In 1946 decedent Goldsborough transferred to her two daughters real property worth $ 25,000. In 1949, the daughters sold the real property for $ 32,500 and separately invested their respective shares of the proceeds in stock and securities to which title was taken in the names of the purchaser and decedent Goldsborough. At Goldsborough's death in 1972, the stock and securities had a value of $ 160,383.19.
70 T.C. 1077">*1078 Respondent determined a deficiency in the amount of $ 51,790.20 in the Federal estate taxes of the Estate of Marcia P. Goldsborough. In these consolidated cases, the issues for decision are as follows:
(1) To what extent, if any, are the values of certain stocks and securities jointly held by the decedent Marcia P. Goldsborough on the date of her death excludable from the gross estate under
(2) Whether transferee liability has been established for the Estate of Harriette G. O'Donoghue 3 pursuant to
FINDINGS OF FACT
Katherine G. Eppler (hereinafter Eppler), a personal representative of the Estate of Marcia P. Goldsborough (hereinafter 70 T.C. 1077">*1079 1978 U.S. Tax Ct. LEXIS 48">*50 Goldsborough or decedent), is a petitioner in docket No. 10811-76 and an individual transferee of certain jointly held assets of decedent. At the time the petition was filed, Eppler was a legal resident of Lutherville, Md. The Federal estate tax return for decedent's estate was filed by Eppler and Harriette G. O'Donoghue, daughters of the decedent, acting in their capacity as duly authorized representatives of the estate, with the Office of Internal Revenue at Philadelphia, Pa.
Petitioner in docket No. 10831-76 is Stuart G. Buppert II (hereinafter sometimes Buppert), a personal representative of the Estate of Harriette G. O'Donoghue (hereinafter O'Donoghue) and a son of O'Donoghue. At the time the petition was filed, Buppert was a legal resident of Severna Park, Md.
Petitioner in docket No. 10832-76 is Karen T. B. Richwine, a daughter of O'Donoghue. At the time the petition was filed, she was a legal resident of Annapolis, Md.
Petitioner in docket No. 10835-76 is Barclay B. Buppert, a son of O'Donoghue. At the time the petition was filed, he was a legal resident of Baltimore, Md.
Petitioner in docket No. 10836-76 is Hobart C. Buppert II, a son of O'Donoghue. At the time the petition 1978 U.S. Tax Ct. LEXIS 48">*51 was filed, he was a legal resident of Ruxton, Md.
Petitioner in docket No. 10837-76 is Katherine Buppert Miller, a daughter of O'Donoghue. At the time the petition was filed she was a legal resident of Baltimore, Md.
By deed dated May 12, 1937, and recorded among the Land Records of Baltimore City, Goldsborough acquired title in fee simple to real property and improvements known as 106 St. Dunstans Road, Baltimore, Md., (hereinafter St. Dunstans).
By deed dated April 4, 1946, and recorded among the Land Records of Baltimore City, Goldsborough, with her husband joining in the deed to provide a clear title free of any dower or curtesy rights, conveyed St. Dunstans to her two daughters, Eppler and O'Donoghue. The conveyance was without consideration and, on the date of the transfer to the two daughters, the value of St. Dunstans was $ 25,000. At the time of the conveyance Eppler and O'Donoghue were married, and they and their spouses lived apart from Goldsborough. Prior to and until sometime after the conveyance of April 4, 1946, Goldsborough resided at St. Dunstans.
By deed dated June 17, 1949, and recorded among the Land 70 T.C. 1077">*1080 Records of Baltimore City, O'Donoghue and Eppler, with their 1978 U.S. Tax Ct. LEXIS 48">*52 respective husbands joining in the deed, conveyed St. Dunstans to H. W. Ford and his wife for a purchase price of $ 32,500. Sometime in 1949, O'Donoghue and Eppler utilized their respective shares of the proceeds from the sale of St. Dunstans to purchase certain stocks and securities. Each of them placed the stocks and securities purchased in her own name and Goldsborough's name as joint tenants. These stocks and securities remained in joint tenancy from the date of purchase until the date of Goldsborough's death on December 21, 1972. Eppler's and O'Donoghue's father, then divorced from Goldsborough, handled the purchase of the stocks and securities.
From the time the stocks and securities in question were purchased through December 21, 1972, Goldsborough retained and used for her sole benefit all interest, dividends, and other income resulting from those stocks and securities. Income earned from the stocks and securities was included and reported on Federal income tax returns filed by Goldsborough.
The stocks and securities held in joint tenancy by Goldsborough and her two daughters appreciated from $ 32,500, their value on the date of purchase, to $ 160,383.19, their value on the 1978 U.S. Tax Ct. LEXIS 48">*53 alternate valuation date after Goldsborough's death on December 21, 1972. No part of the increase in value was caused by additional purchases, contributions, or dividends attributable to the surviving joint tenants.
Upon Goldsborough's death, Eppler and O'Donoghue, as surviving cotenants, each received her respective share of the stocks and securities in question, as well as her respective share of other securities held jointly by Goldsborough and her two daughters.
