## Facts

- Arthur D. Shaw owned stock in three affiliated corporations that planned an asset sale and liquidation.
- In 1956, shareholders entered an agreement anticipating the sale; the transaction required Interstate Commerce Commission (ICC) approval as a condition precedent.
- Shareholders placed their stock in escrow, sought an IRS ruling that § 337 would apply, and applied for ICC approval.
- Shaw died on November 27, 1958, before ICC approval and before the corporations liquidated.
- The ICC approved the sale on May 5, 1960; in July 1960 the corporations liquidated, distributing sale proceeds to shareholders in exchange for cancellation of their stock.
- Shaw’s widow, Mary Ann Keck, surrendered shares and received $314,328.53 in 1960.
- The taxpayers treated the 1960 distribution as producing no taxable gain by using a stepped-up basis and reporting no gain.
- The Commissioner asserted that the 1960 receipts were income in respect of a decedent (IRD) under I.R.C. § 691, determined an income tax deficiency against George W. and Mary Ann Keck, and asserted transferee liability against Mary Ann Keck for amounts distributed from Shaw’s estate.

## Issues

1. Whether liquidation proceeds received in 1960 from a post-death corporate sale and liquidation were “income in respect of a decedent” under I.R.C. § 691 because Shaw was “entitled” to the income at his death.
2. Whether the ICC-approval requirement left Shaw without a fixed, enforceable right to the proceeds at death, precluding IRD treatment.

## Decision

- The Sixth Circuit reversed the Tax Court.
- The court held the 1960 liquidation proceeds were not IRD under § 691.
- Because ICC approval was a condition precedent, Shaw had no vested or enforceable right to the proceeds at death.
- The deficiencies and transferee liability premised on § 691 IRD treatment were set aside.

## Legal Principles

- I.R.C. § 691 applies only to amounts of gross income to which the decedent was entitled at death but which were not includible on the decedent’s final return and are later received by the estate or beneficiaries.
- A decedent’s pre-death steps toward a transaction do not create IRD if, at death, material conditions precedent remain and the decedent lacks an enforceable right to payment.
- When post-death proceeds are not IRD, the tax consequences follow ordinary rules for property acquired from a decedent, including basis determined under applicable basis provisions rather than § 691.

## Conclusion

Because the contemplated corporate sale and liquidation remained subject to ICC approval at Shaw’s death, he was not entitled to the proceeds within the meaning of § 691; therefore, the later liquidation distributions to his widow and estate were not taxable as IRD.


Keck v. Commissioner, 415 F.2d 531 (6th Cir. 1969)