## Facts

- Dr. Peter T. Bohan died in 1955, leaving an estate valued at over $900,000.
- Ruth H. Bohan was the executrix and sole residuary legatee.
- In 1957, the estate had distributable net income (DNI) of $29,076.15.
- In 1957, a Missouri probate court ordered partial in-kind distributions to Ruth “from corpus,” consisting of stock and related rights valued at about $162,076.
- Under Missouri law, the probate court could require return of partial distributions before the final decree if needed to satisfy estate obligations or to effect final distribution.
- The estate reported and paid tax on its 1957 DNI; Ruth did not report any income from the partial distributions.
- The IRS assessed a deficiency against Ruth, asserting the distributions shifted DNI to her under I.R.C. §§ 661(a)(2) and 662(a)(2); Ruth paid and sued for a refund.
- The district court ruled for Ruth, holding the distributions were not “properly paid or credited” because they were conditional and subject to recall; the United States appealed.

## Issues

1. Whether partial, in-kind distributions from estate corpus, made before final settlement and subject to recall under state probate law, are “properly paid or credited” under I.R.C. § 661(a)(2).
2. If not “properly paid or credited,” whether the beneficiary must nonetheless include estate DNI in gross income under I.R.C. § 662(a)(2) based on receipt of the property (including under a claim-of-right theory).

## Decision

- The Eighth Circuit affirmed the judgment for the taxpayer.
- The court held the partial distributions were not “properly paid or credited” under §§ 661(a)(2) and 662(a)(2) because, under Missouri law, they were conditional and subject to recall until final distribution.
- Because the distributions did not qualify under § 661(a)(2), Ruth was not required to include the estate’s DNI in her income under § 662(a)(2) for 1957.

## Legal Principles

- For purposes of I.R.C. §§ 661–662, an amount is not “properly paid or credited” where the beneficiary’s entitlement to the distribution remains conditional and subject to recall under applicable state probate law.
- Mere transfer of possession in a court-approved partial distribution does not, by itself, establish that a distribution is “properly paid or credited” when the probate court retains authority to compel return before final settlement.
- When a distribution does not qualify as “properly paid or credited” under § 661(a)(2), corresponding DNI is not shifted to (and includible by) the beneficiary under § 662(a)(2).

## Conclusion

The court held that recallable, pre-final-settlement partial distributions from an estate’s corpus were not “properly paid or credited” under §§ 661–662, so the estate’s DNI was not currently taxable to the beneficiary on account of those distributions.


Bohan v. United States, 456 F.2d 851 (8th Cir. 1972)