Gray v. United States

¶4OPINION OF THE COURT

¶5STAHL, Circuit Judge.

¶6This appeal from a decision below1 in favor of the Government involves the question of the scope of the taxing power over survivors benefits under § 2039 of the Internal Revenue Code, 26 U.S.C.A. § 2039 (1967). Constituting the disputed subject matter of the tax are periodic payments made to decedent’s dependent sister under a survivorship benefit plan of the decedent’s employer. Specifically, the issue is whether the value of these payments is includable in the gross estate of the decedent for tax purposes.

¶7It has long been recognized that the estate tax · Case Law">federal estate tax “is not levied on the property of which an estate is composed … [but] is an excise imposed upon the transfer of or shifting in relationships to property [or interests] at death.” United States Trust Co. of New York v. Helvering, 307 U.S. 57, 60, 59 S.Ct. 692, 693, 83 L.Ed. 1104 (1939). Congress has altered the operation of the estate tax to meet the changes which the ingenuity of our age, and our tax-conscious economy, have devised to shift “the relationships to property” or interest in things at death. In 1954, Congress enacted § 2039 which was new and did not correspond to any prior provision of existing law. S.Rep. No. 1622, 83d Cong., 2d Sess. (3 U.S.C.Cong. & Adm. News, pp. 4756-4757, 5113-5115 (1954)); H.R.Rep. No. 1357, 83d Cong., 2d Sess. (3 U.S.C.Cong. & Adm.News, pp. 4117, 4457-4459 (1954)); All v. McCobb, 321 F.2d 633, 635 (2d Cir. 1963). The new section frames the taxing power in terms of the operative view and effect of a transaction rather than the technical requirements of rights in property. Bahen’s Estate v. United States, 305 F.2d 827, 829, 158 Ct.Cl. 141 (1962).2

¶8*1097Congress intended to include in the gross estate of a decedent for estate tax purposes the value of interests which under traditional common law concepts were never part of the “estate.” These interests are considered to pass to others at decedent’s death because they were interests “belonging to, accumulated by, or created by or for” the decedent. Bahen, supra at 834. The court went on to say in Bahen-.

Phrased in terms of the earlier concepts of a decedent’s “property” “transferred” at his death, Section 2039 declares that annuities or other payments payable by an employer to his employee, and on his death to a beneficiary, constitute his property — created by him through his employer as part of the employment arrangement and in consideration of his continued services- — which is transferred to another at his death. Id.

¶9With this legislative purpose in mind, observable from a close reading of the statute and its legislative history, and supported by the authorities above cited, we proceed to our duty 3 to determine the application of the statute to the facts of this case.

¶10At the moment of his death on March 10, 1958, Hamilton Gray (whose executor, appellant, brought this action to recover federal estate taxes assessed and paid after an audit) was an employee of Socony Mobil Oil Company. Decedent was a participant in the Socony Retirement Annuity Plan (hereinafter Retirement Plan), which became effective December 31, 1956, and in the Company’s Survivorship Benefit Plan for 20-Year *1098Employees (hereinafter Survivorship Plan), which became effective November 30, 1957.

¶11As a participant in the Retirement Plan, decedent Gray had a vested right upon reaching the mandatory retirement age of 65 to receive annuity payments for the remainder of his life.4 Gray died pri- or to retirement and therefore never received any payments from the Retirement Plan. His contributions to the Plan, plus interest to the date of death, were paid to a designated beneficiary.5

¶12The Survivorship Plan, a non-contributory plan,6 provided that if an employee should die in the active service of the company after 20 years’ service, as happened here,7 a beneficiary designated by the employee would receive total benefits equal to twice the annual salary earned prior to death. The beneficiary or beneficiaries which an employee could designate were a spouse, children, parents or other dependents. In the ease of “other dependents,” the relationship of the dependent to the employee had to be acceptable to the Company at the time of designation, and the beneficiary had to be dependent upon the employee for his or her principal support at the time of designation as well as at the employee’s death. An employee had the right to designate a contingent beneficiary who would continue to receive benefits upon the death of the primary beneficiary. In the event no contingent beneficiary was named and the primary beneficiary died, any remaining benefits would lapse.

