O'Donnell v. Comm'r of Internal Revenue (In re Estate of Ryan)

• Decision Date: 08 April 1974
• Docket Number: Docket No. 6108-72.
• Citation: 62 T.C. 4
• Parties: ESTATE OF JOHANNA RYAN, A.K.A. JANE RYAN, DECEASED, WILLIAM J. O'DONNELL, EXECUTOR, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

62 T.C. 4

ESTATE OF JOHANNA RYAN, A.K.A. JANE RYAN, DECEASED, WILLIAM J. O'DONNELL, EXECUTOR, PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 6108-72.

United States Tax Court

Filed April 8, 1974.

Barnabas B. B. Breed and William J. O'Donnell, for the petitioner.

Richard M. Campbell, for the respondent.

Petitioner refused to file the estate's Federal estate tax return until after respondent had withdrawn his opposition to a charitable deduction and consequently that return was not timely filed. Held: Respondent's conduct did not amount to any misrepresentation, nor was it misleading. It follows that the elements of an estoppel are lacking and respondent may invoke sec. 2032(c), I.R.C. 1954, to deny petitioner alternate valuation date treatment. Held, further, even granting that respondent may have adopted an erroneous position in opposing the charitable deduction, it was not proper for petitioner to refuse to timely file a return for the estate and his deliberate failure to do so deprives the estate of the alternate valuation date option.

FORRESTER, Judge:

Respondent has determined a deficiency of $274.42 in petitioner's Federal estate tax. Petitioner has claimed an overpayment of $8,809.53 as to such tax. The only issue for our decision is whether petitioner, despite having failed to timely file a Federal estate tax return, may nonetheless elect alternate valuation date treatment for the estate under section 2032, I.R.C. 1954.¹

All the facts have been stipulated and they are so found.

Johanna Ryan (decedent) died on March 15, 1967. The estate's executor, William J. O'Donnell (petitioner), filed the estate's Federal estate tax return on July 23, 1969, with the district director of internal revenue, Brooklyn, New York. At the date the petition herein was filed, petitioner's residence was New York, N.Y.

In her will decedent had set up a trust, the remainder interest of which was to pass to certain specified charities. By letter dated June 30, 1967, petitioner requested the Director of the Tax Rulings Division of the Internal Revenue Service to issue an actuarial remainder factor in order that he might compute the value of such trust remainder for charitable deduction purposes. On October 5, 1967, Ira H. Hansen (Hansen), Chief of the Estate and Gift Tax Branch of the Internal Revenue Service, wrote to petitioner advising him that because of a certain wasting assets provision in the will no charitable deduction would be allowed to the estate for the value of the remainder interest passing to charities. Such provision in the will, according to Hansen, appeared to permit the fiduciary under the trust to allocate or divert principal received from wasting assets to income, thereby making it impossible to tell what portion of the trust principal would be consumed by the income beneficiary during the term of the trust. Because Hansen so viewed the trust remainder, he did not compute for petitioner the actuarial remainder factor requested.

On May 22, 1968, petitioner attended a conference in Washington, D.C., with Hansen and other members of his staff including Walter Halish (Halish) in order to discuss the Service's opposition to the charitable deduction. Hansen and Halish, however, refused to revoke the above-described letter ruling of October 5, 1967. On May 24, 1968, Halish telephoned petitioner and advised him that the Service would withdraw its opposition to the charitable remainder deduction on two conditions: first, that the life income beneficiaries and fiduciary file in the Surrogate's Court of Kings Country, New York, disclaimers of all rights relating to the exercise of any power to allocate or divert principal in accordance with the wasting assets provision; and second, that all such disclaimers be approved by a decree of that court.

On May 27, 1968, petitioner requested the district director in Brooklyn, New York, to grant a 6-month extension of the time in which petitioner would have to file an estate tax return. Without such extension, petitioner would have had to file a return for the estate by June 15, 1968, which was the date 15 months after decedent's death.² In his request, petitioner explained:

Since it will take an appreciable amount of time to obtain court approval of said disclaimer and since under Treasury Regulations 20.2055-2(c) the disclaimer must be filed within the time provided for the filing of the estate tax return or any extension thereof, the undersigned hereby requests a six month extension to perfect the filing of the disclaimer and the transmittal of a certified copy of the court's decree approving the same to the Internal Revenue Service in Washington to permit the withdrawal of Mr. Hansen's letter to the undersigned dated October 5, 1967.

