Bank of Oklahoma, N.A. v. Comm'r of Internal Revenue (In re Estate of Allen)
| Decision Date | 20 October 1993 |
| Docket Number | No. 309–91.,309–91. |
| Citation | 101 T.C. No. 23,101 T.C. 351 |
| Parties | ESTATE OF Frances Blow ALLEN, Deceased, Bank of Oklahoma, N.A. and R. Robert Huff, Co–Executors, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
John B. Turner, Tulsa, OK, for petitioner.
Cathleen A. Jones, Oklahoma City, OK, for respondent.
Respondent determined a deficiency of $30,157.30 in the estate tax of petitioner. After concessions by the parties, the sole issue for decision is whether administration expenses should reduce the amount of the marital deduction under section 2056.1
All of the facts have been stipulated and are so found.
Petitioner is the Estate of Frances Blow Allen who is hereinafter referred to as decedent. Decedent died testate on March 12, 1987, a resident of Tulsa, Oklahoma. Bank of Oklahoma, N.A., and R. Robert Huff were appointed co-executors by letters testamentary issued April 13, 1987. At the time of filing of the petition, the principal place of business of petitioner Bank of Oklahoma and the legal residence of petitioner R. Robert Huff were in Tulsa, Oklahoma.
Decedent was survived by her spouse, Hans Van Nes Allen.
Petitioner timely filed a Federal estate tax return with the Internal Revenue Service Center, Austin, Texas.
On November 29, 1984, decedent executed her last will and testament. The will provided in Part II for the payment of debts and expenses as follows:
I direct my Executors, hereinafter named, to pay all my just debts and funeral expenses as soon after my death as practicable.
I direct that all inheritance and estate taxes becoming due by reason of my death, including any interest and penalties thereon, shall be paid by my Executors out of that portion of the residue of my estate, more particularly described hereinafter as “My Residuary Trust Estate”, as an expense of administration. * * *
After bequests of all tangible personal property and three pecuniary bequests of $5,000 each, Part V of the will provided in pertinent part:
A. If my said husband survives me, I give to my Trustees, hereinbefore named, and their successors, the following:
All of the residue not required to fund my Residuary Trust Estate under Paragraph B of this Article V. * * * Said share or trust is hereinafter referred to as “My Husband's Trust Estate”. It is my intent that the whole of My Husband's Trust Estate shall qualify for the unlimited marital deduction as provided in the Economic Recovery Act of 1981. My trustees shall hold said share in Trust as follows:
1. The trustees shall pay the entire net income of My Husband's Trust Estate to him in annual or more frequent installments commencing from the date of my death and continuing so long as he shall live.
2. The Trustees shall also pay to my said husband as much of the principal of My Husband's Trust Estate as the Trustees, in their sole judgment, deem necessary or advisable to assure his care, comfort, support, maintenance and medical attention.
3. On the death of my said husband, the then remaining corpus and the income for the period between the last income distribution date and the date of my husband's death shall be added to the principal of My Residuary Trust Estate, and held as a part thereof and subject to all of the terms, trust and conditions then and thereafter pertaining thereto. I hereby empower and direct my Executors to claim a Federal Estate Tax marital deduction for all assets comprising My Husband's Trust Estate.
* * *
B. I give to my said Trustees, or successors, the second share, hereinafter sometimes referred to as the “Residuary Trust Estate”, which shall consist of so much of said residuary estate and other property as shall be equal to the exempt transfers under Federal Estate Tax Law in effect at the time of my death, taking into account the full unified credit applicable (it being understood that such amount shall be equal to the Federal Estate Tax filing requirement of Section 6018 of the Internal Revenue Code in effect for the year of my death), and shall consist of all of said residuary estate and other property if my said husband does not survive me. * * *
The net income from the Residuary Trust Estate was made payable to decedent's husband. Upon his death, said Estate was to be held and disposed of for the benefit of decedent's issue.
Part VII of decedent's will provided as follows:
The Trustees of my Trust Estate shall have all the powers, duties and responsibilities authorized by the Oklahoma Trust Act enacted by the Legislature of the State of Oklahoma in 1941 or any amendment thereof existing prior to the date of this Will, except as may be changed or modified herein.
Part XI of the will contained the following provision:
My Executors shall exercise in their sole discretion all elections provided by law, as to whether to claim items either as income tax deductions or as death tax deductions, and without making any adjustments as between income and principal of any Trust or as between any beneficiaries by reason thereof. The exercise of such authority and power by my Executors shall be final and conclusive and not subject to question by any person interested in my estate.
