1956 U.S. Tax Ct. LEXIS 269">*269 Decision will be entered under Rule 50.
1. The decedent's mother paid all of the premiums on 8 policies of insurance on decedent's life. She was the beneficiary and received the proceeds upon decedent's death. The evidence establishes that the decedent possessed an incident of ownership in the policies. Petitioner has failed to establish that decedent did not possess other incidents of ownership. Held, the proceeds of the insurance, $ 61,266.72, are includible in decedent's gross estate under the provisions of section 811 (g) (2) (B) of the 1939 Code.
2. Upon the facts, held that failure to file the estate tax return within the time prescribed by law was due to a reasonable cause and not to willful neglect.
25 T.C. 1026">*1026 The Commissioner determined a deficiency in estate tax in the amount of $ 31,484.09. In addition, he imposed a 25 per cent addition to the tax, in the amount of $ 7,871.02, under the provisions of section 25 T.C. 1026">*1027 3612 (d) (1) of the 1939 Code because the estate tax return was not filed within the1956 U.S. Tax Ct. LEXIS 269">*270 time prescribed by law.
The Commissioner now concedes that two classes of property are not includible in the gross estate of the decedent, and he has agreed that the estate is entitled to deductions for debts of the decedent, consisting of Federal and State income taxes, penalties, and interest, if any, and for administration expenses, the amounts of which are to be computed under Rule 50.
The questions to be decided are as follows: (1) Whether the decedent, at the time of his death, possessed any of the incidents of ownership in 8 insurance policies insuring his life, purchased with premiums paid by his mother, so as to bring the proceeds thereof within his gross estate under section 811 (g) (2) (B) of the 1939 Code; (2) whether the failure to file the estate tax return within the time prescribed by law was due to a reasonable cause and not to willful neglect.
FINDINGS OF FACT.
The stipulation of facts and attached exhibits are incorporated herein by this reference, and all of the stipulated facts are found as stipulated.
The general facts, in brief, and those pertaining to the issues to be decided, are as follows:
Michael Collino, hereinafter referred to as the decedent, died intestate1956 U.S. Tax Ct. LEXIS 269">*271 on October 30, 1947, at the age of 47 years, a resident of Bronx County, New York. Mortimer J. Goodstein is the duly appointed and acting administrator of the decedent's estate. He succeeded Helen Collino Kovacs who was removed as administratrix.
The decedent was survived by his widow, Helen Collino, now Helen Kovacs, an incompetent son, and his mother, Grace Collino.
Grace Collino is an immigrant of Italian extraction who, after many years of residence in New York, cannot read or write English. She immigrated to New York when she was 18 years of age. She is now about 80 years old. She is the widow of Frank Collino who died in 1940.
Frank Collino established and owned the Frank Collino Monument Works. Upon the death of Frank Collino, his entire estate was conveyed to Grace Collino, as the sole beneficiary, by the will of Frank Collino which was probated in Bronx County. After the death of Frank Collino, a certificate of doing business under the name of Frank Collino Monument Works was filed in 1940 by Grace Collino in the Bronx County Clerk's office, and thereafter, until November 1947, Grace Collino was the sole proprietor of the business. She sold the business on about November1956 U.S. Tax Ct. LEXIS 269">*272 15, 1947.
Michael Collino worked in the Collino Monument Works business prior to 1940 and until his death on October 30, 1947. Grace Collino 25 T.C. 1026">*1028 depended upon Michael to supervise the family monument business.
Between 1931 and 1937, Grace Collino applied to an insurance broker for the purchase of 8 policies of life insurance upon the life of her son, Michael, and 8 policies of insurance were issued in the total face amount of $ 57,500. The policies of insurance were issued by Metropolitan Life Insurance Company. Each policy was a 20-year endowment policy. In each policy, Michael Collino was the insured, and Grace Collino was named the beneficiary. The dates of issuance and the amounts of each policy were as follows:
| Date of issue | Amount |
| Dec. 18, 1931 | $ 10,000 |
| Feb. 3, 1936 | 5,000 |
| Jan. 18, 1937 | 5,000 |
| 10,000 | |
| June 1, 1937 | 5,000 |
| July 1, 1937 | 10,000 |
| Aug. 4, 1937 | 10,000 |
| Aug. 19, 1937 | 2,500 |
| Total | $ 57,500 |
Grace Collino told the insurance broker that she would pay all of the premiums on all of the policies and that she was going to keep the policies. Grace Collino paid all of the premiums. Either she made payment of the premiums, or her son, Michael, paid1956 U.S. Tax Ct. LEXIS 269">*273 them with funds which she provided. In 1947, Grace Collino made prepayment of the balance of all of the premiums required under all of the policies in the amount of about $ 20,000. The total amount of premiums paid on all of the policies was $ 50,408.66, of which amount Metropolitan refunded $ 13,940.10 to Grace Collino after the death of Michael Collino. The net amount of the retained premiums was, therefore, $ 36,468.56.