On or about September 21, 1973, Eppler and O'Donoghue, in their capacity as personal representatives of Goldsborough's estate, filed the Federal estate tax return in which the value of the stocks and securities in question was not included in the gross estate. In his statutory notice of deficiency, respondent disallowed the exclusion of the value of these stocks and securities.
O'Donoghue died on October 13, 1974, then survived by her second husband and five children from her previous marriage. On or about July 13, 1974, and within 3 years of O'Donoghue's death, each of her five surviving children, petitioners herein, 70 T.C. 1077">*1081 received various items of property from O'Donoghue including, but not limited to, 40 shares of Gillette 1978 U.S. Tax Ct. LEXIS 48">*54 Co., 32 shares of Standard Oil of California, and $ 5,116.16 in cash.
The Gillette Co. stock and the Standard Oil of California stock, referred to above, had been previously owned jointly by O'Donoghue and Goldsborough prior to Goldsborough's death. The value of each share of Gillette Co. stock and Standard Oil of California stock at the alternate valuation date of Goldsborough's estate was $ 54.06 and $ 73.38, respectively. The value of each share of Gillette Co. stock and Standard Oil of California stock on July 13, 1974, the date of transfer to the five surviving children, was $ 29 and $ 52.50, respectively.
Frederick J. O'Donoghue, the surviving spouse of O'Donoghue, became the successor in interest to various real properties held in tenancy by the entireties located in Maryland and Florida. A portion of the properties transferred to O'Donoghue from Goldsborough's estate had been utilized to secure and purchase the Maryland and Florida properties.
OPINION
Entire value of property | ||
Amount | (on the date of | x Survivor's consideration |
excluded = | death or alternate | Entire consideration paid |
valuation date) |
In the instant case, the decedent (Goldsborough) acquired on May 12, 1937, real property (St. Dunstans) in her individual name. On April 4, 1946, decedent transferred St. Dunstans, valued at $ 25,000 on that date, to her two daughters (Eppler and O'Donoghue) as a gift. On July 17, 1949, the daughters sold St. Dunstans to H. W. Ford and his wife for $ 32,500. Sometime in that same year, each daughter invested her share of the proceeds from the sale of St. Dunstans in various stocks and securities; each daughter took title to her respective stocks and securities in joint tenancy with decedent. These stocks and securities remained in joint tenancy until December 21, 1972, the date of decedent's death, and during the period of joint tenancy the stocks and securities appreciated in value to $ 160,383.19, the value on the alternate valuation date.
Thus, 1978 U.S. Tax Ct. LEXIS 48">*57 the
Respondent contends that all the funds used to purchase the stocks and securities in question were derived from decedent and thus the entire value of the jointly held property ($ 160,383.19) is includable in her gross estate.
Petitioners Buppert and Eppler argue that only the value of St. Dunstans at the time the gift was made to decedent's two daughters (i.e., $ 25,000) is includable in decedent's gross estate. In the alternative, petitioner Eppler contends that the gain of $ 7,500, measured by the appreciation in value from the time St. Dunstans was given to the two daughters in 1946 until that property was sold by them in 1949, constitutes consideration furnished by the daughters toward the $ 32,500 purchase price of the jointly held stocks and securities. Thus Eppler argues that $ 37,011.50 ($ 7,500/$ 32,500 of $ 160,383.19), the value of the jointly held property on the alternate valuation date, should be excluded from decedent's gross estate. We agree with this 1978 U.S. Tax Ct. LEXIS 48">*58 alternative argument.
To be sure,
In the second situation, the surviving joint tenant receives property gratuitously from the decedent; the property thereafter appreciates or produces income and is sold, and the income or the sales proceeds are used as consideration for the acquisition of the jointly held property. In this situation, the income or the gain, measured by the appreciation from the time of receipt of the gift to the time of sale, has been held to be the surviving joint tenant's income and a part of that joint tenant's contribution to the purchase price.
The facts of the instant case fall precisely within this second 70 T.C. 1077">*1084 situation. In
The jointly held property is not the gift property itself, in either its original or transmuted form, but property traceable to (1) the profits made through sales of the original gift property and successive reinvestments of the proceeds of such sales or (2) the rents, interest and dividends produced by such property in its original or converted form, while title thereto was in the wife. The question presented by this appeal, then, is whether such profits and income, realized from property originally received by the wife as a gift from her husband and traceable 1978 U.S. Tax Ct. LEXIS 48">*61 into property which was held by them as joint tenants at the time of the husband's death, came within the exception to the requirement of Section 811(e) [predecessor to
The Government in
It seems clear that none of the cases cited contains any support for the novel proposition that income produced by gift property, after the gift has been completed, belongs to the donor and is property received or acquired from him by the donee; nor is there, in these cases, anything to impeach the conclusion of the trial court, or that of the Tax Court in the
* * * Moreover, no reason is suggested for holding that one form of 1978 U.S. Tax Ct. LEXIS 48">*62 income, i.e., "profit gained through a sale or conversion of capital assets," * * * is outside the exception, whereas other forms of income, such as dividends, rentals and interest, fall within its terms. It follows that the government's contention that the full value of the property held in joint tenancy by decedent and his wife at the time of his death should have been included in decedent's gross estate must be rejected. [Citations omitted.]
