Liebes v. Commissioner

HELENA LIEBES, EXECUTRIX, ESTATE OF ISAAC LIEBES, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Liebes v. Commissioner Docket No. 29944. United States Board of Tax Appeals 20 B.T.A. 731; 1930 BTA LEXIS 2044; September 10, 1930, Promulgated *2044 1. The beneficiary under a policy of insurance which names a specific beneficiary and does not reserve to the insured a right to change the beneficiary has a vested interest of which he may not be deprived without consent. The transfer of the right to the proceeds of such a policy being complete before the passage of the Revenue Act, such proceeds are not properly to be included in the estate. 2. Where an insurance policy reserves to the insured the power to change the beneficiary, no rights vest in the beneficiary and the transfer is incomplete until the death of the insured. The proceeds of such a policy are properly to be included in the taxable estate of decedent. Leon E. Morris, Esq., and Edward M. Jaffa, Esq., for the petitioner. Frank T. Horner, Esq., for the respondent. VAN FOSSAN *732 In this proceeding the petitioner seeks a redetermination of a deficiency in the estate taxes asserted to be due from the estate of Isaac Liebes for the year 1920 in the apparent amount of $4,141.34. The deficiency arises from the respondent's denial of a claim in abatement in the sum of $9,907.99. It was stipulated that the following issues*2045 are submitted to the Board for decision: (a) The taxability of the community interest of decedent's widow, Helena Liebes, in the estate of said decedent, said interest being one-half of the gross estate of said decedent. (b) The taxability of the insurance policies totaling $196,979.34, being the proceeds of insurance policies in excess of $40,000, mentioned in the sixty-day letter from the Commissioner of Internal Revenue dated June 7, 1927. (c) Whether or not the assessment of any deficiency in tax in excess of the total tax heretofore assessed of $23,600.80 is barred by the statutes of limitations. FINDINGS OF FACT. The following facts are stipulated: 1. That, for the purpose of this case, the value of the capital stock of the Sterling Realty Co., a California corporation, transferred by decedent in March, 1920, to the Mercantile Trust Co. of San Francisco, Calif., in trust for decedent's daughter, Linda Lederman, shall be and the same is hereby reduced from $243,119.93 to $100,000 and that said capital stock so valued at $100,000 shall be deemed to be a part of the gross estate of decedent and subject to Federal estate tax. 2. That all of decedent's property*2046 constituting his gross estate, including the said capital stock of the Sterling Realty Co. and the life insurance policies hereinafter mentioned, was acquired subsequent to the marriage of said Isaac Liebes and his widow, Helena Liebes, and was community property of said Isaac Liebes and Helena Liebes, within the meaning of the laws of California. *733 3. Any deficiency redetermined by this Board shall bear interest at the rate of 6 per cent per annum only from the 13th day of March, 1925, until paid. 4. That the total principal of Federal estate tax heretofore assessed in the matter of the estate of the decedent was and is the sum of $23,600.80, which sum includes principal tax heretofore paid and $9,907.99 deficiency assessed on March 13, 1925, pursuant to respondent's notice of March 14, 1925, but not paid. 5. That the sum of $9.97 erroneously omitted from the gross estate of decedent in the letter of June 7, 1927, be included in said gross estate. Further facts established are as follows: Isaac Liebes died May 29, 1920. His widow, Helena Liebes, the petitioner, duly qualified as executrix of the estate of the said decedent and on May 29, 1921, filed the*2047 Federal estate-tax return for the said estate with the collector of internal revenue at San Francisco, Calif. On May 12, 1924, the respondent notified the petitioner that a review and audit of the return disclosed a total tax liability of $18,823.74, of which $9,907.68 was due and payable. On March 14, 1925, the respondent mailed a deficiency letter to the petitioner stating that the determination of the Federal estate-tax liability of the estate of Isaac Liebes disclosed a deficiency in the tax amounting to $9,907.99 and that an immediate jeopardy assessment would be made, and informing her of her right to file a claim in abatement accompanied by a bond. The letter also notified the petitioner that her right to appeal to the Board of Tax Appeals would not be available to her until after notice of the respondent's action on the claim for abatement. The assessment was made in March, 1925. The bond executed by the petitioner in the sum of $12,000 was dated February 15, 1926, and was approved by the collector of internal revenue. In that bond appears the statement that the petitioner was about to file with the respondent her claim for the abatement of the deficiency tax of $9,907.99. *2048 The claim in abatement was rejected in its entirety on June 7, 1927, and the petitioner was so notified by the respondent's letter bearing that date. The appeal was filed July 26, 1927. At the hearing the respondent amended his answer to include in the gross estate of the decedent the sum of $196,979.34, representing the proceeds of policies of insurance in excess of $40,000 carried by the decedent on his life and taxable under the provisions of section 402(f) of the Revenue Act of 1918 and also an item of $9.97 constituting cash in bank to the