When the first policies of insurance on Michael's life were purchased, Frank Collino was living; he was an aged and a sick man.
Grace Collino retained the physical possession of the 8 policies of insurance on Michael's life. No one ever borrowed on the policies.
The decedent, Michael Collino, purchased 3 policies of insurance in which his wife, Helen, was named the beneficiary. The total amount of these policies was $ 28,400.48. Over one of these policies, in the amount of $ 17,930.37, issued in 1939 by Security Mutual Life Insurance Company, Michael Collino exercised control.
Under agreement with Metropolitan, the interest, the accumulated dividends, and refund of prepaid premiums were paid to the beneficiary of the 8 policies which are involved in this proceeding.
1956 U.S. Tax Ct. LEXIS 269">*274 After the death of Michael Collino, Metropolitan paid Grace Collino, the beneficiary of the 8 policies, the face amount thereof, $ 57,500, 25 T.C. 1026">*1029 plus interest and accumulated dividends, $ 3,766.72, and it also refunded to her $ 13,940.10 for prepaid premiums.
The total sum of the above payments was $ 75,206.82. No part of such amount was included in the gross estate of the decedent in the estate tax return. The Commissioner determined that the proceeds of the 8 insurance policies are includible in the decedent's gross estate, and he included in the value of the gross estate, as insurance, $ 75,206.82, which amount included the refunded, prepaid premiums of $ 13,940.10. The respondent now concedes that $ 13,940.10 represents property of Grace Collino and that such amount is not includible in the gross estate of the decedent. Accordingly, the net amount of the insurance represented by the 8 policies issued by Metropolitan is $ 61,266.72, only.
On February 14, 1948, letters of administration were issued to the decedent's widow, Helen, appointing her administratrix of the estate. Helen's occupation was that of a housewife and she had not had any business experience. Also, she1956 U.S. Tax Ct. LEXIS 269">*275 knew very little about the business activities and transactions which her deceased husband had carried on both for himself and for his mother. She had not had any previous experience with the administration of any estate. Shortly after her husband's death, she employed an attorney whom she had known socially for many years, Dante R. Cappa. He obtained letters of administration appointing her administratrix, and he acted as her attorney in all of the matters she had to deal with as administratrix. Helen put in Cappa's hands all of the matters pertaining to the administration of the estate and she relied wholly upon Cappa for his advice and guidance.
Soon after the funeral for the decedent, Helen arranged a meeting which was attended by her attorney, Cappa, and by Bernard Wolf, the attorney who had served and represented Grace, Frank, and Michael Collino since 1932, and by Grace Collino, and other members of the Collino family. Thereafter, Helen and Cappa undertook to locate and assemble all of the properties and assets of the decedent. To do this was difficult for several reasons, namely, because Michael Collino had not kept personal accounting records, complete accounting records1956 U.S. Tax Ct. LEXIS 269">*276 for his mother's monument business, or complete accounting records of his mother's property. Furthermore, there were savings bank accounts in the name of the decedent which were "in trust" for Grace Collino; there was a joint checking account of Michael and Grace Collino; there were brokerage accounts in the name of Michael and Grace Collino, or the survivor; there were some properties which were jointly held by Michael and Helen Collino; there was a brokerage account which was a joint survivorship account of 25 T.C. 1026">*1030 Michael and Helen Collino; and there were some claims against the decedent.
