The opinion of the court was delivered by: PORT
Memorandum - Decision and Order
This case, seeking the refund of an alleged overpayment of income taxes, is before the court for judgment on a stipulation of facts. A previous motion by the plaintiff for judgment on the pleadings was denied, with the suggestion that the matter be resubmitted on an agreed state of facts, which has now been done.
The facts, as disclosed by the pleadings and stipulation, are briefly as follows:
On May 28, 1952, Forbes S. Tuttle, the plaintiffs' son, took out a Massachusetts Mutual Life Insurance Company policy on his own life, in the face amount of $50,000. This policy became a "paid-up policy" prior to August 15, 1963, when he donated it to Saint Ann's Church, Syracuse, New York.
On September 4, 1963, the plaintiffs purchased the policy from Saint Ann's Church for $1,000, and on April 13, 1964, they donated it to the Community Foundation of Syracuse and Onondaga Co., Inc.
The Community Foundation, in turn, surrendered the policy to the insurance company on April 28, 1964, for its cash surrender value.
The cash surrender value,
the replacement value,
and the value of the policy on maturity as a death claim on the various dates mentioned, as stipulated, are set forth below.
The plaintiffs in their 1964 income tax return, claimed a deduction in the amount of $4,000.67
as a charitable deduction. This deduction was reduced by the Internal Revenue Service to $283.60, the cash surrender value at the time of the gift, resulting in an asserted tax deficiency of $2,081.56, plus interest, which the plaintiffs paid. A timely claim for a refund having been disallowed, the plaintiffs brought this suit for a refund of the amount allegedly illegally and erroneously collected.
It has been stipulated that "(the) sole question for determination by this Court is the proper amount of charitable deduction to which the plaintiffs are entitled as a result of their contribution of the aforementioned insurance policy to the Community Foundation of Syracuse and Onondaga County, Inc." Stipulation of Fact #18.
The plaintiffs contend that the correct deduction is the sum of $4,000.67, which was the replacement value and the amount claimed by them on their tax returns. The defendant asserts that the proper deduction is $283.60, which was the cash surrender value and the amount allowed by the Internal Revenue Service, or, in the alternative, $771.53, which was the cash surrender value received by the foundation upon its surrender of the policy to the insurance company.
Citing three Supreme Court decisions
and a Treasury Regulation
in support of their position, the plaintiffs profess to see a simple black-and-white situation compelling, to the exclusion of all other factors, the acceptance of replacement value as the proper measure of valuation of a gift of a paid-up insurance policy.
The defendant concedes that "(the) published position of the Internal Revenue Service is consistent with the general rule that the proper value of an insurance policy donated to charity is its replacement cost." Defendant's Brief at p. 8. Defendant contends, however, that because of the factual situation in this case, such a valuation would be inappropriate. The defendant's contention, briefly and in substance, is that replacement value should not be used in this case because such value is only used where the assumption is made that a market for, and the market valuation of an insurance policy are non-existent, and, consequently, the usual measure of fair market value
cannot be applied.
In this case, however, the defendant asserts that the cash surrender value was established as the market value by reason of: Forbes' and the plaintiffs' gifts, the purchase of the policy by the plaintiffs, and the surrender of the policy by the Community Foundation for its cash surrender value. These circumstances, the defendant also claims, supply the "more cogent evidence"
needed to avoid the general rule.
I cannot accept the defendant's reasoning, and I find that the above-mentioned facts neither created a market nor ...