
    399 F. 2d 226
    TOM J. KEARNS, JR., ADMINISTRATOR OF THE ESTATE OF OSCAR EUGENE KEARNS, DECEASED v. THE UNITED STATES
    [No. 165-65.
    Decided July 17, 1968]
    
      
      Thomas A. Frazier, Jr., attorney of record, for plaintiff. Ivins, Phillips d& Barker, of counsel.
    
      William G. Bollard, Jr., with whom was Assistant Attorney General Mitchell Bogovin, for defendant. Philip B. Miller and Joseph Kovner, of counsel.
    Before CoweN, Chief Judge, Laramore, Dureee, Davis, ColliNS, SkeltoN and Nichols, Judges.
    
   Per Curiam :

This case was referred to Chief Trial Commissioner Marion T. Bennett with directions to make findings of fact and recommendation for conclusions of law under the order of reference and Buie 57(a). The commissioner has done so in an opinion and report filed on January 26, 1968. Exceptions to the commissioner’s opinion, findings, and recommended conclusion of law were filed by plaintiff and the case has been submitted to the court on oral argument of counsel and the briefs of the parties. Since the court is in agreement with the opinion, findings and recommendation of the commissioner, with an addition to the opinion by the court, it hereby adopts the same, as modified, as the basis for its judgment in this case as hereinafter set forth. Therefore, plaintiff is not entitled to recover and the petition is dismissed.

Chief Commissioner Bennett’s opinion, with an addition by the court, is as follows:

This is a suit for refund of $6,900 in estate taxes paid as a deficiency assessment on the proceeds of two life insurance policies. The policies insured the life of the decedent, Oscar Eugene Kearns, who died on March 26, 1958. Named as beneficiary was his family-owned business, O. E. Kearns & Son, Inc. Plaintiff is the decedent’s grandson and is the duly qualified administrator of his estate. The question for determination is whether decedent at the time of his death possessed any of the incidents of ownership in the policies within the meaning of section 2042(2) of the Internal Bevenue Code of 1954, ch. 736, 68A Stat. 387, 26 U.S.C. § 2042 (1964), Treas. Reg. § 20.2042-1 (c).

Briefly stated, the facts are as follows:

In. 1928, decedent applied for and received from the Union Central Life Insurance Company of Cincinnati, Ohio, two policies of insurance on his life, one of $10,000 face amount and the other $15,000. Both policies named as beneficiary the decedent’s family business, then a partnership, O. E. Kearns & Son. Under the terms of the policies, certain rights and privileges were granted to the insured (the decedent), including the' right to change the beneficiary, to exercise a conversion privilege, to choose a method of utilizing the surrender value, and to elect a settlement option,.

In 1930, the partnership was incorporated as O. E. Kearns & Son, Inc., and the name of the beneficiary was changed to reflect this fact. All premiums on the policies were paid first by the partnership and later by the corporation. The policies were carried as an asset on the company’s books and financial statements. On several occasions these policies were assigned as collateral for loans made to the corporation by the Wacho-via Bank and Trust Company of High Point, North Carolina. Written notice of the assignments was given to the insurance company in each instance and decedent, as insured, consented to the assignments. The corporation had physical custody of tbe policies at all times (except while they were assigned to the bank) and kept them in the company safe with the valuable papers of the corporation.

In executing papers for the above-mentioned collateral assignments, the corporation was customarily designated as “owner-beneficiary.” In short, decedent’s actions and statements suggest that he considered these policies to be corporate property separate and apart from his own assets, including his personal life insurance. For this reason, these policies were not included in the gross estate when the estate tax return was filed. On July 29, 1960, the District Director of Internal Kevenue assessed a deficiency in estate tax resulting, in part, from inclusion of these policies in the gross estate. This assessment was paid on August 15, 1960, and a claim for refund was timely filed on August 13, 1962. Upon rejection of this refund claim, this suit was commenced.