¶13Several other important features of the Survivorship Plan, relating to the employer’s right to revoke or modify the Plan and to the effect of the Plan upon a member’s employment status, are set forth in the margin.8

¶14*1099Decedent Gray designated as his beneficiary his semi-invalid sister, Isabella Gray, who had been dependent upon him for her sole support. No contingent beneficiary was named. This litigation concerns the inclusion in Gray’s gross estate of the benefits Socony is paying to Isabella Gray.

¶15Under the Survivorship Plan Socony had several optional methods of making the benefit payments.'9 Socony elected to pay Isabella Gray $158.31 per month for life, or until she exhausted the total fund of $35,635.59, whichever period ended first.

¶16The Internal Revenue Service included the full $35,635.59 in the gross estate of Hamilton Gray after an audit of the federal estate tax return.10 In 1962, the appellant-executor paid the tax deficiency, which had been assessed in the amount of $11,582.72, plus $2,103.93 in interest. After a claim for refund was disallowed in 1963, this suit was brought in 1965 to recover the taxes paid.

¶17The authority for the imposition of the tax by the Government, as previously noted, is § 2039 of the Internal Revenue Code which provides, in pertinent part:

§ 2039. Annuities

(a) General. — The gross estate shall include the value of an annuity or other payment receivable by any beneficiary by reason of surviving the decedent under any form of contract or agreement entered into after March 3, 1931 (other than as insurance under policies on the life of the decedent), if, under such contract or agreement, an annuity or other payment was payable to the decedent, or the decedent possessed the right to receive such annuity or payment either alone or in conjunction with another for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death.

(b) Amount includible. — Subsection (a) shall apply to only such'part of the value of the annuity or other payment receivable under such contract or agreement as is proportionate to that part of the purchase price therefor contributed by the decedent. For pur*1100poses of this section, any contribution by the decedent’s employer or former employer to the purchase price of such contract or agreement (whether or not to an employee’s trust or fund forming part of a pension, annuity, retirement, bonus or profit sharing plan) shall be considered to be contributed by the decedent if made by reason of his employment.

* -x- * -» -x- *

¶18Treasury Regulations were adopted in final form in 1958 to implement the new IRC section on annuities. 26 C.F.R. § 20.2039-1 (1968). The provisions of the regulations, insofar as they apply to this case, may be summarized as follows:

¶19(1) The term “annuity or other payment,” as used with respect to both the decedent and the beneficiary, has reference to one or more payments extending over any period of time. The payments may be equal or unequal, conditional or unconditional, periodic or sporadic;

¶20(2) The term “contract or agreement” includes any arrangement, understanding or plan, or any combination of arrangements, understandings or plans arising by reason of the decedent’s employment;

¶21(3) The decedent “possessed the right to receive” an annuity or other payment if, immediately before his death, he had an enforceable right to receive payments at some time in the future, whether or not at the time of his death he had a present right to receive payments. In connection with the preceding sentence, the decedent will be regarded as having had “an enforceable right to receive payments at some time in the future” so long as he had complied with his obligations under the contract or agreement up to the time of his death.11

¶22The regulations also contain a number of examples of their proper application. Example (6), virtually identical with the facts at bar, will be referred to later.

¶23Before dealing specifically with appellant’s grounds for contesting the inclusion of the benefits of the Survivorship Plan in the decedent’s gross estate, it will be instructive to review two decisions by eminent jurists, analyzing § 2039 in depth, which we believe to control the disposition of this appeal.

¶24Bahen

¶25Section 2039 received its “judicial baptism” 12 in Bahen’s Estate v. United States, supra, which was a suit for refund of estate taxes in the Court of Claims, decided in an opinion by Judge Oscar H. Davis. The Government sought to include in the gross estate of the decedent benefits received by his wife under *1101two separate plans adopted by the employer.

¶26The more valuable of the two plans was a Deferred Compensation Plan, initiated by the employer in February 1953, under which a stated maximum sum was payable to the employee’s widow and other beneficiaries, at his death either before or after retirement, in sixty equal monthly installments. A key measure of the plan was that if the employee became totally disabled prior to his retirement, the payments would be made to him in sixty equal monthly installments so long as he survived, with any unpaid amounts going to his widow or children. The employer’s president notified the employees of the company eligible for this plan, which was non-contributory, that it was irrevocable.

