• Tax Court Finds That Life Insurance Proceeds Were Estate Tax Includible On account Of Decedent’s Retained Incidents of Ownership, That Annuities Were Estate Tax Includible, And That Estate Was Liable for Failure to File Timely Penalty - Estate of Coaxum v. Commissioner, T.C. Memo 2011-135 (June 16, 2011)
  • August 9, 2011
  • Law Firm: Proskauer Rose LLP - New York Office
  • In Coaxum v. Commissioner, the Tax Court found that the decedent retained incidents of ownership in six life insurance policies, rendering their values includible in the gross estate, that the value of the annuities owned by the decedent was includible in the gross estate, and that the estate was liable for a failure to file timely penalty.

    On the decedent’s estate tax return, filed almost two and a half years following the decedent’s death, the estate reported six life insurance policies as includible in the decedent’s gross estate. Additionally, though the return reported several annuities, it listed their value at zero. Subsequently, the estate argued that the life insurance policies, over which the decedent had retained the power to change the beneficiary, were not includible in the gross estate. The IRS issued its notice of deficiency and assessed a failure to file timely penalty.

    In a short opinion, the Tax Court found against the estate on all counts. As to the life insurance, the Tax Court found that the Treasury Regulations expressly provide that the power to change the beneficiary of an insurance policy constitutes an incident of ownership, and the proceeds of the policies were accordingly estate tax includible. With respect to the annuities, the estate apparently tried to argue that because some or all of the annuities would be treated as income in respect of a decedent (IRD) and accordingly deductible for purposes of the estate tax, that the annuities could be included at a zero value. The Tax Court dismissed this argument, passing only on the includibility of the annuity in the gross estate. Finally, the Tax Court found the estate liable for the failure to file timely penalty, as the failure to file timely was not due to reasonable cause or willful neglect.