federal estate taxes by john p. mclaughlin collector internal revenue

8/14/2019 Federal Estate Taxes by John P. McLaughlin Collector Internal Revenue

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The Req'l,tuBlxle Book of Cdi,fo;nia


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188 Th.eRe4.ltuBlue Book of ColiJortilt

I L( ler : t l f -s t i t fc I ax( \,fiJlJoHN P. MCLAIGHLI^"

Tar Lo,id. Upo tlk TtLrLsfer hapettu Vatu'e- Rv'Lcslor ltah&tiot| of Pl apertu-Pro? eI 1t H.Id lointla or 6s?ennnts bl| the Entirctlt-T@:abLe Partioll Dedltcti()ns-Unpdlid Mortgates Penalta for Faihoe ta Erhibit ne.ord

HE Federal Estale Tax Nas fir'st irrposed bI th Act of Septembel It. 1916. 'fhis lar. \\-as rme,rlded y tile Att o{ ltrrch 3, 1917,(Tit ic I I I) . and thc Act of October3, 1u1?, (Tit le IX.) Theset\vo statutcs ircreascd thc late of tax. The Revenue Act oi 1918(Tjue IV), \ 'h irh becMre efiect iveFebluarl 24, 1919, educed hr:rtes applirable lo tlle srn^ller net estates as corDpared$ith those ofTit te IX of the ReverueAct of 191?,and containeda number of pro-r i s r o r . r ' o r o | | r n r .a r r o f r l , , I i i u r r . l .

I l , E t t l - \ t i \ ! I \ ! l u r l l r : lThjs le-enacts without charlge the lates of Title IV of theRelenue Act of,1918, suppl:uts al l prior- Acts as to the estates of de-cedIls dyirg aftel the ellcctivc date thercof, e bodies l1uner.ouschanges,but contains rrantr of the plovisiolls of the earlier acts. It isahrals rcferred to in the lcgulation,s :rs hc "statutcs." A1l lefelencesto the statute ^re sDecific.The statutc subjects to lax tr':lnsfels bI l\-ill and uDder intestxtelarvs, and also transfers made bl' the decederlt n his lifetime, $'hen

m,rde in @ntcmdation of death oI nltended to lake effe(t ir posses-sioD ol enjolnlent :Lt ol. nltcr his death. e\ceptinE, howevcr, bona fides.r les or' fai l corsideHti(tr in moneyoI rnorrey's 'o1th. Tlansferso{ reft^in othel propeltl' interests .r)c also ir(luded.'|,{X LAID IJPON 'I'}II I'RANSFER'fhc Federal Eslate'fax is neither a plopert! nor an illleritanceta\. bnt is a l.rx inDosed upon thc trarsfel of thc ret estate of everTpelsorr dying :ritel Septenrber'8, 1916, dete)nired i thc rnannerplesclibc.t bx the :lDDlioble l,r\'. (Sec.Sriicle 1, oi r'cglrliiiorls 63.)

The tax is nol laid upon the proper'ly, but upoD ts tlansfcr fron thedecedent o other's. The subject of tax is the trAnsfel of the entire netestate,not any pariiculal. legacy, delise, o]' distrjbutive sllare, and therelationshiD of the beneficiary to the deccdeDthas no bearing uponthc question of liauilit]', or io the exteDt theleof. The tlansfcr ofplopert! is taxable, althongh it escheats o thc state fot lack of heirs.


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The RealtA BtrueBook of Calilornia, 189PROPIIRAYYALUE

- Property of the decedent should be retumeal at its market orEalevalue at lhe time of rhe dpcedent,sdeath, tt u ""ii""iim oi *iflvalue s the pflce which a wil l ing buypr wil l pay to a wi l l ing sellcr orrne propefi l In questron nder t le circumstances xis l ing i t Lhedaleof the decedents death or within such reasonaUlepe.ioa ile.ealter "iouldafford propFropportuniry for an examinatidnanal ale herpof.-j \errner,deprectatronnor ap-Drecjat ionn valuesublequenro the dateor oecedenrs death ts considered_RULDSNORVALUATIONOF ISOPfi'TY

