Comm'r of Internal Revenue (In re Estate of Lewis)

This case is not covered by Casetext's citator
Tax Court of the United States.Mar 27, 1968
49 T.C. 684 (U.S.T.C. 1968)

Docket No. 6848-65.



Michael A. Pelavin, for the petitioner. Charles S. Stroad, for the respondent.

Michael A. Pelavin, for the petitioner. Charles S. Stroad, for the respondent.

Held, that the claim of decedent's husband against decedent's estate cannot be deducted by said estate under sec. 2053(a), I.R.C. 1954, as a claim which is allowable by the laws of the jurisdiction where the estate was administered because the claim was barred by the Michigan statute of limitations, notwithstanding that such claim was allowed by a Probate Court in accordance with an agreement between the claimant and the takers under decedent's will.

IRWIN, Judge:

The Commissioner determined a deficiency of $641.38 in the estate tax liability of the petitioner, Estate of Anna Lewis.

The sole issue for decision is whether the claim of decedent's husband against decedent's estate, which claim was allowed by a Michigan Probate Court, can be deducted from the gross estate under section 2053(a) of the Internal Revenue Code of 1954 as a claim which is ‘allowable by the laws of the jurisdiction * * * under which the estate’ was administered.

All statutory references are to the Internal Revenue Code of 1954 unless otherwise noted.


Some of the facts have been stipulated. The stipulation of facts and the exhibits attached thereto are incorporated herein by reference.

The petitioner is the Estate of Anna Lewis. The estate tax return involved in the deficiency determined by the Commissioner was filed on September 13, 1962, with the district director of internal revenue at Detroit, Mich.

Albert and Anna Lewis (hereinafter sometimes referred to as Albert and Anna) were married in 1931. Two children were born to this marriage— Norman and Marilyn. Throughout their married life Albert worked and had income. Anna was not employed.

In the late 1940's Albert and Anna opened several joint bank savings accounts with funds furnished entirely by Albert. Their purpose was to facilitate the handling of Albert's estate in the event that he should predecease Anna. Anna kept possession of the passbooks, and Albert never examined them. The banks did not render statements.

On December 1, 1954, and December 7, 1954, Anna, without the knowledge of Albert, withdrew $5,541.25 and $10,781.11, respectively, from two of the joint accounts. She deposited this money in new accounts which she opened in her name alone.

Since the taxable estate as determined by the respondent is $11,285.28, the petitioner is only contesting the Commissioner's determination with respect to the above two items, though there were additional similar withdrawals and deposits by Anna.

In the latter part of 1957, during a family argument, Anna informed Albert of her actions regarding the bank accounts. This was the first time he discovered her withdrawals. Albert consulted B. Morris Pelavin (hereinafter sometimes referred to as Pelavin), an attorney and family friend of 25 years, about available recourse in securing the return of the money. Pelavin advised Albert that he was entitled to the money but that it would be necessary for him to commence a domestic relations action in the nature of divorce or separate maintenance in order to recover it. Because of the children, the fact that he did not want the community to become aware of his domestic troubles and his belief that Anna would not dissipate the money, Albert did not desire to undertake a domestic relations action at that time.

Anna died testate on June 28, 1961, a resident of Genesee County, Mich. The same B. Morris Pelavin whom Albert consulted earlier was appointed administrator with will annexed on September 5, 1961, by the Probate Court for the County of Genesee.

Anna's will, after providing for the payment of all just debts, provided that the residue of her estate should go to the two children— Norman and Marilyn. At that time both were adults. The will expressly gave nothing to Albert. Albert subsequently filed a claim in the Probate Court alleging that decedent was indebted to him in the amount of $57,785.97, which represented the above-described withdrawals from the joint bank accounts and deposits by Anna. This amount included the amounts herein disputed.

Pelavin conferred with Albert and his children— Norman and Marilyn— about the claim. As a result, on September 15, 1961, Albert and the children executed a written agreement which had been drafted by Pelavin. The agreement contained recitations of several premises (‘whereas' clauses) on which the agreement purportedly was based, the relevant substance of which was as follows: The joint bank accounts resulted from Albert's earnings; the accounts should have remained in the names of Albert and Anna jointly; and the claim that Albert filed against the estate was just and should be allowed. The agreement concluded with Norman's and Marilyn's express consent to such allowance.

