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The statute does not define the term “income in respect of a
decedent”. Section 1.691(a)-1(b), Income Tax Regs., provides:
(b) General definition. In general, the term
"income in respect of a decedent" refers to those
amounts to which a decedent was entitled as gross
income but which were not properly includible in
computing his taxable income for the taxable year
ending with the date of his death * * *.
Petitioner argues that the $5 million payment to decedent’s
estate is not income in respect of a decedent under section 691.
Petitioner’s position parallels petitioner’s contention (rejected
above) that the $5 million payment was made exclusively to buy
decedent’s CSB stock.
Respondent concedes that the payment to decedent’s estate is
not income in respect of a decedent to the extent that it was
paid to buy decedent’s stock. Thus, we need decide only whether
the $3,956,267 CSB paid to decedent’s estate in lieu of any claim
for work in process is income in respect of a decedent.
Petitioner contends that there is no income in respect of a
decedent from the sale of stock to the corporation when the
shareholder dies because the sale occurs after the shareholder's
death. See sec. 1.691(a)-2(b), Example (4), Income Tax Regs.
Petitioner argues that none of the CSB payment to decedent’s
estate is taxable to petitioner as income in respect of a
decedent because: (1) CSB’s shareholders had no right to
earnings beyond salary or to bonuses until yearend when the
officers decided how to divide CSB’s profits; (2) CSB paid
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