Opinion
Docket No. 64794.
1959-06-18
ROSEMARY KENNY, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.
Ferdinand Glantzlin, Esq., for the petitioner. Arthur Pelikow, Esq., for the respondent.
Ferdinand Glantzlin, Esq., for the petitioner. Arthur Pelikow, Esq., for the respondent.
D, intending to benefit T, named T as one of the three executors of D's will, with full knowledge that executors' fees might be taxable as income to T. Upon D's death, one of the executors agreed to pay T one-third of the executors' fees in consideration of T's renouncing her status as such, in order that the estate might be more expeditiously administered. T never served as executrix, but received $3,000 in accordance with the agreement. Held, the $3,000 represents taxable income to T.
The Commissioner determined a deficiency in income tax against petitioner in the amount of $709.82 for 1952. The sole question is whether $3,000 received by petitioner in 1952 represents taxable income.
FINDINGS OF FACT.
A stipulation of facts filed by the parties is incorporated herein by reference.
Petitioner resides in Newark, New Jersey. She filed her 1952 Federal income tax return with the district director of internal revenue, Newark, New Jersey.
Petitioner is about 74 years of age and is presently incompetent.
For over 10 years petitioner had been a close friend and confidant of Mary Callaghan, who died on September 25, 1950. Both were competent business women. Petitioner was employed in New York.
Petitioner was not named in the decedent's will and codicil other than in the following paragraph:
I nominate, constitute and appoint, ROBERT B. CALLAGHAN, ROSE KENNY and JOHN J.CLANCY, executors and trustees of this, my Last Will and Testament, and I direct that no bond be required of them in either of said capacities in any jurisdiction. * * *
Robert B. Callaghan was decedent's nephew; he was the sole residuary legatee, receiving the bulk of the estate after payment of expenses and debts. At the time of decedent's death he was being recalled to military service as a naval officer.
John J. Clancy was decedent's attorney. He prepared the will, which was admitted to probate.
In the course of preparation of the will, decedent told Clancy that she ‘wanted to do something for’ petitioner. Clancy advised her to make a bequest to petitioner, but the decedent rejected that advice, saying ‘No, I don't want to do it that way.’ She indicated that she wanted petitioner to get ‘some money’ out of the estate as executrix; that she thought that petitioner ‘would feel better, and she would have some honor.’ Clancy informed decedent that executors' fees would or might be taxable, and told her that she ought to do it the other way and make a bequest. However, decedent persisted, and Clancy followed her instructions in drafting the will.
Shortly after decedent's death, Clancy discussed with petitioner the difficulties involved in the administration of the estate due to Robert B. Callaghan's recall to military service and petitioner's business affairs in New York. By instruments dated September 30, 1950, petitioner and Robert B. Callaghan each renounced ‘my said executorship and trusteeship.’ On the same day, Clancy stated in a letter to petitioner as follows:
Since you and Bob have elected to renounce as executors in order that the Estate might be more expeditiously handled if I acted alone, I agree upon the settlement of the Estate to pay to you and Bob each one-third of the executors' commissions allowed and agreed upon.
The letter was signed ‘John J. Clancy, Executor of the Estate of Mary D. Callaghan.’
On October 6, 1950, the decedent's will was admitted to probate, and Clancy was appointed the sole executor by the Surrogate's Court at Newark, New Jersey.
Petitioner never was appointed executrix by the court; she never rendered any service to, nor did she pay decedent to induce her to nominate her as executrix. Petitioner never acted as executrix, nor did she render any service to the estate, apart from renouncing so that the estate might be more expeditiously administered.
In 1951, Clancy reported $9,000 as executors' commissions in both the New Jersey and Federal death tax returns. In 1951, Clancy, as sole executor, paid $3,000 to Robert B. Callaghan and $3,000 to himself individually from the funds of the estate. He also tendered $3,000 to petitioner, which was not then accepted because petitioner's counsel contended that under New Jersey law the commissions should have been in excess of $9,000. The contention was made that the commissions should have been $12,600, with the result that petitioner would have been entitled to one-third of the larger figure. The controversy was submitted to a New Jersey judge, who approved the $9,000 figure. Thereafter, in 1952, Clancy, as sole executor, paid $3,000 to petitioner from the funds of the estate, in accordance with the aforementioned letter agreement of September 30, 1950.
OPINION.
RAUM, Judge:
The facts in this case are unique. Although both sides cite various prior decisions, none of them is in point.
The decedent could have made a tax-free bequest to petitioner, but deliberately chose not to do so. Instead, she insisted upon naming petitioner as one of the executors. Had petitioner qualified and served, her statutory fee unquestionably would have been taxable income. The case would not have been like Bank of New York v. Helevering, 132 F.2d 773 (C.A. 2), where the decedent fixed the executors' fees and where it was held that in the circumstances of that case the excess of those fees over the statutory fees was intended as a bequest. Here, the amount in controversy is merely petitioner's share of the statutory fees, and had she received it directly as such, as decedent obviously contemplated, it would plainly have been taxable income. Is the situation made different by reason of petitioner's renunciation and her receipt of the same amount from Clancy? We think the answer must be no.
Certainly, the $3,000 was not a bequest, and petitioner's brief emphatically makes clear that no such contention is made. Her counsel does argue, however, (a) that Clancy was carrying out the decedent's intention ‘to benefit’ petitioner, (b) that he paid her $3,000 to relinquish a status which was a gift to petitioner from the decedent, and (c) that petitioner received a gift from the estate.
We cannot accept these contentions as valid. To be sure, the decedent intended ‘to benefit’ petitioner, but she deliberately chose to name her as one of the executors, with full knowledge that if she served as such, her fees might be taxable. Nor can we regard as realistic the argument that the ‘status' of executors was a gift to petitioner from the decedent. Finally, it is clear that the estate did not make a gift to petitioner; Clancy obviously felt that petitioner's participation would impede the expeditious administration of the estate, and the agreement to pay her what she would otherwise have received as executrix was supported by consideration.
Decision will be entered for the respondent.