Ahmanson Foundation v. U.S.
| Decision Date | 16 April 1982 |
| Docket Number | No. 1,Nos. 79-3568,79-3600,P,1,s. 79-3568 |
| Citation | 674 F.2d 761 |
| Parties | 81-2 USTC P 13,438 The AHMANSON FOUNDATION and Ahmanson Trust Company, as Executor of the Will of Howard F. Ahmanson and as Trustee of Ahmanson Bank & Trust Company Trustlaintiffs-Appellees, v. UNITED STATES of America, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Ninth Circuit |
McKenna, Conner & Cuneo, Daniel N. Belin (argued), Aaron M. Peck, Terry A. Fralich, Barbara A. Potashnick, Los Angeles, Cal., for plaintiff-appellee The Ahmanson Foundation.
Gibson, Dunn & Crutcher, John P. Anderson, Los Angeles, Cal., for plaintiff-appellee Ahmonson Trust Co.
Appeal from the United States District Court for the Central District of California.
Before WALLACE and FERGUSON, Circuit Judges, and CLAIBORNE, * District Judge.
The government appeals, pursuant to 28 U.S.C. § 1291, a decision of the district court granting an estate tax refund of $8,609,393 to the estate of Howard F. Ahmanson (Ahmanson). The government raises issues involving (1) the valuation of assets in the gross estate, (2) the propriety of a charitable deduction, (3) the valuation of property giving rise to a charitable deduction if a charitable deduction is held to be allowable, (4) the availability of a marital deduction or community property exclusion for assets going to Ahmanson's widow (Mrs. Ahmanson) as the result of a settlement with the estate, and (5) the district court's rejection of the estate's request for a jury trial. We agree with the government with respect to certain issues involving the valuation of assets in the gross estate and the valuation of property giving rise to the charitable deduction, as well as certain issues involving the treatment of the settlement. We affirm in part, reverse in part, and remand for further proceedings.
Ahmanson died on June 17, 1968. Ahmanson Bank & Trust Company was appointed executor. Ahmanson was the founder of Home Savings & Loan Association. At his death, Ahmanson owned 15 percent of the Home Savings & Loan Association stock. Eighty-one percent of the stock was owned by a holding company, H. F. Ahmanson & Co. (HFA). HFA also owned substantial interests in several additional companies. On the date of Ahmanson's death, HFA had outstanding 1,000 shares of voting common stock of $10 par value and 106,711 shares of nonvoting common stock of $1 par value. The dividend and liquidation entitlements of these shares were in proportion to their par values. Ahmanson held at his death an income interest in 11,000 shares of nonvoting HFA common stock. He held a controlling interest in the voting HFA common stock (600 shares) in a revocable inter vivos trust, Ahmanson Bank & Trust Company Trust No. 28 (Trust No. 28).
Also in Trust No. 28 were all the shares of Ahmanco Inc. (Ahmanco), a corporate shell with no assets prior to Ahmanson's death. There were 99 nonvoting shares and 1 voting share of Ahmanco common stock outstanding. The voting share had the same dividend and liquidation entitlements as a nonvoting share. At the moment of Ahmanson's death pursuant to Declarations of Trust, Ahmanco became unconditionally entitled to the 600 shares of voting HFA common stock.
Under the same Declarations of Trust, the Ahmanson Foundation (Foundation), 1 an exempt charitable organization pursuant to 26 U.S.C. § 501(c)(3), became entitled to the 99 nonvoting shares of Ahmanco. The 1 voting share of Ahmanco was to remain in Trust No. 28. The right to vote that share was to pass to Ahmanson's son and his male issue.
Also material to this appeal is Ahmanson Bank & Trust Company Trust No. 1 (Trust No. 1), a revocable inter vivos trust created by Ahmanson that became irrevocable at his death. Trust No. 1 provided, among other things, for a marital trust and for the payment of certain expenses of the estate. The residue of the corpus was to pass to the Foundation.
In its estate tax return the estate attributed no value directly to the 600 HFA shares held in trust. Instead the estate reported the date of death value of the 1 voting share of Ahmanco at $148,676 and of the 99 nonvoting shares at $13,667,549. After audit, the Commissioner determined that the value of the 600 voting shares of HFA was $22,699,611.49. This was divided between the voting share of Ahmanco ($2,880,580.69) and the 99 nonvoting shares ($19,819,030.80). The Commissioner's increased valuations were due, in part, to the addition of a factor for the control position of the 600 HFA shares and the 1 voting share of Ahmanco.
