Coon v. Comm'r of Internal Revenue (In re Estate of Coon) , Docket No. 5758–81.
| Decision Date | 22 September 1983 |
| Docket Number | Docket No. 5758–81. |
| Parties | ESTATE OF CATHERINE E. COON, DECEASED, FRANK J. COON, ADMINISTRATOR, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Petitioner's election of special use valuation for certain farm property included in decedent's estate is disallowed. Section 2032A (e)(6), I.R.C. 1954, requires material participation over a period of years prior to death by decedent or a member of decedent's family, and management activities of decedent's brother did not qualify under criteria set forth in section 20.2032A-3(e)(2), Estate Tax Regs. Sam Harrod III, for the petitioner.
Michael W. Bitner, for the respondent.
In a statutory notice of deficiency dated December 30, 1980, respondent determined a deficiency in the amount of $98,916.30 in estate taxes due from petitioner estate. After concessions, the sole issue for resolution is whether, during the 8-year period ending on the date of decedent Catherine E. Coon's death, there were periods aggregating 5 or more years during which the decedent or a member of decedent's family “materially participated” in the operation of certain farm property within the meaning of section 2032A(e)(6).1
Some of the facts have been stipulated and are so found. The stipulation of facts and exhibits attached thereto are incorporated herein by this reference.
Catherine E. Coon (decedent) died intestate on April 4, 1977. Frank J. Coon (petitioner), decedent's brother, is the administrator of decedent's estate and resided in Chillicothe, Illinois, at the time the petition herein was filed. Petitioner timely filed an estate tax return and an amended estate tax return for the estate of decedent with the Internal Revenue Service Center, Springfield, Illinois.
Decedent originally acquired an interest in certain real property (the “farmland”) located in Peoria County, Illinois, upon the death of her father in 1950. At that time, the property consisted of several farms operated by tenant farmers pursuant to crop-share leases. On March 8, 1951, decedent and her fellow owners of the farmland (the “landlords”) entered into an agreement whereby petitioner Frank J. Coon was appointed attorney-in-fact and agent on behalf of the landlords in managing that property. Upon the death of her mother in 1962, decedent's ownership of the farmland increased to a one-third undivided interest, the interest held by her at the date of her death.
At the time of decedent's death, the farmland consisted of three farms (hereinafter referred to as “No. 1,” “No. 2,” and “No. 3”) that were subject to crop-share leases executed by petitioner in the late 1950's on behalf of the landlords. Farms No. 1 and No. 2 were leased to Kenneth Fogg and Henry Foster, respectively. Both of these leases were executed on March 1, 1957, on a standard form provided by the University of Illinois, Department of Agricultural Economics. The terms of these “1957 leases” were almost identical and included the following provisions:
ILLINOIS CROP-SHARE CASH FARM LEASE
* * *
Length of tenure
The term of this lease shall be from the 1st day of March, 1957 to the 1st day of Mar, 1958, and from year to year thereafter unless written notice to terminate is given by either party to the other, at least Aug 1st months prior to the beginning of the succeeding lease year.
* * *
SECTION 1. DIVISION OF CROPS, CASH RENT, AND OTHER RENT STIPULATIONS
* * *
E. Each year that this lease remains in effect the two parties shall agree in writing upon the cropping system to be followed, and that agreement shall become a part of this lease for the year indicated.
* * *
The Tenant agrees to furnish the property and to pay the items of expense listed below:
A. All the machinery, equipment, work horses, and labor necessary to farm the premises properly.
* * *
In addition to the agreements covered by the foregoing articles of this lease, the Tenant further agrees that he will perform and carry out the following stipulations:
* * *
U. To decide each year cooperatively with the Landlord whether to enter into Governmental programs designed to aid agriculture.
* * *
D. Landlord's right of entry at any time. The Landlord reserves the right f himself, his employees, assigns, or prospective buyers, to enter upon said premises at any time for the purpose of viewing the same or making repairs or improvements thereon, or of plowing after severance of crops, or of seeding, or applying fertilizers, or for the care and disposition of the Landlord's share of the crops, the same not to interfere with the occupancy of the Tenant.
Farm No. 3 was leased to Paul Vonk. The lease was executed August 31, 1957, on a “revised” standard form provided by the University of Illinois, Department of Agricultural Economics, and was effective beginning March 1, 1958. The only material difference between this “1958 lease” and the “1957 leases” was Section 5 of the “1958 lease,” which provided:
SECTION 5. MANAGEMENT AND BUSINESS PROCEDURES
The Landlord and Tenant agree that they will observe the following provisions.
TABULAR OR GRAPHIC MATERIAL SET AT THIS POINT IS NOT DISPLAYABLE TABULAR OR GRAPHIC MATERIAL SET AT THIS POINT IS NOT DISPLAYABLE
TABULAR OR GRAPHIC MATERIAL SET AT THIS POINT IS NOT DISPLAYABLE TABULAR OR GRAPHIC MATERIAL SET AT THIS POINT IS NOT DISPLAYABLE
For each succeeding year that this lease remains in effect, the two parties shall review Section 5, A and B, before the lease year begins, to decide upon (1) any changes in the cropping system, (2) varieties and acreages of each crop to be planted, and (3) kinds and amounts of fertilizer to be applied. The Landlord shall counsel with the Tenant at appropriate intervals on the best time for planting, working, and harvesting crops. [Emphasis supplied].
The portion of the “1958 lease” for specifying the cropping system (i. e., section 5.B.) was never completed, and no written agreement concerning the cropping system was ever executed between petitioner and any of the three tenants. The system of crop rotation had been established by decedent's father prior to 1950, and that pattern was generally followed by the tenants. Each year petitioner and the tenants discussed the planned crops for the succeeding year, especially when major changes in the rotation system were contemplated.
From the time these leases were executed through the date of decedent's death, the facts concerning the actual operation of the farms remained virtually constant. The tenants were experienced farmers and most production decisions, including when to plow, fertilize, disk, plant and harvest, were made without consulting petitioner. Petitioner was consulted regarding improvements or major repairs to the property.
The custom in Peoria County during the 8-year period preceding decedent's death was for the crop-share tenants to provide the production machinery used to plow, disk, plant and harvest, and such machinery was supplied by the tenants. The landlords provided some machinery used for storing the grain. At no time during this period did decedent or a member of her family utilize any of the farmland as their principal residence.
Petitioner was a full-time employee of the First National Bank of Chillicothe from 1948 through the date of decedent's death, and he performed no physical work on any of the three farms. In his capacity as attorney-in-fact and agent for the landlords, petitioner maintained detailed financial records concerning the landlords' income and expenses from the farmland and prepared an annual report. He employed Mr. Fogg to perform errands in connection with the farmland and to act as a liaison between him and the other two tenants. Mr. Fogg was not a typical farm manager in that he did not supervise the other two farms and his compensation was not based on farm production. Rather, he was more of a go-between through whom almost all communication between petitioner and the other tenants passed. Mr. Fogg had known petitioner since their childhood and they usually spoke with each other once or twice per week. For these services, petitioner paid Mr. Fogg compensation ranging from $750 in 1969 to $2,000 in 1979.
The three farms were located on regularly traveled roads, and on summer evenings petitioner frequently drove these roads for the purpose of viewing the farms. Petitioner also drove to the farms following major storms and inspected the crops and land for damage.
Upon decedent's death in 1977, her interest in the farmland passed, pursuant to the laws of intestate succession of the State of Illinois, in equal undivided shares to her brother (petitioner) and her nephew, Frank Sturm. On behalf of decedent's estate, petitioner elected on both the original and the amended estate tax returns to specially value decedent's interest in...
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