To assemble the assets and liabilities of the estate of the decedent was a complicated undertaking. Grace Collino had inherited assets from her husband in addition to the monument business. It had been necessary for Grace to have Michael look after the monument business and her bank accounts and investments. Grace claimed that moneys were held "in trust" for her by Michael, and that assets held in joint and survivorship accounts had been her own separate property at all times. Also, she had purchased 8 insurance policies on Michael's life and had paid all of the premiums in the total amount1956 U.S. Tax Ct. LEXIS 269">*277 of $ 50,408.66, and she claimed that all of the premiums had been paid with her separate funds.
Helen was wholly lacking in knowledge and experience to administer an estate which involved complicated problems and required the ascertainment of many factual matters. The attorney, Wolf, was able to and did provide assistance and information in tracing assets. Cappa is a capable attorney. He made investigations to determine what were the decedent's assets. He appeared in the Surrogate's Court to represent the administratrix.
Cappa prepared an administratrix's accounting for Helen, which she executed and which he filed in the Bronx County Surrogate's Court on November 16, 1948. In this accounting it was stated that "an application to fix the N. Y. Estate Tax will be filed in the near future," and that "a proceeding is being filed to fix and determine Estate Tax and Federal Inheritance Tax."
The Federal estate tax return was not due until about January 30, 1949, i. e., within 15 months from the date of death of the decedent who had died on October 30, 1947, intestate. For reasons set forth hereinafter, neither Helen nor Cappa filed a Federal estate tax return. However, in the administratrix's1956 U.S. Tax Ct. LEXIS 269">*278 accounting which he prepared and filed on November 16, 1948, he listed and reported, inter alia, the existence of all of the insurance on the decedent's life, payable to either Grace or Helen Collino; a joint survivorship stock account of the decedent and his wife; and joint bank accounts of Grace and Michael Collino in which about $ 63,559 were deposited. Cappa reported in this accounting, that the above items did not constitute part of the decedent's estate.
In the accounting of November 16, 1948, Cappa and Helen also reported assets of the estate, consisting of brokerage accounts, a bond, bank account balance, proceeds from the sales of a mortgage certificate and an automobile, and other items in the total amount of $ 23,292.08, about which there has never been a dispute unless some small details required adjustments for accuracy; and he reported liabilities of 25 T.C. 1026">*1031 $ 4,818.35. The amount of the liabilities was later reported in the estate tax return as amounting to $ 12,318.79. Therefore, the net estate reported to the surrogate in the accounting of November 16, 1948, was $ 18,473.73.
If the insurance of which Helen Collino was named the beneficiary had been included1956 U.S. Tax Ct. LEXIS 269">*279 in the estate's assets in the above accounting, it would have increased the gross assets to $ 44,092.56.
The decedent was survived by an incompetent son for which there was a committee of his person and estate consisting of Mortimer J. Goodstein, a lawyer, who was appointed as the committee by the Bronx County Supreme Court on June 15, 1948.
Objections to the accounting of the administratrix of November 16, 1948, were filed by the committee for the incompetent, and the surrogate acted upon the objections under an order dated April 7, 1949. The surrogate overruled objections and he made findings which settled some disputed items in the account. The surrogate found that insufficient efforts had been made to collect some of the debts owing to the estate, and that greater efforts should have been made to bring the estate "to the point where distribution can be made." He revoked the letters of administration granted to Helen Collino, effective June 3, 1949, with the finding that "Nothing has been shown, however, which reflects upon the integrity of the administratrix." When Helen's letters were revoked, Cappa's services ended.
On June 23, 1949, Mortimer J. Goodstein was appointed administrator1956 U.S. Tax Ct. LEXIS 269">*280 de bonis non of the decedent's estate. After his appointment, Goodstein located some jointly held assets of the decedent in the amount of a few thousand dollars which were includible in the estate. In view of the confusion in records and of the claims of decedent's mother to property, it took some time to accurately determine the amount of the decedent's gross estate.
Goodstein filed the Federal estate tax return on February 6, 1950, more than 27 months after decedent's death. In the return he reported gross estate assets of $ 60,960.77, deductions of $ 12,318.79, and a net estate of $ 48,641.98. He reported, but did not include in the gross estate, assets totaling $ 115,110.19 which included the proceeds of the 8 policies of insurance purchased by Grace Collino, and the savings accounts, joint brokerage accounts, and other items which Grace claimed to be her own property. Goodstein included in the gross estate the insurance payable to Helen and joint properties collected by the widow.
