## Facts

- The decedent previously made a reported gift of real estate to her two daughters valued at $25,000.
- About three years later, the daughters sold the real estate for $32,500, realizing a $7,500 gain over the reported gift value.
- The daughters used the $32,500 proceeds to buy stocks and securities titled jointly with the decedent as joint tenants with right of survivorship.
- At the decedent’s death, the jointly held securities were worth about $160,000.
- The estate reported that part of the joint property was excludable from the gross estate under I.R.C. § 2040 based on the daughters’ claimed contribution of the $7,500 gain.
- The Commissioner determined an estate-tax deficiency, asserted full § 2040 inclusion of the joint property, and pursued transferee and transferee-of-transferee liability against family recipients under I.R.C. §§ 6324(a)(2) and 6901.
- One daughter conceded transferee status; liability disputes remained for other family recipients, including the estate of one daughter and that daughter’s children.

## Issues

1. Under I.R.C. § 2040, what portion of the value of jointly held securities is includible in the decedent’s gross estate where the acquisition funds are partly traceable to a prior gift from the decedent and partly to post-gift appreciation realized by the surviving joint tenants?
2. Whether, and to what extent, recipients of property traceable to the taxable estate are personally liable as transferees (and transferees of a transferee) for unpaid estate tax under I.R.C. §§ 6324(a)(2) and 6901.

## Decision

- The Tax Court held that § 2040 required inclusion of the entire value of the joint property except the portion attributable to consideration independently supplied by the surviving joint tenants.
- The court treated $25,000 of the $32,500 acquisition funds as traceable to the decedent’s prior gratuitous transfer and therefore not an independent contribution by the daughters.
- The court treated the $7,500 gain as the daughters’ independent contribution and excluded a fractional share of the joint property’s value at death equal to $7,500 ÷ $32,500.
- The court upheld transferee liability under §§ 6324(a)(2) and 6901 for specified recipients, including the estate of one daughter, and upheld transferee-of-transferee liability for that daughter’s children to the extent of the value they received.
- Liability was limited to the value of property received by each transferee.

## Legal Principles

- I.R.C. § 2040 presumptively includes the full value of jointly held survivorship property in the decedent’s gross estate unless the estate proves the survivor’s contribution was not acquired from the decedent for less than adequate and full consideration.
- Consideration remains “acquired from the decedent” for § 2040 purposes when it is traceable to the decedent’s prior gratuitous transfer, even if it has changed form (e.g., from real estate to cash to securities).
- Post-gift appreciation realized by the donee may constitute the survivor’s independent contribution for § 2040, supporting partial exclusion measured by the survivor’s share of total acquisition cost and applied fractionally to value at death.
- I.R.C. § 6324(a)(2) imposes personal liability for unpaid estate tax on certain recipients of estate property (including recipients of survivorship property), capped at the value received.
- I.R.C. § 6901 provides a mechanism to assess and collect transferee (and transferee-of-transferee) liability; the Commissioner must establish transferee status and the value received to fix the liability limit.

## Conclusion

The Tax Court applied § 2040 tracing to include in the gross estate the portion of joint property attributable to acquisition funds traceable to the decedent’s prior gift while excluding, by fraction, the portion attributable to the surviving joint tenants’ independent gain, and it enforced estate-tax collection through transferee and transferee-of-transferee liability under §§ 6324(a)(2) and 6901 up to the value received.


Estate of Goldsborough v. Commissioner, 70 T.C. 1077 (1978)