DocketNumber: Docket No. 31911-85
Citation Numbers: 94 T.C. 262, 1990 U.S. Tax Ct. LEXIS 16, 94 T.C. No. 16
Judges: Hamblen
Filed Date: 3/1/1990
Status: Precedential
Modified Date: 1/13/2023
*16
*262 Respondent determined a deficiency of $ 437,231 in the Federal estate tax liability of the estate of Henri P. Watson. After trial, respondent amended his answer to conform the pleadings to the proof. In his amended answer, respondent asserted that the correct deficiency in petitioner's estate tax is $ 470,370.72. After concessions, the issues remaining to be decided are: (1) Whether the full*17 value of 1,073.18 acres of farmland located in Sunflower County, Mississippi, is included in the decedent's gross estate; (2) whether the widow's allowance paid to the decedent's surviving spouse qualifies for the marital deduction; and (3) whether rent proceeds from decedent's farmland were assets of the decedent's estate that were omitted from the gross estate on decedent's estate tax return.
FINDINGS OF FACT
Some of the facts have been stipulated and are found accordingly. The stipulation of facts and attached exhibits are incorporated herein by this reference.
*263 When the petition in this case was filed, petitioner was an estate domiciled in and administered under the laws of Mississippi, under the jurisdiction of the Chancery Court of Holmes County, Mississippi. At the time the petition was filed, the executor, Henri P. Watson, Jr., was a resident of Jackson, Mississippi. Petitioner filed a Federal estate tax return which was prepared by Robert Wingate, the decedent's accountant. Mr. Wingate has been a certified public accountant for almost 40 years. Mr. Wingate, who had known the decedent for about 40 years, did all of the decedent's accounting work.
Decedent, Henri*18 P. Watson, was a resident of Lexington, Mississippi, until his death on January 19, 1982. Decedent was born on August 4, 1892, which made him 89 years old at his death. Decedent had been a farmer all of his life, farming in and around Holmes and Sunflower Counties, Mississippi.
On September 27, 1927, the decedent acquired a tract of farmland in Sunflower County, Mississippi, containing 1,073.18 acres. This farmland was approximately 70 to 75 miles from the decedent's home in Lexington. Decedent farmed this land from 1927 until late 1978, which was through the 1978 crop year.
Prior to 1969, the decedent's son, Henri P. Watson, Jr., lived near his father. In 1942, Henri P. Watson, Jr., acquired approximately 1,020 acres adjoining his father's land. Prior to 1969, the decedent and his son farmed the two tracts of land (1,073.18 acres and 1,020 acres) as a partnership. However, the decedent and his son never formally conveyed their land to the partnership. Decedent and his son established a bank account in the name of "Watson and Watson" for use in the farming operation.
On October 23, 1961, the decedent executed a deed transferring an undivided one-half interest in his 1,073.18-acre*19 tract of land to his son, Henri P. Watson, Jr., as trustee for the use and benefit of the decedent's four grandchildren. The deed stated that the trust would terminate when the youngest of the beneficiaries became 21 years of age. The youngest grandchild became 21 years old on July 31, 1981. There was no provision in the trust deed for the disposition of the corpus of the trust after the trust *264 terminated. No subsequent conveyance of the half interest in the 1,073.18 acres of farmland was made to the decedent's grandchildren, and the record is silent as to the ultimate disposition of the property.
The October 1961 deed provided that the trustee had the authority to use any part of the income or corpus of the trust property for the support and maintenance of the grandchildren. The deed authorized the trustee to --
handle, manage, operate, rent, lease for oil and gas and other mineral purposes, encumber by deed of trust or otherwise, and to sell all or any part of, or any interest in, the aforesaid property on any terms deemed proper by said trustee, all with the same authority and discretion and to the same extent as though said property was owned in fee simple by said*20 trustee, and my trustee shall have full authority to invest, reinvest and otherwise handle any funds or other property received from any sale or other transaction involving said land with the same authority and discretion as though said funds or other property belonged to said trustee personally, and my said trustee shall have full authority to expend any part of the income or corpus from any of such funds as he sees fit for the proper support and maintenance of my said grandchildren * * *.
