Taxation-Federal Estate Tax-Application of Section 2039 to Benefits Paid to Survivor Under a Deferred Compensation Plan

Upon decedent’s death, his former employer made certain payments to the surviving widow under two voluntarily established benefit plans which were unfunded and non-qualified. The first of these arrangements, the death benefit plan, provided for three months’ salary to be paid to an employee’s widow, if the employee died before becoming eligible for retirement. The second, the deferred compensation plan, provided payment of a certain stated maximum to an employee’s widow in sixty equal monthly installments. This was not a retirement program, however, since the employee himself would receive these payments if, and only if, he were ever to become totally disabled. This arrangement also contained a forfeiture provision whereby all rights would terminate should the employee leave the service of the company for any reason other than death, retirement, or incapacity. The amounts received by the surviving spouse under these two plans were not included in the estate tax return of the decedent’s estate. Upon audit, the Commissioner made an additional assessment on the ground that benefits paid under both plans should have been included in the computation of the amount of the gross estate. In an action for refund of federal estate taxes, held, dismissed. Under the court’s interpretation of section 2039 of the Internal Revenue Code of 1954 and the related Treasury regulations, decedent did possess an enforceable right to payment at some time in the future if certain conditions were fulfilled, and the benefits paid to the beneficiary were therefore properly taxed. Moreover, the death benefit plan and the deferred compensation plan must be viewed as parts of one unified arrangement, and as such the payments under the former must also be taxed. Estate of Bahen v. United States, 305 F.2d 827 (Ct. Cl. 1962).