On November 22, 1961, an informal hearing on Albert's claim was held in the Probate Court. The hearing lasted about 10 to 15 minutes. Pelavin appeared as administrator of Anna's estate and informed the Probate Court of his 1957 conference with Albert and the advice rendered him which was mentioned earlier. He also related that he had conferred recently with Norman and Marilyn, that he believed the money belonged to Albert, and that he believed the claim should be allowed. Pelavin made available the original bank records of the joint accounts to the Probate Court. He further told the court that Albert had been gainfully employed throughout his married life while Anna had not been so employed.

At this hearing Albert answered questions regarding his children. He was not asked any questions regarding the bank accounts, and, consequently, gave no testimony about them. Only Albert and Pelavin were present at the hearing. Norman and Marilyn were neither present nor represented. The probate judge signed an order, prepared by the attorneys for the administrator, directing that Albert's claim as set forth in the agreement of September 15, 1961, between Albert and the two children be paid within 6 months from the date of the order. The order was filed in Probate Court on November 22, 1961, the day of the hearing.

The estate tax return for the decedent, Anna Lewis, listed Albert's claim as a debt of the decedent. In his notice of deficiency, the Commissioner determined that the decedent's withdrawals did not create a legally enforceable obligation against her, and that, consequently, Albert's claim against her estate was not deductible under section 20.2053-4 of the Estate Tax Regulations. The Commissioner, therefore, disallowed the deduction for Albert's claim.


The only issue presented is whether Albert's claim against the estate of his deceased wife, Anna, was allowable as a deduction from her gross estate by virtue of section 2053(a). The resolution of this issue depends on whether his claim was allowable against the estate in 1961 by the laws of the State of Michigan. We answer in the negative because of the applicability of the Michigan statute of limitations. Respondent's determination of deficiency, therefore, must be upheld.

SEC. 2053. EXPENSES, INDEBTEDNESS, AND TAXES.(a) GENERAL RULE.— For purposes of the tax imposed by section 2001, the value of the taxable estate shall be determined by deducting from the value of the gross estate such amounts—(3) for claims against the estate, andas are allowable by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered.

Petitioner first contends that Albert's claim was valid under Michigan law. Petitioner additionally contends that the decision of the Probate Court to allow Albert's claim is sufficient to satisfy section 2053(a). Both of petitioner's contentions spring from the same theory, viz, as a joint tenant with the right of survivorship in the joint bank accounts, Albert was entitled to the funds upon Anna's death. Petitioner argues that Anna's transfer of the jointly held funds to her own account was wrongful and did not destroy Albert's property rights therein.

Assuming arguendo that Anna's transfer of the funds was wrongful, we find that Albert's claim was barred by the Michigan statute of limitations when Anna died. As such, it was not deductible from the gross estate because a claim barred by the statute of limitations in the State of administration is not allowable under section 2053(a)(3). Estate of Charles B. Wolf, 29 T.C. 441, 449-450 (1957), affirmed in part and reversed in part 264 F.2d 82 (C.A. 3, 1959); Wolfsen v. Smyth, 223 F.2d 111 (C.A. 9, 1955); Brown v. United States, 37 F.Supp. 444 (Ct.Cl. 1941); see sec. 20.2053-4, Estate Tax Regs.

Sec. 20.2053-4 (Estate Tax Regs.) Deduction for claims against the estate; in general.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, * * * . Only claims enforceable against the decedent's estate may be deducted. * * *

The parties stipulated the following provisions relating to the statute of limitations from the Michigan Statutes Annotated:

Sec. 27A.5813 * * *

Sec 5813

All other personal actions shall be commenced within the period of 6 years after the claims accrue and not afterwards unless a different period is stated in the statutes. * * *

Sec. 27A.5855 * * *

Sec 5855

If a person who is or may be liable for any claim fraudulently conceals the existence of the claim or the identity of any person who is liable for the claim from the knowledge of the person entitled to sue on the claim, the action may be commenced at any time within 2 years after the person who is entitled to bring the action discovers, or should have discovered, the existence of the claim or the identity of the person who is liable for the claim, although the action would otherwise be barred by the period of limitations. * * *

Our research discloses no other applicable statutes of limitations. Petitioner does not contend that Anna fraudulently concealed from Albert the transfer of the joint accounts to other accounts in her name. To do so would be fruitless. Albert discovered these accounts in 1957, and did not bring an action within 2 years thereafter as contemplated by section 27A.5855, supra. More to the point, he did not commence any personal action within 6 years from the time Anna withdrew the funds from their joint bank accounts and deposited them in her name. That is, he did not satisfy section 27A.5813, supra, by filing his action within 6 years from December 1954 when his claim accrued. Instead, he awaited her death in 1961.

