1939 BTA LEXIS 907 | B.T.A. | 1939
Lead Opinion
OPINION.
This proceeding involves income taxes for the period January 22 to December 31, 1934. Deficiency of $4,290 was determined by the respondent, and the total amount thereof is in issue.
The facts controlling here may be epitomized as follows:
The $8,250 in question was paid during the taxable year to Annie Sartorius, the widow of Otto Sartorius, deceased, who died a resident of Pennsylvania. The deceased’s will gave to his widow an annuity of $9,000 for life. After Ms death, she threatened to enforce her rights as a widow, adversely to the will, unless $9,000 additional for life was provided for her. The deceased’s net estate was $1,041,830.91 and the widow under the law of Pennsylvania was entitled to receive $371,448.72. About October 25, 1934, she made an agreement with the petitioners as executors and trustees under the will of the deceased husband, providing that she should receive a lump payment of $10,000 and an additional $9,000 per year for life. The payment thereof was to be out of the residue of the decedent’s estate remaining after payment of all legacies, including the provision for $9,000 annuity to the wife as provided by the will, and as security for the payment of the additional $9,000 annuity the executors and trustees agreed to set aside out of the residue of the estate securities or a sum sufficient in their sole judgment to yield a net income of $9,000 per year, and to invest and reinvest same, receive the income, and, out of the net income therefrom and also out of the principal of said securities or fund if the net income should not be sufficient, to pay Annie Sartorius $9,000 per year for life. In consideration thereof she waived her right to elect to take against the will and during the year received under the agreement (in addition to a like amount under the will) $8,250 here involved as income, for and on account of the eleven months of that year commencing with the first day of February (the husband having died January 21, 1934).
If payments made by trustees under a will do not depend upon income, they are made in discharge of a gift or legacy and are not taxable. Helvering v. Butterworth, supra.; Burnet v. Whitehouse, 283 U. S. 148, 151. Lyeth v. Hoey, supra, applies the principle to payments received through compromise, as by inheritance, and Ave think it, applies fully here. In Benefield v. United States, 27 Fed. Supp. 57, the Court of Claims, following the above- cases, applied it in a
We come to the same conclusion as to the theory urged that Annie Sartorius was taxable as annuitant under section 22 (b) (2) of the Revenue Act of 1934. As respondent points out, if the matter is viewed as an annuity purchased by surrender of a one-third interest in the estate, the widow would take contrary to the will, would not receive under it the other annuity of $9,000 per year (not herein involved because not claimed and paid from income) and the resultant $18,000 yearly annuity surrendered is to be compared with the taxable 3 percent of consideration paid for the annuity — with the result that such consideration being the stipulated $371,448.72 value of the widow’s one-third interest, 3 percent thereon (after deducting therefrom $10,000 paid to the widow from corpus) would be $10,483.46, so that such annuitant, even upon petitioners’ own theory would, to a considerable extent, not be taxable upon the $18,000 per annum received by her, and to that extent there is no valid argument that taxation to the annuitant relieves the payor of the annuity from taxation. Moreover, taxability to annuitant does not necessarily indicate deduction for the payor of annuity. Hoe Estate Co. v. Gommissioner, 85 Fed. (2d) 4. However that may be, since we have above concluded that under Lyeih v. Hoey, supra, there is no difference in principle between the situation as to widow taking under the will and one taking as here by agreement contrary to it, we apply the language of the Court in Helvering v. Butterworth, supra:
When she mates her election the widow decides to accept the benefits of the will with the accompanying rights and liabilities. In no proper sense does she purchase an annuity. * * *
Here the widow elected to take, by compromise, a portion of the estate, payable if necessary from corpus thereof, and took by inherit-
Decision will b&. entered, for the respondent.