Estate of Di Marco v. Commissioner - 87 T.C. 653 (1986)

Rule:

The term adjusted taxable gifts was defined by section 2001(b) as the total amount of the taxable gifts (within the meaning of section 2503) made by the decedent after December 31, 1976, other than gifts which are includable in the gross estate of the decedent. In turn, Section 2503(a) defined taxable gifts as the total amount of gifts made during the applicable period less certain statutory deductions. 

Facts:

Petitioner Joan M. DiMarco was the personal representative of the estate of Anthony F. DiMarco. Anthony F. DiMarco (herein decedent) died on November 16, 1979, survived by his wife, petitioner and five children. He had been employed continuously by the International Business Machines Corp. (IBM) as an active, regular, full-time, permanent employee from January 9, 1950, until his death. At the time of his death, decedent was employed as an electrical engineer at a salary of $ 5,250 per month. He was not an officer of the corporation and did not have a written employment contract. Petitioner was paid a survivors income benefit pursuant to a plan that was established and maintained by decedent's employer. Under the terms of the plan, the survivor’s income benefit was payable by decedent's employer only to decedent's eligible survivors upon his death. Decedent's participation in the plan was involuntary. He had no power to select or change the beneficiaries of the survivors’ income benefit; no power to change the amount, form, or timing of the survivors’ income benefit payments; no power to substitute other benefits for the survivors income benefit; and, other than by resigning his employment, no power to terminate his coverage under the plan. In addition, decedent's employer reserved the right, in its discretion, to modify the plan at any time. Decedent did not report the survivors’ income benefit as a gift on a gift tax return, and petitioner did not report it either as part of the gross estate or as an adjusted taxable gift on decedent's Federal estate tax return. However, the existence of the survivors’ income benefit was reported by petitioner on Schedule I of decedent's Federal estate tax return. In his notice of deficiency, respondent Commissioner of Internal Revenue determined the present value of the survivors income benefit and he added this amount, as an adjusted taxable gift, to the taxable estate of decedent in computing the amount of the deficiency.

Issue:

Was the present value of the survivors income benefit payable by decedent's employer to petitioner an adjusted taxable gift within the meaning of section 2001, I.R.C. 1954?

Answer:

No.

Conclusion:

The court explained that the term adjusted taxable gifts was defined by section 2001(b) as the total amount of the taxable gifts (within the meaning of section 2503) made by the decedent after December 31, 1976, other than gifts which are includable in the gross estate of the decedent. In turn, Section 2503(a) defined taxable gifts as the total amount of gifts made during the applicable period less certain statutory deductions. Hence, the survivors income benefit that was payable by decedent’s employer to petitioner was an adjusted taxable gift within the meaning of section 2001 only if it was also a taxable gift within the meaning of section 2503 that was made by decedent after December 31, 1976. In this case, however, the court found that the decedent did not make a taxable gift of the survivors income benefit to petitioner within the meaning of sec. 2503, I.R.C. 1954. Therefore, the present value of the survivors income benefit was not an adjusted taxable gift within the meaning of sec. 2001, I.R.C. 1954.