The government argued during trial that the 600 HFA shares should have been included in the gross estate at a value reflecting the control premium and that the Ahmanco shares had no value because the corporation was a mere shell at the moment of death. The estate argued, and the district judge agreed, that neither the value of the 600 HFA shares nor the value of the 99 Ahmanco shares given to the Foundation were relevant in computing the taxable estate, apparently on the assumption that the charitable deduction for the 99 shares of Ahmanco would equal the contribution of those shares to the gross estate. (Nevertheless, the district judge valued the 99 Ahmanco shares to reflect a 3 percent discount due to their nonvoting status.) Under the method used by the district judge of computing the taxable estate directly, only the 1 share of Ahmanco voting stock remaining in Trust No. 28 had to be valued, based on its pro-rata interest in the HFA shares. The district judge did not allow for a control premium in making this valuation.
Trust No. 1 provided for a marital trust for the benefit of Mrs. Ahmanson. The trust was to include property having a value equal to the value of Mrs. Ahmanson's share of the community property, and to have a maximum value of $5,000,000. Mrs. Ahmanson also received various smaller bequests passing under the will, which are not in issue here, and $750,000 from the estate in settlement of Mrs. Ahmanson's challenge to the testamentary dispositions. Mrs. Ahmanson challenged the validity of the will and the validity of Trust No. 1 and Trust No. 28. On the basis of her community property interests and on the basis of her rights pursuant to former section 41 of the California Probate Code, she attempted to take one half of the property otherwise going to charity. It is undisputed that the resulting settlement was the result of adversary negotiations, with both sides represented by counsel. The parties recited that the settlement was in compromise of Mrs. Ahmanson's community property claims in the assets of the estate. The $750,000 was distributed to Mrs. Ahmanson from funds included in the gross estate in addition to the $5,000,000 paid under the marital trust. The Ahmansons were married from January 14, 1965, until Ahmanson's death on June 17, 1968.
A demand for a jury trial was made by the estate, but was rejected by the district judge as untimely. The government at no time objected to that ruling in the district court.
The chief dispute between the government and the Foundation is over the proper valuation of the contents of Trust No. 28 for the purposes of the gross estate. The government contends that the value of the 600 shares of the HFA stock is includable in the gross estate, along with the value of the 100 shares of Ahmanco stock. However, the government admits that the value of the Ahmanco stock in the gross estate is equal to zero, as Ahmanco had no assets until it acquired the 600 shares of HFA stock upon the death of Ahmanson. The Foundation argues that it is the value of the Ahmanco stock, understood as holding the 600 shares of HFA, that is to be included in the gross estate, because upon Ahmanson's death the asset that was transferred to the beneficiaries was not the HFA stock itself, but rather the Ahmanco stock. The district judge agreed with the Foundation, concluding that the transfers of the HFA stock to Ahmanco and of Ahmanco to the beneficiaries must be considered as two phases of a simultaneous and integrated transfer that took place at the moment of death. We conclude, for reasons that will more fully appear in part B, that the district judge correctly decided that the transfers should be seen as integrated. The analysis must proceed further, however, with close attention to the statutory language.
For clarification, we adopt the common shorthand expression, and will say that property is "in the gross estate" if the value of the gross estate includes the value of that property. In these terms both the Ahmanco and the HFA shares will be in the gross estate. By identical language sections 2036(a) and 2038(a)(1) of the Internal Revenue Code of 1954 as amended by the Revenue Act of 1962 provide that: "(t)he value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer ... by trust or otherwise ...." 26 U.S.C. §§ 2036(a), 2038(a)(1). In section 2036(a) the condition on transfer which makes the property includable in the gross estate involves, roughly summarized, a retained life estate, and in section 2038 the condition on transfer is revocability. Thus the transfers referred to in both sections are inter vivos transfers. In the present case the conditional nature of the transfers of HFA and Ahmanco stock into Trust No. 28 satisfies the requirements of sections 2036(a) and 2038(a)(1) and thus both the 600 HFA shares and 100 Ahmanco shares must be included in the gross estate.
Our concern, however, is only about the value of what is in the gross estate. It is undisputed that that value is to be determined at the moment of death. Cf. United States v. Land, 303 F.2d 170,...
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