Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 75-24

1975-1 C.B. 306

IRS Headnote

Deduction for claims informally presented. A valid and enforceable claim against a Mississippi decedent's estate that was informally presented to the executor within the statutory period for presenting claims and paid with the approval of the beneficiaries is deductible under section 2053 of the Code.

Full Text

Rev. Rul. 75-24

Advice has been requested concerning the deductibility under section 2053 of the Internal Revenue Code of 1954, and section 20.2053-4 of the Estate Tax Regulations, of a claim against a decedent's estate that was valid and enforceable at the time of decedent's death but was not probated, under the circumstances described below.

A died domiciled in Mississippi and left real and personal property in that state. Letters testamentary were issued in Mississippi.

At his death, A owed B, a resident of Mississippi, an unsecured debt. The claim was not probated. Three months after A's death, B informally asserted his claim against the executor and his claim was promptly paid out of the Mississippi property. Payment of the claim was approved by the beneficiaries of the estate. The claim was deducted on the Federal estate tax return filed on behalf of A's estate.

Section 2053(a) of the Code provides that the value of the taxable estate shall be determined by deducting from the value of the gross estate such amounts for claims against the estate as are allowable by the laws of the jurisdiction under which the estate is being administered. Section 20.2053-4 of the regulations states that only claims enforceable against the decedent's estate may be deducted.

Title 91-7-151 of the Mississippi Code 1972, Annotated, requires that all claims against the estate of a decedent be registered, probated and allowed in the court having jurisdiction over the administration of the estate within six months after publication of notice to creditors. The purpose of the Mississippi statute is to protect the executor or administrator (hereinafter fiduciary) in his payment of the obligations of the estate. The statute requires creditors to present evidence of their claims and gives the fiduciary an opportunity to contest them if he feels the claims to be unwarranted. Whitaker v. Davenport, 193 Miss. 523, 10 So. 2d 202 (1942).

The Mississippi Code charges the fiduciary with the duty of promptly paying all claims against the estate, but he is prohibited from paying any claim that has not been properly registered, probated and allowed. Compliance with the statute is mandatory (Gray v. Love, 173 Miss. 390, 161 So. 679 (1935)); and the fiduciary may be surcharged if a claim is paid without complying with the requirements of State law (Oberst v. Mullens, 43 So. 2d 560 (Miss. 1949)). Nevertheless, in Townsend v. Beavers, 185 Miss. 312, 188 So. 1 (1939)), it was held that the payment of promissory notes that were not probated could not be surcharged against the fiduciary where the distributees of the estate had consented to their payment. Also, in Riegelhaupt v. Ostroffsky, 237 Miss. 521, 115 So. 2d 331 (1951), it was held that the statute does not affect the right of the devisee of encumbered real property to have his claim against the property satisfied out of the other property in the decedent's estate where the devisee's claim was not probated.

Based on Mississippi statutory law, as construed by the Supreme Court of Mississippi, it is concluded that where payment is made within the six-month bar period of a valid but unprobated claim that was approved by all the beneficiaries of the estate within such period--that is, during the time in which the claim was enforceable--the claim is allowable as a section 2053 deduction. Rev. Rul. 60-247, 1960-2 C.B. 272, recognizes an exception to the enforceability requirement of section 20.2053-4 of the regulations where that requirement would compel a useless act, e.g., where the creditor is the sole beneficiary of the estate.

However, if the payment of a valid but unfiled claim renders the fiduciary subject to surcharge after the period for filing has terminated, either because the payment was not approved by all the beneficiaries of the estate within such period or because such approval would not bar a surcharge, no deduction is allowable under section 2053, whether or not the fiduciary is actually surcharged. If the fiduciary is later surcharged, the claim would not be deductible because there is no economic loss to the estate, and if the fiduciary is not surcharged, the gratuitous forebearance of the beneficiaries does not render the claim enforceable.

Accordingly, it is held that payment of B's valid claim is deductible under section 2053 of the Code, because it was made and approved by all the beneficiaries of the estate during the period in which the claim was enforceable and such approval rendered the probating of the claim unnecessary to prevent surcharge of the executor.