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Hall v. United States

November 8, 1965

WILLIAM S. HALL AND AMERICAN FLETCHER NATIONAL BANK AND TRUST COMPANY, COEXECUTORS OF THE WILL OF HELEN S. HALL, DECEASED, PLAINTIFFS-APPELLEES,
v.
UNITED STATES OF AMERICA, DEFENDANT-APPELLANT



Knoch, Kiley and Major, Circuit Judges.

Author: Major

MAJOR, Circuit Judge.

Plaintiffs are the Executors of the Will of Helen S. Hall, who died February 18, 1960. A Federal Estate Tax Return was duly filed, showing a tax in the amount of $611.88, which was paid on or about May 18, 1961. Subsequently, the Commissioner of Internal Revenue determined and assessed a net deficiency in the amount of $48,708.96, together with interest in the amount of $3,920.74, which amounts were paid on or about September 28, 1962. The deficiency determined by the Commissioner resulted from inclusion in the decedent's taxable estate the value of a trust created by her in 1928, in the amount of $193,361.17.

On October 24, 1962, plaintiffs filed a claim for refund of said taxes and interest, which was denied. Thereupon, the instant action for refund was commenced in the District Court. The Court filed its findings of fact and conclusions of law and, on July 30, 1964, entered judgment against defendant in the sum of $53,205.37, with interest as provided by law. From this judgment defendant appeals.

Plaintiffs on brief pose the issue for decision as follows:

"Whether a taxpayer in valuing a reversionary interest for purposes of the Federal Estate Tax may, under Sec. 2037 of the Int. Rev. Code of 1954, resort to methods of valuation other than the actuarial tables referred to in the Regulations, which methods take into consideration the state of mental and physical health of the Decedent immediately prior to death but which do not consider the fact of death."

Defendant on brief states the issue:

"The narrow question presented by this appeal is whether in determining the value of a reversionary interest for purposes of Section 2037 of the Internal Revenue Code of 1954, extrinsic factors, such as the settlor's state of health, may be considered, or whether the determination of value must be made pursuant to United States Life Table 38 without consideration of state of health."

Thus, the issue is whether the value of decedent's reversionary interest must be determined solely from the table specified in the Treasury's Regulations, as urged by defendant, or whether other factors may be taken into consideration, as urged by plaintiffs and as determined by the District Court.

The decedent, on February 20, 1928, created an irrevocable trust under which the net income was to be paid to the settlor for life, with remainders to her daughter and son or to the survivor of them. The instrument provided that should the settlor's son and daughter predecease her the trust should immediately terminate and be paid over to the settlor. Julia Jean Hall, the decedent's daughter, pre-deceased, and William S. Hall, the son, survived her. The date of birth of Helen S. Hall (decedent) was April 10, 1888, and that of William S. Hall, December 15, 1910. At the time of her death, decedent was about 72, and William S. Hall about 49 years of age.

Inasmuch as the method to be employed in valuing decedent's reversionary interest in the trust is the sole issue for decision, we need be concerned only with that portion of the statute pertaining thereto, in connection with relevant Treasury Regulations. Title 26 U.S.C.A. Sec. 2037, entitled, "Transfers taking effect at death," provides:

"The value of the gross estate shall include the value of all property * * *, by trust or otherwise, if * * * the decedent has retained a reversionary interest in the property * * * and the value of such reversionary interest immediately before the death of the decedent exceeds 5 percent of the value of such property."

Paragraph (b)(2) provides:

"The value of a reversionary interest immediately before the death of the decedent shall be determined (without regard to the fact of the decedent's death) by usual methods of valuation, including the use of tables of mortality and actuarial principles, under ...


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