estate. As insurance is the result of a contract and as the beneficiary does not take either by will or inheritance, this provision may be held unconstitutional. For federal tax pur poses "insurance" is defined as follows: The term "insurance" refers to life insurance of every description, including death benefits paid by fraternal beneficial societies, operating under the lodge system. Insurance is deemed to be taken out by the decedent in all cases where he pays the premiums, either directly or indirectly, whether or not he makes the application. On the other hand, the insurance should not be included in the gross estate, even though the application is made by the decedent, where the premiums are actually paid by some other person or corporation, and not out of funds belonging to, or advanced by the decedent." § 335. Location of Property as Affecting Inclusion Real property owned by the decedent, when situated in the United States, should be included in the gross estate, whether the decedent was a resident or a nonresident, and whether the property came into the possession and control of the executor or administrator or passed directly to heirs or devisees. Real property not situated in the United States should not be included, whether the decedent was a resident or nonresident. Where the decedent was a resident, all personal property owned by him should be included, wherever situated. Where decedent was a nonresident so much of his personal property as was actually situated in the United States at the time of his death should be included." § 336. Property Held Jointly or as Tenants in the Entirety All interests, whether in real or personal property, in which the survivor takes the entire property solely by the right of survivorship, and which consequently do not form part of the decedent's estate for purposes of administration, are to be included in the gross estate for federal taxation at the value of 11 Article 32 of Regulations 37. 12 Article 13 of Regulations 13. the whole. This does not refer to interests held as tenants in common, where the interests of each tenant pass to his own estate free from the right of survivorship. In each case only the value of the decedent's separate interest would be included in the gross estate. The value of such property required to be returned for tax is the value of the entire property, unless it can be shown that part of it originally belonged to the other joint owner and never belonged to the decedent. An exception is made, however, where property is conveyed to husband and wife without valuable consideration, or where the property was purchased out of common funds, representing the savings of husband and wife, or was the fruit of joint labor, the proportion of the several contributions having been lost sight of. In such cases one-half of the total value of the property should be returned." § 337. Payment of Tax The tax is due and payable one year from the date of death. Payment will not be accepted before a return in proper form has been filed. Extensions of time for tax payment are granted only in exceptional cases, where it is evident that the payment of the tax within the statutory period would cause the estate serious financial loss. If the tax is not paid within one year and 180 days after the decedent's death, interest at 6 per cent per annum from the expiration of one year after the decedent's death will be added as part of the tax whether or not an extension has been granted.11 § 338. Responsibility for Payment The responsibility for payment of the tax upon the transfer of the entire estate, including property which will not come into his possession, rests upon the executor or the administrator. 18 Article 29 of Regulations 37. 14 Revenue Act of 1918, § 406; and Article 94 of Regulations 37. The executor is personally liable for the payment of the estate tax to the amount of the full value of the assets of the estate which have at any time come into his hands.1 Where no executor or administrator has been appointed, every person in possession of any part of the gross estate is liable for the tax as an executor. In the case of non-residents, if no executor or administrator has been appointed in the United States: Every person in the United States in possession of any part of the decedent's gross estate is constituted an executor for the purpose of tax payment, and is liable for the tax upon the transfer of the portion of the gross estate in his possession." All persons on whom rests the responsibility for payment of the tax are personally liable therefor. The Revenue Bill of 1921, as before Congress at the time this book goes to press, provides that if an executor files a complete return and makes application for the determination of the tax, the Commissioner shall within one year notify him of the amount of the tax, and that payment thereof shall discharge the executor from personal liability. REVIEW QUESTIONS 1. What are the peculiar features of the federal estate tax? 2. What estates are exempt from the federal tax? 3. What is the test of residence for the federal tax? Who are nonresidents? 4. What transfers are taxable under the federal act? What amount of insurance is free from tax? 5. What is the gross estate? What things are included that would not be taxed under the state laws? Are estates held by decedent as trustee included? 13 Revenue Act of 1918, § 407; and Article 113 of Regulations 37. 16 Article 65 of Regulations 37. 6. Should a gift of property made by decedent in his lifetime be subject to the federal tax? To what transfer does the twoyear rule apply? 7. What is the rule as to life insurance? What life insurance is excepted? 8. What is the rule as to the inclusion of real estate? What is the rule as to real estate out of this country? What is the rule as to personal property of a resident? Of a non-resident? 9. What is the rule as to a joint estate? As to an estate in common? As to the estate of a tenant in the entirety? What is the exception in case of tenancy in the entirety? 10. When is the tax due? When are extensions granted? When does a penalty attach? 11. Who is responsible for payment? In case of non-residents, who is responsible? In case no executor has been appointed, who is responsibie? CHAPTER XXXVIII DEDUCTIONS UNDER THE FEDERAL LAW § 339. The Net Estate It is only the net value of the estate which can be taxed, therefore from the amount of the gross estate determined as described in the preceding chapter, the following deductions may be taken in obtaining the net taxable estate of a resident decedent for purposes of the federal tax: 1. Funeral expenses. 2. Administration expenses. 3. Claims against the estate, including mortgages. 5. Support of decedent's dependents. 6. Specific exemption of $50,000. 7. Certain public, religious, charitable, scientific, literary, and educational bequests. 8. Property upon which an estate tax has been paid to the federal government within five years. An item to be deductible must be both: (1) deductible under the classification furnished in the law, and (2) payable out of the corpus under the state law. If an item fails to conform to either one of those requirements, it is not a proper deduction to be made for the computation of the federal transfer tax. If the amount which may be expended for the particular purpose is limited by the state law, no deduction in excess of such limitation is permissible. 1 See Chapter XXXV, "Corpus and Income." |