¶27The other plan was a Death Benefit Plan, adopted earlier in January 1952, which provided that if an employee died after ten years’ service and prior to retirement, the employer would pay an amount equal to three months’ salary to his widow.

¶28At the time of decedent’s death, he had not retired nor was he eligible for retirement.

¶29In deciding whether the benefits payable to decedent’s widow under the plans were includable in the gross estate, Judge Davis said:

We need consider only Section 2039, a new provision added to the estate tax in 1954 which for the first time established specific rules for the coverage of annuities and other survivor benefits. 305 F.2d at 829.

¶30The big sum the Government was attempting to net in Bahen was the $100,000.00 payable to the widow under the Deferred Compensation Plan. In explicit fashion, and with great clarity, Judge Davis’ opinion walks us through the elements of taxability under § 2039, and its implementing regulations, to support the claim of the Government under the Deferred Compensation Plan:

¶31(1) The plan was a “form of contract or agreement” under the statute because even though created by the company unilaterally, it was expressly made irrevocable.13

¶32(2) Under the regulations the receipt by the widow of the $100,000.00 benefit in sixty equal installments met the “annuity or other payment” to the beneficiary requisite of § 2039(a).

¶33(3) The requirement that at his death the decedent “possessed the right to receive … [an] annuity or [other] payment” involved two problems:

(a) The court considered the compensation payable to decedent in the event he became totally incapacitated during his lifetime prior to retirement as a type of “annuity or other payment” within the purview of the statute.14

¶34*1102(b) The court held that the potential right which the decedent had to receive the disability payments, even though the right never materialized in his lifetime, satisfied the condition that he must possess the right to receive an annuity or payment at his death. The specific holding by the court on this point is important because of its direct applicability to the appeal we are considering in the Gray estate:

We hold, however, that at his death Mr. Bahen did “possess the right” to receive the disability payments in the future if certain conditions were fulfilled, and therefore that the alternative requirement of Section 2039 is met. The intentional juxtaposition in the statute of amounts “payable” and those the decedent “possessed the right to receive” indicates that the former relates to the present (i. e. at time of death) and the latter to the future. The Regulations make clear that, in circumstances like these, the decedent’s interest in future benefits, even if contingent, is sufficient. [Footnote omitted.] Where the employer has offered a plan of this kind, the employee’s compliance with his obligations to the company gives him “an enforceable right to receive payments in the future, whether or not, at the time of his death, he had a present right to receive payments.” 305 F.2d at 831.

¶35The court refused to make any distinction, as asserted by the taxpayer in Ba-hen, between possessing the right to receive a retirement annuity on the contingency of living to retirement age and the right to receive disability payments on the contingency of becoming totally disabled prior to retirement. The important point, according to the court, was that the statute and the regulations contemplate the right to receive sums becoming due in the future regardless of the nature of the contingency.

¶36(4) Section 2039 further requires that the decedent’s right to receive the annuity or payment must be possessed “for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death.” The court said the decedent had the right to receive the contingent total disability payments right up to the time of his death.

¶37(5) The final element of coverage under the statute, set forth in § 2039(b), requires that the purchase price of the annuity or other payment must have been contributed by the decedent. The statute makes this requirement easy to *1103meet by providing that the employer’s contribution for the purchase price “shall be considered to be contributed by the decedent if made by reason of his employment.”

¶38Having fit the Deferred Compensation Plan benefits into the mold of § 2039, Judge Davis proceeded to the more difficult task of deciding whether the three months’ salary received by the widow under the Death Benefit Plan was properly part of the decedent’s gross estate. The court conceded that standing alone the amount received under the Death Benefit Plan would not be taxable because under that Plan there was no right possessed by the decedent at his death to receive “an annuity or other payment.” The court concluded, however, that the Death Benefit Plan payment to the widow was taxable, and this is a decisive precedent in disposing of the Gray appeal before us, by holding the two plans in Bahen, i. e., the Deferred Compensation Plan and the Death Benefit Plan, to constitute in combination a “form of contract or agreement” for the purpose of § 2039.15 Thus decedent’s right in Bahen to receive the potential total disability payments under the Deferred Compensation Plan met the requirement that the decedent possess the right to receive an annuity or payment at his death so as to make the payment received by the widow under the other part of the overall contract or agreement, i. e., the Death Benefit Plan, subject to inclusion in the gross estate.

