for tax purposes only to the extent that the amount realized from such conversion exceeds the cost of replacement property. Accordingly, it is held that the destruction by hail of a standing crop of wheat constitutes an involuntary conversion within the meaning of section 1033 of the Code, and gain from the insurance proceeds is not recognized where an amount equal to such proceeds is used to purchase another standing crop of wheat or a harvested crop within the replacement period specified in section 1033 (a) (3) (B) of the Code. The use of the insurance proceeds to cover costs of planting a new crop does not constitute the acquisition of replacement property within the meaning of the statute. SECTION 2013.-CREDIT FOR TAX ON PRIOR TRANSFERS 26 CFR 20.2013-1: Credit for tax on prior transfers. Rev. Rul. 59-9 The value of a life estate, without more, qualifies for the credit for tax on prior transfers authorized by section 2013 of the Internal Revenue Code of 1954, notwithstanding the fact that it is not included in the gross estate of the transferee decedent. Advice has been requested whether the estate of a decedent who had been the beneficiary of a life estate in a testamentary trust may be credited with all or any part of the amount of the Federal estate tax paid with respect to the transfer of such property in the estate of a prior decedent. In the instant case the decedent and her sister were the lifetime income beneficiaries of a residual trust created under the will of their father. Under the terms of the will the decedent and her sister were to receive the income from the trust in equal shares during their lifetimes and, at the death of either, the income was to be paid to the survivor. At the death of the last to survive, the income was to be paid to their children. The decedent died in the year 1955 which was within ten years after the death of her father. The value of the property included in the residual trust was included in the father's gross estate and a Federal estate tax was paid thereon. Since the interest which the decedent possessed in the residual trust terminated at her death, the life estate which she had in the trust was not included in her gross estate for Federal estate tax purposes. The specific question presented is whether the life estate qualifies for the credit for tax on prior transfers authorized by section 2013 of the Internal Revenue Code of 1954 even though it is not included in the gross estate of the transferee decedent. Section 2013 of the Code provides that the estate of a deceased who had received property from another decedent shall be credited with all or a part of the amount of the Federal estate tax paid with respect to such property in the transferor decedent's estate, provided that the decedents died within the statutory period. In determining whether the credit authorized by section 2013 of the Code is allowable, it is not necessary that the property transferred be identified in or traced through the transferee's estate. If the property was included in the gross estate of the transferor and a Federal estate tax paid thereon, the credit for tax on prior transfers may be applied to the interest received by the transferee, notwithstanding the fact that such interest is not included in the transferee decedent's estate for Federal estate tax purposes. Furthermore, the right of survivorship which the decedent possessed in the life tenancy also constitutes an interest in property which passed to her from her father and, as such, qualifies for the credit authorized by section 2013 of the Code. The amount to be used in computing the amount of credit which may be allowed is the value of the life estate plus the value of the secondary life estate determined as of the date of the transferordecedent's death on the basis of recognized actuarial principles and without regard to the amount of income actually received by the life tenant. In view of the foregoing, it is held that the value of a life estate, without more, qualifies for the credit for tax on prior transfers authorized by section 2013 of the Code, notwithstanding the fact that it is not included in the gross estate of the transferee decedent. SECTION 4031.-IMPOSITION OF TAX Rev. Rul. 59-4 Information for use by retailers as a guide in determining their liability on and after January 1, 1959, for the retailers excise tax on luggage, handbags, etc., imposed by section 4031 of the Internal Revenue Code of 1954 as amended by the Excise Tax Technical Changes Act of 1958 (Public Law 85-859). The Internal Revenue Service has been asked to publish an illustrative list of taxable and nontaxable articles for use by retailers as a guide in determining their liability on and after January 1, 1959, for the retailers excise tax on luggage, handbags, etc. Section 4031 of the Internal Revenue Code of 1954 as amended by section 103 of the Excise Tax Technical Changes Act of 1958 (Public Law 85-859) effective January 1, 1959, provides as follows: There is hereby imposed upon the following articles, by whatever name called, sold at retail (including in each case fittings or accessories therefor sold on or in connection with the sale thereof) a tax equivalent to 10 percent of the price for which so sold-✦ ✦ ✦ [The various articles specifically named in the law are designated by asterisks in the list below.] The list is illustrative of determinations made by the National Office of the Service on questions of classification. The "taxable" column lists the articles specifically named