credit of the decedent in the Union Trust Co. and erroneously omitted from the gross estate of the decedent. *734 There were issued to the decedent, Isaac Liebes, during his lifetime, the following life insurance policies: Number Insurer Date Amount 744,210 Mutual Life Insurance Co. of New York Jan. 1, 1896 $50,000 1,537,464 Equitable Life Assurance Society Oct. 10, 1912 25,000 1,537,465 do do 25,000 1,537,466 do do 25,000 1,537,467 do do 25,000 2,208,520 Mutual Life Insurance Co. of New York Feb. 8, 1915 25,000 2,208,522 do do 25,000 2,208,524 do do 25,000 2,208,526 do do 25,000 *2049 The first of the above policies, originally payable to the executors, administrators, or assigns, contained no provision respecting revocation or change of beneficiary, but by mutual consent, endorsed on the policy under date of January 31, 1908, the policy was changed to make the wife of the decedent, her executors, administrators, or assigns, the beneficiary. The policy later, on January 15, 1917, was assigned to Leon Liebes, a son. The four policies in the Equitable Life Assurance Society expressly provided for the right of revocation in the insured, and a change of beneficiary was made in each under date of January 17, 1917, no change being made thereafter. The four policies in the Mutual Life Insurance Co. of New York, by express provision, were "without right to the insured to change the beneficiary," but by endorsement on the policies dated January 1, 1917, the beneficiary was changed to designate the son of the insured in place of his wife on two policies, and a daughter was to two others. The endorsement also provided that "the right to revoke this designation of beneficiaries is reserved to the insured." There were no later changes as to the beneficiary. Excepting*2050 the first policy named, all policies contained provisions for fixing cash, loan, and surrender values. OPINION. VAN FOSSAN: The first allegation of error questions the right of the respondent to include in the taxable estate of the decedent the community interest of the decedent's widow, Helena Liebes, therein. This issue is decided adversely to the petitioner on the authority of ; affd. (C.C.A.), ; certiorari denied, . Inasmuch as the question relating to the applicability of the statute of limitations would, if decided in favor of the petitioner, preclude a decision upon the second issue, we will direct our attention first to the third issue. *735 Isaac Liebes died May 29, 1920. The petitioner, as executrix of his estate, filed the Federal estate-tax return therefor on May 29, 1921. On March 14, 1925, the respondent mailed a deficiency letter to the petitioner naming a deficiency in tax amounting to $9,907.99. That letter was in the usual form adopted in connection with jeopardy assessments, and informed her that such an assessment would be made; that*2051 she had the right to file a claim in abatement; and that her right of appeal to this Board would not be available until after notice of the respondent's action on her claim. The assessment was made in March, 1925, and bond was executed February 15, 1926. The record does not disclose the actual date of the filing of the claim in abatement but such claim was rejected wholly on June 7, 1927, and the petitioner so notified. The appeal was filed July 26, 1927. It thus appears that the appeal relating to the jeopardy assessment was timely made and the proceeding is properly before us. The petitioner asserts, however, that the statute of limitations prevents the increasing of the assessment to include the additional tax, if any, on the proceeds of the policies of insurance in excess of $40,000 carried by the decedent on his life. The statute imposes an excise upon the transfer of the estate upon the death of the owner. ; ; . The petitioner availed herself of the right and privilege of bringing this proceeding before us for the purpose*2052 of redetermining the correct amount of tax due upon the the transfer of decedent's estate. In order to bring the question of the taxability of the proceeds of the insurance policies before us the respondent availed himself of his right under section 308(e) of the Revenue Act of 1926, which provides: The Board shall have jurisdiction to redetermine the correct amount of the deficiency even if the amount so redetermined is greater than the amount of the deficiency, notice of which has been mailed to the executor, and to determine whether any additional amount or addition to the tax should be assessed, if claim therefor is asserted by the Commissioner at or before the hearing or a rehearing. By an amendment to his answer, duly filed by permission of the Board, the Commissioner asked the inclusion in the taxable estate of the proceeds of the insurance policies. In our opinion this action of respondent constitutes the making of a claim for an additional amount or addition to the tax which should be assessed as provided for in the statute. It is our opinion, therefore, that the provisions of the statute have been fully complied with and that the statute of limitations does not*2053 bar the assessment of the tax, whether increased or diminished by our decision. *736 We observe that the petitioner agreed that the sum of $9.97 erroneously omitted in the respondent's letter of June 7, 1927, be included in the gross estate of the decedent. If the theory of the petitioner, elsewhere advanced, is correct, the statute of limitations would operate as to this sum on exactly the same basis as it would apply to the proceeds of