¶39Judge Davis put it this way:

[T]he Government makes another point which we do accept as bringing the Death Benefit Plan under Section 2039. The suggestion is that this Plan should not be viewed in isolation but must be considered together with the Deferred Compensation Plan — as if both arrangements were combined into one plan, providing two types of benefits for beneficiaries after the employee’s death but only one type of benefit (disability compensation) to the employee himself. There is some factual support, if that be necessary, for looking at the two plans together, since the Death Benefit Plan was adopted in January 1952 and the Deferred Compensation Plan only a year later in February 1953.16 There appears to be a common genesis and a unifying thread. 305 F.2d at 835.17

¶40All

¶41All v. McCobb, 321 F.2d 633 (2d Cir. 1963), decided by Judge (now Justice) Marshall, involves a somewhat different factual context. There were also two plans in issue which had been adopted by the employer Standard Oil Company of New Jersey, one a Retirement Annuity Plan and the other a Death Benefit Plan. Under the Retirement Plan, the decedent who had already retired prior to his death received a fixed retirement allowance. The Death Benefit Plan provided for the payment to the surviving dependents of an employee who dies following retirement of “benefits equal to twelve times the monthly retirement allowance paid to the annuitant, less payments provided by law by the Government” under Social Security.

¶42At issue in All was the includability in the decedent’s estate of the payments *1104to which the widow was entitled under the Standard Oil Death Benefit Plan.18

¶43Judge Marshall followed the step-by-step analysis of § 2039 by Judge Davis in Bahen in holding the widow’s payments under the Death Benefit Plan to be part of the gross estate.

¶44The key point in All, which makes the decision a compelling precedent for the disposition of the present appeal, is Judge Marshall’s holding that “for purposes of determining the applicability of § 2039, the [Retirement] Annuity Plan and the Death Benefit Plan are to be considered as having been integrated into a single plan,” citing Example (6) of the Treasury Regulations, § 20.2039-l(b) (2), infra note 21. 321 F.2d at .636.

¶45Turning now to the main prongs of appellant’s attack on the inclusion of Isabella Gray’s benefit payments in her brother’s gross estate, the taxpayer argues:

¶46(1) that the two plans may not be considered in combination as a “form of contract or agreement” under § 2039;

¶47(2) that there was no enforceable contract or agreement; and

¶48(3) that even if the contract or agreement requirement were met, there was no annuity or other payment payable to the decedent, nor did the decedent possess the right to receive such annuity or payment, at the time of his death.

¶49Do Socony’s Retirement Plan and Surviv-orship Plan Viewed Together Constitute a “Form of Contract or Agreement” Under § 2039?

¶50Although the two Socony Plans involved here are separate in that they were not created by the same document,19 nor initiated at the same time,20 nor did they make any reference to each other, the purpose of the two plans clearly was to form an integrated program to assure the employees an annuity upon retirement as well as to provide benefits to designated survivors on the déath of an employee before his retirement.

¶51The applicable part of the Treasury Regulations, followed in Bahen and All, § 20.2039-1 (b) (ii), states that the “term ‘contract or agreement’ includes any arrangement, understanding or plan, or any combination of arrangements, understandings or plans arising by reason of the decedent’s employment.” (Emphasis added.)

¶52By reason of his employment, decedent Gray had a combination of plans providing (a) for an annuity upon reaching the age of retirement (Retirement Plan), or (b) if he died before retirement but after 20 years’ service, for certain benefit payments to his designated beneficiary (Sur-vivorship Plan). Example (6) of the applicable Treasury Regulations, set forth in the margin,21 specifically contemplates the combined operative effect of *1105two separate plans established by a decedent’s employer in determining whether or not benefits derived from either one of the plans shall be includable in the gross estate. All v. McCobb, supra at 636.

