680 F.2d 1248 (9th Cir. 1982), 80-5424, Propstra v. United States
|Docket Nº:||80-5424, 80-5430.|
|Citation:||680 F.2d 1248|
|Party Name:||John A. PROPSTRA, personal representative of the Estate of Arthur E. Price, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant. John A. PROPSTRA, personal representative of the Estate of Arthur E. Price, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.|
|Case Date:||July 06, 1982|
|Court:||United States Courts of Appeals, Court of Appeals for the Ninth Circuit|
Argued and Submitted Nov. 9, 1981.
Ernest J. Brown, Washington, D. C., argued, for United States; Robert A. Bernstein, M. Carr Ferguson, Dept. of Justice, Washington, D. C., on brief.
G. Ben-Horin, Brown & Bain, P. A., Phoenix, Ariz., for Propstra.
Appeal from the United States District Court for the District of Arizona.
Before KENNEDY and BOOCHEVER, Circuit Judges, and EAST, [*] District Judge.
BOOCHEVER, Circuit Judge.
This case presents two issues regarding the valuation of assets of and claims against an estate for the purposes of computing the value of a taxable estate under the federal estate tax laws. Plaintiff John Propstra, the personal representative of the estate of Arthur E. Price (estate), filed this action to recover an alleged over-assessment of federal estate taxes. The estate argued that (1) it was entitled to discount by fifteen percent the decedent's undivided one-half interest in real estate held as community property when computing the value of decedent's estate, and (2) it properly deducted the full amount of decedent's proportionate share of lien claims against that real estate instead of the lesser amount actually paid in settlement by the estate.
The district court granted summary judgment for the estate on the former issue and summary judgment for the Government on the latter. We affirm the judgment for the estate and reverse the judgment for the Government.
The facts are uncontroverted. Arthur Price (decedent) died on October 14, 1971. A federal estate tax return was timely filed on behalf of his estate in 1972 and all estate taxes were duly paid. Decedent's wife acted as executrix of the estate until her death in 1975, at which time John Propstra was appointed as her successor.
Decedent's estate consisted primarily of his undivided one-half interest in several parcels of real estate owned by him and his wife as community property. At the time of his death, two parcels were encumbered by liens of the Salt River Valley Water Users' Association (Association) for past due assessments and penalties amounting to $404,846.11, which had been accruing since the 1920's. No portion of these assessments or penalties had ever been paid by the owners of the property. Despite negotiations between the estate and the Association for waiver or reduction of the lien claims, the Association's bylaws denied it the power to adjust the claims, and, at the time of filing, it maintained that the full amount of the debt was past due and owing.
The executrix deducted decedent's one-half share of these liens ($202,423.05) when she computed the value of the estate on the estate tax return. Because she hoped to find some defense to the lien claims, she indicated on the return that the claims were "contested in part." She did so to comply with the tax return instructions requiring that contested claims be designated as such.
On June 4, 1974, twenty-two months after the filing of the estate tax return, an amendment to the Association's bylaws authorized it to settle outstanding claims for less than the full amount owed. On June 26, 1974, the estate paid the Association $134,826.23 in full satisfaction of its lien claims against the estate.
The parcels of community real property owned by decedent and his wife at the time of his death had an undisputed fair market value of $4,002,000. In calculating the decedent's undivided one-half interest therein, the executrix discounted his proportionate share of this figure by fifteen percent in order to account for the relative unmarketability of an undivided fractional interest in real property. 1
On June 26, 1975, the Commissioner of Internal Revenue issued the estate a statutory notice of deficiency and later assessed the estate $210,648.52 for unpaid taxes. The additional assessment was based on the Commissioner's determination that (1) the estate was entitled to deduct only the amount actually paid in discharge of the Association's lien claim, and (2) the estate was not entitled to the fifteen percent valuation discount. The estate paid the alleged deficiency and timely filed a claim in the district court for a refund. 2
Each party appeals the award of partial summary judgment to the other.
Valuation of Estate's Interest in Undivided Community Property
Because the estate tax is a tax on the privilege of transfering property upon one's death, the property to be valued for estate tax purposes is that which the decedent actually transfers at his death rather than the interest held by the decedent before death or that held by the legatee after death. Estate of Bright, 658 F.2d 999, 1001 (5th Cir. 1981) (en banc). See also Detroit Bank v. United States, 317 U.S. 329, 332, 63 S.Ct. 297, 298, 87 L.Ed. 304 (1943); Ithaca Trust Co. v. United States, 279 U.S. 151, 49 S.Ct. 291, 73 L.Ed. 647 (1929). Both parties
agree that the property to be valued in the instant case is an undivided one-half interest in several parcels of real estate that decedent and his wife held as community property at the time of his death. 3
The valuation of interests in property for federal tax purposes is a question of fact. See Ahmanson Foundation v. United States, 674 F.2d 761, 769 (9th Cir. 1981); Penn v. Commissioner, 219 F.2d 18, 20 (9th Cir. 1955); In re Nathan's Estate, 166 F.2d 422 (9th Cir. 1948). Summary judgment on such issues may be proper if the party opposing a Rule 56 motion fails to "set forth specific facts" establishing a genuine issue of material fact. Fed.R.Civ.P. 56(e). The movant, however, must still satisfy any burdens of proof that he would bear at trial. Pierson v. United States, 527 F.2d 459, 462 (9th Cir. 1975). Upon requesting summary judgment, the estate submitted affidavits from two qualified appraisers, whose testimony showed that the value of an undivided, fractional interest in real property would be less than a proportionate share of the fair market value of the whole. One appraiser estimated the value of the interest in question at $1,639,500; the other made no specific estimate. The Government submitted no countervailing facts regarding the value of the undivided one-half interest in the parcels. Instead, it now argues that, although it failed to tender any evidence that raised a genuine issue of fact, the estate failed to meet its burden of proof. Specifically, the Government contends that, not only must the estate prove the value of the interest if sold separately, but it must also prove that the interests in question were likely to be sold apart from the other undivided one-half interest in the property. The Government argues that, in the absence of such a showing, one can reasonably assume that the interest held by the estate will ultimately be sold with the other undivided interest 4 and that interest's proportionate share of the market value of the whole will thereby be realized.
After considering the language of sections 2031 and 2033 of the Internal Revenue Code of 1954 (I.R.C.) and their accompanying regulations, we are unwilling to impute to Congress an intent to have "unity of ownership" principles apply to property valuations for estate tax purposes. Sections 2031 and 2033 provide that the value of a decedent's gross estate shall include the value of all property to the extent of his interest therein at the time of his death. Treas.Reg. § 20.2031-1(b) defines "value" for the purposes of §§ 2031 and 2033 as "fair market value at the time of decedent's death." It then defines "fair market value" as "the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts." By no means is this language an explicit directive from Congress to apply unity of ownership principles to estate valuations. In comparison, Congress has made explicit its desire to have unity of ownership or family attribution principles apply in other areas of the federal tax law. See, e.g., I.R.C. §§ 267, 318, and 544. In the absence of similarly explicit directives in the estate tax area, we shall not apply these principles when computing the value of assets in the decedent's estate.
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