SCOTUS Reports

Tag: Estate of Silverman

  • Estate of Silverman v. Commissioner, 98 T.C. 54 (1992): When Certificates of Deposit Qualify as Deferred Payment in Installment Sales

    Estate of Mose Silverman, Deceased, Rose Silverman, Executrix, and Rose Silverman, Petitioners v. Commissioner of Internal Revenue, Respondent, 98 T. C. 54 (1992)

    Certificates of deposit received in exchange for stock can be treated as deferred payment obligations for installment sale purposes if they are not readily tradable or payable on demand.

    Summary

    In Estate of Silverman v. Commissioner, the Tax Court ruled that certificates of deposit, received in exchange for stock in a merger, could be treated as deferred payment obligations under the installment sale method. Mose and Rose Silverman exchanged their shares in Olympic Savings & Loan for Coast Federal’s savings accounts and non-withdrawable certificates of deposit. After the Supreme Court’s Paulsen decision, which held similar exchanges taxable, the Silvermans reported the transaction as an installment sale. The IRS contested this, arguing the certificates were cash equivalents. The court, however, found that the certificates were not readily tradable and upheld the Silvermans’ right to report the gain on an installment basis, aligning with the policy of deferring tax until actual payment is received.

    Facts

    In 1982, Mose and Rose Silverman owned 29,162 shares in Olympic Savings & Loan Association. They exchanged these shares for Coast Federal Savings & Loan Association’s savings accounts and certificates of deposit as part of a merger. The exchange offered 30% in withdrawable savings accounts and 70% in non-withdrawable term accounts, payable after six years. Following the Supreme Court’s decision in Paulsen v. Commissioner in 1985, which ruled similar exchanges as taxable, the Silvermans filed an amended 1982 tax return treating the exchange as an installment sale, reporting gain on the savings accounts received but deferring gain on the term accounts. The IRS issued a notice of deficiency, asserting the entire gain should be reported in 1982.

    Procedural History

    The Silvermans timely filed their 1982 tax return, not reporting the gain from the exchange, believing it to be a tax-free reorganization. After the Paulsen decision, they filed an amended return in 1987, reporting the exchange as an installment sale. The IRS issued a statutory notice of deficiency in 1988, leading the Silvermans to petition the U. S. Tax Court, which ultimately ruled in their favor in 1992.

    Issue(s)

    1. Whether the certificates of deposit received by the Silvermans in exchange for their Olympic stock constituted “evidences of indebtedness” of Coast Federal under section 453(f)(3) of the Internal Revenue Code?

    2. Whether the Silvermans were entitled to report the gain on the disposition of their Olympic stock under the installment method pursuant to section 453?

    Holding

    1. Yes, because the certificates of deposit were deemed “evidences of indebtedness” of Coast Federal, as they were not readily tradable and were akin to delayed payments.

    2. Yes, because the Silvermans met all the statutory requirements of section 453, allowing them to report the gain from the disposition of their stock on the installment method.

    Court’s Reasoning

    The court’s decision was based on the interpretation of section 453 of the Internal Revenue Code, which allows for installment sale treatment when at least one payment is received after the close of the taxable year in which the disposition occurs. The court referenced the Supreme Court’s decision in Paulsen v. Commissioner, which characterized similar certificates of deposit as having predominant debt characteristics. The Silvermans’ certificates were not readily tradable or payable on demand, aligning with the statutory exceptions to the definition of “payment” under section 453(f)(3). The court rejected the IRS’s argument that the certificates were cash equivalents, finding that they did not meet the criteria for cash equivalence under Ninth Circuit precedent. The court emphasized that the Silvermans were looking to Coast Federal for payment, not to a third party or escrowed funds, which distinguished this case from others where installment sale treatment was denied. The court also noted the legislative intent behind section 453 was to defer tax until actual payment was received, supporting the Silvermans’ position.

