783 F.2d 81 (7th Cir. 1986), 85-2077, Martin v. C.I.R.

Docket Nº:85-2077, 85-2088.
Citation:783 F.2d 81
Party Name:USTC P 13,659 Mary Jean MARTIN, et al., and John R. Fischer, et al., Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
Case Date:February 03, 1986
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit

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783 F.2d 81 (7th Cir. 1986)

USTC P 13,659

Mary Jean MARTIN, et al., and John R. Fischer, et al.,




Nos. 85-2077, 85-2088.

United States Court of Appeals, Seventh Circuit

February 3, 1986

Argued Jan. 13, 1986.

Edward W. Johnson, Johnson, Carroll & Griffith, Jack Van Stone, Van Stone & Krochta, Evansville, Ind., for petitioners-appellants.

Gayle P. Miller, Asst. Atty. Gen., Tax Div., Dept. of Justice, Washington, D.C., for respondent-appellee.

Before CUMMINGS, Chief Judge, and BAUER and POSNER, Circuit Judges.

POSNER, Circuit Judge.

Seven heirs to a family farm appeal from a decision of the Tax Court denying the preferential treatment that 26 U.S.C. Sec. 2032A, which was added in 1976, provides with regard to valuing the real estate of such farms for purposes of federal estate taxation. 84 T.C. 620 (1985). The

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decedent (we simplify the facts a bit) owned and operated a 209-acre farm in Indiana of which 166 acres were used for growing crops. Toward the end of his life the farm was operated by one of his sons-in-law under a sharecropping arrangement. The decedent died in 1978 and the farm passed to the seven heirs, one of whom was designated the personal representative of the estate and that year filed an estate tax return showing a total estate tax due of $11,000. But for section 2032A, the tax would have been $95,000. In 1979 the personal representative decided to terminate the sharecropping arrangement and lease the farm to the highest bidder for one year on a pure cash basis. This was done, and the farm was leased to a company for $21,060. A state court approved the lease over the objection of two of the heirs, who feared just what has happened--that the lease would result in a loss of the estate tax break. During the term of the lease some of the heirs assisted the lessee by clearing land, filing in holes, and providing general advice. When the lease expired, the farm was partitioned into two parts. The larger part remained on lease to the former lessee but on a sharecropping rather than straight cash basis; the smaller is being operated by one of the heirs.

The estate qualified for preferential treatment when the estate tax return was filed, but subsection (c), the recapture provision, entitles the government to levy an additional tax if the heir ceases to use the property "for the qualified use." 26 U.S.C. Sec. 2032A(c)(1)(B). Such cessation occurs either if the property ceases to be used for the qualified use or if, for three or more years during an eight-year period, the heir does not materially participate in the qualified use. Secs. 2032A(c)(6)(A), (B). Only the first of these disqualifying events is alleged here. The statute defines "qualified use" as "the devotion of the property to any of the following: (A) use as a farm for farming purposes, or (B) use in a trade or business other than...

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