On January 24, 1955, the surrogate judicially determined that certain joint and survivorship bank accounts "in trust" were and always had been the property of Grace Collino, and that other 1956 U.S. Tax Ct. LEXIS 269">*281 bank accounts and brokerage accounts were the exclusive properties of Grace Collino. No appeal was filed by any party.
25 T.C. 1026">*1032 Cappa had a bona fide belief that the gross estate of the decedent was less than $ 60,000, and that the filing of a Federal estate tax return was not required.
Goodstein's delay in filing the estate tax return was not due to willful neglect but was due to a reasonable cause. Helen Collino Kovacs' failure to file the estate tax return within the time prescribed by law was due to a reasonable cause and not to willful neglect.
With respect to each of the 8 insurance policies purchased with premiums paid by the decedent's mother, the decedent retained incidents of ownership irrespective of the fact that he neither retained possession of the policies nor paid any of the premiums thereon.
OPINION.
Issue 1.
The question to be decided is whether insurance in the amount of $ 61,266.72, which was received by the decedent's mother as the beneficiary of 8 policies of insurance, under which the decedent was the insured, is includible in the decedent's gross estate under the provisions of section 811 (g) (2) of the 1939 Code. 1
1956 U.S. Tax Ct. LEXIS 269">*282 The respondent does not claim that the policies in question were purchased with premiums paid directly or indirectly by the decedent. He concedes that the provisions of section 811 (g) (2) (A) are not involved.
The respondent contends that the insurance proceeds received by Grace Collino are includible in the decendent's gross estate under the provisions of section 811 (g) (2) (B) because the proceeds were paid under policies "with respect to which the decedent possessed at his death any of the incidents of ownership, exercisable alone or in conjunction with any other person." The question to be decided is whether the decedent possessed any of the incidents of ownership in the 8 policies at the time of his death. Under this issue, the petitioner has the burden of proof.
25 T.C. 1026">*1033 The term "incidents of ownership," in section 811 (g) (2) (B), includes the power to change the beneficiary, to surrender or cancel the policy, to assign the policy, or to revoke an assignment, to pledge the policy for a loan, or to obtain a loan from the insurer against the surrender value of the policy. Regs. 105, sec. 81.27.
The petitioner concedes that the decedent possessed the right to change the1956 U.S. Tax Ct. LEXIS 269">*283 beneficiary under the terms of the policies. The right to change the beneficiary is an incident of ownership. Since the decedent possessed that right, it would appear that the proceeds of insurance are brought into the gross estate by the provisions of section 811 (g) (2) (B) which refers to "any of the incidents of ownership." Nevertheless it is petitioner's contention that Grace Collino, rather than the decedent, was intended to be, and in fact was, the true owner of the various incidents of ownership. Petitioner takes the view that intent controls. He relies on National Metropolitan Bank v. United States, (Ct. Cl.) 87 F. Supp. 773">87 F. Supp. 773, and District of Columbia v. Wilson, 216 F.2d 630.
Upon the record before us, petitioner's contention must be rejected. There is no evidence that the decedent did not possess incidents of ownership of the 8 policies of insurance, all incidents of ownership or some incidents of ownership, in addition to the right to change the beneficiary. Since petitioner's contention presents a problem about intent, petitioner's burden of proof is difficult. Also, petitioner has been unable1956 U.S. Tax Ct. LEXIS 269">*284 to locate records which are material to the question to be proved. The difficulties of proving the material facts leave the petitioner in the unfortunate position of making a claim which cannot be supported. There is failure of proof. Neither the petitioner nor the insurer was able to produce copies of the policies. The retained records of the insurer do not reveal any of the terms of the policies other than that they were endowment policies. An employee of the Metropolitan Life Insurance Company testified that all records concerning the policies on the life of Michael Collino issued by his company, of which Grace Collino was the beneficiary, were available until March 1955, but that after that time such records could not be found after a thorough and diligent search. He also testified that he has no personal knowledge or recollection with respect to the issuance of such policies, the premium payments thereon, the incidents of ownership with respect thereto, the possession of any of the privileges exercisable in such policies, or any other personal information concerning such policies. The consequences of the failure of proof must be borne by the petitioner. Burnet v. Houston, 283 U.S. 223">283 U.S. 223.1956 U.S. Tax Ct. LEXIS 269">*285 It must be concluded that the petitioner has failed to establish that Grace Collino was the true owner of the policies, and that the decedent did not possess, at his death, any of the incidents of ownership of the 8 policies.