¶53Judge Davis’ comments in Bahen on the portion of the Treasury Regulations, § 20.2039-1 (b) (ii), quoted above, and on Example (6), are wholly persuasive on the “contract or agreement” issue:

Example (6) … describes two separate plans neither of which, by itself, would meet the requirements of Section 2039 but which would satisfy those requirements if the plans were considered as one. The Regulations indicate that the plans are to be viewed together, for the reason stated above in the text.22

Effect must be given to this declaration, adopted pursuant to the Treasury’s recognized power to issue regulations and not challenged by plaintiff, since it does not violate the terms or the spirit of Section 2039. In view of the general purpose of the statute to cover a large share of employer-contributed payments to an employee’s survivors, it is not unreasonable to lump together all of the employer’s various benefit plans taking account of the employee’s death … in order to decide whether and to what extent Section 2039 applies to his estate. There is no immutable requirement in the legislation that each plan separately adopted by a company must be considered alone. One good ground for rejecting that position is to prevent attempts to avoid the reach of the statute by a series of contrived plans none of which, in itself, would fall under the section.

This directive in the Regulations that all rights and benefits “are to be considered together” — read with another part of the same Regulation which defines “contract or agreement” under Section 2039 to cover “any combination of arrangements, understandings, or plans arising by reason of the decedent’s employment” — requires the two plans of the C. & O. to be deemed a coordinated whole for the purposes of Section 2039. On that view the payments under the Death Benefit Plan were includable in the decedent’s gross estate for the reasons given above with respect to the Deferred Compensation Plan. If the two Plans are integrated into one, each element required for coverage of all payments is present.23 [Footnotes omitted.]

¶54Appellant seeks to distinguish Bahen on the ground that the Deferred Compensation Plan in that case was “irrevocable.” But this was not decisive in Bahen. The payments under the Death Benefit Plan in that case which the court said would not have been taxable standing alone, were includable in the gross estate because of the combined treatment of the two plans in Bahen as a unitary contract or agreement.

¶55Likewise, in the case at bar, the benefits to Isabella Gray under the Survivor-*1106ship Plan, standing alone, may not have been includable in decedent’s gross estate. These benefits are taxable, however, because of the existence of the Retirement Plan, which the district court properly held24 should be considered in combination with the Survivorship Plan as a contract or agreement under § 2039.25

¶56We conclude that there is simply no merit to the taxpayer’s contention that the combination of the two plans here may not be treated as a contract or agreement under § 2039.

¶57Was the “Contract or Agreement” Enforceable?

¶58We believe that the preceding discussion explaining and supporting the treatment of the two separate plans as a contract or agreement under § 2039 is sufficient to dispose of this issue. However, the taxpayer presses hard his contention that there is no enforceable contract here.

¶59We have already observed that § 2039 is a departure from common law notions, and that Congress did not necessarily intend that the words used should be considered in terms of traditional property or contract law concepts so that, as Ba-hen suggests we should “not become entangled in the older meshes.” 305 F.2d at 829.

¶60We do not need to decide in this case, however, whether in using the phrase “contract or agreement” in § 2039 Congress intended to create a unique, “federal” type of contract relationship limited to estate tax purposes as we believe that Soeony’s obligation to pay Isabella Gray is enforceable under regular contract law principles.26

¶61The taxpayer’s focus on decedent Gray’s possible inability to enforce the Survivorship Plan is misplaced; it is Isabella Gray’s right to enforce Socony’s obligation with which we should be concerned. And we find that Isabella Gray may enforce what is a matured contract right as an intended third-party beneficiary.27

¶62Must we test the viability of the third-party beneficiary contract here by the law of the state of the decedent ? In Miller v. United States, 387 F.2d 866 (3d Cir. 1968), we said, in an estate tax appeal:

The extent of the decedent’s interest in the testator’s estate under the power to consume must be determined by Pennsylvania law, although the tax-ability of the interest will be determined by federal law. [Footnote omitted.] 387 F.2d at 868.

¶63Assuming that the Miller case formula applies to the determination of the question of the enforceability of the contract here, we believe that the law of New Jersey (the state of the decedent), state law generally, and the Restatement of Con*1107tracts support the concept of enforceability we now proceed to outline.