The trustee appointed under the October 1961 deed, Henri P. Watson, Jr., did not maintain any trust books or records and did not file any Federal income tax returns for the trust. No distributions of the original trust corpus were made to the beneficiaries. However, the decedent's four grandchildren reported rental income from farmland on their Federal income tax returns as follows:
Year | Norman | James | Mary | Henri III |
1982 | $ 9,250 | $ 14,250 | $ 2,900 | |
1981 | ||||
1980 | ||||
1979 | 1,250 | 1,250 | 1,250 | |
1978 | 1,250 | 1,250 | 1,250 | $ 1,250 |
1977 | 1,250 | 1,250 | 1,250 | (1) |
1976 | 1,250 | 1,250 | 1,250 | |
1975 | 1,250 | 1,250 | 1,250 | |
1974 | 4,250 | 4,250 | 4,250 | 4,250 |
1973 | 4,250 | 4,250 | 4,250 | 4,250 |
Mr. Wingate*21 prepared Federal income tax returns for each of the beneficiaries. The rent to the grandchildren was paid *265 from the Watson and Watson bank account. Rental income from the property placed in trust was paid into accounts for the benefit of or directly to the beneficiaries. A 1,077-acre farm in Sunflower County similar to the Watson land, but of better quality, was rented for about $ 13 an acre from approximately 1963 to 1968, around $ 18 an acre from approximately 1968 to 1973, and about $ 27 an acre from 1973 to 1978.1
Mr. Wingate prepared gift tax returns for the decedent and his wife reflecting a gift to the decedent's four grandchildren of a half interest in the decedent's 1,073.18 acres of farmland. The gift tax returns reflected no reservation of any interest in the property. However, the Atlanta Service Center of the Internal Revenue Service, where the returns should have been*22 filed, has no record that the decedent ever filed gift tax returns for the transfer at issue.
The trust deed was drafted by Lee Spence, an attorney who worked for the trust department of Deposit Guaranty National Bank in Jackson, Mississippi. Mr. Spence came to the office of Pat Barrett, the decedent's lawyer, in Lexington, Mississippi, to draft the trust deed. Mr. Spence held himself out to Mr. Barrett as an expert in trust instruments. After Mr. Spence drafted the trust deed, it was typed by Mr. Barrett's secretary. Mr. Spence went over the draft with the secretary very thoroughly before the draft was typed. After Mr. Spence left the office, the draft was typed and Mr. Barrett read the typed document. After Mr. Barrett read the document, he mailed it to Mr. Spence. Mr. Spence then wrote Mr. Barrett a letter stating that in Mr. Spence's opinion, the document was sufficient for Mr. Watson's purpose.
The decedent's son, Henri P. Watson, Jr., also conveyed a portion of his own land to his children in trust. The form of this conveyance was similar to the form of the decedent's trust deed. However, Henri P. Watson, Jr., never paid any rent to his children for his use of the property.
*23 In approximately 1969, Henri P. Watson, Jr., moved to Jackson, Mississippi, which is about 125 to 130 miles away from the two parcels of farmland. From the time Henri P. Watson, Jr., moved to Jackson until 1980, all of the income and expenses associated with farming both parcels of land *266 were reported by the decedent on his Federal income tax returns. The decedent and his son agreed that after Henri P. Watson, Jr., moved to Jackson, the decedent would get the income from the two parcels and Henri P. Watson, Jr., would get improvements to his 1,020 acres. The improvements to Henri P. Watson, Jr.'s land consisted of land-leveling of his 1,020 acres to a grade that could be flood irrigated. After 1967, at the suggestion of the Watsons' accountant, Mr. Wingate, no partnership tax returns were filed by the decedent or his son. Mr. Wingate's recommendation that the Watsons stop filing partnership returns was based on the fact that as Henri P. Watson, Jr., became less active in the farming venture and became involved in other business activities, it became more difficult for Mr. Wingate to determine what was the partnership's and what was Henri P. Watson, Jr.'s. Mr. Wingate*24 insisted that the Watsons stop filing partnership returns and simply report the income from the farming venture on their individual returns. Henri P. Watson, Jr., did not report any of the farm income or expenses on his Federal income tax returns from 1969 to 1979.
