Armstrong v. Comm'r of Internal Revenue
| Citation | 114 T.C. 94,114 T.C. No. 5 |
| Decision Date | 28 February 2000 |
| Docket Number | 7270–98,7269–98,7274–98.,No. 7267–98,7267–98 |
| Parties | Frank ARMSTRONG, III, Transferee, et al.,1 Petitioners v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | United States Tax Court |
OPINION TEXT STARTS HERE
Transferees petitioned for redetermination of deficiencies arising from gifts made by transferor within three years of death. Transferees moved for partial summary judgment. The Tax Court, Dawson, J., adopted the decision of Panuthos, Chief Special Trial J., which held that transferees of stock value of which was included in gross estate were liable for unpaid estate taxes of deceased transferor.
Motion denied.
Judgment affirmed, 277 F.3d 490.
Decision on remand, 2002 WL 31422615.
See also, 7 F.Supp 2d 758, 2000 WL 508047. D transferred a substantial portion of his assets to Ps within 3 years of his death. After paying the Federal gift taxes associated with these gifts, D was nearly insolvent. Following D's death, R determined a deficiency in Federal estate tax due from D's estate attributable to the estate's failure to include in the gross estate the gift taxes that D paid on the aforementioned gifts. See sec.2035(c), I.R.C. R subsequently issued notices of transferee liability to Ps who filed timely petitions for redetermination with the Court. Ps filed motions for partial summary judgment alleging that they are not liable as transferees as a matter of law.Held: Ps are transferees of property the value of which is treated as if included in D's gross estate pursuant to sec.2035(d)(3)(C), I.R.C., and are, to the extent of the value of such property at the time of D's death, personally liable for unpaid estate taxes pursuant to sec. 6324(a)(2), I.R.C. Held, further, Ps' motions for partial summary judgment will be denied.Charles S. McCandlish and Aubrey J. Owen, for petitioners.
Cheryl M.D. Rees, for respondent.
These cases were assigned to Chief Special Trial Judge Peter J. Panuthos, pursuant to the provisions of section 7443A(b)(5) and Rules 180, 181, and 183.2 The Court agrees with and adopts the opinion of the Special Trial Judge, which is set forth below.
These cases are before the Court on petitioners' Motions for Partial Summary Judgment. Petitioners contend that they are entitled to summary judgment that they are not liable as transferees. As discussed in detail below, we will deny petitioners' motions.
The material facts in these cases are not in dispute. During 1991 and 1992, Frank Armstrong, Jr. (decedent), transferred a substantial amount of stock in National Fruit Product Co., Inc., to his children and grandchildren, including Frank Armstrong III, JoAnne Armstrong–Jones, Gretchen A. Redmond, and William Armstrong (hereinafter petitioners). Decedent was nearly insolvent after paying $4,680,283 in Federal gift taxes attributable to the stock transfers. Decedent died on July 29, 1993—within 3 years of the aforementioned transfers.
Respondent subsequently issued a notice of deficiency to the Estate of Frank Armstrong (the Armstrong estate) determining a deficiency in estate tax of $2,350,071. The deficiency is attributable to respondent's determination that the estate failed to include in the gross estate the gift taxes that decedent had paid on the above-described transfers as required under the so-called gross-up rule prescribed in section 2035(c).3 The estate filed a timely petition for redetermination (assigned docket No. 1118–98).
Respondent issued separate notices of transferee liability to petitioners stating that, as transferees, petitioners each are liable for $1,968,213 (the value of the stock that decedent transferred to each petitioner) in respect of the estate tax deficiency of $2,350,071 due from the estate. Petitioners filed timely petitions for redetermination contesting the notices of transferee liability.
Petitioners move for partial summary judgment asserting that they are not liable as transferees as a matter of law.4 Respondent maintains that petitioners are subject to transferee liability for the Armstrong estate tax deficiency pursuant to section 6324(a)(2).
Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials. See Florida Peach Corp. v. Commissioner, 90 T.C. 678, 681, 1988 WL 31439 (1988). Summary judgment may be granted with respect to all or any part of the legal issues in controversy “if the pleadings, answers to interrogatories, depositions, admissions, and any other acceptable materials, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law.” Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520, 1992 WL 88529 (1992), affd. 17 F.3d 965 (7th Cir.1994); Zaentz v. Commissioner, 90 T.C. 753, 754, 1988 WL 34876 (1988); Naftel v. Commissioner, 85 T.C. 527, 529, 1985 WL 15396 (1985).
