## Facts

- William E. Barr was a long-term employee of Eastman Kodak Co. and died on March 30, 1957, before the end of the company’s fiscal year.
- Eastman Kodak had a long-standing practice of paying a year-end “wage dividend” to employees, but eligibility required the employee to be alive and on the payroll on the last day of the fiscal year.
- If an employee died during the year, the employee was not entitled to a wage dividend; however, the company sometimes paid a discretionary death benefit to a deceased employee’s family in an amount equivalent to what a wage dividend would have been.
- Eastman Kodak also sometimes paid a discretionary “salary death benefit” to a deceased employee’s family for a limited period after death (such as the remainder of a pay period).
- At Barr’s death, no wage dividend for 1957 had been declared, and Barr did not meet the eligibility condition for a wage dividend because he was not alive on the last day of the year.
- About a year after Barr’s death, Eastman Kodak’s board, acting in its discretion, paid Barr’s widow (1) $4,512.18 as a “wage dividend” death benefit and (2) $1,742.31 as a “salary” death benefit.
- The estate did not include these amounts in the gross estate on the federal estate tax return.
- The Commissioner determined an estate tax deficiency, asserting both payments were includible in the gross estate under I.R.C. § 2033 or § 2039.

## Issues

1. Whether the “wage dividend” death benefit paid to the widow was includible in the decedent’s gross estate under I.R.C. § 2033 or § 2039.
2. Whether the “salary” death benefit paid to the widow was includible in the decedent’s gross estate under I.R.C. § 2033 or § 2039.

## Decision

- The Tax Court held that neither the wage-dividend death benefit nor the salary death benefit was includible in the decedent’s gross estate.
- The court concluded § 2033 did not apply because the decedent had no enforceable property interest in either payment at the time of death.
- The court concluded § 2039 did not apply because the payments were not made under a contract or agreement giving the decedent lifetime or other enforceable rights tied to survivor benefits.

## Legal Principles

- I.R.C. § 2033 includes only property interests the decedent owned at death; a nonenforceable expectancy in a possible future payment is not a property interest.
- Discretionary, noncontractual employer payments made after an employee’s death to a survivor generally are not includible in the employee’s gross estate when the employee lacked any enforceable right to demand payment during life.
- I.R.C. § 2039 applies to certain survivor payments arising from a contract or agreement connected to rights the decedent held during life (commonly annuity- or pension-type arrangements), and does not reach purely voluntary post-death gratuities.

## Conclusion

Because the employer’s board made both payments only through discretionary post-death action and the decedent held no enforceable rights in the amounts at death, the payments were excluded from the gross estate under I.R.C. §§ 2033 and 2039.


Estate of Barr v. Commissioner, 40 T.C. 227 (1963)