From the time the decedent purchased the 1,073.18 acres until his death, he paid the property taxes on the land. After the Watson and Watson bank account was established, the payments for property tax were made by checks drawn on that account. In 1968 and before, the property tax payments were deducted on the partnership tax return. After 1968, the property tax payments were deducted as an expense on the decedent's individual Federal income tax returns. The decedent treated the payments for insurance premiums on improvements to the land in the same manner as the property tax payments. The property taxes on the 1,020 acres of farmland owned by Henri P. Watson, Jr., were also paid from the Watson and Watson account. After 1968, the decedent deducted these taxes as an expense on his Federal income tax return. After 1968, the decedent paid property taxes, insurance premiums, improvement costs, and other expenses for*25 the 1,020 acres owned by Henri P. Watson, Jr., from the Watson and Watson account. After 1968, all income in excess of expenses from farming the two parcels went into the Watson and Watson account.
*267 From 1969 to 1977, the decedent was responsible for day-to-day operations of farming both tracts of land. The decedent visited the farm about once a week from 1968 to 1978. During these weekly visits, the decedent would give his instructions to his farm manager. During this period from 1968 to 1978, Henri P. Watson, Jr., visited the farm two or three times a month and sometimes more frequently. If the decedent was not feeling well, his son would go up to the farm and pay the payroll. From 1968 to 1978, decedent would deliver the farm financial information to his accountant, Mr. Wingate, each month, unless he was sick or otherwise unable to deliver the information. If the decedent was unable to take the information to Mr. Wingate, his son would take it.
In early 1979, the decedent and his son decided that all active farming by either of them on the two parcels of land would cease. Most of the farm equipment was sold at auction on February 27, 1979. The total amount received*26 from the auction was $ 90,008.23. During the crop year 1979 and thereafter until decedent's death, both tracts of farmland were rented to Morgan Brothers for a cash rental per year. The decedent and his son agreed that the rental income received from Morgan Brothers would go to the decedent to build up money for his widow. The decedent and his son agreed that if at some point the improvements to Henri P. Watson, Jr.'s land were not sufficient, Henri P. Watson, Jr., might take part of the rent.
On his Federal income tax returns, the decedent reported farm rental income of $ 70,800 for 1979, $ 57,074 for 1980, and $ 9,929 for 1981. In 1980, Henri P. Watson, Jr., reported $ 25,000 in rental income on his Federal income tax return. In 1981, Henri P. Watson, Jr., received $ 67,202.76 in rental income and reported it on his own Federal income tax return.
The 1979 rental payment of $ 70,800 was deposited in the Watson and Watson bank account on January 31, 1979, at the First National Bank of Holmes County. The 1980 rental payment was paid by a check dated February 20, 1980, in the amount of $ 78,211.92. The check was endorsed "Watson and Watson, Henri P. Watson, Jr.," and was deposited*27 in the Unifirst Federal Savings & Loan Association of Jackson, *268 Mississippi. The 1981 rent was paid by two checks. The first check, dated January 14, 1981, was for $ 6,000, and was deposited in the Watson and Watson account at the First National Bank of Holmes County. The second check, dated February 11, 1981, was for $ 71,131.76 and was deposited in the account of H.P. Watson, Jr., in the Bank of Hazelhurst, Mississippi.
The Agricultural Stabilization and Conservation Service office made program payments that were attributable to the 1,073.18-acre tract of land owned by the decedent and the 1,020-acre tract owned by Henri P. Watson, Jr., All of these payments were made to the decedent and were deposited in the Watson and Watson bank account. The decedent retained these payments and reported them on his Federal income tax returns.
About 5 years before his death in 1982, the decedent suffered a stroke. The decedent remained mentally alert until his death, but he had difficulty walking and seeing after the stroke, and it hurt him to ride in a car. As a result, after the decedent's stroke, his son assumed control of the farming venture and made the decisions relating to*28 the farming venture, although he continued to discuss business decisions with the decedent and visited the decedent every week until he died.