Petitioner's request was granted by the Internal Revenue Service on June 5, 1968, and he was given until December 15, 1968, to file the estate's return.

On June 11, 1968, disclaimers were duly executed and filed in the Surrogate's Court of Kings County, New York, and petitioner subsequently commenced a proceeding in said court for a ruling on the validity and effect of the disclaimers and the validity of the wasting assets provision in the will.

Petitioner, on November 18, 1968, requested the district director in Brooklyn, New York, to grant a second 6-month extension of time in which to file the estate tax return. In this request, petitioner stated:

A proceeding has been instituted in the Surrogate's Court of Kings County to obtain court approval of the Disclaimer described in said letter and jurisdiction is expected to be completed within the next two weeks.

The decision in respect of said application cannot be reasonably expected prior to the extension date granted by your office to December 15, 1968. I therefore request an additional extension of time to file the return to and including June 15, 1969.

This request for a second extension was denied on December 9, 1968, with the Service instructing petitioner to file the return ‘as soon as possible with an affidavit explaining the reason for the late filing.’ Petitioner, however, failed to file the estate's return by December 15, 1968. On December 27, 1968, petitioner wrote to respondent explaining why he had not filed the return on time. In particular, he stated that he would not file a return until the Surrogate's Court in New York ruled on the validity of the above-described disclaimers:

In view of the fact that approval of said disclaimer has not been forthcoming from the court, the undersigned, as above stated, is of the opinion that the filing of the return before the decision of the court may jeopardize the legal position of the estate in respect of the charitable remainder interest deduction and it is for this reason that the return was not and cannot be filed until such decision is handed down.

On April 9, 1969, the Surrogate's Court of Kings County finally rendered its decision approving the validity and effectiveness of the disclaimers. Upon being advised of the court's ruling by petitioner, respondent, on June 16, 1969, withdrew his opposition to the charitable remainder deduction, and supplied petitioner with the previously requested actuarial factor.

On July 23, 1969- petitioner filed the estate's Federal estate tax return, and elected thereon for alternate valuation date treatment under section 2032. In his statutory notice of deficiency, respondent determined that the estate was not entitled to elect the alternate valuation date option because of petitioner's late filing of the estate's return.

OPINION

Petitioner, the executor of the Estate of Johanna Ryan, was told by respondent that the estate would be given no charitable deduction for the remainder interest of a particular trust unless petitioner obtained from the income beneficiaries and trustee irrevocable disclaimers of certain powers to deplete the principal of such trust. Respondent also made it a condition to withdrawal of his opposition to the deduction that petitioner obtain a ruling on the validity of such disclaimer from the Surrogate's Court in New York. Under section 2055, if a charitable deduction, such disclaimer has to be made irrevocably before the expiration of the period for the filing of the estate's Federal estate tax return. Respondent's regulations further provide that ‘Ordinarily, a disclaimer made by a person not under any legal disability will be considered irrevocable when filed with the probate court.’ Sec. 20.2055-2(c)(2), Estate Tax Regs.

Petitioner apparently acquiesced in respondent's demands that he obtain irrevocable disclaimers. Although the disclaimers were filed with the Surrogate's Court well within the extended period allowed for the filing of the estate's return, petitioner failed to file the estate's return until approximately 7 months after the expiration of such period. Because of such late filing, respondent refused to accept petitioner's election of alternate valuation date treatment, relying in his rejection on section 2032(c):

(c) TIME OF ELECTION.— The election (of alternate valuation treatment) provided for in this section shall be exercised by the executor on his return if filed within the time prescribed by law or before the expiration of any extension of time granted pursuant to law for the filing of the return.

Petitioner, pointing to what he considers are unfair and arbitrary actions on respondent's part, contends that respondent should not be allowed to interpose section 2032(c) in the instant case. We cannot agree with any of petitioner's arguments, and hold that respondent was correct in disallowing for the estate alternate valuation date treatment.

Petitioner first argues that respondent should be estopped from denying alternate valuation date treatment. It is his position that because respondent erroneously refused to withdraw his letter ruling of October 5, 1967, until the Surrogate's Court had upheld the validity of the...