Estate of Holmes v. Commissioner
| Decision Date | 26 September 1991 |
| Docket Number | Docket No. 27129-89. |
| Citation | 62 T.C.M. 839 |
| Parties | Estate of Roy E. Holmes, Deceased, Shirley Poisl, Personal Representative v. Commissioner. |
| Court | U.S. Tax Court |
Robert E. Sharp, P.O. Box 696, Racine, Wis., for the petitioner. J. Paul Knap, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined a deficiency of $105,696 in petitioner's Federal estate tax. After a stipulation of settled issues, the remaining issues for decision are: (1) Whether property reported on Schedule A of petitioner's Federal estate tax return was properly included in the gross estate, (2) whether the transfer of certain property by decedent to his daughter was partly a gift and partly a sale or, alternatively, whether the transfer was entirely a gift, and (3) whether the includable property is eligible for special use valuation under section 2032A.
Unless otherwise indicated, all section references are to the Internal Revenue Code as amended and in effect as of the date of decedent's death, and all Rule references are to the Tax Court Rules of Practice and Procedure.
Some of the facts have been stipulated, and the facts set forth in the stipulations are incorporated in our findings by this reference. Roy E. Holmes (decedent) died on September 20, 1985. Shirley Poisl (Mrs. Poisl), decedent's daughter, was appointed personal representative of decedent's estate by the Racine County Circuit Court, Racine County, Wisconsin. At the time the petition in this case was filed, Mrs. Poisl resided in Sturtevant, Wisconsin.
Prior to 1952, decedent acquired property located in Racine County and Kenosha County, Wisconsin. This property (the farm) consisted of 10 parcels of land. One of the parcels (the homestead) included a residence.
In 1952, decedent agreed to allow Mrs. Poisl to cultivate and to live on the farm if she would remove the tenant. She removed the tenant and commenced farming operations in October 1952. Mrs. Poisl and her husband, Leo Poisl (Mr. Poisl), moved into the residence located on the homestead in March 1953. At some time prior to Mr. Poisl's death in 1980, they demolished that residence and built a new residence on the homestead.
Mrs. Poisl (and Mr. Poisl until his death) resided on the homestead and cultivated the farm from 1953 until decedent's death. Mrs. Poisl did not pay rent to decedent. Decedent resided on the homestead from 1965 until his death and did not pay rent to Mr. or Mrs. Poisl.
Mr. and Mrs. Poisl repaired and maintained all of the buildings on the farm. They also paid for goods and services that were consumed by decedent or that were used to improve the property. These payments totaled $157,828 for the period 1957 to December 27, 1982, and $26,654 for the period December 28, 1982, to decedent's date of death. The checks used to pay for these goods and services did not bear notations indicating that the payments were intended as payments of a mortgage debt or as payments for the purchase of real estate.
Real estate taxes were assessed and paid on parcels 1 through 6 for the years 1954 through 1985. The tax bills for those years were addressed to "D. Holmes Est., C/O Leo Poisl," "Leo Poisl," "Frank E. Holmes Estate," "Roy E. Holmes, C/O Leo Poisl," or some variant thereof. The payor of the taxes also varied. Payments were made by "Leo & Shirley Poisl and D. Holmes," "D. Holmes Est. by Leo Poisl," "Leo Poisl," or "Shirley Poisl." Decedent did not reimburse Mrs. Poisl for any of the real estate taxes that she paid.
In 1982 and 1983, with the assistance of an attorney, decedent recorded the transfer of three of the parcels to Mrs. Poisl. On December 27, 1982, decedent conveyed to Mrs. Poisl the homestead for the "valuable consideration of One Dollar and other good and valuable consideration." In that deed, which was recorded on December 28, 1982, decedent warranted that the title to the homestead was "good, indefeasible in fee simple and free and clear of encumbrances except recorded easements and zoning restrictions." A State transfer tax in the amount of $420 was paid on this transfer. Decedent did not report the transfer of the homestead on his 1982 Federal income tax return or on his 1982 Federal gift tax return.
On December 27, 1982, Mrs. Poisl granted to decedent a mortgage on the homestead in the amount of $135,000. The mortgage was recorded on December 28, 1982. Mrs. Poisl granted the mortgage to decedent, on the advice of her attorney, because she did not have a will and wanted to protect decedent in the event that she predeceased him. The mortgage stated that Mrs. Poisl was to pay decedent according to the terms and conditions of a promissory note that Mrs. Poisl had executed. Mrs. Poisl, however, did not execute a promissory note in favor of, and did not offer or intend to pay any consideration to, decedent in connection with the transfer of the homestead. Subsequent to the transfer, she did not make any payments on the mortgage. The fair market value of the homestead, as of the date of decedent's death, was $140,000.
