Sun First National Bank v. United States

In 1941, Jeanette Andersen began an inter vivos trust, with trust income paid to Jeanette for life and then to her daughter. Upon the death of Jeanette’s daughter, the corpus was to be paid to the daughter’s children. Jeanette transferred stock in Orlando Daily Newspapers, Inc., which her husband, Martin, had given to her in 1936, to the trust. The stock, which had cost Martin $11,000 in 1936, sold in 1965 for over $6 million. The payment for the stock was just over $1.5 million in cash and 15 promissory notes payable annually. The trustee reported the gain as income to the trust and reported the income on an installment basis. The trustee treated the capital gain on the stock sale as income rather than addition to corpus. The trust also reported the capital gain from the notes as income for the years of receipt, and Jeanette reported the amounts received as income from the trust. Jeannette then died in 1968. Jeanette’s executrix did not include the trust corpus in her estate, but the Commissioner of Internal Revenue subsequently found that Jeanette’s retention of a life interest made the property part of her estate, as Jeanette had retained control over it. The trust then filed a claim for refunds for the years 1969 to 1972, arguing that the gain on the sale of the notes was income in respect of a decedent, and the trust was entitled to a deduction for the estate tax paid on that income. Sun First National Bank (plaintiff) was the acting trustee. The government (defendant) found itself in the odd position of arguing that the income was not income in respect to a decedent. This suit was then filed, and the matter came before the court on cross motions for summary judgment.