In the years after Henri P. Watson, Jr., moved to Jackson, Mississippi, he had several business interests that cumulatively constituted his full-time occupation. Henri P. Watson, Jr., was engaged in the sale of land on a commission basis (1970 to 1986), the leasing of farmland (1970 to 1982), owning oil leases (1970 to 1982), the leasing of oil lands (1970 to 1982), owning a small business corporation (1970 to 1982), owning a cattle and grain farm (not the 1,073.18 acres or the 1,020 acres) (1970 to 1982), buying and selling land (1968 to 1981), the sale of timber (1973 to 1976), and being a partner in Annandale Farms of Lexington, Mississippi (1970). The cattle farms were located in Texas, and in Hinds and Madison Counties, Mississippi. Annandale Farms was located at Hazelhurst, Mississippi, approximately 35 miles south of Jackson. The small business corporation was also located at Hazelhurst, Mississippi. The *269 other farms and other business activities of Henri Watson, Jr., were located in and around Jackson, Mississippi.
The *29 decedent's widow, Corrinne W. Watson, dissented from her husband's will and elected to take her statutory share. She later settled her claim against the estate for $ 290,000. In addition, Mrs. Watson was allowed 1 year's support of $ 30,000 by the Chancery Court. This support allowance is known as a widow's allowance.
OPINION
The first issue for our decision is whether the decedent's gross estate includes the entire value of the 1,073.18-acre tract of farmland. Respondent contends that the decedent's gross estate includes the entire value of the 1,073.18 acres of farmland. Respondent bases this contention on three separate arguments. First, respondent argues that when the trust terminated prior to the decedent's death, the corpus reverted to the decedent's ownership and left the decedent with a full fee ownership in the 1,073.18 acres which must be included in his gross estate under
Petitioner contends that the trust corpus did not revert to the decedent after the termination of the trust because the decedent intended the trust corpus to pass to the trust beneficiaries after the trust terminated. Petitioner further contends that the decedent did not retain the use, possession, control, and enjoyment of the entire parcel of farmland after the creation of the trust in 1961.
*270 We will first address the question of whether the entire interest in the farmland must*31 be included in the decedent's estate under
*32 Respondent contends that the decedent had a beneficial interest in the entire value of the farmland because the trust corpus reverted to the decedent after the termination of the trust. The trust instrument makes no provision for the trust corpus upon termination. Petitioner argues that the decedent intended the trust corpus to pass to the beneficiaries of the trust after the termination of the trust, and that the decedent's intent on this point can be determined from extrinsic evidence. Petitioner contends that the facts and circumstances surrounding the creation of the trust deed show that the decedent intended the entire undivided interest in the trust corpus to vest in the beneficiaries after the termination of the trust. Petitioner does not argue that the decedent transferred any interest in the property at issue to the trust beneficiaries outside of the trust instrument, and no evidence before the court suggests that the decedent made any such transfer. Respondent contends that extrinsic evidence cannot be used to show the intent of the decedent because there is no ambiguous language in the trust. Respondent made a continuing objection to the admission of testimony concerning*33 the decedent's intent regarding disposition of the trust corpus after the termination of the trust. Respondent's objection was based on the grounds of relevancy and *271 hearsay. To determine whether the testimony at issue is relevant, we must determine whether extrinsic evidence can be used to determine the intent of the decedent.
Generally, for purposes of the estate tax, we first must determine the legal interests and rights created under State law, and then decide whether the interests and rights so created are sufficient to justify including the property in the gross estate.
In making this determination, we are, "in effect, sitting as a state court," being bound by decisions of the Supreme Court of [Mississippi] and "giving 'proper regard' to relevant rulings of other courts of the State." [
Therefore, to determine if extrinsic evidence regarding the decedent's intent is relevant, we must determine whether extrinsic evidence could be used by a Mississippi court construing the decedent's trust. Mississippi courts apply general rules of construction of written instruments to the construction of trust instruments whether they are contracts, deeds, or wills.
