In the Matter of DORIS B. HARTE, Petitioner,
ALGER B. CHAPMAN et al., Constituting the State Tax Commission of the State of New York, Respondents.
PROCEEDING under article 78 of the Civil Practice Act (transferred to the Appellate Division of the Supreme Court in the third judicial department by an order of the Supreme Court at Special Term, entered in Albany County) to review a determination of respondents, constituting the State Tax Commission.
George Natanson for petitioner.
Nathaniel L. Goldstein, Attorney-General (John C. Crary, Jr., and Wendell P. Brown of counsel), for respondents.
Samuel M. Braunstein, a resident of New Jersey, died November 14, 1928, possessed of a large estate. Had he died intestate, his widow and this petitioner, the daughter of a deceased son, would have been his sole heirs. Instead, he left a will making very minor provision for petitioner. The latter, by her mother as guardian, thereupon instituted a contest of the will in an Orphan's Court in New Jersey. After preliminary hearings the Judge of that court determined that she had a reasonable cause for contest, which determination was confirmed in 1934 by the Court of Errors and Appeals of New Jersey.
The Seventh clause of the will bequeathed testator's stock in the Boardwalk Realty Company of Atlantic City, or the proceeds thereof if sold prior to his death, in trust, the income therefrom to be paid to his brother and sister during their respective lives or, in case of the death of either, to the survivor for life, and at the latter's death the stock or the proceeds of a prior sale to be divided among their children in equal shares per stirpes.
Following the determination by the Court of Errors and Appeals, and on November 26, 1934, petitioner's guardian and the parties in interest under clause Seventh of the will entered into an agreement for monthly payments for and to petitioner during her life in the amount of $208.33, in consideration of which she, through her guardian, agreed to withdraw the contest.
Respondents, constituting the State Tax Commission, found that the agreement provides for payments of income only, with no provision for the invasion of corpus, and determined that such payments are includible as a part of gross income under article 16 of the Tax Law. This proceeding is brought to review that determination and comes here in the first instance by virtue of an order of transfer from the Albany County Special Term of the Supreme Court.
The issue was and is whether payments to which petitioner is entitled by reason of the agreement constitute a technical annuity, to be paid in any event, regardless of the sufficiency of income of the corpus, or are deemed to be from income only. Concededly, if of the former category and if the corpus may be invaded, the amounts received and receivable by petitioner are not taxable to her under the rule in Helvering v. Butterworth (290 U.S. 365); Burnet v. Whitehouse (283 U.S. 148), and People ex rel. Duncan v. Graves (257 A.D. 552, affd. 282 N.Y. 746).
There is, of course, no ready-made formula applicable in the determination of such an issue. Each case requires consideration of the individual instrument and, when appropriate, extrinsic circumstances. It becomes necessary, then, to look to the terms of the settlement agreement.
The preamble of the agreement quoted in full clause Seventh of decedent's will. It also recited the payment since his death of the sum of $92,690 in dividends on the stock therein bequeathed, the commingling of such dividends with miscellaneous ...