## Facts

- Charley W. Peterson, a cattle farmer, entered a July 1972 livestock sales contract to sell approximately 3,300 calves at a fixed price per pound and received $46,500 in earnest money.
- The contract required delivery by specified outside dates, required the calves to be in “merchantable condition” at delivery, and left risk of loss on Peterson until delivery.
- Peterson died on November 9, 1972, before designating delivery dates and before delivering any calves.
- After death, the estate designated delivery dates and delivered 2,929 calves; 2,398 calves belonged to the estate and 531 belonged to Peterson’s sons.
- About two-thirds of the calves later delivered were in deliverable (merchantable) condition as of the date of death; the remainder were too young at death to satisfy the contract’s condition.
- The estate treated the transaction as a post-death sale of property acquired from the decedent and reported gain using a date-of-death fair market value basis.
- The Commissioner treated the proceeds as “income in respect of a decedent” (IRD) under I.R.C. § 691(a)(1), requiring use of the decedent’s adjusted basis and asserting an income-tax deficiency of about $185,384.10.

## Issues

1. Whether proceeds received by an estate under a decedent’s pre-death livestock sales contract constitute IRD under I.R.C. § 691(a)(1) when significant conditions to payment and performance remained unmet at the decedent’s death.
2. Whether the Commissioner could, on appeal, obtain allocation of proceeds as IRD for the subset of calves allegedly “deliverable” at death after not pursuing allocation in the Tax Court.

## Decision

- The Eighth Circuit affirmed the Tax Court’s decision for the estate.
- The court held the sale proceeds were not IRD because Peterson lacked, at death, a fixed, enforceable right to receive the income.
- The court treated the proceeds as arising from the estate’s own post-death sale of property, allowing gain to be measured using the calves’ fair market value at the date of death as basis.
- The court declined to adopt or remand for the Commissioner’s allocation theory first pressed on appeal.

## Legal Principles

- Amounts are IRD under I.R.C. § 691(a)(1) only if, at death, the decedent had a fixed right to receive the income such that it was “to which the decedent was entitled” but not received before death.
- A binding contract alone does not establish IRD if substantial conditions precedent and economic contingencies remained at death.
- Where an estate must perform substantive post-death acts and bear ongoing risks to satisfy contract conditions (e.g., bringing goods into contract-required condition, scheduling and making delivery, bearing risk of loss until delivery), post-death receipts are more appropriately treated as proceeds from the estate’s sale of property rather than IRD.
- An appellate court may refuse to entertain a new allocation theory not pursued in the trial court, particularly where it would require factual development.

## Conclusion

The Eighth Circuit held that post-death proceeds from a pre-death cattle sales contract were not IRD because the decedent had no fixed right to the income at death and the estate’s post-death performance and risk-bearing were necessary to earn the proceeds, so gain was computed using the property’s date-of-death value basis.


Estate of Peterson v. Commissioner, 667 F.2d 675 (8th Cir. 1981)