No, the government cannot tax the cancelled debt. The court explained that the 'cancel-on-death' rule wasn't a hidden gift or something Mr. Moss secretly planned to give away in his will. It was part of the original, fair business deal. Because of this rule, Mr. Moss's legal right to collect the money completely vanished the moment he died. It was like having a contract that was only good for his lifetime—once he was gone, the contract ended, and there was nothing left for his estate to own or be taxed on.

No, the money owed on the special promissory notes should not be counted as part of John's estate for taxes because John's right to the money ended when he died. The rule canceling the debt when John died was part of the original fair deal when John sold his business ownership and property. This is different from a case where someone keeps control of a debt and just tries to cancel it in their will. Here, John's rights to the notes ended completely at his death, so there was nothing left to count in his estate for taxes.

No, the promissory notes are not includable in the decedent's gross estate. The court reasoned that the self-cancellation provision was an integral, bargained-for part of the original consideration for the sale, not a disguised testamentary gift. Unlike a bequest in a will which can be unilaterally revoked by the testator, the cancellation clause was a binding contractual term that Moss could not change. Consequently, all of the decedent's interest in the notes was completely extinguished at the moment of his death. The court found the situation analogous to a life estate or an annuity, where the interest terminates upon death, leaving no property interest to be included in the gross estate under section 2033.

Yes, the promissory notes that are extinguished upon the decedent's death are not includable in the decedent's gross estate for federal estate tax purposes because the decedent's interest in the notes was limited to his lifetime and was extinguished upon his death. The cancellation provision was part of the bargained-for consideration in the bona fide sale of the decedent's stock and property to the corporation. The court distinguished this case from Estate of Buckwalter, where the decedent retained control over the debt and the cancellation was more akin to a testamentary transfer. Here, the decedent's interest in the notes lapsed at his death, leaving no interest to be included in his gross estate under section 2033 of the Internal Revenue Code.

Estate of Moss v. Commissioner

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