## Facts

- J. William Bahen was a long-time executive of the Chesapeake & Ohio Railway Company (C&O) and died suddenly of a heart attack in 1955 while still employed and before retirement eligibility.
- C&O had unilaterally adopted two benefit arrangements covering Bahen; he did not bargain for them or contribute to their cost, but continued employment with knowledge of them.
- Under a 1952 Death Benefit Plan, if a covered employee died while employed and before retirement eligibility, C&O would pay the widow a lump sum equal to three months’ salary; C&O paid this to Bahen’s widow.
- Under a 1953 Deferred Compensation Plan for selected officers, C&O promised either (a) installment payments to the widow if the officer died before age 60 and before retirement, or (b) the same installment payments to the officer if he became incapacitated before retirement (a disability benefit), payable only for installments the officer lived to receive.
- After Bahen died at age 50, C&O began making payments to his widow under both plans.
- The Estate filed a federal estate tax return excluding the value of the widow’s benefits; the IRS determined the amounts were includible in the gross estate, assessed additional tax, and the Estate paid and sued for a refund on a stipulated record.

## Issues

1. Whether payments to the widow under the employer’s Death Benefit Plan and Deferred Compensation Plan were includible in the decedent’s gross estate under I.R.C. § 2039.
2. Whether the decedent “possessed the right to receive” payments during life within § 2039(a) when the only lifetime benefit under the Deferred Compensation Plan (disability payments) was contingent on a future incapacity that never occurred.

## Decision

- Judgment for the United States; the refund claim was denied.
- The widow’s payments under the C&O plans were includible in the gross estate under I.R.C. § 2039.
- The decedent “possessed the right to receive” disability payments in the future if the plan’s conditions were met; that contingent, enforceable right satisfied § 2039’s requirement linking survivor payments to a right held by the decedent.
- The court treated the plans as employer-provided deferred-compensation-type arrangements within § 2039’s reach, not mere post-death gratuities.

## Legal Principles

- I.R.C. § 2039 applies to “annuity or other payment” arrangements providing survivor benefits “by reason of surviving the decedent” when the decedent, for life or a period tied to death, either received payments or possessed a right to receive payments under the same arrangement.
- “Possessed the right to receive” includes enforceable, conditional rights to future payments; it is not limited to amounts presently payable at death.
- A survivor benefit payable upon the employee’s death can be included under § 2039 when it arises under an arrangement in which the employee held a qualifying right to payments during life, even if the employee never actually received any payments.
- Employer-created executive benefit plans providing death-contingent and disability-contingent payments are treated as deferred compensation arrangements for § 2039 inclusion purposes.

## Conclusion

The court held that the present value of employer-paid benefits to Bahen’s widow under the death and deferred compensation arrangements was includible in Bahen’s gross estate under I.R.C. § 2039 because the plans provided survivor payments triggered by death and the decedent retained, until death, a contingent but enforceable right to receive disability payments during life.


Estate of Bahen v. United States, 305 F.2d 827 (Ct. Cl. 1962)