Brown v. U.S.
| Decision Date | 13 December 1989 |
| Docket Number | No. 88-2763,88-2763 |
| Citation | 890 F.2d 1329 |
| Parties | -448, 90-1 USTC P 50,026 Earl A. BROWN, Jr. and Betty Galt Brown, Plaintiffs-Appellants, v. UNITED STATES of America, Defendant-Appellee. Earl A. BROWN, Jr., Independent Executor of the Estate of Earl A. Brown, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee. Earl A. BROWN, Jr., Independent Executor of the Estate of Ellen Augusta Brown, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee. Susan Brown BARRY, Guardian of Brice Galt Barry, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee. Susan Brown BARRY, Guardian of Andrew Earl Barry, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee. Susan Brown BARRY, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
N. Shelton Jones, Earl A. Brown, Jr., Houston, Tex., for plaintiffs-appellants.
Janet A. Bradley, Gary R. Allen, Chief, Appellate Section, Tax Div., Dept. of Justice, William S. Rose, Jr., Washington, DC Robert S. Pomerance, Robert A. Bernstein, Asst. Attys. Gen., for defendant-appellee.
Appeal from the United States District Court for the Southern District of Texas.
Before WISDOM, KING and WILLIAMS, Circuit Judges.
Appellants, Earl A. Brown Jr. and his wife Betty Galt Brown, 1 are seeking a refund of federal income taxes, interest, and penalties for the taxable years 1977 through 1982. They appeal from the district court's summary judgment in favor of the Government. We AFFIRM the judgment.
In 1968, Ellen Augusta Brown died, leaving a will that provided, in pertinent part:
I give, devise and bequeath unto my husband, Earl A. Brown, as Trustee, all of the property, real, personal and mixed, wheresoever situated, which I may own at the time of my death, upon the following terms, conditions, and directions:
(1) This trust is created for the benefit of my son, Earl A. Brown, Jr., and his lineal descendants, and shall extend and be in force until the death of the Trustee. Upon the death of the Trustee, Earl A. Brown, all of the trust property then remaining shall go to my son, Earl A. Brown, Jr., if he is living, subject to the conditions and provisions hereinafter set forth.... Upon the death of Earl A. Brown [Sr.] this trust shall terminate....
* * *
In the event Earl A. Brown, Jr. survives his father, Earl A. Brown, and receives the trust property mentioned above, I give unto the said Susan Brown Barry all of the said trust property remaining in his hands at the time of his death. In this behalf I would direct my son, Earl A. Brown, Jr., during his lifetime, to use all the income from said property for his own personal use, in any manner he may see fit; and to sell and convey any part of the corpus of said estate and reinvest the proceeds thereof in such other assets and securities, except real estate, that he may regard as being for the best interest of the trust estate and its preservation. Also, I would direct the said Earl A. Brown, Jr. to sell and dispose of a portion of the corpus of my estate and personally use the proceeds thereof only if such sale is required to satisfy his personal needs and necessities; but it is my hope and request that he keep intact as much as possible of the said trust property which comes into his hands, both real and personal, to pass on to and become vested in our beloved granddaughter, Susan Brown Barry, upon his death.
Earl A. Brown Sr. died in 1969. In addition to setting out several specific bequests, his will provided:
All of the rest, residue and remainder of my estate, real, personal and mixed, I give, devise and bequeath unto my son, Earl A. Brown, Jr., to be his property. I do this, however, in the knowledge and belief that he will use such portions of the said assets, whenever, in his opinion, it may be necessary or desirable to meet the needs of my beloved granddaughter, Susan Brown Barry, and her lineal descendants. Upon the death of the said Earl A. Brown, Jr. it is my wish that any of said property remaining in his hands shall go to Susan Brown Barry, if she be living, and if she be not living, then to her lineal descendant or descendants, share and share alike.
Appellant Earl A. Brown Jr. ("Brown") was named independent executor of his parents' estates (the "Estates"). By July 1971, the formal steps of independent administration were complete: The wills had been admitted to probate; the probate court had approved the inventory and appraisement lists of the Estates' assets, finding in each case that no debts or claims were outstanding; federal estate taxes and Texas inheritance taxes had been paid. To date, however, Brown has not closed either estate.