On the basis of the foregoing facts, plaintiff contends that decedent never intended for these policies to be his own, and that this intent served to divest him of airy rights in the policies, notwithstanding any contrary provisions in the policies themselves. Specifically, plaintiff contends that the decedent had assigned all his rights in the two policies to the corporation, and that any incidents of ownership the decedent retained were held by him as a mere nominee on behalf of the corporation. Defendant denies both of these contentions and asserts that the decedent did possess incidents of ownership at his death so that the proceeds of both policies are properly includible in his gross estate under section 2042(2), supra.

Thus, this court is called upon to decide whether the facts indicating decedent’s intentions are sufficient to overcome the facts set forth in the contracts themselves. In light of the Supreme Court’s holding in Commissioner v. Estate of Noel, 380 U.S. 678 (1965), the policy facts would appear to be controlling. Since decedent retained significant rights under the policies, it is found that he did, at his death, possess incidents of ownership in these policies rendering them includible in his gross estate pursuant to section 2042 (2).

In the Noel case, supra, the decedent’s wife purchased two airline flight insurance policies covering decedent shortly before he was killed in a plane crash. After holding these policies to be life insurance within the meaning of section 2042, the Court considered the executor’s alternative arguments that (1) the policies belonged to decedent’s wife, since she had purchased them, and (2) that decedent had made a gift of the policies to her. The decision held the proceeds taxable to the decedent’s estate, answering both arguments merely by reference to the terms of the contracts. Since the policies granted the decedent the right to change the beneficiary or to assign the policy, the wife’s claim of unconditional ownership was found to be erroneous. The gift contention was overcome by the policy provision requiring a written endorsement on the policy to effect any assignment.

Plaintiff here would distinguish Noel on grounds that the policies now in issue did not specifically require either a written endorsement or notice to the insurer as a prerequisite to assignment. This assertion is easily overcome by reference to paragraph 25 of the policies, which provides that “the insured, without the consent of any beneficiary, may exercise every right and receive every benefit reserved to the insured, or the owner of the policy * * [Emphasis supplied.] Thus, something more than a mere assignment is necessary to divest the insured of his rights under this particular policy. Moreover, plaintiff’s contention is misplaced in the light of the specific finding that decedent did retain incidents of ownership in the policies (and thus did not assign all his rights therein). In addition, the policy clearly provided that the “insured” and the “owner” were separate entities and the decedent never assigned or attempted to assign his rights as “insured” (if, indeed, he was permitted to do so under the policy). The Kearns company may have been designated in certain documents as the “owner,” but the decedent continued to refer to himself as the “insured” and to retain the rights of the “insured.” See findings 14(a), (b), 16(a), (b), 17. In any case, paragraph 25 of the policy indicates that, at the very least, the insured’s privilege (if any) of assigning his right to change the beneficiary could not be validly exercised without written notification to the insurance company — that is the clear implication of the requirement that a change of beneficiary could not be made without a “written notice to the company at the Home Office” — and no such notice of assignment or attempted assignment was ever given. The Noel decision, 380 U.S. at 683, shows that in these respects the terms of the policy are controlling.

Several litigated cases present this same situation, with a decedent insuring his life, naming his business as beneficiary, and with the business thereafter paying the premiums and otherwise exercising dominion over the policy. Such cases hold almost uniformly that where the decedent retains rights under the policy he possesses incidents of ownership within the meaning of section 2042 (2). Estate of Piggott v. Commissioner, 340 F. 2d 829 (6th Cir. 1965) ; Hall v. Wheeler, 174 F. Supp. 418 (S.D. Me. 1959). Cf. Commissioner v. Estate of Noel, supra; United States v. Rhode Island Hospital Trust Co., 355 F. 2d 7 (1st Cir. 1966) ; Estate of Michael Collino, 25 T.C. 1026 (1956).

One exception to this general rule is Estate of Edward Doerken, 46 B.T.A. 809 (1942), where proceeds of life insurance policies payable to decedent’s corporate employer were held not includible in his gross estate despite a retention of rights in the policies by the decedent insured. This case was decided under section 302(g) of the Revenue Act of 1926, ch. 27, 44 Stat. 9, 71, as amended by section 404 of the Revenue Act of 1934, ch. 277, 48 Stat. 680, 754. That statute taxed, within certain limitations “insurance under policies taken out by the decedent upon his own life,” and did not contain any reference to incidents of ownership, although the term “legal incidents of ownership” did appear in the regulations. The board applied the premium payment test and concluded that since the corporation had obtained the insurance and paid all premiums thereon, this insurance had not been “taken out” by the decedent. Although the decedent did retain rights under the policies, he was found to be only the nominal owner thereof.

