Internal Revenue Service
Revenue Ruling
TaxLinks.com
smRev. Rul. 75-79
1975-1 C.B. 184
Sec. 691
IRS Headnote
Income in respect of decedent; usufructory interest; Louisiana. The portion of a deceased husband's bonus payment received by his widow holding in usufruct under Louisiana law is includible in her gross income for the taxable year in which received pursuant to section 691(a) of the Code; I.T. 3931 superseded.
Full Text
Rev. Rul. 75-79 [fn1]
The purpose of this Revenue Ruling is to update and restate, under the current statute and regulations, the position set forth in I.T. 3931, 1948-2 C.B. 87.
The question presented relates to the application of section 691(a) of the Internal Revenue Code of 1954 to the portion of a bonus payment received after a decedent's death by his surviving widow domiciled in the State of Louisiana, a community property state, by reason of her right of usufruct therein.
The widow's deceased husband was also domiciled in Louisiana at the time of his death in January 1974, and was an officer of a corporation. In addition to his salary, he was entitled to a bonus based on a percentage of profits of the corporation. He died intestate after having received a substantial payment on account of the bonus due him for the year 1973. Under the terms of a judgment of possession rendered in March 1974, the surviving spouse was placed in possession of an undivided one-half interest in her own right in all community property, and a daughter was placed in possession of the remaining undivided one-half interest in all community property subject to a usufruct in such interest in favor of her mother. A final audit of the corporation's books for the year 1973 disclosed a balance due on account of the bonus, which balance was paid to the widow in May and June of 1974.
The pertinent provisions of the Civil Code of Louisiana (Title I, chapter 3, article 916, Title III, chapter 1, section 1, article 534 and 536, and chapter 1, section 2, article 549) provide, in part, as follows:
Art. 916. Community property; surviving spouse's usufruct on decedent's share inherited by common issue.
Art. 916. In all cases, when the predeceased husband or wife shall have left issue of the marriage with the survivor, and shall not have disposed by last will and testament, of his or her share in the community property, the survivor shall hold a [in] usufruct, during his or her natural life, so much of the share of the deceased in such community property as may be inherited by such issue. This usufruct shall cease, however whenever the survivor shall enter into a second marriage.
* * * * * * *
Art. 534. Kinds of usufruct
Art. 534. There are two kinds of usufruct:
Perfect usufruct, which is of things which the usufructuary can enjoy without changing their substance, though their substance may be diminished or deteriorated naturally by time or by the use to which they are applied; as a house, a piece of land, furniture and other movable effects.
And imperfect or quasi usufruct, which is of things which would be useless to the usufructuary, if he did not consume or expend them, or change the substance of them, as money, grain, liquors.
* * * * * * *
Art. 536. Imperfect usufruct
Art. 536. Imperfect usufruct, on the contrary, transfers to the usufructuary the ownership of the things subject to the usufruct, so that he may consume, sell or dispose of them, as he thinks proper, subject to certain charges hereinafter prescribed.
* * * * * * *
Art. 549. Imperfect usufruct of consumable things
Art. 549. If the usufruct includes things, which can not be used without being expended or consumed, or without their substance being changed, the usufructuary has a right to dispose of them at his pleasure, but under the obligation of returning the same quantity, quality and value of the owner, or their estimated price, at the expiration of the usufruct.
* * * * * * *
Section 691(a) of the Code provides, in part, as follows:
Sec. 691(a) Inclusion in Gross Income.--
(1) General rule.--The amount of all items of gross income in respect of a decedent which are not properly includible in respect of the taxable period in which falls the date of his death or a prior period (including the amount of all items of gross income in respect of a prior decedent, if the right to receive such amount was acquired by reason of the death of the prior decedent or by request, devise, or inheritance from the prior decedent) shall be included in the gross income, for the taxable year when received, of:
* * * * * * *
(B) the person who, by reason of the death of the decedent, acquires the right to receive the amount, if the right to receive the amount is not acquired by the decedent's estate from the decedent; or
(C) the person who acquires from the decedent the right to receive the amount by bequest, devise, or inheritance, if the amount is received after a distribution by the decedent's estate of such right.
* * * * * * *
(3) Character of income determined by reference to decedent,--The right, described in paragraph (1), to receive an amount shall be treated, in the hands of the * * * person who acquired such right by reason of the death of the decedent, * * * as if it had been acquired by * * * such person in the transaction in which the right to receive the income was originally derived and the amount includible in gross income under paragraph (1) * * * shall be considered in the hands of * * * such person to have the character which it would have had in the hands of the decedent if the decedent had lived and received such amount.
Since, in the instant case, the decedent died intestate, the above quoted provisions of the laws of Louisiana were applied to the distribution of his estate. The right to receive the portion of the balance of the decedent's bonus in which she had the usufruct passed to the widow, and, in fact, actual payment was made to her. As to his portion of the balance of the bonus payment, that is, that subject to the usufruct, she has the ownership of the funds, she has the right to use them, or to dispose of them at her pleasure giving good title thereto, subject only to an accounting at the termination of the usufruct. Although her ownership is not perfect, nevertheless the rights acquired by her are sufficient for her to be considered the owner for the purpose of applying section 691(a) of the Code. Her right to the half of the balance of the bonus that represents the decedent's share was obtained by reason of her right of usufruct. What actually passed to her was thus the right to decedent's share of the balance of the bonus payment impressed with an obligation to pay the tax.
Accordingly, in the instant case, the portion of the balance of the bonus payment attributable to her deceased husband's share therein to which she obtained the right of usufruct is includible in her gross income for the taxable year when received (1974) pursuant to section 691(a) of the Code.
In view of the foregoing, the full amount of the balance of the bonus payment received by the widow is taxable to her.
I.T. 3931 is superseded, since the position set forth therein is restated under the current law in this Revenue Ruling.
[fn1] Prepared pursuant to Rev. Proc. 67-6, 1967-1 C.B. 576.