Phelps v. Commissioner

1927 BTA LEXIS 3440 | B.T.A. | 1927

Lead Opinion

OPINION.

Tkussei.l :

The deceased herein named, having died on June 30, 1923, all questions respecting Federal taxes upon the passing of this estate are governed and controlled by the provisions of the Revenue Act of 1921.

Respecting the two policy contracts numbered 820,913 for the amount of $50,000, and 110,708 Ex. for the amount of $15,000, it is noted that each of these policy contracts was procured by the deceased prior to the effective date of the Revenue Act of 1918, and when procured the proceeds thereof were made payable to Martha B. Phelps, if living.

If, in respect to these two policies, no change of beneficiary or other action had been taken by the insured prior to his death, the matter of the inclusion of any part of the proceeds thereof in the estate of the deceased would be governed and controlled by the rule laid down by the United States Supreme Court in the case of Lewellyn v. Frick, 268 U. S. 238, and there would then be no question raised here as to the exclusion of the proceeds of those two policies from the gross estate. However, in December, 1920, the insured, finding it necessary to borrow funds upon the security of these two policies, did on December 29, 1920, cause the beneficiary in policy 820,913 to be changed, so that he could use it as a basis for borrowing money thereon, and, having effected a loan, again on December 30, 1920, renamed his wife, Martha B. Phelps, the beneficiary of said policy. For the same reasons on December 23, 1920, the insured caused the beneficiary in policy 110,708 Ex. to be changed, and, having effected a loan thereon, again on the same day renamed his wife, Martha B. Phelps, as the beneficiary therein. This action of the insured was taken at a time when the Revenue Act of 1918 was in force and effect, and the respondent argues that this last action of the insured removes these two policies and the proceeds thereof from the rule laid down by the Supreme Court in the case of Lewellyn v. Frick, supra.

In the Appeal of Charles L. Harris, 5 B. T. A. 41, the Board had under consideration a case in which the deceased had on March 15, 1912, procured a policy of insurance in the amount of $50,000, payable to his estate, but on September 30, 1920, had caused the beneficiary of said policy to be changed, and his wife, Elizabeth E. Harris, named as such beneficiary. The insured, William L. Harris, died on September 11, 1923.

Section 402 (f) of the Revenue Acts of 1918 and 1921, having been in all respects identical as to language, the Commissioner claimed that the amoiint of the last above-mentioned policy should be included in the valuation of the gross estate of the said decedent, William L. Harris. In that case the Board held that, in view of the fact that the Revenue Act of 1918 was expressly repealed by the Revenue Act of 1921, any rights which the Government might have had by virtue of section 402 (f) of the Revenue Act of 1918 ceased to exist when the repealing section of the Revenue Act of 1921 became effective, and that, inasmuch as the beneficiary in said policy had been named prior to the effective date of the Revenue Act of 1921, the rule laid down by the Supreme Court in the case of Lewellyn v. Frick, supra, must be regarded as controlling in that case.

There is no substantial difference between the facts in the case of Charles L. Harris, supra, and the case at bar. We are, therefore, of the opinion that the proceeds of the said policies numbered 820,913 and 110,708 Ex., aggregating $65,000, should not be included in the valuation of the gross estate here under consideration.

The proceeds of the other two policies in the case at bar, being less than $40,000, are automatically excluded from the gross estate by the exemption contained in section 402 (f) of the Revenue Act of 1921.

The amount of the deficiency, or overpayment, as the case may he, will he redetermined in accordance %oith the foregoing opinion, pursuant to Rule 50, and judgment entered upon 15 days' notice.