Estate of Kenly v. Commissioner
| Decision Date | 21 November 1996 |
| Docket Number | Docket No. 5107-95. |
| Citation | 72 T.C.M. 1314 |
| Parties | Estate of John Kenly, Deceased, Betty B. Kenly, Personal Representative v. Commissioner. |
| Court | U.S. Tax Court |
Gregory A. Robinson and Donald W. Harris, Phoenix, Ariz., for the petitioner. Katherine Holmes Ankeny, for the respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
Respondent has determined a deficiency in Federal estate tax of $1,837,266 and an accuracy related penalty of $367,453. Respondent's determination of a deficiency relates primarily to her determination that certain property was the separate property of decedent John Kenly (decedent) at the time of his death and was not community property. As a result of concessions made by respondent, the only issue we must decide is whether the property in question was separate property or community property. Unless otherwise noted, all section references are to the Internal Revenue Code in effect at the time of decedent's death, and all Rule references are to the Tax Court Rules of Practice and Procedure.
Some facts have been stipulated and are so found. The stipulations of fact filed by the parties and accompanying exhibits are incorporated herein by this reference.
In the petition, petitioner Betty B. Kenly (petitioner) represents that her address is in Meadview, Arizona.
Decedent died intestate on December 23, 1990. At the time of his death, decedent was married to petitioner. Decedent and petitioner had been married for 35 years, and they had resided in Arizona for all of that time. Decedent was also survived by two sons, Mark and Rodney Kenly, and by several grandchildren.
In 1958, Frank Kenly, decedent's father, bought a ranch in New Mexico (the New Mexico ranch). Decedent did not pay any money toward the purchase of the New Mexico ranch. By statutory warranty deed recorded in 1958, the New Mexico ranch was granted to "FRANK KENLY and JOHN KENLY, as joint tenants". The recorded statutory warranty deed included the following statement, which was signed by Frank Kenly and decedent:
STATEMENT OF INTENTION TO CREATE JOINT TENANCY
FRANK KENLY and JOHN KENLY, hereby state that the effect of the foregoing deed has been explained to the [sic], and they hereby declare that it is their wish and intention that they take the property described in the deed as joint tenants with the right of survivorship and not as community property nor as tenants in common.
In 1971, Frank Kenly signed and recorded an affidavit stating that he and decedent were the owners of the New Mexico ranch. According to an exchange agreement signed by Frank Kenly and decedent in 1974, decedent owned an undivided one-half interest in the New Mexico ranch.
In February 1967, petitioner initiated an action for divorce from decedent (the action) by filing a complaint (the complaint) in an Arizona court (the divorce court). Petitioner was represented by counsel. Petitioner filed a financial statement with the divorce court (the financial statement). The financial statement contained a list of several properties that petitioner claimed were community property. The financial statement failed to list the New Mexico ranch as community property. In the complaint, petitioner requested that the divorce court order decedent to file an inventory of all community property. The divorce court so ordered. In June 1967, decedent filed an answer to the complaint, which included a list of community property. That list did not include the New Mexico ranch. Petitioner made no objection to that omission. The action was twice set for trial. The action was not tried and was dismissed in February 1969.
In 1939, Frank Kenly and decedent's mother, Zona Kenly, bought property near Dunlap Road in Phoenix, Arizona (the Dunlap property). In 1974, decedent exchanged his interest in the New Mexico property for Frank Kenly's interest in the Dunlap property. The intent of decedent and Frank Kenly was that Frank Kenly divest himself of his interest in the Dunlap property and decedent divest himself of his interest in the New Mexico property. Attorney John Hughes represented decedent in that exchange. In a statutory quitclaim deed executed in 1974, Frank Kenly conveyed his interest in the Dunlap property to decedent. In a replacement deed signed in 1975, Frank Kenly again quitclaimed his interest in the Dunlap property to decedent.
In 1975, to insure that decedent had received all of Frank Kenly's interest in the Dunlap property, Frank Kenly conveyed his interest in an additional strip of land on the border of the Dunlap property. That conveyance was evidenced by a quitclaim deed that identified decedent as the grantee. On May 3, 1979, decedent explained in an affidavit that "since March of 1975, the date on which the interest of FRANK KENLY was conveyed to your affiant, your affiant and his mother ZONA KENLY have paid the taxes on and have been in open and adverse possession of the * * * [additional strip of land]." In 1979, the former owners of the Dunlap property executed a quitclaim deed to correct title to the Dunlap property. That quitclaim deed identified the donees as decedent and Zona Kenly.
