Estate of Kincaid v. Commissioner

Garvice Kincaid died in 1975. In Garvice’s estate, he provided for payment of debts, taxes, and expenses and then directed that the remainder be divided into two parts, a marital and nonmarital part. The marital part was to include the maximum property value in Garvice’s gross estate that qualified for the marital deduction. This marital portion included Garvice’s right to future bonus payments under an employment contract from Kentucky Finance Company. The nonmarital part was the remaining property. Garvice’s wife, Nelle Kincaid, received over $150,000 in 1976 and over $230,000 in 1977 from Kentucky Finance Company. Nelle did not report those sums on her income taxes but subsequently agreed that those payments were income in respect of a decedent (IRD) and includable in Nelle’s gross income. The question became how much of a deduction Nelle should be allowed. All parties concurred on the first part of the calculation—Nelle’s IRD divided by all such IRD sums from Garvice’s estate—but the concern was how to figure out the second part of the equation, which was the amount of estate tax attributable to Nelle’s IRD funds from Kentucky Finance Company. Nelle’s estate (plaintiff) (Nelle had died during the pendency of this suit) argued that the IRD payments should be evenly divided between marital and nonmarital parts of the estate to calculate the estate tax allocable to those amounts. The government (defendant) disagreed, arguing that the amounts should be subtracted wholly from the marital deduction.