,000. In an "Explanation of Adjustment to Net Estate" attached to the determination of deficiency, respondent justified his action as follows:
Under the laws of Michigan the allowance for maintenance of the widow during administration of the estate is an interest which may terminate in the event certain contingencies occur before she receives the full amount allowed by the Probate Court. Accordingly, it is held that no1956 U.S. Tax Ct. LEXIS 65">*67 part of the widow's allowance qualifies for the marital deduction under the terms of
In the petition the following allegations of error are made:
(a) The Commissioner erred in holding that under the laws of Michigan the allowance for maintenance of the widow during administration of the estate is an interest which may be terminated in the event certain contingencies occur before she receives the full amount allowed by the Probate Court.
(b) The Commissioner erred in holding that no part of the widow's allowance under the laws of the State of Michigan qualifies for the marital deduction under the terms of
(c) The Commissioner erred in failing to hold that under the laws of the State of Michigan (Comp. Laws, Michigan 1948-702.68) a widow's allowance when approved and authorized by the Probate Court having jurisdiction over the decedent's estate vested in the widow an absolute right to said allowance as a matter of law which qualified for the marital deduction under
The parties filed herein a complete stipulation of facts 1956 U.S. Tax Ct. LEXIS 65">*68 and we find the facts to be as stipulated. The facts pertinent to the issues presented are as follows:
Proctor D. Rensenhouse (hereinafter referred to as the decedent) died on May 24, 1952, a resident of Cass County, Michigan. The Michigan Trust Company was appointed executor by the Probate Court of Cass County, Michigan, and thereafter acted as executor under the last will and testament of the decedent. In his will the decedent bequeathed to his wife certain furniture and other "articles of household or personal use or ornament," and then, after reciting that he had provided an income for his wife through life insurance of approximately $ 5,000, devised the residue of his estate to the Michigan Trust Company as trustee, to pay from the income enough to make the total annual income of his wife $ 5,000 (with additional payments authorized under certain contingencies), to add the balance of the income to principal, and upon his wife's death to distribute the principal among his four children. No reference is made in the will to any "widow's allowance."
On August 18, 1953, a Federal estate tax return for the Estate of Proctor D. Rensenhouse was filed with the director of internal 1956 U.S. Tax Ct. LEXIS 65">*69 revenue, Detroit, Michigan.
27 T.C. 107">*109 The decedent left surviving him his spouse, Mary K. Rensenhouse, and four children, Ruth Anne, Jean Kimmerle, Proctor D., Jr., and Charles Kimmerle.
On October 29, 1952, the Probate Court for Cass County, Michigan, pursuant to the petition of Mary K. Rensenhouse, entered its order entitled "Order for Widow's Allowance." This order reads as follows:
This day having been appointed for hearing the petition of Mary K. Rensenhouse, widow of said deceased, praying for the assignment to her of her statutory allowance of said estate, and due notice of the hearing on said petition having been waived by the Executor of said estate and the residuary legatees, the petitioner appeared and no one appeared in opposition thereto.
It Is Hereby Ordered that an allowance in the sum of $ 10,000.00 per year to be paid at the rate of $ 833.33 per month be and the same is hereby granted out of the estate of said deceased for the support and maintenance of the widow for one year from the date of the death of said deceased.
On August 3, 1953, the Michigan Trust Company, acting as executor, paid over to Mary K. Rensenhouse the lump sum of $ 10,000 in satisfaction of the1956 U.S. Tax Ct. LEXIS 65">*70 order of the Probate Court.
Mary K. Rensenhouse died on June 6, 1954.
In computing its Federal estate tax the Estate of Proctor D. Rensenhouse claimed as a portion of its marital deduction under
Prior to the enactment of the Revenue Act of 1950, the item here involved would have been deductible from the decedent's gross estate pursuant to
(b) Expenses, Losses, Indebtedness, and Taxes -- Such amounts -- * * * * (5) reasonably required and actually expended for the support during the settlement of the estate of those dependent upon the decedent,
However, by section 502 of the Revenue Act of 1950 this subsection of the Internal Revenue Code was repealed. The report of the Senate Finance Committee with regard to the Revenue Act of 1950, dated August 22, 1950 (S. Rept. No. 1956 U.S. Tax Ct. LEXIS 65">*71 2375, 81st
Section 502 of your committee's bill repeals this particular feature of the estate tax law. This amendment will apply with respect to estates of decedents dying after the date of enactment of this bill.
It is estimated that this action will increase the revenues by about $ 3,000,000 annually.
The report of the Ways and Means Committee of the House of Representatives with regard to this Revenue Act, dated June 23, 1950 (H. Rept. No. 2319, 81st1956 U.S. Tax Ct. LEXIS 65">*72 Cong., 2d sess.,
This section amends
Under existing law amounts expended in accordance with the local law for support of the surviving spouse of the decedent are, by reason of their deductibility under
1956 U.S. Tax Ct. LEXIS 65">*73 Petitioner, being foreclosed by the Revenue Act of 1950 from deducting this payment to the widow as a part of "Expenses, Losses, Indebtedness and Taxes" deductible under
1956 U.S. Tax Ct. LEXIS 65">*74 27 T.C. 107">*111 Respondent, in addition to his contention that the right of the widow to the payment here involved was a terminable interest and, therefore, the payment was not deductible because of the provisions of
(3) Definition. -- For the purposes of this subsection an interest in property shall be considered as passing from the decedent to any person (A) such interest is bequeathed or devised to such person by the decedent; or (B) such interest is inherited by such person from the decedent; or (C) such interest is the dower or curtesy interest (or statutory interest in lieu thereof) of such person as surviving spouse of the decedent; or (D) such interest has been transferred to such person by the decedent at any time; or (E) such interest was, at the time of the decedent's death, held by such person and1956 U.S. Tax Ct. LEXIS 65">*75 the decedent (or by them and any other person) in joint ownership with right of survivorship; or (F) the decedent had a power (either alone or in conjunction with any person) to appoint such interest and if he appoints or has appointed such interest to such person, or if such person takes such interest in default upon the release or nonexercise of such power; or (G) such interest consists of proceeds of insurance upon the life of the decedent receivable by such person.
