Estate of DiMarco v. Commissioner

The International Business Machines Corporation (IBM) administered a benefit program that entitled spouses of certain employees to survivor benefits payable in the event of an employee’s death. Employees had no power to opt out of the program and had no discretion as to how it was administered. Moreover, IBM had complete discretion to alter the program at any time. The exact amount of money that a surviving spouse would ultimately receive was dependent on the date of the employee’s death. Anthony DiMarco began as an employee at IBM in 1950. In 1953, Anthony married his wife, Joan. In 1979, Anthony died, and Joan received survivor benefits under the plan. The Internal Revenue Service (IRS) (defendant) treated the payment of the benefits as a taxable gift from Anthony to Joan. The IRS treated the value of the gift as equal to the amount that IBM paid to Joan as benefits. The IRS offered several rationales for this treatment. The IRS’s arguments partially relied on application of the open-transaction doctrine. That is, the IRS treated Anthony as having made a completed gift of the survivor benefits to Joan during his lifetime, but the IRS held valuation of the gift open until the amount Joan would receive was known. That amount was not knowable until Anthony’s death. Anthony’s estate (plaintiff) challenged the IRS’s imposition of gift tax in tax court.