*272 In the case of a trust based on a written instrument, the intention of the trustor is to be ascertained from the language thereof, and the court may not go outside the language in an effort to give effect to what it conceives to have been the actual intent or motive of the trustor. If the language is unambiguous and perfectly clear, there is no field for the play of construction; if the trustor has clearly expressed one intention, the court cannot impute to him another, and parol evidence is inadmissible to add, take away from, or even to explain such clear expression of intention. * * *
An instrument is not considered ambiguous on a given point just because the instrument is silent on that point. See
The decedent's accountant, Mr. Wingate, testified that he prepared gift tax returns for the decedent regarding the transfer of the half interest in the decedent's 1,073.18 acres. Mr. Wingate's drafts of these returns were introduced into evidence. Petitioner maintains that*37 Mr. Wingate's preparation of gift tax returns indicates that the decedent intended to transfer the entire income and remainder interest in the property. We conclude that the drafts and Mr. Wingate's testimony regarding the preparation of gift tax returns are irrelevant on the issue of the decedent's intent because they are extrinsic evidence that would not be admissible to prove intent under Mississippi law. In addition, we conclude that the drafts are of no probative value regarding whether a gift of the entire income and remainder interest occurred because petitioner has not proven that the decedent actually *273 filed gift tax returns for the transfer at issue. The Government maintains a permanent file of all gift tax returns that have been filed. The record contains evidence that no gift tax returns were filed by the decedent for the transfer of the half interest in the farmland. Even if they had been filed, the contents of the gift tax returns would not have been dispositive of the issue before us. Since the decedent apparently decided not to file gift tax returns for the transfer of the half interest in the farmland, the drafts prepared by Mr. Wingate are of no probative*38 value. Even if gift tax returns had been filed, that fact would not be dispositive of the issue before us. If the decedent had made a gift of income only (and not the income and remainder interests) gift tax returns would still have been required. Thus, the alleged fact of filing proves nothing. Accordingly, we give the handwritten drafts prepared by Mr. Wingate no weight in our determination of whether a gift of the entire income and remainder interest in the property occurred.
Since the decedent did not express his intent in the trust instrument regarding disposition of the trust corpus after the termination of the trust, we must look to Mississippi law to determine whether a beneficial interest in the trust corpus returned to the decedent on the termination of the trust. Respondent cites
No disposition was made of the property beyond the bequest to Mrs. Andrews; and upon the assumption that she took, under the will, a limited estate, a reverter, or, to speak with greater accuracy, a quasi *274 reverter existed by the operation of law, in property bequeathed to her. [
Therefore, where a will provides for a life estate but fails to make any provision for the disposition of the property after the end of the life estate, the property will revert to the estate of the testator after the end of the life estate.
While
Respondent also cites
Sometimes a testator distinctly shows an intention to create a trust but does not go on to denote with sufficient clearness who are to be its objects; the effect of which obviously is that the devisees or legatees in trust (whom we suppose to be distinctly pointed out) hold the property for the benefit of the person or persons on whom the law, in the absence of disposition, casts it; in other words, the gift takes effect to the legal interests but fails as to the beneficial interests.
The next issue for our decision is whether the widow's allowance paid to the surviving spouse qualifies for the marital deduction provided in
Under
An estate is entitled to the marital deduction only with respect to a qualifying property interest passed from the decedent to his surviving spouse. A terminable interest in property may not qualify for the marital deduction.
Whether the widow's allowance as provided under Mississippi law constitutes a terminable interest within the meaning of
Petitioner contends that
Appellant attacks that part of the decree making conditional her right to allowance as widow for a year's support. We think this point is well taken. Her right thereto is absolute, Code 1942,
In
It shall be, and is hereby made the duty of the probate judges of the several counties of this State, upon the application of the widow of any deceased person, to appoint three commissioners, whose duty it shall be to select and set apart, out of the stock of provisions or effects of said deceased person, one year's provision for the widow and children. Hutch. Co., p. 680.
The court stated that the statute "gives to the widow and children of a deceased person, a clear right to one year's support*49 out of his estate. It gives no greater right to the widow, than it gives to the children."
Respondent argues that the Mississippi widow's allowance is a terminable interest*51 because (1) a widow can lose her right to the widow's allowance by her failure to act, and (2) at the time of the decedent's death, the amount of the widow's allowance was not fixed because the chancellor has final authority over the amount of the allowance. We must decide, therefore, whether the possibility that a widow could lose her otherwise absolute vested right to the widow's allowance through her failure to act and the requirement that the chancellor make a final decision regarding the amount of the allowance are contingencies that could cause the widow's allowance to terminate or fail for purposes of
Respondent's argument is similar to the argument that the Government made in
The government's main argument appears to us to be that even if the Michigan widow's*52 allowance statute creates a property right in the widow which vests as of her spouse's death, and is not terminated by her death or her remarriage, it should nonetheless be held to be terminable under
The Sixth Circuit went on to state that --
*280 it seems to us if either of these conditions were held to be an "event or contingency" occasioning terminability under
The Sixth Circuit stated that the Government's interpretation was absolutely repugnant to the specific language and purposes of
It has been uniformly held the compensation qualifies for the marital deduction, and invoking the necessary legal procedures to enforce the right is not a condition or contingency precedent to its existence. [Citations omitted.]