A representative case under the 1954 Code (section 2042) is Estate of Piggott v. Commissioner, supra. There the corporate beneficiary paid the premiums on the policy, used it as collateral for business loans, and carried it on tbe corporate books as an asset of tbe corporation; yet tbe policy was beld includible in decedent’s estate under section 2042 (2), due to his retention of certain policy rights, including tbe right to change tbe beneficiary. Tbe taxpayer there argued that, as in Doerken, decedent intended that tbe policy be wholly the property of the corporate beneficiary and that be was merely tbe nominal bolder of rights under tbe policy. The court disagreed, bolding that the taxpayer bad failed to meet bis burden of proof on the question of decedent’s intent to divest himself of all rights in the policy. By way of dictum, tbe court disapproved of tbe Government’s contention that tbe Doerken rationale was obsolete under tbe 1954 Code, preferring instead to distinguish that case on factual grounds.

The same factors obtain in tbe present case. Plaintiff here has offered no more convincing evidence of a transfer of the incidents of ownership than did the taxpayer in Estate of Piggott v. Commissioner, supra; accordingly, he has failed to meet his burden of proof on this issue. Furthermore, recent cases under section 2042(2) suggest that the Doerken rationale is indeed obsolete under the 1954 Code, for Estate of Piggott v. Commissioner, supra, suggesting otherwise, was decided prior to the Supreme Court decision in Commissioner v. Estate of Noel, supra; see also United States v. Rhode Island Hospital Trust Co., supra, and Puchner v. United States, 274 F. Supp. 704 (E.D. Wis. 1967). These cases further delineate the general rule that so-called “policy facts” (i.e., reservation of rights in the contract of insurance) are not easily rebutted by reference to “intent facts” or external circumstances.

The advantage of such a well-defined rule for taxability of life insurance proceeds was succinctly stated by the court in United States v. Rhode Island Hospital Trust Co., supra at 13:

While decisions against the estate of a passive but power-possessing decedent may often conflict with the honest intentions and understanding of premium-paying beneficiaries and insureds, the alternative of abandoning the insistence on the governing nature of the contract, in most cases, is less desirable. The drawing of a useful line would be impossible; there would be a much wider range of varying decisions on similar facts; and there would be an invitation to unprincipled estate manipulation. As government counsel has pointed out, there could always be a formally executed side agreement under which the insured clearly surrenders to the beneficiary all his rights to the policy, such agreement to be brought to light only in the event of the decedent’s dying before the beneficiary.

Another exception to the general rule occurs where the insurance contract is mistakenly drawn up in a manner which does not reflect the agreement reached by the parties. National Metropolitan Bank of Wash. v. United States, 115 Ct. Cl. 396, 87 F. Supp. 773 (1950). This rule is, however, inapplicable here since plaintiff has not shown that these policies are in any manner at variance with the understanding reached between decedent and the agent who sold him the policies.

Finally, plaintiff asserts that these two policies have already been included in the gross estate and that to deny recovery in this suit would subject the estate to a double tax on these policies. This claim is based upon the redetermination of the value of decedent’s stock in O. E. Kearns & Son, Inc., made by the Kevenue agent who audited the return and is said to have included the policies in determination of the value of the stock on the theory that the corporation owned the policies. The agent’s report stated that such redetermination was “predicated upon consideration of book value, earnings, dividend-paying capacity, and other factors.” Since no further evidence was offered on this point, it must be held that there is insufficient proof thereon to warrant judgment for plaintiff. In any event, whether plaintiff might have had a claim for an agent’s possible error or inconsistency, if timely made, has no bearing on the instant issue of whether decedent possessed incidents of ownership in the insurance policies in issue, which is the central question before the court. On this question, the facts of the case as illustrated by the terms of the policy govern and establish the retention of key incidents of ownership by decedent, whatever bis intention. The law on this problem is settled and pursuant thereto the petition must be dismissed.

