## Facts

- Isidor Hetson and his two sons co-owned a closely held corporation; Isidor held all voting stock and controlled the company.
- Isidor, his sons, his wife (Fannie), and the corporation executed a single agreement that (1) guaranteed salaries for Isidor and each son and (2) provided Fannie a $13,000 annual annuity payable after Isidor’s death.
- The agreement stated Isidor would receive his salary for life regardless of whether he continued to contribute services to the business.
- Isidor died in 1963; Fannie’s annuity began thereafter.
- The estate reported the annuity’s value in the gross estate, then sought a refund contending the annuity should not be included.
- The IRS denied the refund claim, and the estate filed a tax-refund suit in the United States Court of Claims.

## Issues

1. Whether the value of the annuity payable to the decedent’s widow under the corporate family agreement was includible in the decedent’s gross estate under I.R.C. § 2039(a).
2. Whether the decedent’s lifetime, nonservice-contingent “salary” under the same agreement constituted an “annuity or other payment” to which the decedent was entitled at death for purposes of § 2039(a).

## Decision

- Judgment was entered for the United States.
- The court held the widow’s annuity was includible in the decedent’s gross estate under I.R.C. § 2039(a).
- The estate’s refund claim was denied.

## Legal Principles

- Under I.R.C. § 2039(a), a survivor’s right to receive annuity or periodic payments is includible in the decedent’s gross estate when, immediately before death, the decedent was receiving or was entitled to receive annuity or similar periodic payments under the same contract or agreement.
- Contract labels are not controlling; a lifetime stream of periodic payments that is not conditioned on continued services may be treated as an annuity-type interest for § 2039(a) purposes.
- Where a single integrated agreement provides both the decedent’s lifetime payments and the spouse’s post-death annuity, the spouse’s annuity is treated as arising from the same arrangement and falls within § 2039(a)’s inclusion rule.

## Conclusion

The Court of Claims sustained estate-tax inclusion of the widow’s annuity because the governing agreement provided the decedent a lifetime right to periodic payments not dependent on future services and linked the widow’s annuity to that same arrangement, bringing the survivor benefit within I.R.C. § 2039(a).


Hetson v. United States, 209 Ct. Cl. 641 (1976)