Respondent's position on this matter differs from that taken by him in
Respondent's position now is that the widow's allowance is not an interest in property bequeathed or devised to her (
Petitioner, on brief, answers this contention as follows:
In Part1956 U.S. Tax Ct. LEXIS 65">*77 II of his Brief, Respondent briefly endeavors to justify his contention that the widow's allowance does not pass to her from her deceased husband. However, he completely fails to recognize the source from which the widow's allowance is paid. The fact that the Statute provides for support payments does not mean that the State of Michigan is going to pay it. The allowance in all events is payable out of and by the decedent's estate and passes to her from her deceased husband as surely as if he had directed in his Will that the payments be made. As a legal document, the Will has contained within its four corners by construction the law in effect in Michigan as of the date it was written, and even if decedent attempted by express direction in his Will to deny his wife her widow's allowance, he could not prevent the Statute from operating. The order of the Probate Court awarding the allowance pursuant to the Statute serves to diminish the extent of the decedent's gross estate which in turn determines the value of the estate subject to the Federal Estate Tax.
In
In this characterization of a widow's allowance we followed the weight of authority, see
27 T.C. 107">*113 We are also of the opinion that the widow's allowance was not a dower interest or a statutory interest in lieu thereof within the meaning of
We also agree with respondent that paragraphs (D), (E), (F), and (G) of subsection 812 (e) (3) are obviously inapplicable to the widow's allowance here involved. Accordingly, we conclude that the widow's allowance was not an interest in property passing from the decedent as defined in
We are conscious of the fact that this conclusion is contrary to the assumptions made in the Committee Reports with regard to the Revenue Act of 1950,
While our decision is contrary to the assumptions made in the Committee Reports, it is not contrary to the fundamental Congressional intent in repealing
Because of our conclusion that the widow's allowance here involved was not an interest in property passing from the decedent within the meaning of
Pierce,
Certainly this is the construction of
However, as a result of the amendment made by this section, such amounts heretofore deductible under
The report of the Senate Finance Committee on the amendment contains the same identical statement. S. Rept. No. 2375, 81st
As regards the provisions of
the question whether what the heir has thus received has been "acquired by inheritance" within the meaning of the federal statute necessarily is a federal question. It is not determined by local characterization.
* * * *
In exempting from the income tax the value of property acquired by "bequest, devise, or inheritance", Congress used comprehensive terms embracing all acquisitions in the devolution of a decedent's estate. * * *
* * * *
Respondent agrees that the word "inheritance" as used in the federal statute is not solely applicable to cases of complete intestacy. * * *
I think the same principles were intended to be applicable in construing
Since the majority decided that "it is unnecessary to consider the question of whether it was a terminable interest," I likewise express no view as to that question. My dissent is directed solely to the majority holding that the widow's allowance "was not an interest in property passing from the decedent within the meaning of
I would have decided the question, upon which the majority based its opinion, in favor of the taxpayer.
1. A similar paragraph is found in the "Detailed Discussion of the Technical Provisions of the Bill" attached to the Report of the Senate Finance Committee,
2.
For the purpose of the tax the value of the net estate shall be determined, in the case of a citizen or resident of the United States by deducting from the value of a gross estate --
* * * *
(e) Bequests, Etc., to Surviving Spouse. -- (1) Allowance of marital deduction. -- (A) In General. -- An amount equal to the value of any interest in property which passes or has passed from the decedent to his surviving spouse, but only to the extent that such interest is included in determining the value of the gross estate. (B) Life Estate or Other Terminable Interest. -- Where, upon the lapse of time, upon the occurrence of an event or contingency, or upon the failure of an event or contingency to occur, such interest passing to the surviving spouse will terminate or fail, no deduction shall be allowed with respect to such interest. -- (i) if an interest in such property passes or has passed (for less than an adequate and full consideration in money or money's worth) from the decedent to any person other than such surviving spouse (or the estate of such spouse); and (ii) if by reason of such passing such person (or his heirs or assigns) may possess or enjoy any part of such property after such termination or failure of the interest so passing to the surviving spouse; and no deduction shall be allowed with respect to such interest (even if such deduction is not disallowed under clauses (i) and (ii)) -- (iii) if such interest is to be acquired for the surviving spouse, pursuant to directions of the decedent, by his executor or by the trustee of a trust.↩
3. It will be noted that the deductibility of "[amounts] * * * for support of the Surviving Spouse" as a marital deduction assumed by these reports was assumed to be such "subject to the conditions and limitations of
4. Since widow's allowances are in the nature of expenses of administration, this is the logical subsection of the Internal Revenue Code to provide for their deductions.↩
