391 F.3d 621 (5th Cir. 2004), 04-20194, Smith ex rel. Estate of Smith v. United States

Docket Nº:04-20194.
Citation:391 F.3d 621
Party Name:John David SMITH, Executor of the ESTATE OF Louis R. SMITH, Deceased, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
Case Date:November 15, 2004
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
FREE EXCERPT

Page 621

391 F.3d 621 (5th Cir. 2004)

John David SMITH, Executor of the ESTATE OF Louis R. SMITH, Deceased, Plaintiff-Appellant,

v.

UNITED STATES of America, Defendant-Appellee.

No. 04-20194.

United States Court of Appeals, Fifth Circuit

November 15, 2004

Page 622

Mark R. Martin (argued), Gardere Wynne Sewell, Erby Franklin Earley, Shank & Earley, Houston, TX, Neil J. O'Brien (argued), Gardere Wynne Sewell, Dallas, TX, for Smith.

Kenneth W. Rosenberg (argued), Richard Bradshaw Farber, U.S. Dept. of Justice, Tax Div., Washington, DC, for U.S.

Appeal from the United States District Court for the Southern District of Texas.

Before KING, Chief Judge, and HIGGINBOTHAM and DAVIS, Circuit Judges.

KING, Chief Judge:

Appellant John David Smith, Executor of the Estate of Louis R. Smith, brought suit against Defendant United States of America seeking a refund of federal estate taxes. The Estate claimed it was owed a partial refund because it overvalued certain retirement accounts held by the decedent in calculating the total gross estate and, therefore, overpaid its federal estate taxes. According to the Estate, the retirement accounts should have been valued at a discounted amount to reflect the federal income tax liability that will be triggered when distributions are made from the retirement accounts to the beneficiaries. The government moved for summary judgment, arguing that the Estate was not entitled to a federal estate tax refund because the potential income tax liability to the beneficiaries should not be considered in valuing those accounts for federal estate tax purposes. The district court granted summary judgment in favor of the government, and the Estate now appeals. For the following reasons, we AFFIRM the judgment of the district court.

I. BACKGROUND

A. Facts

The decedent, Louis R. Smith, died on March 7, 1997. John David Smith, the decedent's son, is the executor of his estate (the "Estate"). The Estate timely filed a United States Estate (and Generation-Skipping Transfer) Tax Return (Form 706) reflecting an estate tax balance due in the amount of $140,358.00, which the Estate promptly paid in full. In its tax return, the Estate reported two retirement accounts that the decedent had accumulated while employed by Phillips Petroleum Company: (1) the Phillips Petroleum Company Thrift Plan (the "Thrift Plan"), which the Estate valued at $725,550.00; and (2) the Phillips Petroleum Company Long Term Stock Plan (the "Stock Plan"), which the Estate valued at $42,808.00 (referred to collectively as the "Retirement Accounts"). The Retirement Accounts were comprised of marketable stocks and bonds.

On October 30, 1999, the Estate timely filed a Claim for Refund and Request for

Page 623

Abatement (Form 843), seeking a refund in the amount of $78,731.00 plus accrued interest. In its claim, the Estate averred that the "refund should be allowed because the executor made an overpayment [sic] estate tax due to an error in the calculation and the valuation of the gross estate of the decedent." In addition to its refund claim, the Estate also filed a supplemental United States Estate (and Generation-Skipping Transfer) Tax Return (Form 706), which discounted the value of the Retirement Accounts by thirty percent. In an attachment to the return, the Estate explained that the thirty-percent discount reflected the amount of income taxes that would be paid by the beneficiaries upon the distribution of the assets in the Retirement Accounts. Specifically, the Thrift Plan was discounted to $507,885.00 and the Stock Plan was discounted to $29,966.00. This resulted in an estate tax liability of only $61,627.00. By letter dated July 13, 2001, the Internal Revenue Service disallowed the Estate's refund claim, stating that "[n]o discount for taxes due, now or in the future, is allowable in valuing the assets in dispute."

B. Procedural History

On May 29, 2002, the Estate timely filed a complaint against the United States in the United States District Court for the Southern District of Texas, seeking a refund of federal estate tax. The United States moved for summary judgment, arguing that the Estate was not entitled to discount the value of the Retirement Accounts to reflect income taxes payable by the beneficiaries upon receipt of distributions from the accounts. Additionally, the United States asserted that the Retirement Accounts should be valued at their fair market value as determined by the willing buyer-willing seller standard.

The district court granted the government's motion for summary judgment. In doing so, the court specifically declined to consider any other factors that could affect the value of the Retirement Accounts as set forth in the expert report included in the Estate's response to the motion for summary judgment.1 The court reasoned that the Estate failed to raise such factors or refer to any evidence supporting them in its response. Thus, the court concluded that the sole issue was whether, for estate tax purposes, "the retirement accounts should be priced at their face value or whether they should be discounted to reflect the thirty percent income tax to be incurred by the beneficiaries upon distribution." Estate of Smith v. United States, 300 F.Supp.2d 474, 476 (S.D.Tex.2004). Applying the willing buyer-willing seller test, the court reasoned that while the Retirement Accounts may generate a tax liability for the beneficiaries in this case, a hypothetical willing buyer would not take that income liability into consideration when purchasing the underlying securities but would simply pay the value of the securities as determined by the applicable securities exchange prices. The court further stated that 26 U.S.C. § 691(c) ameliorates the double tax (the estate and income taxes) by allowing the taxpayer a deduction in the amount of the estate tax attributable to the particular asset. Accordingly, the court found that the Retirement

Page 624

Accounts were properly valued at their fair market value as reflected by the applicable securities exchange prices on the date of the decedent's death (not including a discount for the tax payable by the beneficiaries upon distribution from the accounts). Since there was no dispute between the parties that the Estate's initial tax return reflected the cash value of the Retirement Accounts, the court concluded that there was no material question of fact.

The Estate timely appealed to this court, arguing that the district court erred: (1) by refusing to consider evidence properly included in the summary judgment record--i.e., the additional factors that could affect the value of the Retirement Accounts as set forth in the expert opinion provided by that Estate; and (2) when valuing the Retirement Accounts, failing to apply a discount for the federal income tax liability that will be triggered upon distributions from the Retirement Accounts to the beneficiaries.

II. STANDARD OF REVIEW

This court reviews the grant of summary judgment de novo. Baton Rouge Oil & Chem. Workers Union v. ExxonMobil Corp., 289 F.3d 373, 376 (5th Cir. 2002). "Summary judgment is proper 'if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.' " Skotak v. Tenneco Resins, Inc., 953 F.2d 909, 912 (5th Cir. 1992) (quoting FED.R.CIV.P. 56(c)); accord Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91...

To continue reading

FREE SIGN UP