## Facts

- John A. Moss, a major shareholder and president of a Florida funeral home corporation, owned 231 of 586 shares and separately owned real property rented to the corporation.
- In 1972, Moss agreed to sell the corporation (1) his 231 shares and (2) the rented real property; the corporation also agreed to formalize an existing debt it owed Moss.
- The corporation issued three promissory notes to Moss: one for the stock purchase price, one for the real estate purchase price, and one for the corporation’s preexisting indebtedness to him; the notes were secured by a stock pledge agreement.
- Each note included a self-cancelling feature under which any unpaid balance would be extinguished upon Moss’s death.
- Moss died in 1974 with unpaid balances remaining; under the note terms, the corporation treated the remaining balances as cancelled.
- The IRS determined an estate tax deficiency by including the unpaid balances in the gross estate; the estate disputed inclusion and, alternatively, disputed valuation, and also sought a credit for Florida estate taxes paid.

## Issues

1. Whether promissory notes held by the decedent that extinguished upon his death are includable in the gross estate under I.R.C. § 2033.
2. If includable, what fair market value should be assigned to the notes at the date of death given the self-cancelling feature.
3. Whether the estate is entitled to a federal estate tax credit for Florida estate taxes paid.

## Decision

- The Tax Court held that the notes were includable in the decedent’s gross estate under I.R.C. § 2033 despite automatic cancellation at death.
- The court held the self-cancelling provision affects valuation, not includability; the notes’ fair market value was less than their unpaid face balances.
- The court allowed the estate a credit for Florida estate taxes paid, subject to statutory limits.
- The estate tax deficiency was left for recomputation under Tax Court Rule 155.

## Legal Principles

- I.R.C. § 2033 includes in the gross estate the value of property interests held at death; a contingent or terminable right to payment can be an includable property interest.
- A self-cancelling installment note does not escape estate inclusion solely because the obligation terminates at death; the termination risk is addressed through valuation.
- Fair market value is determined under a willing buyer–willing seller standard and must discount for contractual mortality risk that limits the expected payment stream.
- State death taxes actually paid may be credited against federal estate tax under I.R.C. § 2011, within statutory and regulatory limits.

## Conclusion

The court treated self-cancelling notes as includable property interests under § 2033 and required valuation discounts reflecting the risk that payment rights terminate at death, while also permitting a credit for Florida estate taxes paid and directing recomputation of the deficiency.


Estate of Moss v. Commissioner, 74 T.C. 1239 (1980)