25 T.C. 1026">*1034 The facts in the cases on which petitioner relies make them distinguishable from this proceeding, in our opinion. In the National Metropolitan Bank case, supra, the decedent was named in two policies of insurance on her life as the owner of the various incidents of ownership. The policies were taken out on her son's initiative. The son paid the premiums, he was the named beneficiary, and, for the most part, he retained possession of the policies. The evidence established that the insurance salesman, in filling out the applications, had inserted the word "insured," rather than the son's name, in the blank space reserving the incidents of ownership, and that the agent, in so doing, had acted on "his own initiative, for personal reasons and to avoid complications that might have cost him the sale." The court concluded from the evidence that the beneficiary, rather than the insured, was intended to be and was the true owner of the policies, 1956 U.S. Tax Ct. LEXIS 269">*286 and that the proceeds were not includible in the decedent's gross estate under section 811 (g) (2) (B). In reaching its conclusion, the court said (87 F. Supp. 773">87 F. Supp. at p. 775):
We think that plaintiffs are entitled to recover. The unauthorized answers inserted in a life-insurance application by an insurance salesman, upon his own initiative, for his own personal reasons, will not serve to invest the insured with the "incidents of ownership" when there is no other substantial evidence of ownership or interest on the part of the insured.
In District of Columbia v. Wilson, supra, the decedent, the registered owner of certain bonds, was held not to be the owner of the bonds for the purposes of the District of Columbia estate tax. The bonds had been purchased by the decedent's sister, who survived the decedent. A written collateral agreement established that the decedent was given only a life interest in the bonds. If he survived his sister, he was also given the principal of the bonds, which would be treated as an advance on certain testamentary bequests. It was held that the registered ownership of the bonds in the decedent's1956 U.S. Tax Ct. LEXIS 269">*287 name was not controlling, and that, under the terms of the collateral agreement, the decedent possessed only a life estate in the property.
The petitioner has the burden of proving that Grace Collino, rather than the decedent, was the real owner of the incidents of ownership in the policies. This is a question of fact, and the circumstance that the decedent did not have possession of the policies is not determinative. Fried v. Granger, 105 F. Supp. 564">105 F. Supp. 564, affd. 202 F.2d 150. The petitioner has not established facts similar to those which were present in the cases upon which he relies. There is no evidence that the decedent was given the incidents of ownership in the policies through inadvertence or error on the part of the insurance agent or any other person. Petitioner has not established that the decedent and his mother intended that the decedent was not to possess the various incidents 25 T.C. 1026">*1035 of ownership in the policies. The evidence is meager. Nevertheless, there is no proof that the original terms of the policies were modified to vest all of the incidents of ownership in Grace Collino, or that they did not1956 U.S. Tax Ct. LEXIS 269">*288 correctly set forth the understanding which existed between the decedent and Grace Collino. It must be concluded that petitioner has failed to establish that Grace Collino was the true owner of the incidents of ownership of the policies, and that the decedent possessed only a nominal interest in the incidents of ownership. It is held that the amount of $ 61,266.72 was properly included by the Commissioner in the decedent's gross estate under the provisions of section 811 (g) (2) (B).
Issue 2.
The Federal estate tax return was filed by the successor to the first appointed administratrix after the time prescribed for the filing. The question to be decided is whether the failure to file the return within the prescribed time was due to reasonable cause and was not due to willful neglect. The petitioner contends that the 25 per cent addition to the estate tax which the Commissioner has determined under the provisions of section 3612 (d) (1) of the 1939 Code 2 should be set aside.
1956 U.S. Tax Ct. LEXIS 269">*289 The facts established by the evidence which pertain to this issue have been set forth fully and it is unnecessary to restate them here. The widow of the decedent was the original administratrix. She had had no experience in handling estate matters and yet she was appointed to administer an estate, the determination and organization of which was complicated by claims of the decedent's mother which presented questions of fact and law. These difficulties were greatly increased by the lack of adequate and complete records due to the decedent's failings, and to confusion in the records. Also, Helen had no knowledge of certain legal restrictions relating to the estate while it was in administration.
