Rev. Rul. 71-167

Advice has been requested regarding the treatment for Federal income tax purposes of income earned by an estate during the period it is subject to a dower interest arising under the laws of the State of Florida.

W is the surviving spouse of H, who died testate on January 30, 1966 leaving an estate of 600x dollars. In June 1966, W elected to take dower under section 731.34 of the Florida Statutes, 1959, which provides in part, that whenever the widow of any decedent shall not be satisfied with the portion of the estate of her husband to which she is entitled under the law of descent and distribution or under the will of her husband, or both, she may elect in the manner provided by the law to take dower. Such dower shall be one-third part in fee simple of the real property which was owned by her husband at the time of his death or which he had before conveyed, whereof she had not relinquished her right of dower as provided by law, and one-third part absolutely of the personal property owned by her husband at the time of his death. The widow's dower shall be free from liability for all debts of the decedent and all costs, charges, and expenses of administration. In any case where the dower interest of the widow shall have the effect of increasing the estate tax, her dower shall be ratably liable with the remainder of the estate for the estate taxes due by the estate of her deceased husband.

Section 733.12(2) of the Florida Statutes, 1959, provides in part that on any petition for assignment of dower, the right of dower as well as the admeasurement thereof, shall be determined, and mesne profits from the date of death of the decedent shall be included in the judgment. The county judge in whose court the administration of the decedent's estate is pending shall have plenary jurisdiction to assign dower in all property, real and personal, located in any county in the state.

Section 733.14 of the Florida Statutes, 1959, provides that in cases of assignment of dower, the county judge to whom application is made shall, upon hearing after notice, confirm, reject or modify the allotment or assignment made. Such judgment shall vest in the widow a fee simple estate in the lands and the absolute ownership of the personal property allotted. She shall be entitled to writ of possession if necessary.

On August 1, 1967, final judgment was rendered by the county judge and, as settlement, the widow was assigned assets having a fair market value of 240x dollars (215x dollars represented her dower interest and 25x dollars represented mesne profits from the date of H's death).

From the date of the death of H on January 30, 1966 until December 31, 1966, the estate of H realized income of 50x dollars. From January 1, 1967 until final judgment by the county judge on August 1, 1967, the estate of H realized income of 30x dollars. This income of 80x dollars realized by the estate of H, from the date of H's death until final judgment and assignment of dower and mesne profits to W, included the 25x dollars of mesne profits allotted to the widow by the county judge on August 1, 1967.

The estate of H was on the cash receipts and disbursements method of accounting and used a calendar year accounting period.

Section 641(a)(3) of the Internal Revenue Code of 1954 provides that gross income of an estate includes income realized by the estate of a deceased person during the period of settlement of the estate.

Since, under Florida law, dower vests in the widow a fee simple estate in the lands and the absolute ownership of the personal property only at the time of final judgment by the county judge, dower vested in W on August 1, 1967.

Accordingly, in the instant case, the estate of H was required to report 50x dollars in gross income for 1966 and 30x dollars in gross income for 1967.

Section 102(a) of the Code provides that gross income does not include the value of property acquired by gift, bequest, devise, or inheritance.

The 215x dollars received by W in 1967 as settlement of her dower interest is excludable from her gross income under section 102(a) of the Code.

The 25x dollars received by W in 1967 representing mesne profits allotted to the widow by the county judge is an amount properly paid by the estate to a beneficiary and is an allowable deduction to the estate under section 661(a) of the Code, but such deduction shall not exceed the distributable net income of the estate as determined under section 643(a) of the Code. An amount corresponding to the allowable deduction to the estate under section 661(a) of the Code is includible in the gross income of the widow under section 662(a) of the Code.

Revenue Ruling 64-101, C.B. 1964-1 (Part 1), 77, is modified to the extent that it holds mesne profits earned by dower assets are includible in the gross income of the widow under section 102(b) of the Code instead of being subject to the provisions of section 662(a) of the Code.

Revenue Ruling 64-101 is further modified to the extent that it concludes that the mesne profits should not have been included in the estate's gross income. The mesne profits should have been included in the estate's gross income and a deduction allowed to the estate to the extent provided by section 661(a) of the Code.