To hold that an interest is terminable only because legal procedures are invoked to enforce an interest which is otherwise vested at the date of the husband's death, is to hold that all elective rights, such as the widow's allowance and the statutory interest in lieu of dower, are disqualified as marital deductions. [Footnote reference omitted.]
In the instant case, we are faced with a situation very similar to the situation in
Under Mississippi law, a widow has an absolute right to the widow's allowance provided for in
The final issue for our decision is whether rental proceeds from the decedent's farmland were assets of the decedent's estate that were omitted from the gross estate on the decedent's estate tax return. Respondent contends that the portion of the 1980 and 1981 rent attributable to the decedent's farmland is an asset of the decedent's estate includable*56 in the gross estate under
*282 The decedent and his son, Henri P. Watson, Jr., rented the decedent's 1,073.18-acre parcel of farmland and Henri P. Watson, Jr.'s 1,020-acre parcel of farmland to Morgan Bros. in 1980 and 1981. For 1980, the decedent reported $ 57,074 in rental income, and Henri P. Watson, Jr., reported $ 25,000 in rental income. For 1981, the decedent reported $ 9,929 in rental income, and Henri P. Watson, Jr., received and reported $ 67,202.76 in rental income. The 1980 rental payment in the amount of $ 78,211.92 was deposited in the Unifirst*57 Federal Savings & Loan Association of Jackson, Mississippi. The 1981 rent was paid by two checks. One check, in the amount of $ 6,000, was deposited in the Watson and Watson account at the First National Bank of Holmes County. The other check, in the amount of $ 71,131.76, was deposited in the account of H.P. Watson, Jr., in the Bank of Hazelhurst, Mississippi.
Respondent's basic argument seems to be that decedent was entitled to $ 79,644.70 in rental income in 1980 and 1981, but that he only received $ 6,000 of this amount, and that as a result, decedent had a beneficial interest at his date of death in the remaining $ 73,644.70. Respondent contends that Henri P. Watson, Jr., owed the decedent a balance due of $ 73,644.70. (Respondent took the total rental income received for 1980 and 1981 of $ 155,343.68 ($ 78,211.92 plus $ 6,000 plus $ 71,131.76) and multiplied it by 51.27 percent (1,073.18 divided by the total acreage of 2,093.18) to arrive at a share for decedent of $ 79,644.70. Respondent then reduced this amount by the $ 6,000 deposited in the Watson and Watson account to arrive at the $ 73,644.70 he claims is the balance due to the decedent.) Respondent contends that*58 "No matter what the reason the decedent's son kept this money, it belonged to his father and, on the date of his father's death, it was an asset of the estate." Respondent stated on brief that "The decedent's son had no 'right' to the decedent's share of the income. Petitioner has not contended that the son had such a right. Such a right could only arise on a gift made by the decedent to his son. No gift (likely taxable) has been alleged."
Respondent appears to be arguing that the decedent had a beneficial interest at the date of his death in the rental *283 proceeds from his 1,073.18 acres for 1980 and 1981 unless petitioner can prove that there was a gift from the decedent to his son. In reality, petitioner does not have the burden of proving that there was a gift from the decedent to his son. Respondent bears the burden of proving that the decedent had a beneficial interest at the date of his death in $ 73,644.70 that was not included in his gross estate.
Respondent contends that the 1980 rental payment of $ 78,211.92 deposited in the Unifirst Federal Savings & Loan Association was never transferred to the decedent and that the decedent never had possession and control*59 of this money. Respondent further contends that the second 1981 rental payment of $ 71,131.76 was retained by the decedent's son in his bank account, and that no portion of this amount was ever paid or transferred to the decedent.
