OPINION
Tannenwald, Judge:Respondent has asserted a deficiency against petitioner of $20,334.75 in estate tax. The issues for decision are (1) whether the amount to be included in decedent’s gross estate under section 20351 should be a prorata portion of the proceeds of insurance on decedent’s life or the amount of the premiums conceded to have been paid by the decedent in contemplation of death and (2) whether a potential obligation of the decedent, as lessor, to refund a $36,000 security deposit under a lease constitutes a deductible claim under section 2053.
All of the facts have been stipulated and are found accordingly.
The decedent, Inez G. Coleman, died on July 9, 1964. D. C. Coleman, Jr., received letters testamentary as executor on July 24, 1964, and was a legal resident of Miami, Fla., at the time of the filing of the petition herein. The Federal estate tax return was filed with the district director of internal revenue, Jacksonville, Fla.
Inclmlability of Life Insurance Proceeds
On June 23, 1961, decedent’s three children purchased as record owners and beneficiaries an insurance policy on her life.2 The children owned the policy; the decedent never possessed or transferred any of the record incidents of ownership. Decedent paid all the premiums, totaling $4,821. Of the total premiums, $3,373 was paid within 3 years of her death. The parties agree that only $1,686.50 of this latter amount was paid in contemplation of her death. Upon decedent’s death, her children received a total of $25,905.94 in proceeds as beneficiaries of the policies.
The petitioner contends that only $1,686.50, the money amount of the premiums paid in contemplation of death, should be included in the gross estate. The respondent contends that the amount to be included in the gross estate is that part of the total proceeds which bears the same proportion to the total proceeds as the premiums paid in contemplation of death bear to the total premiums paid. The issue thus joined is one of first impression in this Court.
At the outset, it is important to note that we are not here concerned with the unquestioned power of Congress to impose an estate tax on the proceeds of life insurance based upon the amount of premiums paid by the decedent. United States v. Manufacturers Nat. Bank, 363 U.S. 194 (1960). Nor are we concerned with whether the decedent made any transfer at all. Compare Chase Nat. Bank v. United States, 278 U.S. 327 (1929). Rather, the question before us is what did the decedent transfer.
We also underscore the fact that respondent’s position is premised upon the applicability of section 2035 3 and not upon section 2042. See sec. 20.2042-1 (a) (2), Estate Tax Regs. The latter section is clearly inapplicable, since includability of the proceeds of life insurance under its provisions depends upon the retention of incidents of ownership by the decedent — an element which respondent concedes is nonexistent in this case.
Petitioner argues that when Congress abolished the “premium payment” test by the enactment of section 2042 in 1954, it necessarily precluded the inclusion of any portion of the proceeds of life insurance based upon the amount paid. Heavy reliance is placed upon the explanation of the legislative committees that “This section revises existing law so that the payment of premiums is no longer a factor in determining the taxability under this section of insurance proceeds.” See H. Rept. No. 1337, 83d Cong., 2d Sess., p. A316 (1954); S. Rept. No. 1622, 83d Cong., 2d Sess., p. 472 (1954). We are unable to agree fully with petitioner’s argument. The quoted sentence is limited by the phrase “under this section.” It is therefore not automatically determinative of congressional intent. Nevertheless, it is clear from the legislative history that Congress sought to inter the “premium payment” test with the ashes of the 1939 Code as an independent generating force for the ineluctability of insurance proceeds. Under these circumstances, we hesitate to adopt an expansive construction of section 2035 in the area of life insurance, which would permit that test to rise phoenixlike from the language of that section.
Section 2035, by its terms, applies only to a “transfer” of an interest in property by a decedent. In Rev. Rul. 67-463, 1967-2 C.B. 327, respondent decreed that the mere payment of premiums operated as transfer of an interest , in the proceeds of insurance — in this case, by the decedent to her children. We disagree.
