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                     THE.ATTORNEY              GEti-         h" "
                                OF     =XAS




                                     September 9, 1959


        Honorable Robert S. Calvert    Opinion NO. NW-690
        Comptroller of Public Accounts
        Capitol Station                Re: Taxability for inherit-
        Austin, Texas                       ante tax purposes of
                                            Social Security lump-
                                            sum death payment to
                                            widow, of Social Secu-
                                            rity insurance benefits
                                            to widow and of payments
                                            to widow from Civil
                                            Service Retirement and
        Dear Mr. Calvert:                   Disability Fund.
                 You have requested the opinion of this office on
        several questions which we will consider seriatim. The
        first of these pertains to the lump-sum death payment
        which a..w~idow
                      receives by virtue of that portion of the
        Social Security Act which iP codified in United States
        Code Annotated under Title 42, Chapter 7, Section'402
        (iI.
                 In 1940, the Treasury Department ruled that amounts
        payable under Title II of the Social Security Act, as amended
        by the'Act of August 10, 1939, to a widow were not to be
        included in the gross estate of the decedent for Federal
        estate tax purposes. CB 1940-2, 285. The reasons given
        for such ruling werethat the decedent had no control over
        the designation of the beneficiaries or the amounts payable
        to them,,said beneficiaries and amounts being fixed by the
        provisions of the Social Security Act, as amended, and the
        payments being made directly to the beneficiaries. The ruling
        further pointed out that the decedent had no property interest
        in the "Federal Old-Age and Survivors Insurance Trust Fund"
        created under Section 201 (a) of Title II of the Social
        Security Act, as amended.
                 Revenue Ruling 55-87, CB 1955-1, 112, is to the
        effect that lump-sum payments under Title II of the Social
        Security Act are not includible in the decedent's gross
        estate for estate tax purposes.
               7 Due to the basic difference in the nature of
        inheritance and estate taxes, this office has held in
        certain instances that rulings of the Federal Government
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Honorable Robert S. Calvert, page 2   (Opinion No. ww-698)


in connection with Federal estate taxes are inapposite in
a determiration of liability for Texas inheritance taxes.
However, we think the provision of our statute necessitates
the same result. The only provision of Article 7117,
Vernon's Civil Statutes, which couldsubject the Social
Security,,benefitsto a tax is the one which taxes transfers
made by      .deed, grant, sale or gift made or intended
to take effect in possession or enjoyment after the death
of the grantor or donor. . . .' The covered employee
having no choice in the matter of coverage, nor in the
selection of beneficiaries, liar indeed any assurance that
either he or anyone else will ever receive any Social
Security benefits, can scarcely be said to have made a
gift intended to take effect in possession or enjoyment
after his death. You are therefore advised that the Social
Security lump-sum death payment to the widow is not subject
to inheritance tax.
         You have also requested that we advise you whether
the old-age and survivors insurance benefit payments which
the widow will receive by virtue of Title 42, Section 402,
Chapter 7 (e), United States Code Annotated, will be sub-
ject to inheritance taxes. These benefits are paid to the
widow in monthly installments. For the same reasons which
we have just stated in connection with the lump-sum death
payment, you are advised that such benefits are not subject
to an inheritande tax..
         You request that we advise you as to the taxability
of a survivor annuity payable to a widow from the Civil
Service Retirement and Disability Fund pursuant to the pro-
visions of Section 2260, Title V, U.S.C.A.
         In Revenue Ruling 55-682, IRB Nov. 14, 1955, 18,
the Treasury Department ruled that where the decedent did
not designate a beneficiary other than his estate, the
amount payable upon his death is includible in his gross
estate under subdivision (a) of Section 302 of the Revenue
Act of 1926 as amended, and where he did designate a bene-
ficiary other than his estate, the amount payable upon his
death is includible in his gross estate under subdivisions
(c) and (d) of that section. This ruling has been printed
in CB 1955-2, 601.
         Rev. Rul. 56-1,'kt',i956,~1,
                                    444, reads as follows:
           "Where an individual who is covered by
         the United States Civil Service Retirement
         System dies before retirement, the amount
         includible in his gross estate under section
         2039 of the Internal Revenue Code of 1954 on
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                   1




        Honorable Robert S. Calvert, page 3   (Opinion N,. WW-698)


                 account of an annuity payable to this
                 surviving spouse, or other beneficiary,
              ., is the amount of the decedent's contri-
              ' bution to the system."
                 In so;,faras community property states are con-
        cerned, the following ruling has been made:
          -.,.
                   "State community property laws do not
                 apply to annuities, death benefits or
                 refunds payable under the Civil Service
                 Retirement Act, as amended. Accordingly,
                 the full value of retirement contributions,
                 plus the accrued interest thereon, are
                 includible in the gross estate of a
                 Federal civil service employee under section
                 2039 of the Internal Revenue Code of 1954."
                 Rev.Rul. 57-446, CB 1957-2, 619.
                 Death benefits payable to a decedent's estate as
        well as benefits payable to designated beneficiaries under
        employees' retirement plans have been held subject to State
        death taxes. 28 Am.Jur. 192, 193, Sec. 256. Cases so
        holding may be found in 150 A.L.R. 1287, 1292.
                 In Attorney General's Opinion No. WW-92, this
        office held that the receipt of benefits by a designated
        nominee under the Teachers' Retirement System Act was sub-
        ject to inheritance tax.
                 We are of the opinion that an inheritance tax is
        due upon that portion of the widow's annuity which is
        attributable to the decedent's contributions to the
        Retirement System. Decedent had a vested interest in such
        contributions and could have obtained a refund thereof
        had he become separated from the Civil Service prior to
        eligibility for an annuity. Sec. 2261, Title V, U.S.C.A.
                 However, we are of the opinion that if such
        contributions were paid from community funds, then only
        one-half of the amount of the annuity attributable to such
        contributions is taxable, cf. Blackman v. Hansen, 140 Tex.
        536, 169 S.W.2d 962 (1943); and the inheritance taxes
        should be computed accordingly.
               'I
               .,:,,
                                SUMMARY
                      Social Security lump-sum death payment
                 to widow is not subject to inheritance tax.
                 Social Security insurance benefits are
Honorable Robert S. Calvert, page 4     (Opinion No. ww-698)


         'not subject to inheritance tax. That
          portion of the widow's'annuity which is
          attributable to the decedent's contributions
          to the Civil ,ServiceRetirement and Dis-
          abLlity,Fund is subject to an inheritance
          tax. If such contributions were paid from
          community funds, then only one-half of the
         .amount of the annuity attributable to such
          contributions is taxable.
                              Yours very truly,
                              WILL WILSON
                              Attorney General of Texas




MMP:cm      :

APPROVED:
OPINION 'COMMITTEE.:
Geo. P. Blackburn, Xhairmap
Wm. D.'Armstrong
Robert T. Lewis
Fred B. Werkenthin
Charles D.-Cabaniss
Tom L. McFarling,      :
REVIEWED FOR THE ATTORNEY GENERAL
By:   W. V. Geppert
