SECTION 811(a).-GROSS ESTATE: DECEDENT'S INTEREST REGULATIONS 105, SECTION 81.13: Property of decedent at time of death. Rev. Rul. 54-19 (Also Section 22 (a), Section 39.22 (a)–1, Regulations 118.) INTERNAL REVENUE CODE Amounts receivable in settlement of claims under the New Jersey "Death by Wrongful Act" statute, N. J. S. A. 2A : 31-1-31-6, are not includible in the decedent's gross estate for Federal estate tax purposes under section 811 (a) of the Internal Revenue Code nor taxable as income to the decedent's estate or to the dependents who will receive the proceeds of the recovery. Advice is requested whether the proceeds in settlement of a claim under the New Jersey "Death by Wrongful Act" statute are includible in the decedent's gross estate under section 811(a) of the Internal Revenue Code or constitute taxable income of the estate or of the dependents who will receive the proceeds of the recovery. The decedent met his death as the result of an airplane crash. The executrix of the estate of the decedent commenced court action against the carrier under the New Jersey "Death by Wrongful Act" statute, N. J. S. A. 2A: 31-1-31-6. The carrier has offered to settle the claims asserted by the petitioner. The New Jersey "Death by Wrongful Act" statute provides that an action will lie, notwithstanding the death of the person injured, against the person who would be liable for damages for the wrongful act, negligence or default, had the deceased merely been injured. The action shall be brought by the executor or administrator, w. w. a., or by an administrator ad prosequendum, if there be neither of the latter appointed. However, the action shall be maintained by either of the above parties not for his benefit as such administrator ad prosequendum, etc., but rather for persons who would take the decedent's property had he died intestate under the laws of New Jersey. Specifically, chapter 31-4, "Persons entitled to amount recovered" reads as follows: The amount recovered in proceedings under this chapter shall be for the exclusive benefit of the persons entitled to take any intestate personal property of the decedent, and in the proportions in which they are entitled to take the same. If any of the persons so entitled were not dependent on the decedent at his death, the remainder of the persons so entitled shall take the same as though they were the sole persons so entitled. If all or none of the persons so entitled were then dependent on him, they shall all take as aforesaid. Section 811 (a) of the Internal Revenue Code provides: The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated, except real property situated outside of the United States (a) DECEDENT'S INTEREST.-To the extent of the interest therein of the decedent at the time of his death; ** The decisive question this case is whether the decedent had an interest in the amount recoverable under the New Jersey "Death by Wrongful Act" statute or in the right of action at the time of his death. The action against the carrier was brought under the statute, and the statute governs in determining the distribution of the proceeds of the recovery. The decedent in his lifetime never had an interest in the right of action or in the proceeds. He did not create the right, it was created by statute and vested in the persons designated in the statute. Inasmuch as the decedent had no right of action or interest in the proceeds at the time of his death, nothing "passed" from the decedent to the beneficiaries. Accordingly, the amounts recovered by the beneficiaries would not be includible in the decedent's gross estate for Federal estate tax purposes. Section 22(a) of the Internal Revenue Code provides that all gains, profits, and income derived from any source whatever are income subject to taxation. Proceeds of this nature, that is, compensation for loss of life, are not embraced in the general concept of the term “income". See I. T. 2420, C. B. VII-2, 123. In view of the foregoing, amounts receivable in settlement of claims under the New Jersey "Death by Wrongful Act" statute, N. J. S. A. 2A:31-1-31-6, are not includible in the decedent's gross estate for Federal estate tax purposes under section 811(a) of the Internal Revenue Code nor taxable as income to the deedent's estate or to the dependents who will receive the proceeds of the recovery. SECTION 812(e).