Estate of Leder v. Commissioner

Joseph Leder died in May 1983. Prior to his death, on January 28, 1981, his wife, Jeanne Leder, obtained a life-insurance policy on Joseph’s life. Jeanne signed the policy as owner, and Joseph signed as the insured. During the time between the policy being issued and Joseph’s death, Joseph paid the policy premiums from his business, Leader Enterprises, and the business treated those payments as loans to Joseph. Neither Joseph nor his business ever received any kind of compensation from Jeanne for the payments of the premiums. In February 1983, Jeanne transferred the policy to a trust, of which she was the trustee, and she and the Leders’ children were beneficiaries. After Joseph’s death, Jeanne did not include the life-insurance proceeds as a part of Joseph’s gross estate. The Internal Revenue Service (IRS) (defendant) determined a deficiency, finding that the policy proceeds should have been included. The IRS cited § 2035 of the Internal Revenue Code, which allowed certain transfers of life insurance to be counted as a part of a decedent’s estate if the transfer occurred in the three years before a decedent’s death. Leder’s estate (plaintiff) petitioned the United States Tax Court for relief, arguing that Joseph never transferred the life insurance because he never owned it in the first place. That court agreed with the estate, finding that Joseph’s mere payment of insurance premiums was not sufficient control to indicate ownership of the policy. The IRS appealed.