FINDINGS on Fact

1. Plaintiff is a United States citizen and is the duly appointed and qualified administrator of the estate of Oscar Eugene Kearns, pursuant to a court order issued by the Clerk of the Superior Court of Guilford County, North Carolina, dated December 8,1964.

2. Oscar Eugene Kearns (hereinafter sometimes referred to as the decedent) died on March 26, 1958, in High Point, North Carolina. Prior to his death, decedent was a citizen of the United States and a resident of the city of High Point, North Carolina.

3. In 1920, decedent, together with his wife, Effie J. Kearns, his son, Tom J. Kearns, and an unrelated banker, Mr. G. A. Pollock, formed a partnership (known as O. E. Kearns & Son) for the manufacture of men’s and ladies’ hosiery at 518 South Hamilton Street, High Point, North Carolina.

4. G. A. Pollock left the partnership as of January 17, 1927. Immediately thereafter, decedent had a 53-percent interest in the partnership, while Efiie J. Kearns had approximately 6 percent and Tom J. Kearns held the balance.

5. In 1925, O. E. Kearns & Son purchased a $10,000 life insurance policy on the life of Tom J. Kearns. The partnership was named as the beneficiary of this policy, and premiums thereon were paid by the partnership.

6. On January 21,1928, decedent executed and filed applications for insurance with the Union Central Life Insurance Company of Cincinnati, Ohio (hereinafter sometimes referred to as Union Central), for two ordinary life policies in the face amounts of $10,000 and $15,000, respectively. The applications named O. E. Kearns & Son as the beneficiary and Oscar Eugene Kearns as the applicant. These applications were made to T. A. Kearns, decedent’s brother, who was an agent 'for Union Central at High Point, North Carolina, and to Union Central’s Charlotte, North Carolina, agency.

7. The two above-mentioned applications were accompanied by a Union Central form, entitled Agent’s Statement — -To Accompany each Application for Insurance, which was executed 'by T. A. Kearns as agent. On this statement, the purpose for the insurance was listed as “business protection.”

8. On February 2, 1928, Union Central issued two ordinary life insurance policies numbered 965196 and 965197 in the face amounts of $10,000 and $15,000, respectively, insuring the life of decedent. The designated beneficiary of each of these policies was “O. E. Kearns & Son, its successors or assigns.”

9. The two policies in question were identical except for the face amounts and the amounts of the premiums. These policies :by their terms insured the life of Oscar Eugene Kearns, the decedent here, and were ordinary whole life policies with premiums payalble for the life of the insured. Provision was made for annual dividends on the policies, which could be (a) withdrawn, (b) applied to the payment of premiums, (c) left with the company at 3^2-percent interest, or (d) applied to the purchase of paid-up additions to the policy. There was a provision for automatic disposition of dividends if no other option was elected. In addition, the policies provided for a surrender value (equal to the reserve) which could be used “at the option of the owner of the policy” under one of four options: (a) extended insurance; (b) paid-up insurance; (c) loans against the policy; and (d) cash payment upon surrender of the policy.

10. Each of the policies contained the following additional provisions:

25. ohaNge on beNeficiaRy. Unless it is stated on the first page hereof that the policy is without privilege of change of beneficiary, the insured, without the consent of any beneficiary, may exercise every right and receive every benefit reserved to the insured, or. the owner of the policy, or agree with the Company to any change in or amendment to the policy, and shall have the right at any time to change the beneficiary, by written notice to the Company at the Home Office, for which a form will be furnished on request.
^ sfc Hi Hí H«
27. peivilege of change. The insured shall have the privilege on thirty days’ written notice and the surrender of this policy prior to lapse, to have substituted therefor at any time without medical examination a Life or Endowment policy (except a continuous instalment policy or a policy with disability benefits) of the same amount with a higher premium written at the same age and bearing the same date; if the change is made within five years of the valuation date of issue, on payment of the differences in premiums with interest at six percent per annum, compounded annually from their respective due dates to the date of exchange; if after five years on payment in cash of the difference in surrender values.
$ ifc iji ij? *
31. authoRity. None of the terms of this policy shall be modified, nor any forfeiture under it waived, save by an agreement in writing, signed by the President, a Vice-President, the Secretary or an Assistant Secretary, whose authority for this purpose shall not be delegated.
32. settlement OPTIONS. The insured under this policy, or the payee after the insured’s death in case the insured shall have made no election, by written notice to the Company at its Home Office, for which a form will be furnished on request, may elect to have the net sum payable under this policy paid in either of the following ways in lieu of a single sum: * * *