-NET ESTATE: BEQUESTS, ETC., REGULATIONS 105, SECTION 81.47A: Bequests, INTERNAL REVENUE CODE Rev. Rul. 54-20 The power given by decedent to his widow to appoint a portion of the property passing from the decedent in trust for the benefit of the widow does not in itself create a separate trust in respect of the portion of the trust corpus over which the widow has a power of appointment so as to qualify the value of the entire trust passing from the decedent, or any portion thereof, for the marital deduction under section 812 (e) (1) (F) of the Internal Revenue Code. Advice is requested whether the power given by decedent to his widow to appoint a portion of the property passing from the decedent in trust for the benefit of the widow in itself creates a separate trust in respect of that portion of the trust corpus over which the widow has a power of appointment so as to qualify the value of the entire trust passing from the decedent, or any portion thereof, for the marital deduction under section 812(e) (1) (F) of the Internal Revenue Code. In the instant case the decedent bequeathed the entire residue of his estate to an inter vivos trust created by him during life, the terms of which called for the payment of the net income from the trust estate to his surviving spouse so long as she should live, with the power in the spouse, exercisable during life or by will, to appoint in her favor, in favor of her estate, or otherwise as she may please, a portion of the trust corpus equal in value to 50 percent of the value of the decedent's adjusted gross estate, reduced by the value of property included therein which passed to the spouse other than under the terms of the trust. In the case of an interest in property which passes from a decedent to a trust which comes within the purview of subparagraph (F) of section 812(e) (1), the marital deduction is to be allowed only if the terms of the trust satisfy all the requirements of this subparagraph. One of such requirements is that under the terms of the trust the surviving spouse must have the power, exercisable in favor of such spouse, or in favor of his or her estate, to appoint the entire corpus free of trust. That portion of section 81.47a of Regulations 105, which deals with this point, provides as follows: If the surviving spouse is entitled to only a portion of the trust income, or has power to appoint only a portion of the corpus, the trust fails to satisfy conditions (1) and (3), respectively. Condition (3) is to the effect that the power exercisable in favor of the spouse, or of her estate must extend to the entire corpus of the trust. However, it is further provided in the regulations that this condition may be satisfied by one or more of several separate trusts created by the decedent; that an undivided interest in property may constitute the corpus of a trust, and that the will or a single trust instrument may create more than one trust. Under the terms of the trust in the instant case the decedent's widow is entitled to the entire net income from the trust estate during her lifetime. However, there was no segregation of the interest in the residue of the decedent's estate which passed in trust subject to the power of appointment in his widow such as would constitute a separate trust of an undivided interest in the property so passing. A trust instrument merely giving the widow the power to appoint a portion of the corpus of the trust estate transferred to the trust does not thereby create a separate trust in respect of any portion of, or interest in, the property forming the entire trust corpus. The interest in the trust property which passed to the widow was in effect a life estate in the entire property, together with a power of appointment over only a portion of the property, which is less than the virtual ownership contemplated by section 812(e) (1) (F) of the Code and section 81.47a of Regulations 105. In view of the foregoing it is held that the power given by decedent to his widow to appoint a portion of the property passing from the decedent in trust for the benefit of the widow does not in itself create a separate trust in respect of the portion of the trust corpus over which the widow has a power of appointment so as to qualify the value of the entire trust passing from the decedent, or any portion thereof, for the marital deduction under section 812 (e) (1) (F) of the Internal Revenue Code. SECTION 861.