Federal Taxation – Transferee Liability of Insurance Beneficiary

Nearly six years after taxpayer died income tax deficiencies were determined against his estate. Since his estate was insolvent the Commissioner sought to impose transferee liability under section 311 of the 1939 code (now I.R.C. section 6901) on plaintiff, taxpayer’s widow, as beneficiary of” her husband’s life insurance. The Tax Court, applying federal law, held plaintiff liable for the entire deficiency since the proceeds received by her exceeded that amount. The court of appeals, applying state law, reversed and ruled that the beneficiary was not a “transferee” within the meaning of section 311 even to the extent of the cash surrender value of the insurance. On certiorari to the United States Supreme Court, held, affirmed, three justices dissenting. Recovery of unpaid federal income taxes from a taxpayer’s transferee, in the absence of a federal tax lien, can be sustained only to the extent that state law imposes such liability. Commissioner v. Stern, 357 U.S. 39 (1958).