Petitioner's adjusted gross estate is $1,870,317.50 and its fixed deductions amount to $174,137.37.
For each of the fiscal years ending February 28/29, 1988, 1989, 1990, and 1991, petitioner filed a Form 1041, U.S. Fiduciary Income Tax Return, wherein petitioner reported income of $77,258, $95,220, $125,364, and $103,152, respectively, and claimed deductions for various administration expenses as follows:
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¦ ¦ ¦Attorney, ¦ ¦ ¦ ¦ ¦
+-------+---------+----------+--------+------+--------------+--------¦
¦ ¦ ¦Accountant¦ ¦ ¦ ¦ ¦
+-------+---------+----------+--------+------+--------------+--------¦
¦ ¦ ¦and Return¦ ¦ ¦Other ¦ ¦
+-------+---------+----------+--------+------+--------------+--------¦
¦ ¦Fiduciary¦Preparer ¦ ¦ ¦Administration¦ ¦
+-------+---------+----------+--------+------+--------------+--------¦
¦Year ¦Fee ¦Fees ¦Interest¦Taxes ¦Deductions ¦Total ¦
+-------+---------+----------+--------+------+--------------+--------¦
¦2/29/88¦$ 2,767 ¦$ 8,867 ¦$10,636 ¦— ¦$ 3,349 ¦$ 25,619¦
+-------+---------+----------+--------+------+--------------+--------¦
¦2/28/89¦25,000 ¦33,498 ¦45 ¦$3,436¦9,878 ¦71,857 ¦
+-------+---------+----------+--------+------+--------------+--------¦
¦2/28/90¦1,345 ¦8,151 ¦— ¦— ¦617 ¦10,113 ¦
+-------+---------+----------+--------+------+--------------+--------¦
¦2/28/91¦— ¦2,088 ¦167 ¦4,047 ¦617 ¦6,919 ¦
+-------+---------+----------+--------+------+--------------+--------¦
¦Total ¦$29,112 ¦$52,604 ¦$10,848 ¦$7,483¦$14,461 ¦$114,508¦
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The estate will incur additional administration expenses which will bring the total of such expenses to at least $119,650.
The co-executors have charged the administration expenses to the income generated by the Estate and have made an irrevocable election under section 642(g) to deduct these expenses on the respective Forms 1041. The parties agree that all additional administration expenses will be claimed on the appropriate Forms 1041 and will be subject to the same irrevocable election under section 642(g).
The notice of deficiency calculated the residue amount constituting the allowable marital deduction as follows:
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¦Corrected gross estate ¦$1,870,317.50¦
+---------------------------------+-------------¦
¦Less:¦Corrected fixed deductions ¦174,137.37 ¦
+-----+---------------------------+-------------¦
¦ ¦Interest deduction ¦–0– ¦
+-----+---------------------------+-------------¦
¦ ¦Fixed marital deduction ¦–0– ¦
+-----+---------------------------+-------------¦
¦ ¦Fixed charitable deduction ¦–0– ¦
+-----+---------------------------+-------------¦
¦ ¦Federal estate tax times 0%¦–0– ¦
+-----+---------------------------+-------------¦
¦ ¦State death tax pd times 0%¦–0– ¦
+-----+---------------------------+-------------¦
¦ ¦Specific bequests ¦615,000.00 ¦
+-----+---------------------------+-------------¦
¦ ¦Accounting and legal ¦119,650.00 ¦
+---------------------------------+-------------¦
¦Corrected residue amount ¦$ 961,530.13 ¦
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The starting point for our resolution of the proper treatment of the administration expenses is the statute and regulations. Section 2056 provides for the allowance of the marital deduction as follows:
(a) Allowance Of Marital Deduction.—For purposes of the tax imposed by section 2001, the value of the taxable estate shall, except as limited by subsection (b), be determined by deducting from the value of the gross estate an amount equal to the value of any interest in property which passes or has passed from the decedent to his surviving spouse, but only to the extent that such interest is included in determining the value of the gross estate.
(b) Limitation in the Case of Life Estate or Other Terminable Interest.—
* * *
(4) Valuation of interest passing to surviving spouse.—In determining for purposes of subsection (a) the value of any interest in property passing to the surviving spouse for which a deduction is allowed by this section—
(A) there shall be taken into account the effect which the tax imposed by section 2001, or any estate, succession, legacy, or inheritance tax, has on the net value to the surviving spouse of such interest; and
(B) where such interest or property is...
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