    Practical Implications

    This decision clarifies that non-withdrawable certificates of deposit can be treated as deferred payment obligations in installment sales, provided they are not readily tradable or payable on demand. Taxpayers involved in similar transactions can defer recognizing gain until they receive payment, which is particularly relevant in corporate reorganizations or mergers involving financial instruments. Legal practitioners should consider this ruling when advising clients on structuring transactions to minimize immediate tax liabilities. The decision also underscores the importance of understanding the specific terms of financial instruments received in exchanges, as these can significantly impact tax treatment. Subsequent cases have cited Estate of Silverman in analyzing the applicability of the installment method, further solidifying its precedent in tax law.

  • Estate of Silverman v. Commissioner, 61 T.C. 605 (1974): When Annuity Proceeds Are Excludable from Gross Estate Under a Qualified Pension Plan

    Estate of Max Silverman, Deceased, Blanche S. Silverman, Executrix, Petitioner v. Commissioner of Internal Revenue, Respondent, 61 T. C. 605 (1974)

    Proceeds from annuity contracts assigned to an employee upon termination are not excludable from the gross estate under IRC § 2039(c) if they do not conform to the pension plan’s payment requirements.

    Summary

    Max Silverman, a participant in his employer’s qualified pension plan, was assigned annuity contracts upon his employment termination at age 61. These contracts matured at age 65, but Silverman did not convert them into annuities, instead retaining them until his death at age 70. The court held that the proceeds from these contracts were not excludable from Silverman’s gross estate under IRC § 2039(c) because they were not payments received under a contract conforming to the pension plan’s requirements, which mandated annuity commencement at age 65.

    Facts

    Max Silverman was employed by I. Schneierson & Sons, Inc. , and participated in its qualified pension plan. Upon terminating his employment at age 61 in 1957, the Pension Trust Committee assigned him five annuity contracts purchased by the plan. Silverman surrendered three of these contracts for their cash value but retained two, which matured at age 65. He did not convert these into annuities by the maturity date or by age 70, and upon his death at age 70, the proceeds were paid to his widow. The pension plan required annuities to commence at age 65, regardless of employment status.

    Procedural History

    The estate filed a federal estate tax return excluding the annuity proceeds under IRC § 2039(c). The Commissioner of Internal Revenue determined a deficiency, asserting the proceeds were includable in the gross estate. The estate petitioned the U. S. Tax Court, which upheld the Commissioner’s position, ruling that the proceeds did not qualify for exclusion under IRC § 2039(c).

    Issue(s)

    1. Whether the proceeds of annuity contracts assigned to Max Silverman upon his employment termination are excludable from his gross estate under IRC § 2039(c).

    Holding

    1. No, because the proceeds were not amounts received under contracts which conformed to the requirements of the pension plan, as Silverman did not convert them into annuities at the required age of 65.

    Court’s Reasoning

    The court reasoned that for annuity proceeds to be excludable under IRC § 2039(c), they must be payments received under a contract conforming to the qualified pension plan’s requirements. Silverman’s inaction in converting the contracts into annuities at age 65, as required by the plan, meant the proceeds were not received under the plan. The court distinguished this case from others where the annuities were either converted or payments were made under the plan’s terms. Judge Hall’s concurring opinion emphasized that Silverman’s failure to follow the plan’s payment provisions effectively converted the annuities into a personal savings arrangement, thus removing them from the scope of IRC § 2039(c). The court also noted that the legislative history and purpose of IRC § 2039(c) supported this interpretation, aiming to protect payments made under qualified plans, not those converted into non-qualifying arrangements.

    Practical Implications

    This decision clarifies that for annuity proceeds to be excluded from the gross estate under IRC § 2039(c), they must strictly adhere to the terms of the qualified pension plan. Estate planners must ensure clients understand the importance of following plan requirements, such as converting annuity contracts into income streams at the specified age. The ruling impacts how similar cases should be analyzed, emphasizing the need for strict compliance with plan terms to avail of tax benefits. It also highlights the potential for estate tax inclusion if participants deviate from plan requirements, even if unintentionally. Subsequent cases, such as Estate of Albright, have further refined the application of IRC § 2039(c), reinforcing the principle established in Silverman.