If the decedent had purchased a life insurance policy, initially retaining the ownership in herself, and thereafter assigned it to her children, there clearly would have been a “transfer” of an interest in the policy. E.g., Vanderlip v. Commissioner, 155 F. 2d 152 (C.A. 2, 1946); Estate of Arthur H. Hull, 38 T.C. 512, 525, 530 (1962), reversed on other grounds 325 F. 2d 367 (C.A. 3, 1963). Cf. Liebman v. Hassett, 148 F. 2d 247 (C.A. 1, 1945). If, on the other hand, decedent had given money to her children, and they, entirely on their own volition, had chosen to purchase an insurance policy on her life, it would be equally clear that only the money would have been “transferred.” Cf. Humphrey's Estate v. Commissioner, 162 F. 2d 1 (C.A. 5, 1947), affirming a Memorandum Opinion of this Court.
The purpose of section 2035 is to prevent the avoidance of estate tax through the use of gifts as a substitute for testamentary disposition of what would otherwise be included in the gross estate. Milliken v. United States, 283 U.S. 15 (1931); see Liebman v. Hassett, 148 F. 2d at 251. The focus, therefore, must be on what the decedent parted with as a result of her payment of the premiums in contemplation of death. Decedent held no interest whatsoever in the policy or its proceeds. Her children were the sole owners of the policy and only they could deal with rights and benefits flowing therefrom. To be sure, these payments kept the economic substance of that ownership alive. But the decisive point is that what these payments created or maintained was theirs and not hers. In these circumstances, we can see no basis for concluding that there was a constructive transfer of an interest in the policy. The only thing diverted from her estate was the actual money paid.
The question whether the payment of premiums can be equated with a transfer of the proceeds of an insurance policy has previously been considered in another context. In Goodnow v. United States, 302 F. 2d 516 (Ct. Cl. 1962), the decedent was the income beneficiary for life of a trust of the proceeds of insurance on the life of her deceased husband. At no time did the decedent have any of the incidents of ownership in the policies or any power to change the terms of the governing trust instrument. She had, however, paid all the premiums. Upon her death, the Commissioner of Internal Revenue sought to include the principal of the trust (i.e., the insurance proceeds) in her gross estate under section 2036(a) (1), contending that, by the payment of premiums, she had in effect made an inter vivos transfer of property with a retained life interest. The Court of Claims rejected this contention and held that the payment of premiums did not constitute a transfer of the insurance proceeds. The same rationale was applied in Estate of Ida Jarvis Pyle, 36 T.C. 1011 (1961), affd. 313 F. 2d 328 (C.A. 3, 1963), and Estate of Miran Karagheusian, 23 T.C. 806 (1955), reversed on another ground 233 F. 2d 197 (C.A. 2, 1956). In the latter case, we stated:
The facts show that the insurance policy was applied for by Zabelle [decedent’s wife], issued to her, and transferred by her to the trustee. Decedent, never having owned the policy, could not and did not make any transfer of it in contemplation of death or otherwise.
See 23 T.C. at 814. See also National City Bank of Cleveland v. United States, 371 F. 2d 13, 16 (C.A. 6, 1966).
The precise issue herein has been decided by two U.S. District Courts. In Gorman v. United States, 288 F. Supp. 225 (E.D. Mich. 1968), Judge Kaess, in an exhaustive opinion which analyzes in detail and fully distinguishes the principal cases relied upon by respondent herein, upheld the taxpayer. In First National Bank of Midland v. United States, an unreported case (W.D. Tex. 1968, 69-1 U.S.T.C. par. 12,574, 1969 P.-H. Fed. Tax Serv. par. 147,310), the position of the Government was sustained exclusively on the authority of Rev. Rul. 67-463, sufra.
We agree with Gorman v. United States, supra, and hold that the frontiers of section 2035 should not be extended to include the proceeds of life insurance simply because a decedent paid the premiums. Only the dollar amount of the premiums paid in contemplation of death is includable in the gross estate of the decedent herein.
