Carnall v. Commissioner

Estate of Edward Carnall, Deceased, Provident Trust Company of Philadelphia and Emily H. Carnall, Executors, Petitioners, v. Commissioner of Internal Revenue, Respondent

Carnall v. Commissioner

Docket No. 39556

United States Tax Court

25 T.C. 654; 1955 U.S. Tax Ct. LEXIS 6;

December 28, 1955, Filed

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Decision will be entered under Rule 50.

Where a husband and wife transferred securities from themselves as tenants by the entireties to themselves individually in equal shares, held, the husband's interest in the entirety property at the time of the transfer was one-half and, since the transfer placed one-half of the entirety property in him outright, no additional share would be includible in his estate under section 811 (c) 1939 Code.

D. Alexander Wieland, Esq., for the petitioners.

Edward Pesin, Esq., for the respondent.

Mulroney, Judge.

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MULRONEY

The Commissioner determined a deficiency in estate tax in the amount of $ 10,630.77. Certain adjustments are not contested. The sole issue is whether the entire value of securities transferred in 1945 by the decedent and his wife from themselves as tenants by the entireties to themselves individually in equal shares is includible in the estate of the deceased husband, or merely one-half.

FINDINGS OF FACT.

All the facts have been stipulated and are so found.

The estate tax return was filed in 1949 with the collector of internal revenue for the first district of Pennsylvania at Philadelphia, Pennsylvania.

Edward Carnall, the decedent, was born June 24, 1888, and died on November 5, 1947. On December 20, 1916, he married Emily H. Carnall, his widow and executrix herein, who was 4 years younger than he.

During his marriage, and until 1945, the decedent, solely with his own funds, purchased securities in the joint names of himself and his wife as tenants by the entireties. He and his wife reported one-half of all income from and gains and losses with respect to such securities in their individual Federal income tax returns during the time in which the securities were owned by them as tenants by the entireties.

During the year 1945, in a series of transfers, the decedent and his wife transferred the said securities from themselves as tenants by the entireties to themselves individually in equal shares. The fair market value on November 5, 1947, of the securities transferred to decedent's wife individually was $ 38,333.92.

These transfers during the year 1945 were motivated solely by advice which the decedent received from his counsel that in order to prevent the incidence of a Federal estate tax upon the total value of all of the said securities held in the said tenancy by the entireties, in the event of decedent's death prior to the death of his wife, one-half of the securities should be transferred to the individual names of both himself and his wife.

The transfers, valued at decedent's death, were a material part of his property. The total value of the decedent's gross estate as of the date of his death, apart from the value of the securities transferred to his wife in 1945, amounted to $ 152,630.46.

The Commissioner included in the estate of the deceased husband the entire value of the securities transferred during 1945 by the husband and wife as tenants by the entireties to themselves individually.

The decedent executed his will on December 8, 1945.

Decedent had never paid a gift tax on any of the securities originally purchased by him in the joint names of himself and his wife as tenants by the entireties. To satisfy a gift tax liability, which decedent could not reconstruct, he did file a gift tax return in 1945 and voluntarily pay $ 617.79 by way of gift tax.

In 1944, the decedent had a nervous breakdown and lost about 30 pounds. His recuperation period was approximately 3 months. Soon thereafter, in the same year, he took a metabolism test which indicated that he was suffering either from an overactive thyroid or considerable nervous emotional upsets. In 1945 the decedent had a perirectal abscess. For 2 years prior to his death the decedent was suffering from hypertensive cardiovascular disease. He died of acute cardiac failure, dilation with cardiac asthma.

The transfers of securities in 1945 by decedent and his wife from themselves as tenants by the entireties to themselves individually in equal shares were made in contemplation of death of the decedent within the meaning of section 811 (c) of the 1939 Internal Revenue Code.

OPINION.

The only question in this case is the amount of property which was the subject of a transfer in decedent's lifetime, that will be included in his gross estate under section 811 (c). Decedent and his wife held certain securities as tenants by the entireties, which securities had all been purchased originally with decedent's own funds. In 1945 they transferred the securities from themselves as tenants by the entireties to themselves individually in equal shares. It is practically admitted the 1945 transfer was in contemplation of decedent's death, which occurred in 1947. The respondent included in the deceased husband's estate the entire value of the securities held by decedent and his wife as tenants by the entireties in 1945 before the transfer. Petitioner contends only one-half of the value of the entirety property would be includible in decedent's estate, and, since the transfer placed one-half of the entirety property in him outright, no additional share would be includible in his estate under section 811 (c). We are of the opinion petitioner is right.

Section 811 (c) makes certain property which the decedent transferred before death, includible in his gross estate, to the extent of decedent's "interest therein." In all cases under this statute the first inquiry is as to the extent of decedent's interest in the property transferred. We have given the statute a practical application with respect to the transfers of property held by husband and wife as tenants by entirety. We recently held in Estate of A. Carl Borner, 25 T. C. 584, where there was such a transfer of entirety property to an irrevocable trust, the husband's interest in the property transferred was one-half and no more than that amount was includible in his estate when he died. The same result follows when each of the tenants by entirety transfers to each other in equal shares. Again the first inquiry is as to the extent of the decedent's interest in the property transferred. Since we held that interest to be one-half when the transfer by the husband and wife was to a trust, it is no greater than that when the transfer of the entirety property was to each other in equal shares. They emerge from the transfer with each owning one-half of the property outright, so here one-half will be includible in the husband's estate when he dies. The interest of each in the entirety property at the time of the transfer is not increased by virtue of the fact the transfer is to each other and not to a trust or third party. The case is ruled by Estate of A. Carl Borner, supra.

Since respondent states there are other uncontested adjustments,

Decision will be entered under Rule 50.