the insurance policies. In our opinion, however, the said sum of $9.97 is properly included in the decedent's gross estate. The further question presented relates to the inclusion in the taxable estate of the proceeds of certain insurance policies on the life of the decedent. From the findings of fact it appears that on January 1, 1896, the Mutual Life Insurance Co. of New York issued an insurance policy on the life of the decedent, payable to his executorS administrators or assigns. The policy was brief in form and contained no provision respecting the right of revocation, change of beneficiary, cash, loan surrender and paid-up insurance values. "By mutual consent," however, and by endorsement on the face of the policy bearing date*2054 of January 1, 1908, the beneficiary was changed to Helena Liebes, the wife of the insured, and by a second endorsement, dated January 15, 1917, the beneficiary again was changed "by mutual consent" to Leon Liebes, a son. Petitioner rests her contention that the proceeds of the insurance policies are not to be included in the gross estate on the case of . In that case the Supreme Court held that the Revenue Act of 1918 does not apply to policies the rights to the proceeds of which had vested in the beneficiaries before the passage of the statute. The principle of law underlying this decision, i.e., that a named beneficiary under an insurance policy which does not reserve to the insured the power to change the beneficiary has a vested right of which he may not be deprived without consent, is basic in insurance law. The cited case merely applied this principle to the incidence of the Revenue Act. While the above decision is not so broad as petitioner contends, it does suggest the test to be applied - whether or not the right to the proceeds had vested in the named beneficiaries. *2055 The same general question of law has been more fully discussed by the Supreme Court in three later cases, in all of which the opinion was rendered by the same learned Justice. ; ; . The rule to be found in these cases is that "a transfer made subject to a power of revocation in the transferor, terminable at his death, is not complete until his death." Thus, if an insurance policy reserves to the insured *737 alone, the power to change the beneficiary, no rights have vested in the beneficiary and the transfer is incomplete until the death of the insured. If, however, the policy names a beneficiary without power of revocation or requires the beneficiary's consent, the transfer is complete. The several policies before us must be tested by these principles. The first policy listed was silent as to power to revocation. ,It appears, however, that the beneficiary of the policy was actually changed twice "by mutual consent." Since mutual consent was necessary to effect a change, it follows*2056 that the last named beneficiary possessed a vested right of which he could not be deprived without consent. Accordingly, the transfer of the benefit of the policy was complete January 15, 1917, prior to the passage of the Revenue Act of 1918, and the proceeds of this policy should not be included in the gross estate. The policies of the second group were in the Equitable Life Assurance Society; all were dated October 10, 1912; they all expressly reserved the right of revocation and the power to change the beneficiary. Such a change was made on January 17, 1917. This power rested solely in the insured, and was in no wise dependent on the consent of the beneficiary nor was it exhausted by the exercise thereof on January 17, 1917. The insured retained, to the time of his death, the power to revoke or recall his action. Thus, the transfer had not vested in the beneficiary and was not complete until the death of the insured occurred. The proceeds of these four policies should properly be included in the taxable estate. The third group comprises four policies issued by the Mutual Life Insurance Co. of New York under date of February 8, 1915. In the body of each policy was the*2057 provision that it was issued "without right to the insured to change the beneficiary." Each of these policies, however, bears on the face the following stamped endorsement: "The beneficiary is changed to (beneficiary named). The right to revoke this designation of beneficiary is reserved to the insured." Under date of January 15, 1917, by the above form of endorsement, the beneficiary was changed from Helena Liebes, the original beneficiary, to a son, Leon Liebes, as to two policies, and to a daughter, Linda Liebes Lederman, as to the other two. The consent of the original beneficiary to the above changes does not appear on the face of the policies nor in the record, but it is a fair presumption that such consent was given if the law of the State so required. In any event, the policy as now before us bears on its face the power of revocation in the insured, and such power continued from January 15, 1917, to the date of decedent's death. This amendment to the original contract entirely altered the status of the rights of the parties thereunder. Thereafter, the insured *738 could have exercised his right of revocation independently of any consent or concurrence of any other*2058 person. No rights were vested in the beneficiary and whatever right may have previously vested was divested. Accordingly, the transfer to which the tax attaches occurred upon the death of the insured, and the proceeds of the policies should be included in the taxable estate. Judgment will be entered under Rule 50.