Estate of Mildred Bruchmann

[Editor’s Note: This case can also be found under the title “Estate of Bruchmann v. Commissioner.”] Mildred Bruchmann was adopted by Phillip and Elizabeth Bruchmann in 1912. In 1922, John Brockman, Phillip’s uncle, established a trust under which trust property was held for 24 of John’s nieces and nephews, including Phillip. On Phillip’s death, his share was to be paid to his widow. Upon her death or remarriage, the share then was to be paid to his issue, with the trust residue being paid out to all “lawful issue of the bodies” of the nieces and nephews on the death of the last of the 24 nieces and nephews. Phillip died in 1940, and Elizabeth, who did not remarry, died in 1949. Mildred was the only surviving child of Phillip and Elizabeth. She also was adjudicated as incompetent in 1949, and a conservator handled her estate from 1952 until her death in 1959. Meanwhile, in 1952, the trustee of John’s trust sought a ruling as to whether Mildred, as an adopted child, was considered issue and was thus an income beneficiary and whether she was lawful issue of the bodies of Phillip and Elizabeth and would be a residuary beneficiary. In 1956, a court ruled that Mildred would be considered issue and therefore was an income beneficiary but that she was not the lawful issue of the bodies of Phillip and Elizabeth and was not a residuary beneficiary. The trustee had not paid the sums in question to Mildred pending the controversy, and in 1962, when the time for appeal of the 1956 ruling had expired, he then paid $23,573.92 to Mildred’s estate (plaintiff). The Commissioner of Internal Revenue (the commissioner) (defendant) found deficiencies in Mildred’s income tax for the years 1949 through 1955, even though she did not receive the money until 1962. The executor of Mildred’s estate then filed suit.