¶64The contract rights to be enforced arise from the offer made by Socony to its employees to participate in the Sur-vivorship Plan. Decedent Gray accepted this offer and designated his sister as the beneficiary. Socony then had by way of consideration a satisfied employee who continued in its employ. On his part, decedent was assured that if he died as a Socony employee prior to his retirement, and the Survivorship Plan were still in effect, Isabella would receive certain benefits.28 Isabella Gray, as an intended beneficiary,29 could enforce the contract.30

¶65Decedent Gray’s designation of Isabella Gray as the beneficiary, and So-cony’s acceptance, place her in the class of an intended beneficiary. In fact, the Survivorhip Plan by its own terms contemplates enforcement by the named beneficiary.31

¶66As a beneficiary of a plan which was subject to “modification and revocation” during the lifetime of the employee-decedent, Isabella Gray had rights similar to the beneficiary of a life insurance contract where the insured may change the beneficiary at will.

¶67Williston calls this a vested contract subject to divestment: “Where the policy reserves to the insured a power to change the beneficiary, there is a defeasible vested interest in the latter.” 2 Williston, Contracts, § 369 (3d ed. 1960). The life insurance analysis by Williston has been applied to situations similar to the instant appeal.32

¶68*1108In Roberts v. Ellis, 229 Or. 609, 368 P.2d 342 (1962), as part of the contract of employment the employer agreed, inter alia, to pay to the employee’s wife, if she should survive him, a sum of $1,000.00 per month. In upholding the widow’s right to payment, the Oregon court said:

… [T]he widow’s rights, created during the husband’s lifetime, became absolute upon his death …. The situation is analogous to that of a contingent remainderman whose estate can be defeated by a variety of circumstances over which he has no control, e. g., the birth of an heir to the holder of a limited fee, etc. A contingent remainder may become a vested remainder when a named person dies because it is no longer within the power of such a person to defeat the estate. … 368 P.2d at 345.33

¶69A New Jersey case, Bendit v. Inta-rante, 70 N.J.Super. 116, 175 A.2d 222 (1961), was a suit by an executor to recover for the estate of his decedent the proceeds of an agreement made by the decedent, Salvatore La Spada, and one defendant, whereby the latter was to pay the decedent $100.00 per week for ten years and, in the event of his death during that period, the payments were to be continued to the decedent’s widow. Although the precise issue before the court was the testamentary nature of the document, i. e., whether it was revocable, the New Jersey court held that the widow as an intended third-party beneficiary could enforce the contract. The court said:

An otherwise valid and binding contract for the payment of monies due or to become due to the promisee is not invalidated because one of its provisions calls for payment of the balance due to a third party, in the event of the prom-isee’s death before receiving payment in full. … [The agreement] conveyed a present equitable right upon Mrs. La Spada as a third-party beneficiary, which ripened into full ownership of the balance due upon her husband’s death. … Restatement, Contracts, sec. 133(a) and 135(a). … The contract was valid and enforceable, and the weekly payments became payable to Mrs. La Spada upon her husband’s death. 175 A.2d at 229.34

¶70*1109In contending that decedent Gray did not have an enforceable right in the Sur-vivorship Plan, an issue we need not decide, appellant fails to consider that Isabella Gray, by reason of surviving the decedent, had a right to enforce payment under a “form of contract or agreement,” here a third-party beneficiary contract. As was well stated by Judge Goodrich in Isbrandtsen Co. v. Local 1291, 204 F.2d 495, 496-497 (3d Cir. 1953), the focus of the court should be on the rights of the party for whose benefit the contract was made.

¶71The taxpayer also argues that by the very terms of the Survivorship Plan it is non-eontractual and unenforceable. Not only does this contention ignore the enforcement provision of the Plan previously cited,35 but it misconstrues the clear import of Part VI of the Survivorship Plan, somewhat ineptly labeled “Non-contractual.” 36 The purpose of the “non-contractual” provision, which actually reaffirms the enforceable rights of beneficiaries under the Survivorship Plan, is to make unambiguous the fact that this plan is not a contract of employment but rather a separate arrangement arising out of the employment relationship.

¶72Did Decedent Possess a Right to Receive an Annuity or Other Payment Under Section 2039(a) ?

¶73Appellant argues that the decedent was not possessed of the right to receive an annuity or other payment, as required under § 2039(a). In resolving the issue posed under this heading, a searching anaysis of this part of § 2039 is in order.

