The opinion of the court was delivered by: PRATT
This is a dispute between an executrix of an estate and the Internal Revenue Service over the deductibility on a federal estate tax return of claims against plaintiff's decedent's estate. The precise issue is whether claims paid as the result of a special bond or undertaking
and enforceable under D.C. law against a decedent's estate are claims within the meaning of Internal Revenue Code § 2053,
as interpreted by Treasury Regulation § 20.2053-4.
This appears to be a case of first impression. The parties to this action have stipulated to all material facts and have filed cross-motions for summary judgment. Accordingly, this case is ripe for summary judgment.
Mrs. Young, the plaintiff, is executrix of her mother's (decedent's) estate. Previously, decedent was the nominated and acting executrix for the estate of her husband who died on July 22, 1967 domiciled in the District of Columbia. In his Last Will and Testament the husband bequeathed four legacies totalling $30,000, consisting of $5,000 to each of his two daughters (one of which is plaintiff), and two legacies of $10,000 each in trust to plaintiff and her husband for two grandsons. Most of the husband's assets at his death were jointly owned with the decedent. The value of the assets in the husband's probate estate was $9,850.58, an amount insufficient to pay these bequests. The decedent, as executrix of her husband's estate, applied for a special undertaking under 20 D.C. Code § 304, which bond was approved January 23, 1968 whereby she assumed personal liability for the full amount of all debts, claims, damages and legacies of her husband's estate that might be recovered against her as executrix as if she were sued in her own right. Had decedent obtained a general bond in the District of Columbia probate proceedings, the bequests would have lapsed because of insufficient assets in the husband's estate unless she honored them out of her husband's assets which passed outside the probate estate. Because of the special bond, decedent was obligated to pay, inter alia, these specific bequests totalling $30,000.
Prior to payment of her husband's bequests, decedent died. On October 22, 1969, plaintiff, because of the special bond undertaking by her mother as executrix, proceeded to satisfy the bequests of her father from assets in the estate of her mother. The plaintiff claimed credit and allowance for these payments as debts of the decedent on the First Account filed in decedent's estate, and these credits and allowances were approved by the U.S. District Court for the District of Columbia on July 6, 1970.
In filing the federal tax return for decedent's estate, the plaintiff took a deduction of the $30,000 in bequests as a debt of decedent at the time of her death. The Commissioner of Internal Revenue disallowed this deduction, correspondingly increasing the taxable probate estate of decedent. After filing a protest with the Internal Revenue Service, which was denied, plaintiff paid the additional tax plus interest. The present action for refund
seeks recovery of the sum of $7,036.97, plus interest, which amount plaintiff attributed to the disallowance of the $30,000 claimed deduction.
The applicable statute and regulations read in pertinent part as follows:
Section 2053 of the Internal Revenue Code (IRC) provides that:
(3) for claims against the estate . . .
as are allowable by the laws of the jurisdiction, . . . under which the estate is being administered.
Treasury Reg. § 20.2053-4, entitled "Deduction for claims against the estate; in general," provides:
The amounts that may be deducted as claims against a decedent's estate are such only as represent personal obligations of the decedent existing at the time of his death, whether or not then matured, and interest thereon which had accrued at the time of death. Only interest accrued at the date of the decedent's death is allowable even though the executor elects the alternate valuation method under section 2032. Only claims enforceable against the decedent's estate may be deducted. Except as otherwise provided in § 20.2053-5 with respect to pledges or subscriptions, section 2053(c)(1)(A) provides that the allowance of a deduction for a claim founded upon a promise or agreement is limited to the extent that the liability was contracted bona fide and for an adequate and full consideration in money or money's worth. See § 20.2043-1. Liabilities imposed by law or arising out of torts are deductible.
There can be no dispute that the bequests totalling $30,000 made by decedent's husband are claims enforceable against decedent's estate. Even if those claims were only inchoate by virtue of decedent's special bond undertaking, they were surely made enforceable by the Court's approval on July 6, 1970 of plaintiff's First Account. Were this case to be decided solely upon a literal reading of IRC § 2053, then there would be no difficulty in holding for plaintiff, inasmuch as § 2053 provides that deductions from the gross estate include those "claims against the estate . . . as are allowable by the laws of the jurisdiction . . . under which the estate is being administered," and the "promise" or "agreement" limitations of § 2053(c)(1)(A) are not applicable. This U.S. District Court on July 6, 1970 approved plaintiff's First Account listing the claims in dispute. Such ...