Goodman v. Granger Case

Goodman v. Granger Case

Goodman v Granger Case was the case that revealed the problem of estate valuation for the tax purposes. The case reveals the examination of instances where the value of the property of the deceased is different from the value of the property during his life and the examination of the case are to ascertain whether the value of the property increased or decreased. The court of Appeal reversed the rule of the District Court on the ground that the contract right should be given its full value for the purpose of estate tax purpose.

The purpose of this paper is to explore the principal issues of the U.S. Court of Appeal based on the Goodman v. Granger case.

Principal Issues of the U.S. Court of Appeal

The principal issue in the case is to ascertain when the federal government estate tax attaches. "More specifically stated, when does such tax attach to a decedent-employee's contractual right to annual deferred compensation payments from his employer, payable to his estate after his death?" (United States Court of Appeal, 1957 p 1). The government presented this problem to the Court of Appeal in order to reverse the ruling of the District Court that favored the taxpayer. Thus, "determination of the time when that interest is to be valued is the crux of the dispute." (United States Court of Appeal, 1957 p 1).

The principal issues of U.S. Court of Appeal on Goodman v. Granger are as follows:

Principle of estate tax

Answer to the question on when the estate tax is attached after owner's death,

Imposition of estate tax should be transferred to the property after the owner's death.

Theory of contract that has marketable value needs to be assessed and determined for the estate tax purpose.

The issues of the U.S. Court of Appeal on the case of Goodman v. Granger provide a revelation of when the estate tax is attached. The Court of Appeal reversed the ruling of the District Court on the ground that the federal estate tax was to be imposed on transfer of property and not to be imposed on the property itself. The correctness of the instant case prevents the avenues for people to avoid the estate tax.

The instance case between Goodman v. Granger is based on the problem of taxation on the estate following the death of the owner. The decedent's widow received a monthly payment from former employer of her husband under a deferred compensation agreement. However, the court stated that the rights to the payments should be valued when the property rights vested in the widow were absolute. (Brandon, 1961). The decedent was entitled to receive $6,000 per annum for 15 years based on the contract of employment. However, the payment must start after the termination of employment for any reason. Thus, the decedent death eliminated the right to pay tax for the estate. However, the Commissioner determined that cumulative estate tax was valued to $90,000 and to be payable under the fixed agreement. The petitioner, who was seeking for a tax refund "successfully contend in the District Court that the contract right should be valued before death. Under this theory, it was found to have no market values" (Columbia Law Review, 1958 p 124). The District Court contention revealed that decedent's contractual right ought to be valued before the death and at such moment, the contractual right was deemed valueless.

However, the U.S. Court of Appeal reversed the case on the ground that "valuation for estate tax purpose is determined with reference to the fact of decedent's death. It is therefore based on the value of decedent's property at the moment subsequent to his demise" (Columbia Law Review, 1958 p 124). Essentially, the imposition of estate tax is generally based on the value of the property controlled or owned by a decedent and estate may be valued 6 months after decedent's death. Under estate taxation, government is deemed to tax decedent's net worth. Thus, the Court of Appeal revealed the deficiency in the assessment of the value of property because the conclusion of the stake of contract created should follow the theory of contract since the estate was deemed to have a marketable value, which should be assessed and determined. Moreover, the Court of Appeal clarified that the federal estate tax should be imposed upon transfer of the property based on the Internal Revenue Code (IRC) of 1939, sec 810. Under the code, the decedent's gross estate should be determined and include the value of the property at the time of death. Moreover, Treasury Regulation 105 under section 81.10 also reveals that the fair market value of an estate should be used to determine the measure of estate value.

Thus, the Court of Appeal showed that estate tax should be measured based on the value of the property transferred by death. Moreover, the government had the right to value deferred compensation payment similar to annuity in accordance to the Treasury Regulations.

Implications of the Case

The implication of the case revealed that the government has the right to levy estate tax even after the death of the estate owner. The conclusion of the Court of Appeal showed that property is subject to taxation whether the owner is alive or not or whether he has transferred the property to another person. Based on the law of estate tax law, the government has the right to levy tax on the property. Essentially, the rulings of the District Court if not reversed would have allowed many people to avoid estate tax if the properties were transferred to them. It is now several decades since the Court of Appeal has reversed the ruling of the District Court and since that time, several estates have been passed to decedents. If the Court of Appeal does favor the government on the case, the federal government would have now lost several billion of dollars from non-payment of estate tax.

Moreover, the case has been able to clarify the tax law on the ground that government has the right to transmit the taxing power from the death to the living. Under sec, 810, certain percentages of the net value of a property shall be imposed upon the transfer of an estate. Sec 811 also shows the value of a gross estate shall be determined at the time of death of property owner except if the property is located outside the United State. Under the Regulation 105, Sec. 81.10, the value of property and gross estate shall be determined based on their market values at the time of a decedent's death, and it is based on the fair market value that property shall be taxed. Thus, the case clarifies how the government could determine the estate tax after the death of the owner and if the estate is transferred to another person.