Estate of Berger v. Commissioner

Helen Berger died in 1976, a few weeks after executing her will. In her will, she provided that her estate would ultimately be divided with 45 percent going to several relatives and the remaining 55 percent going to multiple Catholic charities in Illinois. In 1982, her surviving husband, Victor, who was the executor of her estate (plaintiff), sold Helen’s second farm, which was part of the residue of her estate. The farm’s sale resulted in a capital gain of $140,650.50, which the estate reported on its income-tax return. The estate claimed a charitable deduction of $30,943.11, which was 55 percent of the capital gain less the long-term-capital-gain deduction. The government (defendant) found a deficiency, arguing that the estate was not entitled to a charitable-gift deduction. While individuals generally may write off charitable deductions, trusts and estates have more hurdles to deductions. One deduction is an allowance for charitable contributions paid or for amounts permanently set aside for charity out of taxable gross income. But a pivotal inquiry was whether the taxpayer was an estate or trust, because this deduction for trusts only applied to trusts created before October 9, 1969 or to annuity trusts or unitrusts. The estate argued that it was an estate, but the government argued that it should be treated as a trust. While Helen’s estate had not been closed by 1982, all assets had been collected, all taxes, debts, and bequests had been paid, and estate taxes had been paid by 1982. Administration of an estate could not be unreasonably prolonged or it could be construed as terminated for income-tax purposes.