Estate of Barr v. Commissioner

Eastman Kodak Company (Kodak) had a policy of declaring an annual wage dividend for its employees if the company did well financially. Under this policy, any employee who was alive and employed on the last day of the year had a right to receive the wage dividend for that year. If the employee died after the year’s end but before receiving the dividend, the employee still had a right to the dividend, which Kodak would pay to the employee’s estate. However, if an employee died before the year’s end, the employee was not entitled to receive a wage dividend. For employees who died mid-year, Kodak’s board of directors voted whether to pay any announced dividend to the deceased employee’s family as a death benefit. Typically, the board voted to pay the wage dividend, but not always. William Barr worked for Kodak and died in March 1957. In 1958, Kodak declared that it would pay a wage dividend for work performed in 1957. Although Barr was not alive on the last day of 1957, the Kodak board voted to pay Barr’s 1957 wage dividend to his widow as a death benefit. When Barr’s estate filed its estate-tax return, it did not include the wage-dividend payment in the gross estate. The commissioner of Internal Revenue (commissioner) (defendant) determined that the wage-dividend payment was part of Barr’s gross estate because it had belonged to Barr. Thus, the commissioner assessed additional estate taxes based on the dividend amount. The estate petitioned the United States Tax Court for a determination that the wage-dividend payment was not part of Barr’s gross estate.