Estate of Grimes v. Commissioner, Docket No. 33429-84.

• Decision Date: 20 December 1988
• Docket Number: Docket No. 33429-84.
• Citation: 1988 TC Memo 576,56 TCM (CCH) 890
• Parties: Estate of Charles E. Grimes, Deceased, Elizabeth J. Bartlett, Executrix v. Commissioner.
• Court: U.S. Tax Court

56 T.C.M. (CCH) 890 (1988)

T.C. Memo. 1988-576. Estate of Charles E. Grimes, Deceased, Elizabeth J. Bartlett, Executrix v. Commissioner.

Docket No. 33429-84.

United States Tax Court.

Filed December 20, 1988.

Merrick C. Hayes, for the petitioner. Michael W. Bitner, for the respondent.

Memorandum Findings of Fact and Opinion

PARKER, Judge:

Respondent determined a deficiency of $346,157.94 in the Federal estate tax of the Estate of Charles E. Grimes, who died in 1980. After concessions, the issues for decision are:

(1) Whether the estate made a valid election for special use valuation under section 2032A¹ where "the recapture agreement" was prepared and executed prior to the filing of the estate tax return but due to inadvertence was not mailed along with the timely filed estate tax return that otherwise contained proper notice of election of special use valuation; and

(2) Whether the decedent's spouse received a qualifying nonterminable interest pursuant to the decedent's will under Illinois law so that the estate is entitled to a marital deduction with respect to certain personal property received by the spouse.

Findings of Fact

Some of the facts have been stipulated and are so found. The stipulation of facts, supplemental stipulation of facts, stipulation to be bound and attached exhibits are incorporated herein by this reference.

The decedent, Charles E. Grimes, died testate on December 25, 1980, while a domiciliary of the State of Illinois. The estate of the decedent is being administered in the State of Illinois. Elizabeth J. Bartlett (formerly Elizabeth J. Grimes), the widow of the decedent and the Executrix of the Estate of Charles E. Grimes, deceased, resided in Farmer City, Illinois at the time of the decedent's death and in Mesa, Arizona at the time the petition in this case was filed. For convenience she will be referred to herein as Mrs. Grimes.

In September 1980, the decedent's ill health prompted the decedent and his wife (referred to collectively as "the Grimeses") to have their attorney, Robert Gammage ("Mr. Gammage"), come to the Grimeses' farm to discuss their will. The decedent informed Mr. Gammage that he did not want a contractual will of the type that his parents had executed, because he was aware of the controversy² surrounding his parents' joint and mutual contractual will, and because he felt that a "contractual will was very limiting."³ Mr. Gammage returned to his office and prepared and personally typed a document with the caption "Mutual Last Will and Testament" (the "will") for the Grimeses and subsequently returned to the farm and left it with them to peruse. The will provided:

Mutual

Last Will and Testament

of

Charles E. Grimes and Elizabeth J. Grimes

WE, CHARLES E. GRIMES and ELIZABETH J. GRIMES, husband and wife, of Santa Anna Township, DeWitt County, Illinois, each being of sound mind and memory, do hereby make, publish and declare this to be the Mutual Last Will and Testament of each and both of us, and hereby expressly revoke any and all wills and codicils heretofore made by us, or either of us.

FIRST: It is our intent that all the just debts, funeral and burial expenses, expenses of the administration of our estates, and taxes, if any, by reason of our deaths, be paid with all convenient speed after our respective deaths and from our respective estates.

SECOND: We, and each of us, give and bequeath to the survivor of us all the personal property owned by the first of us to die, absolutely. Each of us gives and devises to the survivor of us a life estate in the real estate owned by the first of us to die, with remainder in fee to our four children, Beverly Jane, sic Drummond, Carl E. Grimes, David C. Grimes and Alan R. Grimes, share and share alike. In the event we should die as a result of a common catastrophe, or in any event at the death of the survivor of us, then all property both personal and real of ours or the survivor of us as the case may be to our said four children, share and share alike, and in the event that any of our said four children shall fail to survive us, or the survivor of us, as the case may be, then his, her, or their respective heirs of the body shall take the share, he, she or they would have taken hereunder had he, she, or they survived us, or the survivor of us.

* * *

While reviewing the will, Mrs. Grimes asked the decedent why there were not two separate wills. The decedent answered that he believed that because of the way the will was written, the will provided the same result as if they had executed separate wills. The spouses executed the will on September 27, 1980, with Mr. Gammage and Mr. Gammage's wife witnessing their signatures and the Gammage firm's C.P.A. notarizing the witnesses' affidavit. About this time the spouses had changed the title to some of their real property from a joint tenancy to a tenancy in common. The will disposes of property owned by the testators individually, as tenants in common, and as joint tenants.