. , Where real tropp y has been sold. ile amount received will beraRen s rts value. provided he sale met the condit ions ajd down inAfticle 13,-of !gulations 63. W1rre no sale has b""" ;;d;. -i;;critdon of value is the best price which coulalhave t""" Jfiiiri,iiwi lhin s reasonable eriod oa rhe decoaent 's eaitr. i l ; ; ; ; ; ; ; ;snouro or 0e relurnpd af the localassessedalue hcreof,unlesisuclv.alueBr-esentshe true market vallreat the a"t" -"i J""""a"ril"lf3it; *,lj#t"""#t facts'andllelementsr"au" utiorra"-Jii"'ialPROPERTYELDJOTNTLY RAS TENANTS Y THE ENTIREI'Y

Thg 6j3tule provides or the i l lclusjonrn rhe gloss eslaleoI in.teresls eid joinr y b) the de(edenr nd any olher -perion"r ' . ; ; ;" ;"-ndof eslates y.theenrirety. Thisctass f p-p"id-i"|tJi"!'.iiii1lEresrs. wneLnel In {eat or personal property, where the su}vivorIaKes ne entlre properly by r ighl of survivorship,and ConseouenS:":Ti.:lT'""lrf,T:',i'il'il"JTf;*i"X:iiJ.li,lilt'1.'ii,Hi;in common,where the interest of eachrishl rsurvivorshjp.ho olrowingxffi:l Xf"'""Trli:"",:::TfHe.are etd by Jotnt lenants: real esta{pheld by husbandand wife_;,fitxi#;-ilt]1"i"ir"J,ifll'if':l monevepositedna bankrpayabreo.eirherr l,,eu'vivor:", i"" #lfil: ;,li*l?ill:: ll$omer personalproperty. where the t i e lherelo was vestpd n the:;i i1;:1",i,x1 l'por mofporherper


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190 The Realt! BlrLeBook oi C(d,ifofni/1o$-ner. and nhich :ri mo i]ne ir the past hnd been eccived or. acquiredby the latter'fionl the decedent {or less than a fair. considelatiolr inmoncy oI norey's wor'th, folnrs no DaIt oI the decedent'sgross es-tate. (2) Whele the facts are othelw,is e he sameas in (1), but thdecedent paid to such other joirt o$'ner a considelation for the in-telest by hirr (the decederlt) aoquiled in the propelty, ploportiorlateto the consider'atiolrso Daid,rorstitutes n palt of the goss estate. (3)Whcle thc ploDelty, or a par'i ther'eof, oI il p:ut of the considerationwherc\.ith it lvas acquifed, had at any time beer acquir-ed by theothel joint o$'ner' lrom the decedent as a gift, or for' less thrn a fair-cousidelatior in noney or ir morev's $.olth, then suchportioD of thevalLre of the entire proDclty, ploportion:lte to the considelation, ifary, $-hicb, r the first instaDce vas p:1id rom such ojnt owDer''sownfunds, fo|nN no D:ut ol the gross estnte. (4) Whele thc propertl'1vasacquired by the deccdent and his or her sulvivins spoLrsc s tcnaDtsiD the entiretl by gift, 1lill, or inherit.rrce, then but one-hnlf of thevalue of the plopcr:ty becorresa palt of the gross estate. (5) Whereacquiled by the decedent ard the othcr joirlt owner as joint tellantsby gift, will oI irher'itarlce, and theil inLelesls are not olher.wisespecified,or fixcd by law, then one hall oltly oI the value of the pr-op,elt , \ ' is a palt af the gross estate;()1,$-heleso acquiredby thc de-cedcnt and two o1.more lcrsons, and the interests of the sever:l] ointten:urts ar'e not othenvise detelmiDable, then the deccdent ard theothel joiDt teDants suruiviDg him shall each be deerred thc o\l'Delol :rr1 qu:r l j act ionalpall , and the \r lue of one onl) 'ol such {r 'ac-ti(nl:rl p:r|t is lo bc jnclLrdcdn the gloss estnte.Thc follo*.tug ale givcn as illustlatiors: (a) The decedent mayhate {ulnished the entile Durchase Drice, ir fhich cnse the laluc ofthc cnt i le Dloprt) 'should be i lcluded ir1sross estate; (b) the de-ccdcnt Dlar''have fur'nished a p.rrt only of the pulchase price, in whichcasc only the v^lLteof a corlesDonding poltion of the ploperiy shouldbc so incllrdcd: (c.) the decederlt,pr.ior' o acquisitiorl ol the propelt)by himself and the other joint owrer' , ma-v ave givcl to the latter asur1,I I rnoDeywhich latel constituted such other joint o\'!relrs entir-ccontribution to thc purchaso p,-iccof lhe Dloper,t!, iu r-hich case theentire ! :r lue of the propelt-\r hould be included; (d) the othr. iointowner', at.r dat prior to the acquilement of the plopelty, may have:rcquiled from the deccderlt, for lcss than a {.rit considelatioD inlnoney or money's lvolth, Iropclty which thelealtel becane as such,or i[ a conlerted folm, part of the pu]chase price of the plopclty-In such a cxse, he \.aluc of the !loDclty to be inciuded is to be Ieduccdploportidlately to thc considelation lotrisherl by the other jointowner in the origiral transaclionj (e) the decedent rray have tur-nished ro pai_t of tllc Durchase plire, ir1 \-hich case no palt of theplopeliy shouldbe includcd: ({) the decdent l ld spouse nay have.rcquiled the Dropelt,\'by \vill as leDatlts bt'the entiletr, ir1$'hich cascone-hxlf of the vahre of the Drollclty should be irlcluded.