There w?as no statement on the first page of either policy that the policy was without privilege of change of beneficiary.

Each policy also contained settlement options whereby the insured (or the beneficiary if the insured had made no election) could elect to have the proceeds paid at maturity under one of three options in lieu of a lump-sum payment: (a) in equal annual installments for any specified number of years (not exceeding 25) in accordance with a specified table; (b) in equal annual installments payable for a period certain and for as long thereafter as the payee should survive, in accordance with a specified table; or (c) retained by the company at interest, subject to withdrawal on 60 days’ notice.

11. The partnership, O. E. Kearns & Son, paid the premiums on these two policies and carried the policies as assets on its books and records. The premiums paid by the partnership were not charged to the individual partners’ income or capital accounts.

12.O. E. Kearns & Son, the partnership, was incorporated as O. E. Kearns & Son, Inc., in January of 1930, at which time all partnership assets were transferred to the corporation in exchange for all of the stock of the corporation. This stock was issued as follows:

O. E. Kearns (decedent)_ 550 shares

T. J. Kearns_150 shares

E. J. Kearns_ 50 shares

On January 30, 1930, a change of beneficiary designation was endorsed on the two policies in question changing the name of the beneficiary from O. E. Kearns & Son, its successors or assigns to O. E. Kearns & Son, Inc.

13. After the above-mentioned incorporation, premiums on the two policies in question were paid by the corporation. The cash surrender value of the policies was carried as an asset on the books of the corporation and on its financial statements and income tax returns from the date of incorporation to the date of collection of the proceeds upon decedent’s death. During this period, the annual increase in such cash surrender value was recorded in the corporation’s surplus account for each year.

14. (a) On March 3, 1937, the two policies in question were assigned to the Wachovia Bank and Trust Company of High Point, North Carolina (hereinafter sometimes referred to as Wachovia), as collateral for a loan made to O. E. Kearns & Son, Inc., 'by that bank in the amount of $12,000. This assignment was executed on a bank form by decedent as the insured and by decedent and Tom J. Kearns as officers of O. E. Kearns & Son, Inc., the beneficiary. Written notice of the assignment was given to Union Central.

(b) The amount of this loan was increased to $21,200 by an additional agreement dated December 27, 1939. Another agreement, dated March 28, 1941, further increased the loan to $24,000. Both ox these agreements were executed by decedent and Tom J. Kearns as the insureds and by decedent and Tom J. Kearns as officers of O. E. Kearns & Son, Inc., which was referred to as the “owner-beneficiary,” the word “owner” having been typewritten before the word “beneficiary” on the printed bank forms used for this purpose. The 1941 agreement also had a typewritten addition in the introductory clause whereby O. E. Kearns & Son, Inc., was specified to be the owner and beneficiary of the policies assigned.

(c) On November 8, 1944, all of the notes were paid by O. E. Kearns & Son, Inc., and the assignment of the policies was released by Wachovia. In his letter of that date requesting cancellation of the assignment on Union Central’s records, Arthur M. Utley (assistant vice president of Wachovia) stated that “O. E. Kearns & Son, Inc., the owner of these policies ¡has since paid this loan in full * * *.”

15. On August 29, 1941, O. E. Kearns & Son, Inc., as the “owner-beneficiary” and Wachovia as ¡the “assignee” executed and sent to Union Central written forms requesting that the automatic nonforfeiture option under the two policies be changed from extended insurance to paid-up insurance. On behalf of O. E. Kearns & Son, Inc., these forms were signed by decedent as president and Tom J. Kearns as secretary and treasurer. These requests were initialed by Union Central and endorsed on the policies on September 5, 1941.