The decedent died on December 25, 1980. The Grimeses had then been married 42 years. The Grimeses' parents had been farmers, the Grimeses themselves had been farmers, and their son, David C. Grimes, now farms the land that the Grimeses had farmed during the decedent's lifetime. Pursuant to the Grimeses' will, Mrs. Grimes, as well as the Grimes children (Beverly Jane Drummond, Carl E. Grimes, David C. Grimes, and Alan R. Grimes), acquired interests in the decedent's interest in the real property of the estate. That included the 398.13 acres of farmland located in DeWitt and Piatt Counties, Illinois ("farmland") that is involved in this case.

Following the death of the decedent, Mrs. Grimes engaged Mr. Gammage to aid her in her capacity as executrix of the estate. Thereafter, Mr. Gammage worked with her in connection with the preparation of the estate tax return. During this time, Mrs. Grimes decided to elect the provisions of section 2032A in order to "reduce the value of the real estate" for Federal estate tax purposes. As required by this election, Mrs. Grimes and Mr. Gammage secured the signatures of the beneficiaries of the will, as the "qualified heirs," on an "Agreement to Special Valuation Under Section 2032A" ("the recapture agreement").

The qualified heirs, Elizabeth J. Grimes, Carl E. Grimes, Beverly Jane Drummond, David C. Grimes, and Alan R. Grimes, signed the agreement on September 23, 1981, two days before the date the estate tax return was due on September 25, 1981. The recapture agreement stated that all of the qualified heirs approved of the election to value the farmland pursuant to section 2032A on the basis of the qualified use (farming) to which the property was devoted. The heirs also consented to personal liability under section 2032A(c) for the additional tax imposed by that subsection with respect to their interests in the farmland in the event of certain early dispositions of the property or early cessation of the qualified use of the property. The recapture agreement further stated:

It is understood by all interested parties that this agreement is a condition precedent to the election of special use valuation under section 2032A of the Code and must be executed by every interested party even though that person may not have received the estate tax benefits or be in possession of such property.

After securing all the necessary signatures on September 23, 1981, two days before the estate tax return was due on September 25, 1981, Mr. Gammage retained physical possession of the recapture agreement while he was preparing the estate tax return. He signed the estate tax return (Form 706) as the return preparer on September 23, 1981. On September 24, 1981, Elizabeth J. Grimes, as executrix, timely filed the Federal estate tax return (Form 706) for the estate of the decedent with the Internal Revenue Service ("IRS") Service Center at Kansas City, Missouri.⁴

On the estate tax return, an election was made to value the farmland pursuant to section 2032A. This was done by placing an "X" in the box marked "yes" in response to question 11 of page two of the estate tax return in answer to the question "Do you elect the special valuation * * *." Appraisals dated September 22, 1981 containing fair market valuations and section 2032A special use valuations of decedent's interests in certain real property were attached to the return. Along with these detailed appraisals were maps, a death certificate, copy of the will, letters of appointment of Mrs. Grimes as executrix, and a document entitled "STATEMENT * * * IN SUPPORT OF SPECIAL USE VALUATION FOR CERTAIN FARM PROPERTY AS AUTHORIZED UNDER INTERNAL REVENUE CODE SECTION 2032A." That Statement in Support, signed by Mrs. Grimes as executrix of her husband's estate, included the names, social security numbers, relationships, and addresses of the parties receiving any interest in the specially valued property. These individuals included Elizabeth J. Grimes, Carl E. Grimes, Beverly Jane Drummond, David C. Grimes and Alan R. Grimes. That Statement in Support of special use valuation was signed by Mrs. Grimes on September 24, 1981 and was included in the packet of materials filed with the Form 706. That Form 706 (Rev. Jan. 1979) contained as part of question 11 on page 2 the following language:

Also attach to this return an agreement to express consent to personal liability under section 2032A(c) in the event of certain early dispositions of the property or early cessation of the qualified use. The agreement must be executed by all parties receiving any interest in the property being valued based on its qualified use. The agreement is to be in a form that is binding on all parties under applicable local law. It must designate an agent for the parties for all dealings with the Internal Revenue Service on matters arising under section 2032A.

However, at the time the estate tax return was filed on behalf of the decedent's estate on September 24,...