Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 71-5

1971-1 C.B. 270

IRS Headnote

The transfer of corporate stocks during the alternate valuation period from the decedent's name to the name of the sole executor-beneficiary constitutes a "distribution" within the meaning of section 2032(a) of the Code.

Full Text

Rev. Rul. 71-5

Advice has been requested whether the transfer of corporate stocks from a decedent's name to the individual name of the sole executor-beneficiary is considered a "distribution" within the meaning of section 2032 of the Internal Revenue Code of 1954, under the circumstances described below.

The decedent died testate, leaving her entire estate, consisting primarily of corporate stocks, to her surviving husband, who was named executor of her estate. The decedent's will was admitted to probate and her husband duly qualified as executor. After qualifying as executor and within one year after the decedent's death, the husband had the corporate stocks transferred to himself in his individual name. At the time of the transfer, no decree of distribution had been entered, nor had the claims against the estate, expenses of administration, and estate and inheritance taxes been paid. The executor elected the alternate method of valuation as authorized by section 2032 of the Code on a timely filed Federal estate tax return.

Section 2032(a) of the Code provides that, if the executor so elects, the value of the gross estate shall be determined as of one year after the decedent's death, except that property distributed, sold, exchanged, or otherwise disposed of, within the one-year period, shall be valued as of the date of distribution, sale, exchange, or other disposition.

Section 20.2032-1(c)(1) of the Estate Tax Regulations defines the phrase "distributed, sold, exchanged, or otherwise disposed of," as comprehending all possible ways by which property ceases to form a part of the gross estate. Paragraph (c)(2) of this section of the regulations provides that property is considered as "distributed," for alternate valuation purposes, upon the first to occur of (1) the entry of an order or decree of distribution, if the order or decree subsequently becomes final, (2) the segregation or separation of the property from the estate or trust so that it becomes unqualifiedly subject to the demand or disposition of the distributee, or (3) the actual paying over or delivery of the property to the distributee.

The word "distributed," as used in section 2032 of the Code and as defined in the Estate Tax Regulations, may be equated with the shifting of the economic benefits of the property transferred. See Hertsche v. United States, 244 F. Supp. 347 (1965), affirmed per curiam 366 F. 2d 93 (1966). The fact that the executor is the sole executor and sole beneficiary does not diminish his power to distribute stock to himself in his individual capacity.

The incident of the shifting of economic benefits for Federal tax purposes is illustrated by a situation where a donor endorses a certificate of stock and delivers it to his bank or broker with a direction to have it transferred to a donee. The gift is completed for Federal gift tax purposes on the date the stock is transferred to the donee on the books of the corporation.  Rev. Rul. 54-135, C.B. 1954-1, 205.

Thus, it is held that when the executor-beneficiary in his individual capacity, by reason of the transfer of stock on the corporate books, became vested with all the economic benefits in the stock that would have otherwise remained in him in his fiduciary capacity, a "distribution" was effected for the purposes of section 2032(a) of the Code.