Commissioner v. Early

445 F.2d 166 (1971)

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Commissioner v. Early

United States Court of Appeals for the Fifth Circuit
445 F.2d 166 (1971)

JR

Facts

Allen and Jeannette Early (plaintiffs) were friends with Sam and Rose Van Wert. Allen worked as the Van Werts’ accountant until both of their deaths. At the time of Sam’s death, Rose gifted the Earlys 50,000 shares of stock. The Earlys maintained possession of the certificates evincing both their and Rose’s stock ownership. After Rose’s death, her will as well as ownership of the stock were contested. Settlement of Rose’s estate included the Earlys’ returning of the stock to the estate in exchange for receiving a joint life interest in estate’s trust income. In subsequent years, the Earlys reported the income from the trust and took deductions for the amortization of the cost basis of the life estate. The Internal Revenue Commissioner (the commissioner) (defendant) disallowed the deductions on the basis that the Earlys had received their life interest by gift and that Internal Revenue Code § 273 prevented amortization of life interests acquired by gift, bequest, or inheritance. The United States Tax Court reversed the commissioner, agreeing with the Earlys’ assertion that because they had received their life estate through settlement and after giving up their stock interest, they had in effect purchased their life interest, and therefore § 273 did not apply. The commissioner appealed.

Rule of Law

Issue

Holding and Reasoning (Godbold, J.)

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