Estate of Auker v. Commissioner, Docket No. 13150-96.
| Decision Date | 19 May 1998 |
| Docket Number | Docket No. 13150-96. |
| Citation | 75 T.C.M. 2321 |
| Parties | Estate of Eldon L. Auker, Deceased, Kimberlee J. Auker, Independent Personal Representative v. Commissioner. |
| Court | U.S. Tax Court |
Russell E. Bowers, Flint, Mich., and Bernard L. McAra, for the petitioner. Trevor T. Wetherington, for the respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
The Estate of Eldon L. Auker, Deceased, Kimberlee J. Auker, Independent Personal Representative, petitioned the Court to redetermine respondent's determination of a $1,810,737 deficiency in Federal estate tax. Following concessions by the parties, the only issue left to decide is whether a discount for market absorption inheres in the August 12, 1992, fair market value of certain assets included in the Estate of Eldon L. Auker (the estate). The assets consist of three apartment complexes (collectively, the apartment complexes) and interests in five family-owned entities the assets of which include real estate and interests in two other family-owned entities that own real estate.
We hold that a 6.189-percent market absorption discount inheres in the fair market value of each apartment complex, and that the values of the decedent's interests in the entities are not determined by reference to a market absorption discount. Unless otherwise stated, section references are to the applicable provisions of the Internal Revenue Code. Rule references are to the Tax Court Rules of Practice and Procedure.
Some of the facts have been stipulated and are so found. The stipulated facts and the exhibits submitted therewith are incorporated herein by this reference. When the subject petition was filed, the estate's legal address was in Grand Blanc, Michigan.1 Grand Blanc and Flint, Michigan, are located in Genesee County. The center of Grand Blanc is approximately 7.5 miles south-southeast from the center of Flint.
The decedent developed and managed commercial and residential real estate in Genesee County until his death on August 12, 1992. His oldest child, Kimberlee J. Auker-Cooper (Ms. Auker-Cooper), is the personal representative of his estate. On November 9, 1993, Ms. Auker-Cooper timely filed the estate's Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, with the Commissioner of Internal Revenue (the Commissioner). Less than 3 years later, the Commissioner issued Ms. Auker-Cooper, in her capacity as the estate's representative, a notice of deficiency listing a $1,810,737 deficiency in Federal estate tax.
During his lifetime, the decedent established a revocable trust (the Trust), named the "Eldon L. Auker Living Trust", by executing an instrument dated October 1, 1980, the provisions of which were restated in an instrument he executed on May 22, 1992. On December 11, 1989, the decedent transferred to the Trust his title interest, as sole proprietor, in the apartment complexes which were named The Landings at Fountain Pointe (The Landings), Fox Hill Glens (Fox Hill), and Stonehenge Gates (Stonehenge). The Landings was built in the 1970's, and it is sited on 40.6 acres in Grand Blanc. The Landings consists of 37 buildings with a total of 468 living units (424 one- or two-bedroom apartments and 44 townhouses), a clubhouse, a swimming pool, and tennis courts. Grand Blanc is one of Genesee County's more affluent communities, and its population was growing on the applicable valuation date.
Fox Hill was built from 1985 through 1987, and it is sited on 31.18 acres in Grand Blanc. Fox Hill consists of 22 buildings with a total of 286 living units (264 one- or two-bedroom apartments and 22 townhouses), a clubhouse, a swimming pool, tennis courts, and a jogging trail. Fox Hill is located approximately 3.5 miles from The Landings.
Stonehenge was built in two phases; approximately two-thirds of the complex was built from 1979 through 1980, and the rest, which generally consists of five of the more luxurious apartment buildings in the complex, was built from November 1985 through January 1986. Stonehenge is sited on 19.09 acres in Flint, and it consists of 15 buildings, each with 12 living units (for a total of 180 living units, all of which are one- or two-bedroom apartments), a clubhouse, a swimming pool, and tennis courts. Flint is the largest city in Genesee County, and it is the site of General Motors (GM) and other large employers. The population and economy of Flint were growing on the applicable valuation date, and it had one of the strongest retail markets in Michigan.
Approximately 32 months after the decedent transferred the apartment complexes to the Trust, he transferred to the Trust his complete stock interests in family corporations named Auker Investments, Inc.; Grand Pointe, Inc.; K.A.A., Inc.; and The Aukers, Community Developers, Ltd.; and his complete ownership interest in a family general partnership named Eldon L. Auker Enterprises. When the decedent died, the Trust owned equity interests in these entities as follows: (1) A 100-percent interest in Auker Investments, Inc., (2) a 5-percent interest in Grand Pointe, Inc., (3) a 25-percent interest in K.A.A., Inc., (4) a 26-percent interest in The Aukers, Community Developers, Ltd., and (5) a 35.08-percent interest in Eldon L. Auker Enterprises. Also at that time, Auker Investments, Inc., owned a 25.57-percent equity interest in Eldon L. Auker Enterprises; The Aukers, Community Developers, Ltd., owned a 20.27-percent equity interest in Eldon L. Auker Enterprises and a 20.74-percent equity interest in a family general partnership named Auker Enterprises; and Eldon L. Auker Enterprises and Auker Enterprises each owned a 50-percent equity interest in Auker Homes.2 See the appendix for a chart of the relationships between the various entities and the Trust. The assets, liabilities, and net worth of these entities, at the values stipulated by the parties without regard to market absorption discounts, were as follows on the date of the decedent's death (the applicable valuation date):3
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