DEDUCTIONSSection .103,of legulations 63 leads: "That for the pur.poseofth tax the value of the net estate shall be deter.mined. (a) In theclse of a resident, bv dedlrcting from the vallie of thc gloss estate.


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(1) Such amounts for funeral expenses, dministratioDexpenses,claims againstthe estate,unpaid mor+gages, pon, or any indebted-ness in respect to property (except, in the case of a resident de-cedent,where such property is not situated in t}le United States),losses ncuned during the settlemnt of the estate adsing lrom fires,storms, shipwreck, or other casualty, or from thefi, when such lossesare not compensatealor by insurance or otherwise, and such amountsreaEonablyequired and actually expendeal or the support dudng thesettlement of the estate of thosedependent upon the decedent,as areallowed by thd laws of the judsdiction, $'hether !'ithin or without theUnited States,under which the estate s being administered, ut notincludingany income axes upoD ncome eceivedafter the death ofthe decedent, r any estate,succession,egacy,or inheritance axes.' * + * * * In order to get a more definiteundemtanding f the deduc-tionsoneshould eadcarefully over adicles Nos, 32, 33, 34, 35,36, 3?,and 38, of regulations63.'Taxesupon real property shouldbe accrued o the date of deathin order to reflect n the grossestate he value of the property uponwhich they 1lreremposed. This is doneby ascertaining he time be-tween he first day of the taxable period wherein the death occurs andthe dateof death,and computingtheproportionof the entire tax uponthe basis which this pedod bears to the entire taxableyear. Suchproportionof the tax had accruedupon he date of death, and is de-ductible. Federal axes upon ncome eceivedor accruedduring thedecedent lifetime constitutea personalobligation of the decedent,and are deductible. Taxesupon ncom eceivedafter the decedent'sdeathare not deductible. No estate, uccession,egacy, r inheritancetax is deductible. UNPAID MORTGAGES'The full amountof unpaid mortgageson property ncluded n thegmssestateshouldbe deducted nder his heading, ncluding nterestwhichhad accruedat the time of death, v.hether payable at that timor [ot. The full value of the real estate, vrithout any deduction formortgages,must be retumed as part of the grossestate. Realprop:erty situated outside the United States s not a part of the grossestateof a residentdecedent, or may deductions e taken of any mortgag

upon, oI any indebtedness n respect to, such prope*y when owredby a residentdecedent.

Tke Redta Bl,ueBookof Calilotn L 191

PROPERTY ACQUIRED IN EXCIIANGEThe deduction or subst i lutedproperty is l imi led to properl,yac-in exchange for ihe idcnl i|"al property receivedIrom the priorlent. Wlere there is a subsequent xchange,he right to deduc-1S OSt.In the qaseof an exchange he executor must describe fully andboth the Dropcny originally received from the prior decedentthe propefty acquired n the excharge herefor. He must alsothe date of lhe I ransaction by which the exchange was effectedthe name and addressof the transferee. If the exchange wase.by a written instrument.of public record., p-reciseeferencebemade o the recordcontaininga trenscript of the instrument,