In 1981, the Internal Revenue Service ("IRS") audited the tax returns filed by Brown on behalf of the Estates and determined that administration had been unduly prolonged and that the Estates had terminated for federal income tax purposes as of December 31, 1976. 2 Consequently, taxable income previously reported by the Estates was assessed against Brown as beneficiary under the wills.
In February 1982, the IRS sent appellants Earl and Betty Brown ("Taxpayers") a notice of deficiency for the years 1977 and 1978. 3 Shortly after receiving this notice, Brown requested, and received, authorization from a Texas probate court to continue the administration of his parents' Estates. Taxpayers paid the assessed deficiencies and filed administrative claims for refunds with the IRS. The IRS denied their claims. Taxpayers then filed a complaint in federal district court seeking--ultimately--a refund of $698,946.50 plus costs. 4 Taxpayers claimed that the IRS improperly deemed the Estates terminated and thus incorrectly attributed the Estates' income to Brown.
Both sides moved for summary judgment. On July 15, 1985, the district court denied the motions. Both sides then filed motions for reconsideration, supported by numerous briefs. After a hearing on all pending motions, the district court determined that reconsideration was appropriate.
On December 10, 1987, the district court granted partial summary judgment for the United States. The court held that the IRS had properly considered the Estates terminated for federal income tax purposes. Taxpayers' motion for partial summary judgment was denied. After the parties settled the remaining non-estate issues, and stipulated as to tax adjustments resulting from such settlement, the court entered a final judgment. Taxpayers timely appealed.
We have distilled Taxpayers' numerous arguments on appeal to a few central issues. Taxpayers assert that the district court erred by: (1) failing to follow the binding precedent of a prior Fifth Circuit opinion and thus to defer to the Texas probate court's order that the Estates could remain open at the discretion of Brown; (2) upholding the IRS's determination that the Estates had been unduly prolonged; (3) upholding the IRS's assessment of the Estates' income tax against Brown, since the court made no clear determination as to what interest he received under the wills of his parents; and (4) not granting Taxpayers' motion for summary judgment on the grounds of equitable and "actual" estoppel.
We review a district court's grant of summary judgment by evaluating the record under the same guidelines as were used by the district court. Summary judgment is proper if it appears from pleadings, depositions, admissions, and affidavits, considered in a light most favorable to the nonmovant, 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." Fed.R.Civ.P. 56(c); Galindo v. Precision American Corp., 754 F.2d 1212, 1216 (5th Cir.1985). Only disputes over facts that might affect the outcome of the case preclude the entry of summary judgment. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986).
We first note the burden of persuasion borne by the parties in this case. An IRS deficiency notice is clothed with a "presumption of correctness." United States v. Janis, 428 U.S. 433, 441, 96 S.Ct. 3021, 3026, 49 L.Ed.2d 1046 (1976). In a refund suit, the taxpayer bears the burden of proving both the error in the assessment and the amount of refund to which he is entitled. Id.; Mallette Bros. Constr. Co. v. United States, 695 F.2d 145, 148-49 (5th Cir.), cert. denied, 464 U.S. 935, 104 S.Ct. 341, 78 L.Ed.2d 309 (1983).
The underlying facts that we find controlling in this case are undisputed. "When everything that can be adduced at trial is before the judge ... and the parties, while urging conflicting ultimate facts or conclusions, have no evidentiary disputes, a trial serves no useful purpose." Fontenot v. Upjohn Co., 780 F.2d 1190, 1197 (5th Cir.1986). Our appellate role in this case, therefore, is to review de novo the legal conclusions of the district court. 5 After a careful review of the record and the relevant authorities, we concur with the district court's determination that the United States is entitled to judgment as a matter of law.
Subchapter J of the Internal Revenue Code of 1954 (the "Code") sets forth the statutory framework for the federal taxation of estates and trusts. Under Subchapter J, the income earned by an estate or trust is taxed only once, either against the estate or trust, as a separate tax entity, or against the beneficiaries, as to the income that is distributed or is deemed distributed. Section 641 provides that the taxable income of a decedent's estate shall be computed in the same manner as the taxable income of an individual, except as otherwise prescribed in Part I of Subchapter J. 26 U.S.C. Sec. 641(b).
We are concerned in this case with the application of section 641(a)(3), which imposes a federal tax...
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