Estate of Schelberg v. Commissioner

William Schelberg worked for International Business Machines Corporation (IBM). As an IBM employee, Schelberg had employment benefits under IBM’s sick-pay plan, disability-pay plan, retirement plan, and group-life-insurance plan. Schelberg died at age 60, while still actively employed by IBM. At the time of his death, Schelberg was not receiving any disability benefits, and he had never received any annuity payments from IBM. After Schelberg’s death, IBM’s life-insurance plan paid life-insurance proceeds and a separate survivor’s benefit to Schelberg’s widow. Under the survivor’s benefit, the widow received set monthly payments that would continue until either the benefit amount was used up or she died. The commissioner of Internal Revenue (commissioner) (defendant) determined that, under 26 U.S.C. § 2039, the approximately $95,000 value of the widow’s survivor’s benefit was included in Schelberg’s gross estate and subject to estate taxes. The commissioner based this determination on a claim that (1) Schelberg had a right to receive annuity-like payments while alive under IBM’s disability-pay plan and (2) the survivor’s benefit was a form of continued annuity from IBM to Schelberg’s beneficiary. Schelberg’s estate (plaintiff) petitioned the United States Tax Court for a determination that the survivor’s annuity was not part of the gross estate, arguing that Schelberg’s potential right to disability-pay benefits was not a type of annuity that triggered § 2039. The Tax Court ruled that the disability-pay benefit was a type of annuity and that, therefore, the survivor’s benefit was a taxable part of the gross estate. Schelberg’s estate appealed.