¶74First, an explanation regarding the construction and use of the phrase “annuity or … payment” is necessary. This phrase is used three times in § 2039 (a). Although it is proper to give the same definition to a word or phrase used several times in a section of a statute, the facts here do not require us to focus on the same word each time the phrase is used. We may focus on the word “payment” in one use of the phrase and on the alternative word “annuity” in another application of the phrase.37

¶75*1110Under the facts here presented, we read the first use of the phrase “annuity or other payment” (focusing on the word “payment”) to refer to the money actually paid or to be paid to the beneficiary under the Survivorship Plan. For our purposes the second (and therefore the third) use of the phrase refers to the annuity provided for under the decedent’s Retirement Plan. Thus in the second and third use of the phrase the focus will be on the word “annuity.”

¶76This means, then, that the retirement “annuity” which the decedent Gray possessed the right to receive at his death need not be under the same plan as the “payment” receivable by the surviving beneficiary. That the decedent need not have possessed any right or property interest in the benefits payable to the survivor is made clear in Beal v. C. I. R., 47 T.C. 269, 273 (1966). The court said:

… [W]e can perceive no reason to limit the section only to those payments to a beneficiary which are a continuation of the payments to the decedent or to those payments to a beneficiary which are a substitution for amounts otherwise payable to the deeement. 47 T.C. at 272.

¶77Secondly, at the risk of prolonging this opinion unduly, it may be helpful to analyze § 2039(a) in terms of a hypothetical (to use the language of the logician), viz., if A and B then <7.38

¶78A consists of all the language in the second part of § 2039(a), starting with the word “if” following the parenthesis,39 explaining the rights the decedent must have had. B is described in the first part of § 2039(a),40 and is the money payable to the beneficiary who takes by reason of surviving the decedent. If A and B are present, then the conclusion C follows,41 the payments to the beneficiary are in-cludable in the gross estate of the decedent for tax purposes.

¶79Isabella Gray, the beneficiary, received a “payment” by reason of surviving the decedent. Thus element B of the hypothetical is present.

¶80To find A requires further interpretation. If, under the contract, “either alone or in conjunction with another for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death,” the decedent

(1) had an annuity or other payment payable to him, or

(2) was possessed of the right to receive such annuity or payment,

¶81then element A has been satisfied.

¶82Although at the moment of his death the decedent Gray did not have the benefits of the Retirement Plan “payable” to *1111him, he “possessed” a vested right to receive such an annuity.42

¶83The decedent’s vested right43 in an annuity under the Retirement Plan is sufficient to meet the requirements of element A. Therefore, both conditions A and B are present, leading to conclusion C, i. e., the includability of Isabella Gray’s benefits under the Survivorship Plan in the decedent’s gross estate.

¶84This analysis is clearly supported by Bahen, supra, which on the requirement of “possessed the right to receive” was not even as strong as the facts here. It will be recalled that in Bahen, the “annuity or payment” which the decedent possessed was the right to receive certain compensation in the event of becoming totally disabled during his lifetime prior to retirement, a contingency which the taxpayer there argued did not reach the more likely ripening of a right to receive an annuity upon reaching retirement age. The court held that either contingency, total disability or retirement, was sufficient to meet the “possessed the right to receive such annuity or payment” condition under § 2039(a). 305 F.2d at 831-832.44

¶85One final matter need be discussed. Section 2039(c) of the Internal Revenue Code and § 20.2039-2 of the Regulations, as amended, provide that if one of the plans in a combined plan situation qualifies for exemption under 26 U.S.C.A. § 401(a), there is no taxability under § 2039(a).45 Appellant did not raise this issue below nor was it raised in the brief to this court. At oral argument, however, appellant’s counsel intimated, apparently for the first time, that the So-*1112cony Retirement Plan may be a qualified plan under § 401(a).46

¶86We have held that in civil matters an issue not raised below may not be considered on appeal: United States v. Ivy Hall Apartments, Inc., 310 F.2d 5, 10 (3d Cir. 1962).47 We, therefore, may not consider appellant’s § 401(a) contention at this stage. It could have been, and should have been, raised below.

¶87For the reasons we have expressed at length in this opinion, the decision of the district court will be affirmed.

¶167ALDISERT, Circuit Judge

¶168(dissenting).

¶169I disagree with the majority’s interpretation of what I consider to be the clear and unsophisticated language of the Annuity Estate Tax Statute, § 2039 and its implementing Tax Regulation 20.2039 (1) (b) (ii).