-[ESTATE OF NONRESIDENTS NOT REGULATIONS 105, SECTION 81.13: Property of decedent at time of death. (Also Section 862, Section 81.50.) INTERNAL REVENUE CODE Rev. Rul. 54-21 Bonds of a domestic corporation which are among the assets in the estate of a decedent who was a citizen and resident of Canada will not be included in the net estate for Federal estate tax purposes unless physically situated in the United States at the time of his death. Advice is requested whether bonds of a domestic corporation, which are among the assets of the estate of a decedent who was a resident and citizen of Canada, are includible in the net estate for Federal estate tax purposes. Section 861 (a) of the Internal Revenue Code and section 81.13 of Regulations 105, promulgated pursuant to section 811 (a) of the Code, provide, in part, that in the case of a decedent who was a nonresident not a citizen of the United States at the time of death, only the property situated in the United States is includible in the net estate. The question is presented because of an apparent conflict between the provisions of the supplemental death duty convention between the United States and Canada and the provisions of Estate Tax Regulations 105, relating to the situs of property. Under section 81.50 of the regulations, bonds in the estate of a nonresident not a citizen are deemed not within the United States unless physically situated therein. See Herman A. Holsten, executor, for the estate of Luisa Terry Ponvert v. Commissioner, 35 B. T. A. 568, affirmed per curiam, 93 Fed. (2d) 1002. Under subparagraph (f) of Article II of the convention bonds of a company are deemed to be situated at the place where the company is incorporated. However, the proviso at the end of Article II prescribes that such Article shall not be construed as increasing the liability of the estate of any person under the estate tax laws of the United States. By virtue of the above-mentioned proviso, the situs rules of Article II do not subject any property to the estate tax that would not otherwise be so subjected. Accordingly, unless the bonds were physically situated within the United States at the time of the decedent's death, they are not includible in the net estate. SECTION 862.-PROPERTY WITHIN THE UNITED STATES REGULATIONS 105, SECTION 81.50: Situs of Prop erty. INTERNAL REVENUE CODE Stock in a domestic corporation held by a nonresident not a citizen deemed property within the United States if physically situated therein. (See Rev. Rul. 54-21, above.) SECTION 1000.-IMPOSITION OF TAX SECTION 86.2, REGULATIONS 108: Transfers reached. INTERNAL REVENUE CODE Rental payment by grantor to a trustee for property which he conveyed to the trust. (See Rev. Rul. 54-9, p. 5.) SECTION 1700.—[ADMISSIONS]-TAX REGULATIONS 43, SECTION 101.2: Meaning of "admission." INTERNAL REVENUE CODE Rev. Rul. 54-22 Tax on admissions imposed by section 1700 (a) of the Internal Revenue Code applies to an amcunt paid for an exchange ticket when sold for an amount equal to the minimum admission charge, exclusive of tax, even though such ticket may be exchanged for higher priced accommodations for which an additional payment is necessary. If an exchange ticket is sold for a lesser amount than the minimum admission charge, exclusive of the tax, and admission cannot be gained except by payment of an additional charge, the amount paid for the exchange ticket is not subject to tax until or unless such ticket is exchanged for a ticket of admission, at which time the tax attaches to the total amount paid for the exchange ticket and the additional charge. Advice is requested concerning the application of tax on admissions imposed by section 1700 (a) of the Internal Revenue Code to amounts paid for exchange tickets. In the instant case M Corporation, which produces and manages a traveling show, engages organizations in communities where performances are scheduled to conduct advance sales of exchange tickets. The exchange tickets are sold for one dollar each of which amount 50 cents is retained by the organization selling the ticket and the remaining 50 cents is turned over to the M Corporation. The exchange tickets are redeemable at the box office for general admission tickets for the show or may be applied toward the purchase of reserve seats. Section 1700 (a) of the Code imposes a tax on the amount paid for admission to any place and applies to the amount which must be paid in order to gain admission to a place and not to the admission itself. It is held that where an exchange ticket is sold for an amount equal to the minimum admission charge, excluding the tax, the amount paid for such exchange ticket constitutes a payment for admission and the tax attaches at the time such payment is made, even though the ticket may be exchanged at the box office for higher priced accommodations for which an additional payment is necessary. On the other hand, if an exchange ticket is sold for a lesser amount than the minimum admission charge, excluding the tax, so that admission cannot be gained except by payment of an additional amount, the amount paid for the exchange ticket does not constitute an amount paid for admission and the tax does not apply thereto unless and until such ticket, together with the amount of the additional charge, is presented at the box office, at which time the tax attaches to the total amount paid for the exchange ticket and the additional charge. |