The Court is convinced, upon consideration of all of the facts and circumstances, that Helen was not wilfully negligent in failing to 25 T.C. 1026">*1036 file the Federal estate tax return within the time required by law, or in assembling all of the assets which belonged to the estate. Her lack of experience made her less than competent to serve as administratrix. However, she engaged a reputable and competent attorney to advise her, and she consulted another attorney who had served the Collino1956 U.S. Tax Ct. LEXIS 269">*290 family for over 15 years. She asked Cappa to take care of everything in connection with the estate. It is evident that Cappa undertook to do so with ordinary and reasonable care, and that during the period in which he represented the administratrix he succeeded in assembling and accounting for substantially all of the gross estate of the decedent except for some assets having a comparatively small value which were discovered after the accounting of November 16, 1948, was filed in the Surrogate's Court. The accounting involved some disputes which were not judicially determined until January 24, 1955. Under all of the circumstances, considerable time was required to ascertain the extent of the decedent's estate.
We are satisfied that Cappa had a bona fide belief that the gross estate of the decedent was less than the then statutory exemption, that the filing of a Federal return was not required, and that he so advised the administratrix. When a successor administrator was appointed and an estate tax return was filed, which reported a relatively small amount of after-discovered assets, it is clear that Cappa's opinion was made in good faith and was reasonable. Although the respondent1956 U.S. Tax Ct. LEXIS 269">*291 determined that the gross estate was considerably more than $ 60,000, he has now receded from his original determination to a substantial extent.
Under all of the circumstances, we are unable to find that the delay in the filing of the estate tax return was due to "willful neglect." It is held that it was not. It is held, further, from the entire evidence, including the stipulations and oral testimony, that the failure to file the return within the time prescribed by law was due to a reasonable cause. Respondent's imposition of the delinquency penalty is reversed. See Reliance Factoring Corp., 15 T.C. 604, 609; Portable Industries, Inc., 24 T.C. 571; Fairfax Mutual Wood Products Co., 5 T.C. 1279, 1283; C. R. Lindback Foundation, 4 T.C. 652, affd. 150 F.2d 986; Cristina deBourbon Patino, 13 T.C. 816, 826, affd. 186 F.2d 962; and Haywood Lumber & Mining Co. v. Commissioner, 178 F.2d 769.
The Commissioner concedes that the estate is 1956 U.S. Tax Ct. LEXIS 269">*292 entitled to additional deductions the amounts of which are to be computed by the parties under Rule 50.
Decision will be entered under Rule 50.
Footnotes
1. SEC. 811. GROSS ESTATE.
(g) Proceeds of Life Insurance. --
* * * *
(2) Receivable by other beneficiaries. -- To the extent of the amount receivable by all other beneficiaries as insurance under policies upon the life of the decedent (A) purchased with premiums, or other consideration, paid directly or indirectly by the decedent, in proportion that the amount so paid by the decedent bears to the total premiums paid for the insurance, or (B) with respect to which the decedent possessed at his death any of the incidents of ownership, exercisable either alone or in conjunction with any other persons. For the purposes of clause (A) of this paragraph, if the decedent transferred, by assignment or otherwise, a policy of insurance, the amount paid directly or indirectly by the decedent shall be reduced by an amount which bears the same ratio to the amount paid directly or indirectly by the decedent as the consideration in money or money's worth received by the decedent for the transfer bears to the value of the policy at the time of the transfer. For the purposes of clause (B) of this paragraph, the term "incident of ownership" does not include a reversionary interest.↩
2. (d) Additions to Tax. --
(1) Failure to file return. -- In case of any failure to make and file a return or list within the time prescribed by law, or prescribed by the Commissioner or the collector in pursuance of law, the Commissioner shall add to the tax 25 per centum of its amount, except that when a return is filed after such time and it is shown that the failure to file it was due to a reasonable cause and not to willful neglect, no such addition shall be made to the tax: Provided↩, That in the case of a failure to make and file a return required by law, within the time prescribed by law or prescribed by the Commissioner in pursuance of law, if the last date so prescribed for filing the return is after August 30, 1935, then there shall be added to the tax, in lieu of such 25 per centum: 5 per centum if the failure is for not more than 30 days, with an additional 5 per centum for each additional 30 days or fraction thereof during which failure continues, not to exceed 25 per centum in the aggregate.