Blaffer v. Commissioner of Internal Revenue

103 F.2d 489, 22 A.F.T.R. (P-H) 1085, 1939 U.S. App. LEXIS 3595

• Court: Court of Appeals for the Fifth Circuit
• Decided: April 26, 1939
• Docket: 8992
• Status: Published

Opinions

McCORD, Circuit Judge.

The United States Board of Tax Appeals determined R. L. Blaffer’s gift tax deficiency liability to be $2,117.71 for the year 1934. The appeal from the decision of the Board is brought to this court by petition for review.

The material facts as disclosed by the record and found by the Board are these: R. L. Blaffer married Sarah Campbell Blaffer on April 22, 1909. At all times material to this case he and his wife havq been legal residents of Texas. When the petitioner was married he owned two life, insurance policies. One policy had a cash value of $192 and the other had no cash value. After the marriage the premiums on these policies and subsequently acquired policies were paid from community funds. Mrs. Blaffer, wife of petitioner, was named as beneficiary in all the policies, but Blaffer had the right under their terms to change the beneficiary at will.

On December 29, 1934, Blaffer made an irrevocable assignment of his interest in and to the five policies of life insurance here in question. The policies had a combined cash surrender value of $36,485.68 and were assigned to R. L. Blaffer & Company as trustee for the petitioner’s wife and children.

Blaffer reported one half of the value of the policies in his gift tax return for 1934. The Board determined that the entire value of the policies should have been included in the gift tax return. It is Blaffer’s contention that inasmuch as the premiums on the policies were paid from community property after his marriage he did not own a greater interest in the policies than one half of their cash surrender value. This contention is without merit. The Revenue Act of 1932 imposed a tax upon the transfer of property by gift and we are of opinion that the total value of the policies transferred to the trust by irrevocable assignment should be included in his gift tax return for 1934, notwithstanding the. fact that the premiums on such policies were paid in whole or in part with community funds. When a policy of insurance is irrevocably assigned, the value of the- gift, for tax purposes, is the net cash surrender value of the policy. Revenue Act of 1932, § 501, 47 Stat. 245, 26 U.S.C.A. § 550 and note; Treas.Regulations 79 (1933 Ed.) Art. 1(5).

Under the Texas decisions the payment of premiums on the policies from community funds gave the wife no vested interest in them. Under the facts of this case the incidents of ownership that ordinarily relate to property acquired with community funds do not attach to these life insurance policies. Mrs. Blaffer was named as beneficiary of the five policies and had the petitioner died without changing the beneficiary, the proceeds, under the Texas cases, would have become payable to her as her separate estate and not as community property. On the other hand, if the beneficiary had been changed she could have claimed no part of the proceeds upon Blaffer’s death, nor in the absence of fraud, any reimbursement for any part of the premiums paid from community funds. Fain v. Fain, Tex.Civ.App., 93 S.W.2d 1226; Rowlett v. Mitchell, 52 Tex.Civ.App. 589, 114 S.W. 845; Jones v. Jones, Tex.Civ.App., 146 S.W. 265; Martin v. McAllister, 94 Tex. 567, 63 S.W. 624, 56 L.R.A. 585.

The cash surrender value of an insurance policy is merely a potential asset of the community. The cash surrender value does not become an actual asset until the money is reduced to possession by surrender and cancellation of the policy. In this case, Blaffer, the husband, made a gift of the policies and under the Texas law he alone had the authority to effect the transfer. The assignment to the insurance trust was not merely a transfer of a one half interest in the policies. The trustee received the total interest.

The irrevocable assignment terminated all incidents of Blaffer’s ownership and control of the insurance policies in question. It effected a completed gift, and under the statute and regulations the entire tax was correctly assessed against the husband.

‘ The petition is denied and the judgment of the Board is affirmed.