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Valleskey v. Nelson

October 22, 1959

LESLIE J. VALLESKEY AND GRACE VALLESKEY, PLAINTIFFS-APPELLANTS,
v.
E. J. NELSON, DISTRICT DIRECTOR OF INTERNAL REVENUE, DEFENDANT-APPELLEE.



Author: Castle

Before DUFFY, PARKINSON and CASTLE, Circuit Judges.

CASTLE, Circuit Judge.

This is an appeal from a decision by the District Court of the Eastern District of Wisconsin on motion of both parties for a summary judgment. The plaintiffs are husband and wife and filed a joint income tax return for the year 1953; the plaintiff, Leslie J. Valleskey,*fn1 was the attorney for one Meta Michelson for a number of years prior to her death. She died March 15, 1953. Item 38 of her will was as follows:

"I hereby authorize my executors hereinafter named to sell my home, located at 1026 South 15th Street, Manitowoc, Wisconsin, to Leslie J. Valleskey for the assessed valuation thereof as of 1950, if he desires to purchase the same for that amount."

The taxpayer and the East Wisconsin Trustee Company were appointed as coexecutors under the will. Taxpayer declined to serve as co-executor although he did act as attorney for the executor throughout the estate proceedings.

The 1950 assessed valuation of the real estate referred to in the will was $4,800; the appraised value of this property as listed in the estate was $10,250, which figure was used in the federal estate and state inheritance tax computations.

The East Wisconsin Trustee Company as executor paid the sum of $620.98 inheritance tax on Item 38 in the will. On June 1, 1953 Leslie J. Valleskey sold the said real estate for $10,000, he having previously paid the sum of $4,800 for the property pursuant to Item 38 in the will.

The basis used by the taxpayer for computing gain or loss for income tax purposes was $10,250, plus $40 expenses incurred in the sale. The result of using this basis is a short-term capital loss of $290 which was claimed by the plaintiffs in their federal income tax return for 1953.

The Government contended that the basis to be used was $4,840 consisting of the $4,800 which the taxpayer paid for the property, plus $40 selling cost, which resulted in a short-term capital gain of $5,160 and made a deficiency assessment of $2,703.05, which the plaintiffs paid, together with interest in the amount of $529.25; the taxpayer made proper claim for refund which was refused and this action is brought to recover the aforesaid amount.

The contested issues are:

(a) Is the taxpayers' capital gain or loss based on $4,800, the purchase price paid, or $10,250, the appraised value at the time of the testatrix's death?

(b) Did the taxpayer acquire the property in question by devise, or bequest or by purchase?

(c) Was the testamentary provision mandatory or was it discretionary on the executor?

The applicable statute is Section 113 of the Internal Revenue Code of 1939 ...


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