Estate of Bender v. C.I.R., s. 86-5699
| Decision Date | 09 September 1987 |
| Docket Number | Nos. 86-5699,86-5700,s. 86-5699 |
| Citation | 827 F.2d 884 |
| Parties | -6123, 87-2 USTC P 13,730 ESTATE OF Edward P. BENDER, Martha A. Bender, Executrix, v. COMMISSIONER OF INTERNAL REVENUE. Appeal of ESTATE OF Edward P. BENDER, Martha A. Bender, Executrix. ESTATE OF Edward P. BENDER, Martha A. Bender, Executrix, v. COMMISSIONER OF INTERNAL REVENUE, Appellant. |
| Court | U.S. Court of Appeals — Third Circuit |
John W. Taylor (argued), Ebensburg, Pa., for appellant/cross-appellee.
Roger M. Olsen, Asst. Atty. Gen., Michael L. Paup, Robert A. Bernstein, Barbara I. Hodges (argued), Dept. of Justice, Tax Div., William F. Nelson, Chief Counsel, I.R.S., Washington, D.C., for appellee/cross-appellant.
Before SLOVITER, BECKER and GARTH, Circuit Judges.
The executrix of the estate of Edward Bender (the Estate) has appealed, and the Commissioner of Internal Revenue (the IRS) has cross-appealed, from the July 2, 1986 decision of the United States Tax Court which assessed a deficiency in estate tax in the amount of $163,500.40. The deficiency results from the manner in which certain income tax liabilities and income tax "overpayments" were treated by the Tax Court.
The Tax Court made two holdings which led to its calculation of the estate tax deficiency. It first held that the Estate was obliged to offset gross income tax liabilities against gross income tax overpayments for the same year. This holding forms the basis for the Estate's appeal. Second, the Tax Court held that the Estate was not obliged to offset net income tax liabilities against net income tax overpayments for different years. This holding forms the basis for the IRS's appeal.
We reject the Estate's position and accept the IRS's position. By doing so, we hold that the Tax Court erred in one of its two underlying holdings. This requires that we vacate the Tax Court's order of July 2, 1986 and remand for a recomputation of the estate tax deficiency which was predicated on both of these holdings.
This court has jurisdiction to review the final order of the Tax Court pursuant to 26 U.S.C. Sec. 7482(a)(1). Venue is proper pursuant to 26 U.S.C. Sec. 7482(b)(1)(A).
The essential facts in this case were stipulated before the Tax Court. App. at 14 et seq. On May 13, 1978, Mr. Bender died testate as a domiciliary of Carrolltown, Pennsylvania, and his will was admitted to probate on May 17, 1978. The Testator was survived by a wife and three children. The relevant portions of The Testator's will stated:
1. I direct that my just debts and funeral expenses be paid promptly after my decease.
2. All the rest, residue and remainder of my property, real, personal and mixed, I give, devise and bequeath to my beloved wife, Martha, if she survives me....
On January 31, 1979, Mrs. Bender, the sole legatee and devisee under her husband's will, filed a qualified disclaimer in which she disclaimed an interest in three items from the Testator's estate: (1) a 75 percent interest in all the assets and liabilities of the E.P. Bender Coal Company; (2) 100 percent of a $125,000 note due to Mr. Bender's estate from his son John Bender; and (3) 100 percent of a $125,000 note due to Mr. Bender's estate from his son Edward Bender, Jr. App. at 71. Mrs. Bender's disclaimer was a qualified disclaimer under 26 U.S.C. Sec. 2518.
The E.P. Bender Coal Company was a coal stripping business that was operated as a sole proprietorship by the Testator from 1972 until his death. In each of these years, the Testator filed a joint income tax return with Mrs. Bender, who earned no taxable income in her own right.
On the date of his death, the Testator had outstanding tax liabilities for 1972 and 1974-1978. After the Testator's death, a separate, short-year return for 1978, showing a net operating loss of $814,472, was filed on his behalf. Amended Tax Returns and Applications for Tentative Refunds for the years 1972 through 1978 were filed. The Amended Tax Returns for 1972-1977 carried back the Testator's 1978 operating loss of $814,472. These and other adjustments to the Testator's income tax returns resulted in a variety of revisions to the Testator's income tax liabilities. These adjustments are reflected in the following table:
As a result of all of the adjustments, there were three individual years (1972, 1973 & 1975) in which the Testator had overpaid his income taxes. However, the Testator's tax liabilities for the remaining four years (1974, 1976, 1977 & 1978) more than offset these overpayments. The Testator's net tax liability to the IRS at the time of his death was $744,530.64. No refund relating to any overpayment of income tax for any of the individual years 1972 through 1978 ever issued to the Testator, Mrs. Bender, or the Estate.
On February 9, 1979, Mrs. Bender, as executrix, filed the federal estate tax return for the Testator's estate. In calculating the gross assets and the gross liabilities of the Estate, Mrs. Bender treated the gross overpayments as an asset of the Estate. She treated the gross outstanding tax liabilities as a debt of the Estate. 2 The IRS, on the other hand, netted out each year's income tax liabilities and overpayments, and it concluded that overall, the Estate was indebted to the Government for income tax liabilities.