In Michigan ‘no claim barred by the statute of limitations shall be allowed in favor of or against the estate as a setoff or otherwise.’ Sec. 27.3178(419), Mich.Stat.Ann. (1962). This language has been interpreted to mean that a claim so barred is void. In re Baldwin's Estate, 311 Mich. 288, 308, 18 N.W.2d 827, 835 (1945); see McGee v. Atkinson, 66 Mich. 628, 629-630, 33 N.W. 737 (1887). An administrator or executor of an estate in Michigan cannot waive the statute of limitations in an action on a claim against the estate. Mc Hugh v. O'Dowd's Estate, 86 Mich, 412, 413-414, 49 N.W. 216 (1891); In re Baldwin's Estate, supra; cf. In re Ford's Estate, 331 Mich. 220,227, 49 N.W.2d 154, 158 (1951); Geisel v. Burg, 283 Mich. 73, 83, 276 N.W. 904, 907 (1937); Hollister v. Kinyon's Estate, 195 Mich. 261, 268, 161 N.W. 962, 965 (1917). Barbier v. Young, 115 Mich. 100, 101, 72 N.W. 1096 (1897), interpreted McHugh v. O'Dowd's Estate, supra, to mean ‘that no claim barred by the statute of limitations can be allowed, by consent or otherwise, against the estate of a deceased person.’

Exceptions to the rule prohibiting waiver are not applicable here. See, e.g., Geisel v. Burg, 283 Mich. 73, 276 N.W. 904 (where the administrator examines an opposite party whose testimony is otherwise incompetent by statute, the rule is avoided) and Hollister v. Kinyon's Estate, 195 Mich. 261, 161 N.W. 962 (where the rule, not raised in the trial court, was first presented to the Supreme Court of Michigan, and, therefore, did not apply).

Petitioner argues that Albert could have obtained the funds at any time by filing a domestic relations action against Anna, but offers no authority in support of this argument. To the contrary, Michigan law appears to hold that the period of limitations is not tolled or suspended because of the marital relationship. Section 27A.2001, Mich.Stat.Ann. (1962), provides that ‘Actions may be brought by and against a married woman as if she were unmarried.’

We shall deal next with petitioner's contention that the Probate Court's order was itself sufficient to satisfy section 2053(a). The facts indicate that the Probate Court probably based its decision primarily, if not solely, on the consent of the persons involved and not on the legal merits of Albert's claim. However, we need not find that to be the case.

Even if the Probate Court had considered the legal merits of Albert's claim, we would not be bound by its decree. Recently the Supreme Court dealt with the effect to be given a State trial court decree where the property interests determined in that State court had Federal estate tax consequences. Commissioner v. Estate of Bosch, 387 U.S. 456 (1967). The Bosch case held ‘that where the federal estate tax liability turns upon the character of a property interest held and transferred by the decedent under state law, federal authorities are not bound by the determination made of such property interest by a state trial court.’ Id. at 457. The Supreme Court directed that we first look to pronouncements by the State's highest court. We have done precisely that. We hold that Albert's claim was invalid under the Michigan statute of limitations as interpreted by the Supreme Court of Michigan.

Nor was the Commissioner bound since the decree was at variance with the statute of limitations of Michigan. In this context the Commissioner's regulations support his position.Sec. 20.2053-1(b)(2) (Estate Tax Regs.) Effect of court decree. * * * If the decree was rendered by consent, it will be accepted, provided the consent was a bona fide recognition of the validity of the claim (and not a mere cloak for a gift) and was accepted by the court as satisfactory evidence upon the merits. It will be presumed that the consent was of this character, and was so accepted, if given by all parties having an interest adverse to the claimant. The decree will not be accepted if it is at variance with the law of the State; as, for example, an allowance made to an executor in excess of that prescribed by statute. * * *

Decision will be entered for the respondent.

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