In 1979, Zona Kenly and decedent sold a portion of the Dunlap property. The warranty deed that evidenced the sale identified the sellers as "ZONA KENLY, an unmarried woman, and JOHN KENLY husband of Betty Blair Kenly dealing with his sole and separate property".
In 1980, Zona Kenly and decedent exchanged a 40-acre parcel of the Dunlap property (the 40-acre parcel) for property in Kingman, Arizona (the Windmill Ranch). In addition to that property, the former owners of the Windmill Ranch assigned to Zona Kenly and decedent their rights under a lease (the lease). John Hughes represented decedent in the exchange.
The title report prepared in connection with the exchange lists the insureds as Zona Kenly and decedent and states that the interest insured under the policy is "a fee simple vested in ZONA KENLY, a widow, and JOHN KENLY, a married man, as his sole and separate property." The sellers of the Windmill Ranch assigned the lease to "Zona Kenly, a divorced woman, and John Kenly, as his sole and separate property". According to the warranty deed for the 40-acre parcel, the sellers were "Zona Kenly, a widow and John Kenly, a married man dealing with his sole and separate property." The sellers of the Windmill Ranch, by warranty deed, conveyed title to that property to "ZONA KENLY, a widow and JOHN KENLY, a married man as his sole and separate property".
On May 3, 1979, petitioner had signed and recorded a disclaimer deed with respect to the 40-acre parcel. That deed referred to petitioner as the undersigned and decedent as the spouse. It stated:
1. The spouse has acquired title to * * * [description of the 40-acre parcel].
2. The property above described is the sole and separate property of the spouse having been purchased with the separate funds of the spouse.
3. The undersigned has no past or present right, title, interest, claim or lien of any kind or nature whatsoever in, to or against said property.
4. This instrument is executed not for the purpose of making a gift to the spouse, but solely for the purpose of clearly showing of record that the undersigned has and claims no interest in and to said property.
NOW THEREFORE, in consideration of the premises, the undersigned does hereby disclaim, remise, release and quit-claim unto the spouse and to the heirs and assigns of said spouse forever, all right, title, interest, claim and demand which the undersigned might appear to have in and to the above described property.
In November 1981, Zona Kenly and decedent exchanged an 80-acre parcel of the Dunlap property (the 80-acre parcel) for 794 acres of property in Bard, California (the 794-acre Bard parcel). (In this triangular exchange, Phoenix Commerce Center Venture (Venture) bought the 794-acre Bard parcel from Mr. Conley, and Venture exchanged it with Zona Kenly and decedent for the 80-acre parcel of the Dunlap property.) The sales price for the 80-acre parcel was $5,750,000. According to the warranty deed for the 80-acre parcel, the sellers were "ZONA KENLY, a divorced woman, and JOHN KENLY, a married man dealing with his sole and separate property". According to the grant deed for the 794-acre Bard parcel, the buyers were "ZONA KENLY, a divorced woman, and JOHN KENLY, a married man dealing with his sole and separate property."
The escrow instructions involved in the exchange of the 80-acre parcel and the 794-acre Bard parcel identified the sellers of the 80-acre parcel and the purchasers of the 794-acre Bard parcel as "ZONA KENLY, a divorced woman, and JOHN KENLY, a married man, dealing with his sole and separate property". The title insurance policy covering the 794-acre Bard parcel identified the owners of that parcel as "ZONA KENLY, a divorced woman, and JOHN KENLY, a married man dealing with his sole and separate property". In November 1981, petitioner signed a quitclaim deed to decedent with respect to the 794-acre Bard parcel. In 1983, petitioner signed a quitclaim deed with respect to the 80-acre parcel.
In 1984, Zona Kenly and decedent agreed to lease the 794-acre Bard parcel to Tanimura & Antle, Inc. (Tanimura & Antle), from January 1, 1985, to June 30, 1988, for a total rent of $754,600. According to the lease agreement, the lessors were "JOHN KENLY and ZONA KENLY, dealing with their sole and separate property".
In 1986, Zona Kenly and decedent bought an additional 125 acres of property in Bard, California (the 125-acre Bard parcel; the 794-acre Bard parcel and the 125-acre Bard parcel,...
To continue reading
Request your trial