The record is not clear regarding the 1980 rental payment of $ 78,211.92. At one point, Henri P. Watson, Jr., testified that the entire amount remained in the account at Unifirst Federal Savings & Loan Association. At another point, Henri P. Watson, Jr., testified that he only took $ 25,000 of the rental income for 1980. With regard to the 1981 rental payment, Henri P. Watson, Jr., testified that he kept the difference between the $ 9,929 reported by the decedent and the 1981 total rent of $ 77,131.76 (i.e., $ 6,000 plus $ 71,131.76). We find the testimony regarding the 1981 rent to be clear and credible. Accordingly, we find that Henri P. Watson, Jr., retained $ 67,202.76 of the rental proceeds for 1981. However, even if we assume that Henri P. Watson, Jr., kept the entire $ 78,211.92 for 1980 in addition to the $ 67,202.76 he kept for 1981, we find that respondent has failed to prove that the decedent had a beneficial interest at the date of his*60 death in $ 73,644.70 that was kept by Henri P. Watson, Jr.
The decedent and his son agreed when they rented their land that the decedent would at first keep all of the rental proceeds, and Henri P. Watson, Jr., would get improvements to his land. They also agreed that if the improvements were ever not a sufficient return for Henri P. Watson, Jr., Henri P. Watson, Jr., would take part of the rent. For 1981, the decedent and his son agreed that the decedent would take $ 9,929 and that Henri P. Watson, Jr., would take the rest of *284 the rent. Petitioner contends that these agreements concerning the division of rental proceeds were part of a partnership agreement between the decedent and his son. Respondent contends that after 1967 there was no partnership and therefore no partnership agreement. We need not resolve the issue of whether a partnership existed after 1967 because we find that regardless of whether a partnership existed after 1967, respondent has not met his burden of proving that the decedent had a beneficial interest on the date of his death in rent proceeds held by Henri P. Watson, Jr. Even if the agreement is not considered a partnership agreement, respondent*61 has not introduced sufficient evidence to prove that the decedent did not intend to make a gift to his son in 1980 and 1981 or that the son did not keep a larger portion of the rent proceeds in those years in exchange for his greater managerial role as the decedent's health failed. Furthermore, respondent introduced no evidence to show that the division of the rent proceeds was a result of a loan from the decedent to his son or that Henri P. Watson, Jr., was acting as a trustee of the rent proceeds for his father. The evidence in the record indicates no intention on the part of the decedent that the rent proceeds that went to Henri P. Watson, Jr., would ever be returned to the decedent. Consequently, we find that respondent has failed to prove that the decedent had a beneficial interest at his date of death in any of the rental proceeds retained by his son.
To reflect the foregoing,
1. The blanks for 1976 and 1977 for Henri III and for 1975 for James signify that returns were not available for these years.↩
2. Unless otherwise indicated, all section references are to the Internal Revenue Code of 1954 as amended and in effect as of the date of decedent's death, and all Rule references are to the Tax Court Rules of Practice and Procedure.↩
3.
(a) General. -- The value of the gross estate of the decedent shall be determined by including to the extent provided for in this part, the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated.↩
4.
The value of the gross estate shall include the value of all property to the extent of the interest therein of the decedent at the time of his death.↩
In Re Estate of Joseph F. Abely, Deceased. William F. ... , 489 F.2d 1327 ( 1974 )
united-states-v-james-c-manny-and-the-bank-of-new-york-as-co-executors , 645 F.2d 163 ( 1981 )
Estate of J. Wendell Green, Deceased, William B. Martman ... , 441 F.2d 303 ( 1971 )
Thomas v. Bailey , 375 So. 2d 1049 ( 1979 )
Prentiss v. Turner , 170 Miss. 496 ( 1934 )
Hamilton National Bank of Knoxville, of the Estate of John ... , 353 F.2d 930 ( 1965 )
Morgan v. Commissioner , 60 S. Ct. 424 ( 1940 )
Westbrook v. Shotts , 200 Miss. 456 ( 1946 )
Moseley v. Harper , 202 Miss. 442 ( 1947 )
Beckett v. Howorth , 237 Miss. 394 ( 1959 )
Jackson v. United States , 84 S. Ct. 869 ( 1964 )