Denbigh v. Commissioner , 7 T.C. 387 ( 1946 )

Estate of John Halliday Denbigh by Basil Kennedy Denbigh, Administrator With the Will Annexed of the Estate of Said Deceased, Petitioner, v. Commissioner of Internal Revenue, Respondent

Denbigh v. Commissioner

Docket No. 8317

United States Tax Court

7 T.C. 387; 1946 U.S. Tax Ct. LEXIS 124;

July 23, 1946, Promulgated

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Decision will be entered under Rule 50.

Valuation -- Annuity Contract -- Life Expectancy Tables -- Physical Condition. -- Standard life expectancy tables are evidentiary only and the physical condition of an annuitant may be considered in valuing an annuity contract.

George Clark, Esq., for the petitioner.

W. J. McFarland, Esq., for the respondent.

Murdock, Judge.

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MURDOCK

The Commissioner determined a deficiency of $ 3,281.79 in estate tax. The only error assigned is the action of the Commissioner in increasing the value of three annuity contracts over the values at which they were reported in the estate tax return.

FINDINGS OF FACT.

The decedent died testate on July 24, 1943. Basil Kennedy Denbigh was duly appointed administrator, c. t. a.

An estate tax return was filed with the collector of internal revenue for the District of California, at San Francisco. The values of three annuity contracts purchased by the decedent were reported thereon in the total amount of $ 11,705.56. The contracts called for payment of $ 116.66 per month to Helen D. Denbigh during her life after the death of the decedent. She was the decedent's unmarried sister. The contracts were irrevocable and permitted no change or surrender for cash. The value reported was the same amount as had been determined to be the value of the contracts by the State of California Inheritance Appraiser, who based his appraisal upon factors other than the state of health of the annuitant.

The Commissioner, in determining the deficiency, increased the value of the three contracts to $ 23,260.85. This value is the cost at the date of death of comparable contracts from regular sellers of such annuities to a female person of the age of Helen D. Denbigh. She was then between 63 and 64 years of age and her life expectancy under standard tables was about 16 years. The price of such contracts would be based upon her life expectancy.

Helen died of cancer on January 6, 1945, one year, six months and twelve days after the decedent. It was known at the date of his death that she was suffering from cancer, which was an inoperable, incurable, and fatal disease, and that it was not reasonable to expect that she would live more than a year or two. Her death resulted from that cancerous condition. She received only $ 1,983.22 under the contracts.

Sellers of annuities such as those involved herein do not require a physical examination of the proposed annuitant, but if they know that the proposed annuitant is suffering from an incurable disease which will likely prove fatal within a time much shorter than the life expectancy shown by the tables, they will refuse to sell, because to sell would be unfair to the purchaser.

It is conceded that some value should be included in the gross estate representing these three contracts. All facts stipulated by the parties are incorporated herein by this reference.

The value of the three contracts at the date of the death of the decedent was not in excess of the value reported on the estate tax return.

OPINION.

The petitioner asks only that the Commissioner be reversed in increasing the values of the three contracts over the amount reported on the return. His pleadings do not ask that the values be reduced below the amounts returned. It is just as well that this is so, because the record does not establish any specific values for the contracts as of July 24, 1943.

The question narrows to this, Must the life expectancy as shown by standard expectancy tables for a female of the age of this annuitant be used in valuing these contracts, or may the fact that her actual life expectancy was much less be considered? No cases directly in point have come to our attention. The use of such tables is proper in many cases (see Simpson v. United States, 252 U.S. 547">252 U.S. 547; Ithaca Trust Co. v. United States, 279 U.S. 151">279 U.S. 151) and simplifies administration of the revenue laws. Their use is prescribed in the Commissioner's regulations. However, such tables are only evidentiary and they need not be controlling. Cf. Vicksburg & Meridian R. R. Co. v. Putnam, 118 U.S. 545">118 U.S. 545; United States v. Provident Trust Co., 291 U.S. 272">291 U.S. 272.

The question is, What was the value of these particular contracts on July 24, 1943? Sec. 811, Internal Revenue Code. All facts material thereto may, indeed must, be considered. Here the evidence clearly establishes that Helen's life expectancy on July 24, 1943, was less than one-half that shown by the standard tables for a person her age. It was not even one-fourth. She was doomed to die within a year or so. She lived only one and one-half years from that date. This latter fact serves only to corroborate the opinion of her doctor as of July 24, 1943, that she could not possibly live more than one or two years. Cf. Ithaca Trust Co. v. United States, supra.We need not discuss the gruesome details of her operations and physical condition.

Decision will be entered under Rule 50.