In Re Estate of Fannie Bomash, Deceased. Julian Bomash, Administrator v. Commissioner of Internal Revenue

432 F.2d 308 In re ESTATE of Fannie BOMASH, Deceased. Julian BOMASH, Administrator, Appellee, v. COMMISSIONER OF INTERNAL REVENUE, Appellant. No. 24044. United States Court of Appeals, Ninth Circuit. October 2, 1970. 1 William L. Goldman (argued), Johnnie M. Walters, Asst. Atty. Gen., Tax Division, Dept. of Justice, K. Martin Worthy, Chief Counsel, I.R.S., Washington, D. C., for appellants. 2 Bernard W. Shafer (argued), Beverly Hills, Cal., for appellee. 3 Before BARNES and HUFSTEDLER, Circuit Judges, and BYRNE, * District Judge. BYRNE, District Judge: 4 The Commissioner of Internal Revenue has appealed to this Court to reverse a decision of the United States Tax Court which redetermined a tax deficiency on the estate of Fannie Bomash (hereinafter referred to as "Fannie"). 5 In 1942 Fannie's husband, Louis Bomash, died. Louis's will set up a testamentary trust composed entirely of community property. By the terms of the will, 50% of the trust income was payable to Fannie for life and the remainder payable to various offspring. Roughly one-half of the trust corpus consisted of Fannie's one-half share of the community property and the other half of the corpus was Louis's share of…

The Commissioner of Internal Revenue has appealed to this Court to reverse a decision of the United States Tax Court which redetermined a tax deficiency on the estate of Fannie Bomash (hereinafter referred to as “Fannie”).

*310 In 1942 Fannie’s husband, Louis Bomash, died. Louis’s will set up a testamentary trust composed entirely of community property. By the terms of the will, 50% of the trust income was payable to Fannie for life and the remainder payable to various offspring. Roughly one-half of the trust corpus consisted of Fannie’s one-half share of the community property and the other half of the corpus was Louis’s share of the community property.

Fannie’s share was placed into the trust by means of an endorsement to Louis’s will in which she acquiesced in his disposition of the community property. Fannie’s election to take under her husband’s will rather than her statutory share was found by the Tax Court to constitute a “transfer” of property within the meaning of Section 2036(a) Title 26 U.S.C. 1 [transfers with retained life estate]. Although the appellee argued the contrary position in the Tax Court, it has not cross-appealed from that part of the Tax Court’s…

(separately concurring):

I agree with the ultimate result reached in the majority opinion, but because I am unable to concur fully in the rationale of the majority, I set forth my views separately.

Section 2036(a) of 26 U.S.C. states two elements to be used in determining the extent to which Fannie’s estate shall be subject to tax: (1) that the decedent shall have made a transfer of an interest in the property, and (2) that, by trust or otherwise, the decedent shall have retained a life interest, including a right to income, from the property transferred. Both requisites have been met in Fannie’s case. The difficulty in applying section 2036(a) to Fannie’s estate lies in the proper characterization of the interests she respectively transferred and retained. That difficulty stems from the fact that those interests were undivided interests in community property.

Before Louis died, Fannie and Louis each owned “present, existing and equal interests” in their community property. (Cal.Civ.Code § 161a.) Neither spouse was irrevocably committed to the testamentary plan encompassed by Louis’ will and by Fannie’s waiver, because there was nothing in those documents from which a binding…