¶170The statute subjects to inclusion in the taxable estate, proceeds from “such contract or agreement, an annuity or other payment [which] was payable to the decedent, or [which] the decedent possessed the right to receive … either alone or in conjunction with another for his life or for any period not ascertainable without reference to his death or for any period which does not in fact end before his death.”

¶171The pertinent tax regulation provides that “[A]n annuity ‘was payable’ to the decedent if, at the time of his death, the decedent was in fact receiving an annuity or other payment, whether or not he had an enforceable right to have the payments continued.” The decedent “possessed the right to receive an annuity or other payment if, immediately before his death, the decedent had an enforceable right to receive payments at some time in the future, whether or not, at the time of his death he had a present right to receive payments.”

¶172The two plans which were combined by the Commissioner of Internal Revenue to justify the imposition of the tax involved a retirement plan for the benefit of the decedent, and a survivorship plan for the benefit of a named beneficiary. At those critical moments which controlled the theory of tax imposition, neither plan qualified for taxation under the plain and ordinary meaning of the language of the statute and regulation.

¶173With respect to the retirement plan, the only plan of the two under which the decedent himself could benefit, the critical moment is “at the time of his death”. At the time of Mr. Gray’s death he was not retired. He was still working. He was receiving his ordinary salary from the company. He had not put in the requisite years to qualify for the retirement *1113plan.1 He was not “in fact receiving an annuity or other payment”.

¶174Because the decedent in his lifetime was not receiving an annuity or other payment, we must then inquire whether he “possessed the right to receive” the benefits of any plan. Another equally critical time is set forth in the tax regulations for this contingency: “if immediately prior to his death the decedent had an enforceable right to receive payments at some time in the future”. Under the survivorship plan he had no right to receive anything in the future, for this plan, by its very terms, was not for his benefit but for someone else, to-wit, a designated beneficiary. Similarly the decedent had no enforceable right to receive the benefits of his retirement plan “immediately before his death,” because at that moment he had not qualified under the appropriate years of service to be eligible.

¶175To declare as a matter of law that he had an enforceable right to receive such payments in the future is also to declare as a matter of law that any participant in any retirement program will live long enough to participate in the plan, will be healthy long enough to remain on the job, and will never leave his present employment for another position with another employer. Common sense and experience dictate otherwise.

¶176Accordingly, it cannot be said that the decedent possessed the right to receive the annuity or other payment under the terms of either plan.

¶177In this posture, I believe that one conclusion becomes inescapable: because there was no annuity payable to the decedent at the time of his death under the retirement plan, and because the decedent “immediately before his death” had no enforceable right at some time in the future, under either the retirement or survivorship plans, it is inappropriate to justify taxation on the theory of combining the plans.

¶178The effort of the majority to find support for the Commissioner’s action is a masterful endeavor, expressed in comprehensive and scholarly form. This became necessary because of the extreme difficulty of reconciling the language of the statute and the tax regulation with Example 6 of Tax Regulation 20.2039 (l)-2

¶179This formidable task of reconciliation evinces inordinate concern with the sanctity of descriptive commentary at the expense of clear statutory language. Here indeed is the exemplary tail wagging the statutory dog. Because Example (6) is not complete, it is neither a correct statement of the regulations, nor, without more, a proper reflection of the language of the statute upon which the regulation is based. This example is deceptive, because under certain circumstances— where the terms of the specific combined plans meet the requirements of the statute — its conclusion may be true. But to make a blatant pronouncement that any combination of retirement and annuity plans will subject the value of the annu*1114ity to an inclusion in the employee’s gross estate is to be dangerously simplistic. Example (6) overlooks the absolute necessity that either or both of the plans comply with the basic language of the statute. For the Commissioner to rely upon this example affixed as an appendage to a purely interpretative regulation, when the specific terms of the plans involved are not within the ambit of the taxing statute is to impose taxation beyond that authorized by law. It is the language of the statute and the appropriate regulations implementing the statute which must control, not an improvidently-worded example.

¶180With the view I take of this case, it does not become necessary to discuss other serious problems involved, especially the extremely challenging questions of contractual enforceability and third party beneficiaries.

¶181I would reverse the judgment of the district court and enter judgment in favor of the taxpayer.