## Facts

- In January 1941, Albert Patterson Humphrey and his wife each made cash gifts to their two sons; Humphrey’s transfer at issue was a $40,000 cash gift (separate from his wife’s $40,000 gift).
- The sons combined the $80,000 they received from their parents with $80,000 of their own money and operated a business using $160,000 total capital.
- By Humphrey’s death in February 1942, the business had lost about one-half of its capital.
- Humphrey’s estate at death (apart from the disputed inclusion) was valued at about $185,475.
- The Commissioner of Internal Revenue included Humphrey’s $40,000 gift in his gross estate as a transfer made within the statutory period before death and assessed estate tax on that inclusion.
- The estate challenged the deficiency in the Tax Court, which sustained the Commissioner’s inclusion but made no finding of the value of the transferred property as of Humphrey’s death.
- On appeal, the estate argued that if the transfer was includible, it had to be valued at the decedent’s death, and—given the business losses—the $40,000 transferred interest was worth only about $20,000 at that time.

## Issues

1. When a lifetime transfer is included in the decedent’s gross estate under the statutory transfer-within-the-prescribed-period rule, must the includible amount be the value of the transferred property at the decedent’s death (rather than the amount originally given)?
2. Did the Tax Court err by sustaining inclusion without making a finding of the transferred property’s value at the date of death?

## Decision

- The court held that property included in the gross estate under the statutory transfer provision must be valued as of the decedent’s death (subject to any valid alternate valuation rules), not automatically at the transfer’s face amount.
- The court sent the case back because the Tax Court made no finding on the value of the transferred property at Humphrey’s death, even though the record suggested a major decline in value.
- Disposition: reversed in part and remanded for valuation findings and recomputation consistent with date-of-death valuation.

## Legal Principles

- The estate tax is measured by the value of property as of the decedent’s death; that valuation rule applies as well to property brought back into the gross estate under statutes that require inclusion of certain pre-death transfers.
- Inclusion provisions tax the value of the property interest required to be included, not the historical dollar amount originally transferred.
- When the includible property’s value is disputed or may have changed between transfer and death, the trial court must make a specific valuation finding as of the proper valuation date before a deficiency can be sustained.

## Conclusion

The Fifth Circuit agreed that Humphrey’s pre-death transfer could be included in the gross estate, but ruled that the includible amount must reflect the property’s value at Humphrey’s death; because the Tax Court did not determine that value in light of the business losses, the case was remanded for valuation findings and a recalculated estate tax.


Estate of Humphrey v. Commissioner, 162 F.2d 1 (1947)