Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 54-19

1954-1 C.B. 179

Sec. 61

IRS Headnote

Amounts receivable in settlement of claims under the New Jersey `Death by Wrongful Act' statute, N.J.S.A. 2A:31-1-31-6, are not includible in the decedent's gross estate for Federal estate tax purposes under section 811(a) of the Internal Revenue Code nor taxable as income to the decedent's estate or to the dependents who will receive the proceeds of the recovery.

Full Text

Rev. Rul. 54-19

Advice is requested whether the proceeds in settlement of a claim under the New Jersey `Death by Wrongful Act' statute are includible in the decedent's gross estate under section 811(a) of the Internal Revenue Code or constitute taxable income of the estate or of the dependents who will receive the proceeds of the recovery.

The decedent met his death as the result of an airplane crash. The executrix of the estate of the decedent commenced court action against the carrier under the New Jersey `Death by Wrongful Act' statute, N.J.S.A. 2A:31-1-31-6. The carrier has offered to settle the claims asserted by the petitioner.

The New Jersey `Death by Wrongful Act' statute provides that an action will lie, notwithstanding the death of the person injures, against the person who would be liable for damages for the wrongful act, negligence or default had the deceased merely been injured. The action shall be brought by the executor or administrator, w.w.a., or by an administrator ad prosequendum, if there be neither of the latter appointed. However, the action shall be maintained by either of the above parties not for his benefit as such administrator ad prosequendum, etc., but rather for persons who would take the decedent's property had he died intestate under the laws of New Jersey. Specifically, chapter 31-4, ` Persons entitled to amount recovered' reads as follows:

The amount recovered in proceedings under this chapter shall be for the exclusive benefit of the persons entitled to take any intestate personal property of the decedent, and in the proportions in which they are entitled to take the same. If any of the persons so entitled were not dependent on the decedent at his death, the remainder of the persons so entitled shall take the same as though they were the sole persons so entitled. If all or none of the persons so entitled were then dependent on him, they shall all take as aforesaid.

Section 811(a) of the Internal Revenue Code provides:

The value of the gross estate of the decedent shall be determined by including the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated, except real property situated outside of the United States-

(a) DECEDENT'S INTEREST.-To the extent of the interest therein of the decedent at the time of his death; * * *

The decisive question in this case is whether the decedent had an interest in the amount recoverable under the New Jersey `Death by Wrongful Act' statute or in the right of action at the time of his death. The action against the carrier was brought under the statute, and the statute governs in determining the distribution of the proceeds of the recovery. The decedent in his lifetime never had an interest in the right of action or in the proceeds. He did not create the right, it was created by statute and vested in the persons designated in the statute. Inasmuch as the decedent had no right of action or interest in the proceeds at the time of his death, nothing `passed' from the decedent to the beneficiaries. Accordingly, the amounts recovered by the beneficiaries would not be includible in the decedent's gross estate for Federal estate tax purposes.

Section 22(a) of the Internal Revenue Code provides that all gains, profits, and income derived from any source whatever are income subject to taxation. Proceeds of this nature, that is, compensation for loss of life, are not embraced in the general concept of the term `income'. See I.T. 2420, C.B. VII-2, 123.

In view of the foregoing, amounts receivable in settlement of claims under the New Jersey `Death by Wrongful Act' statute, N.J.S.A. 2A:31-1-31-6, are not includible in the decedent's gross estate for Federal estate tax purposes under section 811(a) of the Internal Revenue Code nor taxable as income to the decedent's estate or to the dependents who will receive the proceeds of the recovery.