On February 3, 1982, the IRS delivered a notice of deficiency, disagreeing with, among other things, the Estate's decision to treat as an asset the "overpayments" which resulted from the $814,472 loss carry-back. The IRS recomputed the estate taxes on the assumption that the Testator's entire account with the IRS created only a single debt for the Estate, a debt equal to the gross outstanding tax liability minus the gross income tax overpayments. Specifically, under the IRS's computation, the Estate had no tax overpayment asset, only a tax debt.
The Estate appealed the notice of deficiency to the Tax Court. Before the Tax Court, the Estate defended its decision to treat all gross income tax overpayments as assets of the Estate and all gross income tax liabilities as separate debts, both within a given year and between years. The Tax Court agreed with the IRS that the Estate was obliged to offset gross income tax overpayments against gross income tax liabilities within any single given year. However, it agreed with the Estate that it was entitled to report as an asset the net overpayment in any one year without offsetting that overpayment against a net income tax liability from a different year. The Tax Court therefore permitted the Estate to include as an asset the Testator's net annual income tax overpayments, and to treat as a debt his net annual income tax liabilities. In short, the Tax Court required intra-year offsets, but did not require inter-year offsets.
On April 22, 1986 the Tax Court filed its opinion setting forth these two principles. Pursuant to Tax Court Rule 155, the Tax Court withheld entry of its decision for the purpose of permitting the parties to submit computations consistent with its legal holdings. On July 2, 1986, the Tax Court entered its decision which determined that the estate tax deficiency was $163,500.40. Mrs. Bender, as executrix of the Estate appealed from the Tax Court's July 2, 1986 decision. The IRS cross-appealed.
The only two issues presented in this appeal are: (1) whether the Tax Court erred in holding that the Estate was not obliged to offset net income tax liability against income tax overpayments for different years (the IRS's appeal); and (2) whether the Tax Court erred in holding that the Estate was obliged to offset gross income tax liabilities against gross income tax overpayments for the same year (the Estate's appeal). 3 We exercise plenary review over the Tax Court's holdings.
We first consider the IRS's appeal. The IRS argues that the Tax Court erred in holding that the Estate could treat the Testator's net annual income tax overpayments as assets of the Estate when the Testator had an overall net liability on the date of his death.
The Tax Court began by noting that the value of the Testator's gross estate, for estate tax purposes, is properly determined with reference to the value of his property at the time of his death. 26 U.S.C. Sec. 2031(a). 4 The Tax Court then examined the statute which empowers the IRS to offset tax overpayments in one year against tax liabilities in other years, and it noted that the statute utilizes discretionary language rather than mandatory language:
Sec. 6402. Authority to make credits or refunds (a) General rule.--In the case of any overpayment, the Secretary, within the applicable period of limitations, may credit the amount of such overpayment including any interest allowed thereon, against any liability in respect of an internal revenue tax on the part of the person who made the overpayment and shall, subject to subsections (c) and (d), refund any balance to such person.
26 U.S.C. Sec. 6402(a) (emphasis added). The Tax Court reasoned that, as of the date of his death, the Testator's net annual income tax overpayments and liabilities were ascertainable, but whether the IRS would choose to exercise its discretion to offset overpayments against liabilities in different years was not...
To continue reading
Request your trial
-
Faasoa v. Army & Air Force Exch. Serv. (In re Faasoa)
...assets of the taxpayer until the IRS credits any overpayment to unpaid taxes." Pigott, 330 B.R. at 800 (citing Estate of Bender v. Comm'r of Int. Rev., 827 F.2d 884 (3d Cir. 1987) ). Consequently, the anticipated refund does not become property of the estate. Beaucage, 342 B.R. at 411 ; In ......
-
Sunoco Inc. v. Comm'r of Internal Revenue
...to credit an overpayment for one tax liability toward a different liability of the taxpayer, see, e.g., Estate of Bender v. Comm'r of the IRS, 827 F.2d 884, 887 (3d Cir.1987), and the IRS's discretion cannot be challenged in the Tax Court. I.R.C. § 6512(b)(4) provides that “[t]he Tax Court ......
-
In re Pettibone Corp., Bankruptcy No. 86 B 1563-71
...such excess, the court found that the overpayment never became an asset of the estate. Likewise, in Estate of Bender v. Commissioner of Internal Revenue Service, 827 F.2d 884 (3rd Cir.1987), a decedent had overpaid taxes in three years and underpaid taxes in four other years. When filing a ......
-
Weber v. Comm'r of Internal Revenue
...509 (2d Cir. 1974); Estate of Bender v. Commissioner, 86 T.C. 770, 778-779 (1986) (discussing Kalb), aff'd in part, rev'd in part, 827 F.2d 884 (3d Cir. 1987); Georgeff v. United States, 67 Fed. Cl. 598, 608 (2005) ("From the plain language of the statute, the IRS has no obligation to credi......
-
THE ROLE OF OFFSET IN THE COLLECTION OF FEDERAL TAXES.
...1273 (D. Colo. 2016). (119.)Estate of Michael, 173 F3d at 508 (internal quotations omitted). (120.)See, e.g., Estate of Bender v. Comm'r, 827 F2d 884, 887 (3d Cir. 1987) ("Under [section] 6402(a), the discretionary power to offset... rests exclusively with the (121.)See, e.g., United States......