in the law as indicated by asterisks, together with some alternative names by which certain of the articles may be called for merchandising or other reasons. The "nontaxable" column includes certain articles which, while taxable if sold at retail prior to January 1, 1959, will no longer be taxable when sold on and after that date. The fact that an article may be called by one of the names appearing in the list of nontaxable articles is not conclusive of its status if, in reality, it is one of the taxable articles enumerated in the statute. The above lists are not all-inclusive but are merely designed to illustrate the application of the law with respect to sales at retail on and after January 1, 1959. In any case where the classification of a particular article is in question, a specific ruling or a determination thereon should be requested from the Service. SECTION 4053.-COMPUTATION OF TAX ON INSTALLMENT SALES, ETC. [SPECIAL PROVISIONS APPLICABLE TO RETAILERS TAX] Rev. Rul. 59-10 For purposes of reporting the retailers excise tax, sales made under a contract, peculiar to Louisiana law, which vests immediate title in the purchaser, provides for installment payments, and gives the seller a lien against the article sold, are considered sales under a chattel mortgage arrangement within the meaning of section 4053 (a) (4) of the Internal Revenue Code of 1954. Advice has been requested whether, for purposes of reporting the retailers excise tax, sales made under a particular contract peculiar to Louisiana law are sales under a chattel mortgage arrangement within the meaning of section 4053 (a) (4) of the Internal Revenue Code of 1954. The retail dealer in the instant case is located in Louisiana and is engaged in the business of selling jewelry at retail. The retailer sells articles under the agreement described below, delivering title and pos session of the article and taking back from the customer as security for payment a chattel mortgage on the article sold. The retailer does not record the chattel mortgages in all cases. The agreement is quoted as follows: THIS AGREEMENT WITNESSETH: The undersigned acknowledges as having received from X the merchandise listed on the dates set forth herein, the terms of payment being as follows: 1. It is agreed all installments are to be paid promptly and punctually as indicated by this contract. 2. It is agreed any violation of this agreement on my part or default in making payments, shall at the option of X cause the entire unpaid balance due under the terms of this contract to at once become due and exigible together with 25 percent attorney fees added in event the contract and account is placed with an attorney or other agency for collection. This contract states our entire agreement, which no agency has authority to modify or waive. This contract has been read and the undersigned understands it and no alteration or modification, either written or verbal, of any terms thereof exists. 3. It is specifically agreed the merchandise covered by this contract is not to be disposed of to the prejudice of X. And now in order to secure the punctual payment of said indebtedness, together with interest, attorney fees, premiums of insurance and costs, and all other obligations hereunder, the vendor's lien and privilege granted by law is hereby retained by the vendor upon the property sold, and the Purchaser does by these presents specially mortgage, affect, and hypothecate unto and in favor of X, its successors or assigns, the property herein described and herein sold. Section 4053 (a) of the Code provides that if an article subject to the retailers excise tax is (1) leased, (2) sold under a contract providing for payment of the sale price in installments with the seller retaining title to the article until full payment has been made, (3) sold on a conditional sale basis, or (4) sold under a chattel mortgage arrangement with the sale price to be paid in installments, the tax is to be paid on an installment basis proportionate to the total price represented by each payment. In the civil law jurisdiction of Louisiana, the effect of the contract described above is to vest immediate title in the mortgagor-buyer at the time of sale. The civil law or lien theory of mortgages, which regards a mortgage contract between a buyer and seller as a security for a debt creating a privilege or lien on the property with title remaining in the purchaser, is to be contrasted with the old common law or title theory of mortgages which regards the contract as a sale vesting legal title in the mortgagee subject to the defeasance by the performance of the conditions of the mortgage. A number of common law jurisdictions have adopted the civil law lien theory of mortgages. Since Louisiana law vests immediate title in the mortgagor-buyer at the time of sale, the types of installment contracts described in section 4053 (a) (2) and (3) of the Code by which the seller reserves title to the article until a future date or until the performance of the conditions prescribed in the contract, are not recognized in Louisiana. However, Louisiana law does recognize a chattel mortgage arrangement entered into within that state providing for installment payments under which the seller has a lien against the article sold, which serves to protect his interest in the sale price, and if the mortgage is executed and recorded according to statutory requirements, the lien protects him against claims of third parties. La. Rev. Stats., Vol., ì, T. T. 9, Part III, Secs. 5351-5365. |