Commissioner of Internal Revenue v. Kann's Estate (174 F.2d 357, 1949)

BIGGS, Chief Judge.

■ Mrs. Bertha -F. Kann, the decedent, sold certain securities to-her children in'return for their unsecured promises to pay her life annuities. The question presented for our determination is: Did the Tax Court err in holding’ that the decedent realized no taxable gain under. Section 111(a) of the Internal Revenue Code, 26 U.S.'C.A. § 111(a), and the applicable regulation on the ground that annuity contracts undertaken by individual obligors do not have an ascertainable fair market value as a matter of law? The pertinent statute and regulation are in the margin. See also Section 22 of the -Internal Revenue Code, 26 U.S’.C.A. § 22, set out in note 3.

As the Tax Court pointed out, it -is no-t necessary to decide whether the entire capital is to ibe recouped before any amount becomes taxable, J. Darsie Lloyd v. Commissioner, 33 B.T.A. 903; Frank -C. Deer-ing v. Commissioner, 40 B.T.A. 984, or. whether a 3% annual return on an investment computed at insurance company rates, Anna L. Raymond v. Commissioner, 40 B.T.A. 244, affirmed 7 Cir., 114 F. 2d 140, certioriari denied 311 U.S. 710, 61 S.Ct. 319, 85 L.Ed. 462, is to be charged as ordinary income under Section 22(b) (2) until the capital expended has been