Dieringer v. Commissioner of Internal Revenue, 031219 FED9, 16-72640
|Opinion Judge:||PAEZ, CIRCUIT JUDGE.|
|Party Name:||Victoria E. Dieringer, Deceased; Eugene Dieringer, Executor, Petitioners-Appellants, v. Commissioner of Internal Revenue, Respondent-Appellee.|
|Attorney:||W. Michael Gillette (argued), Sara Kobak, and Marc K. Sellers, Schwabe Williamson & Wyatt, P.C., Portland, Oregon, for Petitioners-Appellants. Douglas Campbell Rennie (argued), Jennifer M. Rubin, and Joan I. Oppenheiner, Attorneys; David A. Hubbert, Acting Assistant Attorney General; Tax Division...|
|Judge Panel:||Before: M. Margaret McKeown and Richard A. Paez, Circuit Judges, and Cynthia A. Bash ant, District Judge.|
|Case Date:||March 12, 2019|
|Court:||United States Courts of Appeals, Court of Appeals for the Ninth Circuit|
Argued and Submitted May 15, 2018 Portland, Oregon
The panel affirmed the Tax Court's decision sustaining a deficiency against an estate for overstating the amount of a charitable deduction, and sustaining an accuracy-related penalty.
Petitioner, the estate executor and heir of the decedent, declared a large charitable deduction based on the value of certain estate property at the time of death. The charity received less than the amount of the claimed deduction, and the estate received a tax windfall in the process. Petitioner contended that the Tax Court should have taken into account events that occurred after the decedent's death in determining the value of the charitable deduction.
In light of this court's holding in Ahmanson Foundation v. United States, which underscored "the principle that the testator may only be allowed a deduction for estate tax purposes for what is actually received by the charity," 674 F.2d 761, 772 (9th Cir. 1981), the panel affirmed the Tax Court's decision upholding the reduction of the charitable deduction and the deficiency assessment. The panel found no clear error in the Tax Court's finding that there was no evidence of a significant decline in the economy that would have decreased the value of the property being donated. The panel also found no error in the Tax Court's upholding of the accuracy-related penalty.
Appeal from a Decision of the United States Tax Court No. 21992-13
W. Michael Gillette (argued), Sara Kobak, and Marc K. Sellers, Schwabe Williamson & Wyatt, P.C., Portland, Oregon, for Petitioners-Appellants.
Douglas Campbell Rennie (argued), Jennifer M. Rubin, and Joan I. Oppenheiner, Attorneys; David A. Hubbert, Acting Assistant Attorney General; Tax Division, United States Department of Justice, Washington, D.C.; for Respondent-Appellee.
Before: M. Margaret McKeown and Richard A. Paez, Circuit Judges, and Cynthia A. Bash ant, [*] District Judge.
PAEZ, CIRCUIT JUDGE.
In this estate tax case, the Internal Revenue Service Commissioner ("Commissioner") assessed a deficiency against the decedent's estate for overstating the amount of a charitable contribution. The estate executor and heir declared a large charitable deduction based on the value of estate property at the time of death, only to manipulate the property for personal gain, deliver assets to the charity worth substantially less than those claimed as a deduction, and receive a tax windfall in the process. The Tax Court sustained the deficiency. We affirm in light of our holding in Ahmanson Foundation v. United States, where we underscored "the principle that the testator may only be allowed a deduction for estate tax purposes for what is actually received by the charity." 674 F.2d 761, 772 (9th Cir. 1981). We also affirm the Tax Court's ruling sustaining an accuracy-related penalty under I.R.C. § 6662.
This case involves the Victoria E. Dieringer Estate ("Estate"). Victoria and her late husband Robert E. Dieringer ("Robert") had twelve children together, including Eugene Dieringer ("Eugene"), Patrick Dieringer ("Patrick"), and Timothy Dieringer ("Timothy").