Thus we conclude that Eppler and O'Donoghue furnished $ 7,500 toward the $ 32,500 purchase price paid for the stocks and securities they held in joint tenancy with decedent until her death on December 21, 1972. Under the terms of the statute, such part of the value of the property, i.e., $ 160,383.19 on the alternate valuation date, as is proportionate to the $ 7,500 of 70 T.C. 1077">*1085 consideration Eppler and O'Donoghue furnished is excluded from decedent's gross estate. 81978 U.S. Tax Ct. LEXIS 48">*63 Under the mathematical formula, set out above, the amount of the exclusion is $ 37,011.50.
On two occasions during the trial of the instant case, respondent made a motion to 1978 U.S. Tax Ct. LEXIS 48">*64 amend his pleadings in order to be able to advance the additional argument that the jointly held property at issue herein is includable under section 2036 because the decedent retained certain rights of posession and enjoyment over St. Dunstans after it was deeded to Eppler and O'Donoghue on April 4, 1946. However, petitioners, some of whom were appearing pro se, had theretofore been led to believe that
On brief respondent renewed his efforts to raise the issue that the original transfer of St. Dunstans by decedent to her two daughters was tainted. In his brief respondent argues that the transfer was not a completed gift and, therefore, the
Finally, we think that the facts clearly indicate that transferee liability has been established for O'Donoghue's estate pursuant to
To reflect the foregoing,
1. The following cases are consolidated herewith: Stuart G. Buppert II and Estate of Harriette G. O'Donoghue, Deceased, Stuart G. Buppert II, Personal Representative, Transferees, docket. No. 10831-76; Karen T. B. Richwine, docket. No. 10832-76; Barclay B. Buppert, docket. No. 10835-76; Hobart C. Buppert II, Transferee, docket. No. 10836-76; and Katherine Buppert Miller, docket. No. 10837-76.↩
2. All section references are to the Internal Revenue Code of 1954, as in effect on the date of decedent's death, unless otherwise noted.↩
3. Katherine G. Eppler, as a petitioner in her individual capacity, concedes transferee liability.↩
4.
The value of the gross estate shall include the value of all property to the extent of the interest therein held as joint tenants by the decedent and any other person * * * except such part thereof as may be shown to have originally belonged to such other person and never to have been received or acquired by the latter from the decedent for less than an adequate and full consideration in money or money's worth:
5. It is clear that income from property acquired gratuitously from the decedent constitutes a contribution from a surviving joint tenant's separate funds.
6.
If the decedent, before the acquisition of the property by himself and the other joint owner, gave the latter a sum of money or other property which thereafter became the other joint owner's entire contribution to the purchase price, then the value of the entire property is so included, notwithstanding the fact that the other property may have appreciated in value due to market conditions between the time of the gift and the time of the acquisition of the jointly held property;↩
7.
8. Petitioners Buppert's and Eppler's original contention that only $ 25,000 (the value of St. Dunstans at the time of the gift) is includable is without merit, and their reliance on
9. The notices of deficiency state:
"It is determined that the jointly owned securities described as items 1 to 11 inclusive of Schedule E of the return are includible in the gross estate under
10. In his answer and by stipulation, respondent effectively admitted a transfer of title of St. Dunstans to the two daughters on Apr. 4, 1946, a fact that he cannot now deny. Also, viewing the facts in the instant case, we are convinced that, under Maryland law, the conveyance on that date was a completed gift. Md. Ann. Code art. 21, sec. 1 (1939); see
11.
(2) Liability of transferees and others. -- If the estate tax imposed by chapter 11 is not paid when due, then the spouse, transferee, trustee (except the trustee of an employees' trust which meets the requirements of section 401(a)), surviving tenant, person in possession of the property by reason of the exercise, nonexercise, or release of a power of appointment, or beneficiary, who receives, or has on the date of the decedent's death, property included in the gross estate under
12.
(a) Method of Collection. -- The amounts of the following liabilities shall, except as hereinafter in this section provided, be assessed, paid, and collected in the same manner and subject to the same provisions and limitations as in the case of the taxes with respect to which the liabilities were incurred: (1) Income, estate, and gift taxes. -- (A) Transferees. -- The liability, at law or in equity, of a transferee of property -- (i) of a taxpayer in the case of a tax imposed by subtitle A (relating to income taxes), (ii) of a decedent in the case of a tax imposed by chapter 11 (relating to estate taxes), or (iii) of a donor in the case of a tax imposed by chapter 12 (relating to gift taxes),
* * * *
(h) Definition of Transferee. -- As used in this section, the term "transferee" includes donee, heir, legatee, devisee, and distributee, and with respect to estate taxes, also includes any person who, under