Claiborne v. United States

Maude Simcoe owned a farm that was near the proposed site of a Ford Motor Company (Ford) truck-assembly facility. As part of the process of developing that facility, Houston-McCord Realty Company (Houston-McCord), on behalf of Ford, contracted with Simcoe to purchase her farm. Simcoe signed an option contract under which the company would purchase her property, and she immediately received $6,000, which the contract described as her liquidated damages in the event that the option was not exercised. In August 1967, Houston-McCord exercised its option to purchase the farm. Simcoe’s son, Newton, using a power of attorney, entered into an agreement with Houston-McCord and Ford to allow them immediate possession of the property. In September, Ford began clearing and preparing the property for development. When Simcoe died in October 1967, she had not received any payment for the farm except for the $6,000 for liquidated damages. The sale was closed 16 days after Simcoe’s death, and the purchase price was paid to the estate. Simcoe’s estate (plaintiff) paid taxes on the proceeds of the sale under protest and then requested a refund. The Internal Revenue Service (IRS) (defendant) denied the refund request, and the estate sued for relief. The district court ruled in favor of the estate, finding that despite the substantial performance of the contract by both parties, the purchase had not yet closed, so Simcoe was not entitled to the proceeds at the time of her death, and therefore the proceeds were not income in respect of a decedent under § 691 of the Internal Revenue Code. The IRS appealed.