16. (a) On May 25, 1956, the two policies were again assigned as collateral for loans made to O. E. Kearns & Son, Inc., by Wachovia. The bank forms employed for this purpose were executed by decedent as the insured and by decedent on behalf of O. E. Kearns & Son, Inc., as the “owner-beneficiary,” with the word “owner” having'been typewritten before the printed word “beneficiary.” These forms were stamped “recorded” by Union Central on May 31, 1956.

(b) Subsequent agreements on June 19, 1956, and December 18,1957, increased the amount of the loan secured by these insurance policies to $50,000 and $60,000, respectively. These agreements were executed on identical bank forms by decedent and Tom J. Kearns as the insureds and by decedent as president of O. E. Kearns & Son, Inc., which was referred to as the “owner-beneficiary,” the word “owner” having been typewritten before the printed word “beneficiary.”

(c) The two policies were in the possession of Wachovia under the last assignment as collateral until March 26,1958, the date of decedent’s death, and thereafter until the proceeds of the two policies were paid over to Wachovia in partial satisfaction of the loans due the bank from O. E. Keams & Son, Inc.

17. The assignments of March 3, 1937, and May 25, 1956, both provided that the assignee did not have the right to elect installment options or to change the beneficiary.

18. The policies, when not assigned to Wachovia, were held by O. E. Kearns & Son, Inc. During the period between the two assignments November 8,1944, to May 25,1956) the two policies were kept in the company safe at its place of business at 518 South Hamilton Street, High Point, North Carolina, in a locked drawer marked “O. E. Kearns & Son.” In that drawer were kept the corporate charter, deeds to the company’s land, company fire and life insurance policies and premium notices, and other corporate papers. In the same safe was another separately locked drawer marked “O. E. Keams personal” in which decedent kept his personal checkbook, his personal insurance policies and premium notices, deeds to his home and other personal real estate, his bank deposit book, and other valuable personal papers.

19. Following the decedent’s death, his grandson (the plaintiff herein) found in the drawer of the company safe marked “O. E. Keams & Son” an envelope containing three lists of insurance policies. Written on the envelope in decedent’s handwriting were the following words: “List of Co. Policys of OEK & Son & OEK Personal.” One list contained within the envelope was typewritten and entitled O. E. KeaRNS & SoN, INC.; among other notations in decedent’s handwriting it bore the date December 15,1939. This list included the two policies in question here. A second list, entitled O. E. KeaRNS (personal), listed eight insurance policies, but did not include the two policies in question here. The third list, entirely in decedent’s handwriting, was dated February 15,1951, and was entitled “List of OEK & Sons Policys on OEK and Tom Keams”; this list did include the two disputed policies.

The policies on the first and third lists were all policies upon which the corporation paid the premiums. The policies on the second list were those upon which decedent personally paid the premium.

20. Another typewritten paper, bearing the date J anuary 1, 1946, was found among decedent’s personal papers. This paper was entitled statement op o. e. kearNS and contained a list of personal assets. On this list was written in decedent’s handwriting “Life Ins. 45,000.00.” This amount corresponds to the amount of life insurance upon which decedent was personally paying the premiums on J anuary 1,1946.

21. Prior to the assignments of 1937 and 1957, Wachovia and Union Central corresponded regarding the status of the two policies in question. On both occasions Union Central stated that the right to change the beneficiary was reserved to the insured (decedent), and that no assignments were recorded. In addition, the 1956 statement by Union Central indicated that “The signatures necessary to complete assignment of the policy are Insured & O. E. Kearns & Son, Inc.” The business records of Union Central indicated that the insured’s (decedent’s) signature was required to change the beneficiary, vote the policies, and exercise other policy provisions.

22. There is no evidence that decedent ever used the policies as collateral for a personal loan, or ever changed the beneficiary or exercised his voting rights. From 1933 until his death in 1958 decedent’s actions and statements with respect to the policies indicated to both his certified public accountant and to his grandson that he (decedent) considered these policies to belong to the company.

