Taft v. Commissioner

Background

A wealthy woman made binding written promises to the University of Cincinnati and the Cincinnati Institute of Fine Arts to pay large sums to support a memorial fund, musicians’ salaries, an art director’s salary, and a professor’s pay. She paid some amounts before her death; her executor paid remaining installments after her death. The executor tried to deduct the unpaid sums from the decedent’s gross estate as enforceable claims or as transfers to charitable or educational institutions under the Revenue Act of 1926.

Reasoning

The Court addressed whether those enforceable promises qualified as deductible claims made “for an adequate and full consideration” or as deductible transfers to charities. The Court concluded they did not. It relied on the language of the statute, its legislative changes, and Treasury regulations showing Congress narrowed the class of deductible claims. The Court also held that payments made by an executor after death do not count as transfers that took effect at death, because they were not testamentary in character or made in contemplation of death.

Real world impact

As a result estates cannot deduct similar enforceable pledges merely because they are legally binding under state law. To get estate tax relief, gifts must meet the specific statutory conditions—for example, be testamentary transfers that take effect at death or otherwise fit within the statute’s exact language. The decision affirms prior tax rulings and leaves unchanged the rule that informal or post-death payments under living promises do not automatically lower estate tax liability.