## Facts

- Jack Dean sold cattle to Paul C. Dean for $221,252.69, payable in annual installments over eight years.
- Paul’s payment obligation was evidenced by a promissory note signed in connection with the sale.
- Jack died on July 26, 1972, before Paul made any payments on the promissory note.
- After Jack’s death, Jack’s estate became entitled to collect on the promissory note.
- Under the estate plan, the residue of the estate was to be distributed equally among three beneficiaries: Jack L. Dean, Bonnie D. Evans, and Deborah K. Dean.
- In 1974, Paul made the first installment payment to Jack’s estate.
- Shortly after receiving that payment, the estate distributed the promissory note to the three beneficiaries in equal shares.
- In December 1974, Paul paid off the remaining balance on the promissory note by paying the three beneficiaries directly.
- On its 1974 return, the estate claimed a deduction for distributing the promissory note to the beneficiaries under I.R.C. § 661(a)(2), which addresses deductions for amounts of estate income paid, credited, or required to be distributed to beneficiaries.
- The IRS denied the deduction, relying on I.R.C. § 691, which governs income in respect of a decedent (IRD).
- The estate petitioned the Tax Court for review of the IRS’s denial.

## Issues

1. Whether the amounts represented by the unpaid installment obligation on the cattle sale were income in respect of a decedent under I.R.C. § 691.
2. Whether the estate could claim a deduction under I.R.C. § 661(a)(2) for distributing the promissory note (representing the decedent’s right to future installment payments) to the residuary beneficiaries.

## Decision

- The Tax Court treated the unpaid installment obligation as IRD within the scope of I.R.C. § 691.
- The Tax Court upheld the IRS’s denial of the estate’s claimed I.R.C. § 661(a)(2) deduction for the in-kind distribution of the promissory note.
- Judgment was entered sustaining the IRS’s determination denying the deduction.

## Legal Principles

- A decedent’s right to receive income from a transaction completed before death, where payment is received after death, can constitute income in respect of a decedent taxable under I.R.C. § 691.
- Section 691 assigns tax treatment to IRD and can prevent an estate from using Subchapter J’s distribution-deduction rules to obtain a deduction simply by distributing the underlying right to receive the IRD.
- An in-kind distribution of a promissory note that represents a right to post-death payments tied to the decedent’s pre-death sale does not, by itself, entitle the estate to a deduction under I.R.C. § 661(a)(2) when § 691 applies.

## Conclusion

The Tax Court agreed with the IRS that the unpaid installment obligation from Jack Dean’s pre-death cattle sale was IRD governed by § 691, and it therefore denied the estate’s attempt to treat the in-kind distribution of the promissory note as a deductible distribution under § 661(a)(2).


Estate of Dean v. Commissioner, T.C. Memo 1983-276 (1983)