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192 TlLeRcaltlt Bl:LLe aah af Ce,Iil niLand, if by irlstrumenl. |ot of r'ecor'd,a copy of lhc ilstrunlent itselfmusl be supplied. If thele $':rs no r.titten instruDlent, an affid:rvitas to the facts of the exchar)ge by one ol nore pelsons h^villg per'-sonal knowledge of thc rutter nust be fulnishcd. Fot inlblmationas to the deductioDs:l l lo ivedhe estalesol Don-lcsidents c:rdc:ucful ly Section, l0.3 l legulrt ioDs 6i l .

fROfDIt'r,Y SURJECT TO I,I]INThis l ien ,rt t . rcheso everl- paf l ol the gloss eslate,whcthel ornot the DIoDeIty cornes rto the possessionoI the duly qlralified exec_utor oI adniristratoi. Il attachcs to the extenl of the tax shown tobe due by the ! etLrr. rnd ol any : lddit ional :rx loLrnd o be due uponin!'estigation.Whele thc decedent transfelred ol Dlaccd in tr'usi. propelty )r1cortent)laliorl ol or intelded to t,rke ellocl in lossession ol cruovrnentat or after his dcath (except in Lhe crse of :1bona fide s lc for':! fairconsider':1tion n money oI rnorlel's \\'olth), and when D}occedsofinslrlaDce oD hls liie Drssed to a specific belleficjar!' other thall thcduly qualified execulot ol administlator', a lie att:rches thereto tothe amount of the trLx in lespect to the par'tioulal ploperty oI moneyreceived by such transferee, huslee, o]. nslilance beneliciarv xnd suchtrallsferee, tlustce, oI insura[ce beneffciar:v s ]rersonall-v iable for-Whele the tlansfe):ee ol tlustec sells the propclty to a bona 6de

pnrchascr for' a feir co[sidelation in rnoney or il1 money's rvorth theiien upon the property is divesied; but there is substituted a like lienupon all the tropelty of such transfelee or in c:1se f such tlansfel bva llustee uporl all thc assets of the tr'usl estatc, excepi such palt asmay be sold to a bora idc plrr.chascl lor such a coDsideration. Thelien uDon the crtire plopert]' corNtituting the gross estate contiDuesfol. a peliod of tcrl ycars after th decedent'sdeath except:(1) Where lhe tax is Daid ilr fuli before the expilation of suchpefiod;(2) Such poll.jor ol lhe gross estatc,ls is used for the paymentof chales agairst the estate and expeDses of its admjnistlationallo$'cdby nny c.ult havins jul isdicl ion theleof:(3) Such po]'tion of the sross estale as hils Dassed o a bonafide purchascr for'\.alLre afler payment of the full amount of the taxdetelnrined by the Commissiorcr of Irter'nll Revenue pulsuaDt to arequest oI the executol as autholized by Sectior 407, for. dischargefron pelsonal li:rbilii.y. Read carefully Articlc 72 of resulations 63.(4) Such })r'opelty as has beeDsold by :rny tra sferee or trusteeto a boDa llde pulchasel for' a {air consideration irr money oI inmoney's 1r'olth, \yherc such plopelty was received fton the decedentas a tlansfer ir1 conternplatior of, oI irtelded to take ellect ir r posses

sion or. eDjoyment at oI after his denth (except in the case of a bonafide sale for a fail considelation i moDcy o,- n moDe)''s volth) ;(5) Where the commissione,.'ssueshis certificate releasing suchIien-(see adicle 87).


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The Realta Bl,ueBook of Cakfornin 193PEN,ILTY FOR FAILURE TO EXIIIBIT EECORDOF PROPERTYWhere a person in possessionor control of ary record, 6le, orpaprr supposed o contain any infonnation relating to all estate; or

having in his possessionor control property comprised in the grossestate of a decedent, fails to exhibit the same, upon the request ofthe Commissioner f Intemal Revnue, r any Collectorof InterualRevenue or law oficer of the United Staies, or his duly authorizeddeputy or agent, in the pexformance of his duties, he is liable to apenaltynot to exceed$500.00,o be recovereal y civil action. Hemust comply with such a tequest whether or not he believes that thedocumert contains infomation relating to the estate.Anlthing that has not been covered n this chapter to your satis-faction can be thoroughly digested by obtaining from the office of theCollector of ltrter"nal Revenue or the district iD which you live a copyof the RevenueAct of 1921,Regulations 62 and 63, relating to EstateTax under the RevenueAct of 1921.


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federal estate taxes by john p. mclaughlin collector internal revenue

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