The Dieringer family owns Dieringer Properties, Inc. ("DPI"), a closely held corporation that manages commercial and residential properties in Portland, Oregon, as well as a Wendy's restaurant in Texas. After Robert passed away and before Victoria's death, Eugene was the president of DPI, Patrick was the executive vice-president and secretary, Victoria was the vice-president, and Timothy was the office manager. DPI's Board of Directors ("Board") consisted of Victoria as chairperson, and Eugene, Patrick, Timothy, and Thomas Keepes ("Keepes"), who is unrelated to the Dieringers, as directors. None of the other nine Dieringer children were involved in DPI in any capacity.
Before Victoria's death, the only shareholders of DPI were Victoria, Eugene, and Patrick. Victoria owned 425 out of 525 voting shares and 7, 736.5 out of 9, 220.5 nonvoting shares. Eugene owned the remaining 100 voting shares, and Eugene and Patrick each owned 742 nonvoting shares.
According to Victoria's will, dated November 10, 2000, upon her death all of her Estate would pass to the Victoria Evelyn Dieringer Trust ("Trust"). The Trust, as amended on April 22, 2005, provided for Victoria's children to receive some personal effects, but no other proceeds from her estate. The Trust also provided for $600, 000 in donations to various charitable organizations. Any assets remaining in the Estate would then pass to the Bob and Evelyn Dieringer Family Foundation ("Foundation"), an I.R.C. § 501(c)(3) organization, as a charitable contribution. Under Victoria's estate plan, Eugene was appointed as the sole trustee of both the Trust and the Foundation. Patrick and Keepes served as advisory trustees of the Foundation.
Prior to Victoria's death, the DPI Board had preliminary discussions about purchasing Victoria's DPI shares as part of ongoing succession planning. A November 24, 2008 Board resolution reported that the issue had been discussed and that the Board resolved to "periodically purchase" Victoria's shares based on terms acceptable to all parties. Victoria was "completely agreeable" to such a plan. At a February 13, 2009 Board meeting, Victoria reiterated her potential interest in having DPI purchase her shares. In anticipation of entering a purchase agreement for Victoria's shares, DPI paid the Trust $45, 000 prior to Victoria's death. When Victoria unexpectedly died on April 14, 2009, there were no specific redemption agreements in place.1
When Victoria died, Eugene was appointed executor of the Estate. To determine the value of Victoria's DPI shares for Estate administration purposes, the Estate's law firm requested that Lewis Olds & Associates perform an independent appraisal of the net asset value of DPI. The appraisal determined that the value of DPI as of the date of Victoria's death was $17, 777, 626 and that Victoria's shares in DPI were worth $14, 182, 471.2
Effective November 20, 2009, DPI's Board converted the corporate structure from a C corporation to an S corporation on the advice of Keepes. The DPI Board made this change in corporate structure to accomplish its long-term tax planning goals and to avoid certain adverse tax consequences under I.R.C. § 1374. As a result of electing S corporation status, the DPI Board decided that it should also redeem Victoria's DPI shares that were to pass to the Foundation.
The Board entered into an agreement with the Trust to redeem Victoria's shares, prior to the shares "pouring over" into the Foundation. Initially, DPI agreed to redeem all of Victoria's shares for $6, 071, 558, effective November 30, 2009. This amount was based on a 2002 appraisal, since the date-of-death appraisal had not yet been completed. As a result, the redemption agreement provided that the stated price would be "reconciled and adjusted retroactively" to reflect the fair market value of the shares as of November 30, 2009. DPI executed two promissory notes payable to the Trust in exchange for the DPI shares.4 Eugene, Patrick, and Timothy entered into separate subscription agreements to purchase additional DPI shares, in order to provide funding for DPI to meet the required payments on the promissory notes. At the later Tax Court trial, the court found that there were appropriate business purposes for these subscription agreements.
At the direction of DPI, Lewis Olds & Associates performed another appraisal of the value of Victoria's DPI shares as of November 30, 2009, for the purpose of redemption ("redemption appraisal"). The redemption appraisal valued Victoria's DPI shares at $916 per voting share and $870 per nonvoting share. Lewis Olds testified, and the Tax Court found, that Eugene (through his lawyer) instructed him to value Victoria's DPI shares as if...
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