  • Estate of Silverman v. Commissioner, 61 T.C. 338 (1973): Determining Estate Tax Inclusion of Life Insurance Policy Transfers in Contemplation of Death

    Estate of Morris R. Silverman, Avrum Silverman, Executor, Petitioner v. Commissioner of Internal Revenue, Respondent, 61 T. C. 338 (1973)

    A life insurance policy transferred within three years of death is presumed to be in contemplation of death, with inclusion in the gross estate based on the ratio of premiums paid by the decedent to total premiums.

    Summary

    Morris R. Silverman transferred a life insurance policy to his son, Avrum, six months before his death. The court held that this transfer was made in contemplation of death under section 2035 of the Internal Revenue Code, as it occurred within three years of his death and he was aware of his serious illness. The court further determined that only the portion of the policy’s face value proportional to the premiums paid by the decedent should be included in his gross estate. Additionally, the court upheld the inclusion of inherited jewelry valued at $780 in the estate. This case clarifies the valuation of life insurance policies transferred in contemplation of death and the evidentiary burden on taxpayers to rebut the statutory presumption.

    Facts

    Morris R. Silverman purchased a life insurance policy in 1961 with a face value of $10,000, designating his wife as the primary beneficiary and his son, Avrum, as the secondary beneficiary. After his wife’s death in December 1965, Silverman underwent a physical examination in late December due to health concerns, revealing a possible colon malignancy. On January 29, 1966, he transferred the policy to Avrum, who then paid all subsequent premiums. Silverman was hospitalized in February 1966, diagnosed with cancer, and died in July 1966. Avrum paid seven premiums before Silverman’s death.

    Procedural History

    The Commissioner of Internal Revenue determined a deficiency in Silverman’s estate tax, which was challenged by the estate. The Tax Court heard the case, focusing on whether the policy transfer was in contemplation of death, the amount to be included in the gross estate, and the inclusion of inherited jewelry.

    Issue(s)

    1. Whether the transfer of the life insurance policy by Morris R. Silverman to his son was made in contemplation of death under section 2035 of the Internal Revenue Code.
    2. If the transfer was in contemplation of death, what amount of the policy’s value should be included in Silverman’s gross estate.
    3. Whether certain jewelry inherited by Silverman from his wife should be included in his gross estate.

    Holding

    1. Yes, because the transfer occurred within three years of Silverman’s death, and he was aware of his serious illness, triggering the statutory presumption of contemplation of death.
    2. The gross estate should include a portion of the policy’s face value equal to the ratio of premiums paid by Silverman to the total premiums paid, as Avrum’s contributions enhanced the policy’s value.
    3. Yes, because the estate failed to provide evidence contesting the inclusion of the jewelry valued at $780.

    Court’s Reasoning

    The court applied the statutory presumption under section 2035(b) that transfers within three years of death are in contemplation of death unless proven otherwise. Silverman’s health condition, recent loss of his wife, and the timing of the transfer supported the presumption. The court rejected the estate’s argument that the transfer was motivated by a desire to avoid premium payments, finding instead that tax avoidance was a significant factor. Regarding the policy’s value, the court considered the contributions made by Avrum post-transfer, determining that only the portion of the face value corresponding to Silverman’s premium payments should be included in the estate. The court also upheld the inclusion of the jewelry, noting the estate’s failure to contest the Commissioner’s determination.

    Practical Implications

    This decision underscores the importance of the three-year presumption under section 2035 for life insurance policy transfers. It advises estate planners to consider the timing of such transfers and the potential tax implications, especially in cases of serious illness. The ruling also sets a precedent for calculating the taxable portion of transferred policies based on premium contributions, impacting how similar cases are valued. For practitioners, this case emphasizes the need for clear evidence to rebut the statutory presumption and the importance of addressing all assets, including inherited items, in estate tax disputes.