The Security Defosit
In 1958, decedent, as lessor, leased certain property for a 99-year term expiring December 31, 2057. Upon the execution of the lease, she received a $36,000 security deposit. Since there was no requirement that the money be kept segregated, it was commingled with her other funds. Under the lease agreement, as amended in 1959, the deposit was security for the performance of all the lessee’s obligations under the lease. The lease agreement contained numerous covenants on the part of the lessee, including, among others, covenants to pay rent, to pay all taxes, to pay costs of title and tort litigation, to indemnify the lessor against any adverse judgment suffered in such litigation, to maintain certain insurance upon the property, to allow the lessor or her agents entry upon the premises to examine the condition thereof, to demolish no improvements without the lessor’s written consent, to construct no new improvements without the lessor’s written consent, and to keep the premises in good repair. In the event that the lessee breached any provision of the lease, the lessor was entitled to retain the security deposit as a partial liquidation of her damages.
Petitioner seeks to deduct the full $36,000 security deposit under section 2053.4 Eespondent argues that, at the date of death and even at the time of the submission of this case, it was not known whether the deposit would ever have to be paid to the lessee and that such a contingent liability cannot be allowed as a deduction. We agree with respondent.
When decedent died, the lease had 93½ years left to run; the lessee will be entitled to the $36,000 only if it faithfully performs its duties under the lease in each of those years. On the record before us, we have no way of determining whether the estate will ever be called upon to make any payment or, if a payment should be required, what the amount would be.
Petitioner contends that the fulfillment of the conditions for the repayment of the deposit is entirely within the control of the 'lessee. Petitioner’s argument misses the point. It is undisputed that an enforceable claim (whether against the estate or against the property alone) does not exist now; the question is whether such a claim will ever exist. The fact that the lessee controls the contingencies does not allow us to find that it will choose to perfect its claim. In short, what little evidence there is indicates the likelihood that the deposit will never be repaid. Indeed, the appraiser, whose report was attached to the estate tax return, found that the lease was an unfavorable one from the point of view of the lessee and that it was reasonable to expect, as of the date of the decedent’s death, that the lessee would either demand a reduction in rent or abrogate the lease.
We hold that no amount with respect to the security deposit is allowable as a deduction under section 2053. Accord, Estate of Walter A. May, 8 T.C. 1099, 1103 (1941), Estate of William P. Metcalf, T T.C. 153, 161-162 (1946), affirmed without opinion (C.A. 6, 1947). Cf. Buck v. Helvering, 73 F. 2d 760 (C.A. 9, 1934); Estate of Mary Redding Shedd, 37 T.C. 394, 397 (1961), affd. 320 F. 2d 638 (C.A. 9, 1962), and cases cited therein. See generally 4 Mertens, Law of Federal Gift & Estate Taxation, sec. 26.41 (1959).5
Reviewed by the Court.
Decision will he entered u/nder Bule 50.
All references are to the Internal Revenue Code of 1954, as amended.
The record does not reveal whether the policy was term or whole life or some other variant.
SEC. 2035. TRANSACTIONS IN CONTEMPLATION OF DEATH.
(a) General Rule. — The value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money’s worth), by trust or otherwise, in contemplation of his death.
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—
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(3) for claims against the estate, and
(4) for unpaid mortgages on, or any indebtedness in respect of property where the value of the decedent’s interest therein, undiminished by such mortgage or indebtedness, js included in the value of the gross estate,
as are allowable by the laws of the jurisdiction, whether within or without the United States, under which the estate is being administered.
We need not and do not reach respondent’s alternative contention, that if some amount is allowable under sec. 2053, it is limited to the present value, rather than the full amount, of the $36,000. See Schoenfeld v. Commissioner, 103 F. 2d 964, 967 (C.A. 9, 1939). Compare Gertrude M. Blackburn, 20 T.C. 204 (1953) ; Estate of Pompeo M. Maresi, 6 T.C. 682 (1946), affd. 156 F. 2d 929 (C.A. 2, 1946).