On December 27, 1982, decedent conveyed to Mrs. Poisl a 40-acre parcel (parcel 8) for the "valuable consideration of One Dollar and other good and valuable consideration." In that deed, which was recorded on December 28, 1982, decedent warranted that the title to the homestead was "good, indefeasible in fee simple and free and clear of encumbrances except recorded easements and zoning restrictions." No State transfer tax was paid on the transfer of parcel 8. Decedent reported the transfer of parcel 8 on his 1982 Federal gift tax return. The fair market value of parcel 8, at the date of the gift, was $48,000.
In 1983, decedent conveyed to Mrs. Poisl a 40-acre parcel (parcel 9). That deed was recorded on December 28, 1983. No State transfer tax was paid on the transfer of parcel 9. Decedent reported the transfer of parcel 9 on his 1983 Federal gift tax return. The fair market value of parcel 9, at the date of the gift, was $48,000. Both the 1982 and 1983 gift tax returns were prepared with the assistance of an attorney.
In 1978, one of the parcels (the woodland parcel) was designated (for a 25-year period) as forest cropland pursuant to chapter 77, Wis. Stat. Ann. secs. 77.01 through 77.16 (West 1989) ().
In 1984, an employee of the State Department of Natural Resources prepared and signed a Forest Crop Law Management Schedule (the forest management schedule), which stated:
The following schedule of mandatory harvesting recommendations are intended to assist you in carrying out the required forest management on your land. They are considered a minimum plan for implementing sound forestry under the law * * *. Failure to follow them will result in * * * action to remove them from the forest crop law program. * * *
Below this statement, the following was typewritten onto the forest management schedule: "Harvest the scattered mature and overmature trees in this stand by the year 1990." The forest management schedule also stated:
The underbrush is very excessive in some areas of this tract, resulting in sparse reproduction of timber tree species. Mechanical removal and stump treatment with an effective herbicide is recommended.
By letter dated September 10, 1990, from an employee of the State Department of Natural Resources, Mrs. Poisl was informed that "a harvest is necessary as required under the Forest Crop Law contract."
On September 19, 1986, petitioner's Federal estate tax return (Form 706) was filed. Mrs. Poisl furnished to petitioner's attorney a description of the property owned by decedent at the time of his death, and the return was prepared by the attorney on the basis of that information.
The gifts to Mrs. Poisl of parcels 8 and 9 in 1982 and 1983, respectively, were included in the tentative tax base as adjusted taxable gifts.
On Schedule A (Real Estate) of the return, petitioner reported the values of parcels 1 through 6 and of the woodland parcel. The fair market values of parcels 1 through 6 and of the woodland parcel, as of the date of decedent's death, were $370,940 and $63,464, respectively. On Schedule N (Section 2032A Valuation), petitioner filed a protective election, pursuant to section 20.2032A-8(b), Estate Tax Regs., to value parcels 1 through 6 and the woodland parcel under section 2032A.
The fair market values, as of the date of decedent's death, of other assets reported on the return were as follows:
Item Fair Market Value
Schedule B (Stocks and Bonds) .... $352,805.99
Schedule C (Mortgages, Notes, and
Cash) .......................... 23,122.03
Schedule D (Insurance on the
Decedent's Life) ............... 11,076.06
Schedule F (Other Miscellaneous
Property) ...................... 2,909.03
On Schedule K (Debts of the Decedent, and Mortgages and Liens), the 1985 real estate taxes for the towns of Yorkville and Paris, Wisconsin, were reported as debts of decedent. Parcels 1 through 6 were located in the town of Yorkville, and the woodland parcel was located in the town of Paris.
In the notice of deficiency, respondent determined that decedent had an "enforceable right to receive $135,000 as consideration for the decedent's December 27, 1982, conveyance" of the homestead to Mrs. Poisl and that that right was includable in decedent's gross estate (on Schedule C) in the amount of $135,000, the fair market value at the date of decedent's death.
Respondent also made several adjustments to adjusted taxable gifts. For the taxable year ended December 31, 1982, respondent determined that a gift in the amount of $5,000 resulted from the conveyance of the homestead from decedent to Mrs. Poisl. The notice of deficiency explained:
The fair market value of this real property on December 27, 1982, was...
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