23. In the United States individual income tax returns filed by decedent there was no inclusion of any amount of income on account of payment by the corporation of the premiums on the two policies in question.

24. The stockholders of O. E. Kearns & Son, Inc., immediately prior to decedent’s death were as follows:

Stockholder Relationship to Decedent Number of Shares

O.E. Kearns___ (Decedent)_ 660

T. J, Kearns.... Son_ 600

T. J. Kearns, Jr_ Grandson (plaintiff herein)_ 76

Margaret K. StansUl_ Granddaughter. 26

25. The United States estate tax return for the estate of Oscar Eugene Kearns was timely filed on June 2, 1959, together with payment of $26,923.09, the tax computed therein.

26. On July 29, 1960, the District Director of Internal Revenue ait Greensboro, North Carolina (hereinafter sometimes referred to as the District Director), assessed a deficiency in estate tax of $15,426.46, plus interest of $1,010.33. This deficiency arose from a number of adjustments, including, among others, the following:

(a) Inclusion in the gross estate of the face value of the two insurance policies in question; and
(b) an adjustment in the value of decedent’s stock in O. E. Kearns & Son, Inc., “predicated upon consideration of book value, earnings, dividend-paying capacity and other factors.”

The additional assessment was paid to the District Director on August 15,1960.

27. On August 13, 1962, plaintiff filed with the District Director a timely claim for refund of a portion of the estate tax paid by the decedent’s estate, in the amount of $6,900, plus interest according to law. The basis for this refund claim was that the two policies in question were not includible in decedent’s gross estate and were not subject to federal estate tax, and that the District Director erred when he included these policies in the gross estate.

28. On April 15,1965, the Commissioner of Internal Revenue by certified mail rejected the claim for refund filed on August 13, 1962. No refund has been made by defendant to plaintiff pursuant to said claim for refund. This refund suit was timely filed on May 21,1965.

29. No action on the claim set forth herein, other than that described heretofore, has been taken by plaintiff before the Congress of the United States or before any of the departments of the Government. Plaintiff is and always has been the sole and absolute owner of the claim described herein and no transfer or assignment of said claim or any part thereof has been made by plaintiff.

Ultimate FindiNG of Fact

30. Oscar Eugene Kearns, at the time of Ms death, possessed incidents of ownersMp in the two Union Central Life Insurance Company policies in question, numbered 965196 and 965197, within the meaning and scope of section 2042 of the Internal Revenue Code of 1954.

CONCLUSION OF LAW

Upon the foregoing findings of fact and opinion, wMch are adopted by the court and made a part of the judgment herein, the court concludes as a matter of law that plaintiff is not entitled to recover and the petition is dismissed. 
      
       “Sec. 2042. Proceeds op life insurance.
      “The value-of the gross estate shall include the value of all property—
      * * * # *
      “(2) Receivable by other beneficiaries. — To the extent of the amount receivable by all other beneficiaries as insurance under policies on the life of the decedent with respect to which the decedent possessed at his death any of the incidents of ownership, exercisable either alone or in conjunction with any other person. For purposes of the preceding sentence, the term ‘incident of ownership’ includes a reversionary interest (whether arising by the express terms of the policy or other instrument or by operation of law) only if the value of such reversionary interest exceeded 5 percent of -the value of the policy immediately before the death of the decedent. As used in this paragraph, the term ‘reversionary interest’ includes a possibility that the policy, or the proceeds of the policy, may return to the decedent or his estate, or may be subject to a power of disposition by him. The value of a reversionary interest at any time shall be determined (without regard to the fact of the decedent’s death) by usual methods of valuation, including the use of tables of mortality and actuarial principles, pursuant to regulations prescribed by the Secretary or his delegate. In determining the value of a possibility that the policy or proceeds thereof may be subject to a power of disposition by the decedent, such possibility shall be valued as if it were a possibility that such policy or proceeds may return to the decedent or his estate.”
     
      
       Treas. Reg. 80, Art. 27(2), T.D. 5032, 1941-1 CUM. bull. 427, 429.
     