Section 6901 sets forth the procedures that are applicable prior to the assessment and collection of an income, estate, or gift tax liability from a transferee. Section 6901(a)(1)(A)(ii) provides:
SEC. 6901. TRANSFERRED ASSETS.
(a) Method of Collection.—The amounts of the following liabilities shall, except as hereinafter in this section provided, be assessed, paid, and collected in the same manner and subject to the same provisions and limitations as in the case of the taxes with respect to which the liabilities were incurred:
(1) Income, estate, and gift taxes.—
(A) Transferees.—The liability, at law or in equity, of a transferee of property—
* * *
(ii) of a decedent in the case of a tax imposed by chapter 11 () * * *.
When proceeding pursuant to section 6901(a), respondent generally may not assess or attempt to collect an estate tax deficiency from a transferee without first following the normal deficiency procedures set forth in sections 6211 to 6216. See, e.g., Estate of Frost v. Commissioner, T.C. Memo.1993–94.
Section 6901(h) defines the term “transferee” as follows:
SEC. 6901(h) Definition of Transferee.—As used in this section, the term “transferee” includes donee, heir, legatee, devisee, and distributee, and with respect to estate taxes, also includes any person who, under section 6324(a)(2), is personally liable for any part of such tax. [Emphasis added.]
Although section 6901(a) sets forth the procedures to be followed in transferee liability cases, the existence and extent of a transferee's substantive liability is established under section 6324(a)(2). See Schuster v. Commissioner, 312 F.2d 311, 315 (9th Cir.1962), affg. 32 T.C. 998, 1959 WL 1200 (1959), and revg. First Western Bank & Trust Co. v. Commissioner, 32 T.C. 1017, 1959 WL 1201 (1959) (). Section 6324(a) provides in pertinent part:
(a) Liens for Estate Tax.—Except as otherwise provided in subsection (c)—
(1) Upon Gross Estate.—Unless the estate tax imposed by chapter 11 is sooner paid in full, or becomes unenforceable by reason of lapse of time, it shall be a lien upon the gross estate of the decedent for 10 years from the date of death, except that such part of the gross estate as is used for the payment of charges against the estate and expenses of its administration, allowed by any court having jurisdiction thereof, shall be divested of such lien.
(2) Liability of Transferees and Others.—If the estate tax imposed under chapter 11 is not paid when due, then the * * * transferee * * * who receives, or has on the date of the decedent's death, property included in the gross estate under sections 2034 to 2042, inclusive, to the extent of the value, at the time of the decedent's death, of such property, shall be personally liable for such tax. Any part of such property transferred by (or transferred by a transferee of) such * * * transferee * * * to a purchaser or holder of a security interest shall be divested of the lien provided in paragraph (1) and a like lien shall then attach to all the property of such * * * transferee * * *, except any part transferred to a purchaser or a holder of a security interest. [Emphasis added.]
In sum, in the event that a decedent's estate taxes are not paid when due, section 6324(a)(1) imposes a 10–year lien on the gross estate, and section 6324(a)(2) imposes personal liability upon transferees of property included in the decedent's gross estate under sections 2034 to 2042 and provides for the imposition of a lien on the transferee's separate property in the event the transferee should transfer any part of such property received from the decedent.
Section 6324(a)(2) provides that a transferee's liability for unpaid estate taxes is limited to the value of the property that is included in the decedent's gross estate under sections 2034 to 2042 and transferred to the transferee as measured at the time of the decedent's death. However, a transferee's liability is not conditioned on either the exhaustion of remedies for collection against the estate or the estate's insolvency. See Schuster v. Commissioner, 312 F.2d at 315; Equitable Life Assurance Society v. Commissioner, 19 T.C. 264, 269, 1952 WL 80 (1952); Estate of Callahan v. Commissioner, T.C. Memo.1981–357.
Relying on the portion of section 6901(a) which states that the Commissioner may only assess and collect an estate tax deficiency from a transferee “in the same manner and subject to the same provisions and limitations as in the case of the taxes with respect to which the liabilities were incurred”, petitioners first contend that they are not liable for the Armstrong estate tax deficiency inasmuch as the stock that decedent transferred to them was not the source of the deficiency. Petitioners reason that if there is no estate tax directly related to decedent's stock transfers, respondent is barred from attempting to collect such taxes from them.
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