Estate of McLendon v. Commissioner
| Decision Date | 30 September 1993 |
| Docket Number | Docket No. 20324-90.,Docket No. 20325-90. |
| Citation | 66 T.C.M. 946 |
| Parties | Estate of Gordon B. McLendon, Deceased, Gordon B. McLendon, Jr., Independent Executor v. Commissioner. Estate of Gordon B. McLendon, Deceased, Donor, Gordon B. McLendon, Jr., Independent Executor v. Commissioner. |
| Court | U.S. Tax Court |
Anderson Wallace, Jr., 2001 Ross Ave., Dallas, Tex., and Joseph O. Collins, Jr., 8117 Preston Rd., Dallas, Tex., for the petitioner. James W. Lessis and Henry G. Griego, for the respondent.
Memorandum Findings of Fact and Opinion
Petitioner in this case is the Estate of Gordon B. McLendon.1 Respondent determined a deficiency in and additions to petitioner's Federal gift tax for the taxable year 1986 as follows:
Additions to Tax
Sec. Sec. Sec. Sec
Deficiency 6651(a)(1) 6651(a)(2) 6653(a)(1)(A) 6653(a)(1)(B)
$31,142,507 ...................... $7,785,627 1 $1,557,125 2
1 25 percent of the amount shown as tax on a return specified in sec. 6651(a)(1)
2 50 percent of the interest due on $31,142,507
Respondent now concedes that petitioner is not liable for the addition to tax under 6651(a)(2).
Respondent further determined a deficiency in and additions to petitioner's Federal estate tax as follows:
Additions to Tax
Sec
Deficiency 6653(a)(1)(A) Sec. 6653(a)(1)(B)
$51,554,802 $2,577,740 50% of the interest
due on $51,554,802
After concessions by both parties, the issues left to be decided are: (1) The fair market value on March 5, 1986, of Gordon B. McLendon's general partnership interests in Tri-State Theaters Limited Partnership and McLendon Co.; (2) whether it was proper for Gordon B. McLendon to apply the actuarial tables set forth in section 25.2512-5(f), Gift Tax Regs., in computing the value of a remainder interest in several of his assets (including the aforementioned general partnership interests) that he transferred pursuant to a private annuity agreement executed on March 5, 1986; (3) whether a so-called saving clause included in the private annuity agreement will be respected in this case; (4) whether Gordon B. McLendon's retention of a life estate in the assets that were the subject of the private annuity agreement results in the inclusion of the value of those assets in his gross estate pursuant to section 2036(a); (5) assuming the preceding issue is answered in the affirmative, the amount of the section 2043(a) offset to which petitioner is entitled; and (6) whether petitioner is liable for the various additions to tax set forth in the deficiency notices in dispute herein.
Some of the facts have been stipulated and are found accordingly. The stipulation of facts and exhibits attached thereto are incorporated herein by this reference.
Gordon B. McLendon (Gordon or decedent) died testate on September 14, 1986, survived by four children from his marriage to Gay Noe McLendon: Gordon B. McLendon, Jr. (Bart), Kristen Margaret McLendon (Kristen), Anna Gray McLendon (Anna), and Jan McLendon Moss (Jan). At the time of his death, Gordon resided in the State of Texas. Bart is the sole executor of Gordon's estate.
Gordon had a long and successful career in the communications industry. After graduating from Yale University in 1943, Gordon served as a Japanese language officer in the U.S. Naval Intelligence Service. Between 1947 and 1952, Gordon and his father, B.R. McLendon, organized the 458-station Liberty Broadcasting System where Gordon achieved national acclaim in sports broadcasting. For the three decades from 1950 through 1980, Gordon was involved in the ownership and operation of radio and television stations as well as movie theaters throughout the United States.
On May 6, 1985, Gordon was admitted to Methodist Hospital in Houston, Texas, complaining of hoarseness and difficulty in swallowing. Upon admission, biopsies were taken from Gordon's esophagus and he was diagnosed as having squamous cell carcinoma of the esophagus with left vocal cord paralysis. A history and physical report completed on Gordon's admission to Methodist Hospital indicates that Gordon had smoked a pack and a half of cigarettes per day for 30 years.
Gordon was discharged from Methodist Hospital on May 9, 1985. At that time, the physicians treating Gordon concluded that the tumor was too large to be surgically removed and that Gordon would be treated with radiotherapy on an outpatient basis.
Gordon received radiation treatments from May 10, 1985, until July 18, 1985. A report entitled "Summary of Radiotherapy" states that the "patient tolerated the course of treatments well with improvement in tumor."
Gordon returned to Methodist Hospital for the period August 26 through August 29, 1985. During this admission, Gordon underwent an esophagogastroduodenoscopy involving an iridium radioactive wire implant at the location of the tumor for a period of 48 hours. Gordon experienced no complications from the treatment and his condition was reported as good upon discharge.
Gordon returned to Methodist Hospital on September 25, 1985, at which time additional biopsies were taken from his esophagus. The results revealed that the cancerous tumor had returned to the affected area.
In early October 1985, Gordon was referred to Dr. Emil J. Freireich (Dr. Freireich) at the University of Texas M.D. Anderson Hospital and Tumor Institute (M.D. Anderson) in Houston, Texas. At this time, Gordon's cancer was categorized as "systemic"—the most severe of three categories of cancer growth. Dr. Freireich eliminated surgery as a treatment option for Gordon by virtue of damage to the affected area sustained during his prior radiation therapy, the extent of the cancerous tumor, and the belief that the cancer had spread outside the local area.
In light of Gordon's condition, it was decided that he would be treated with an investigational form of chemotherapy involving a continuous infusion of 5-Fluorouracil administered concurrently with cis-platinum. While these two drugs were not in any sense considered novel agents for the treatment of cancer, the combined scheduling and dosages were unique. Dr. Freireich had administered this specific treatment regimen to fewer than 20 patients with diagnoses similar to Gordon's. Dr. Freireich characterized preliminary studies using this type of treatment on experimental animals and in patients as "promising and encouraging". More traditional treatment regimens were not considered in Gordon's case because of their very low rates of success.
As an initial matter, Gordon was referred to a psychotherapist to help him overcome anxiety relating to the planned chemotherapy. Thereafter, Gordon received three separate courses of chemotherapy treatment beginning on October 5, October 25, and November 27, 1985, respectively. Each treatment lasted several days. In conjunction with these treatments, Gordon received upper GI endoscopies and x rays on October 3, October 25, and November 26, 1985. Progress notes following the endoscopies performed in October 1985 indicate that cancerous cells were detected in the affected area. However, progress notes following the endoscopy performed in November 1985 state in pertinent part:
IMPRESSION:
The endoscopic picture is that of at least a partial remission and may actually be a complete remission, although I think this is a solid partial remission response. There is no polypoidal component or intralumenal component to the mass lesions.
A subsequent discharge summary dated December 3, 1985, and signed by Dr. Jaffer Ajani (Dr. Ajani) states in pertinent part:
The patient had an esophagogastroduodenoscopy on November 26, 1985, and it showed complete endoscopic remission confirmed by multiple biopsies of the affected area.
The discharge summary refers to Gordon's left vocal cord paralysis as being secondary to his esophageal cancer.
In layman's terms, the endoscopic remission referred to in Dr. Ajani's report means that there was no evidence of cancer based on the biopsies (tissue samples) taken from Gordon's esophagus on November 26, 1985. Because of the chance of sampling errors, a diagnosis of complete remission based solely on an endoscopic examination does not provide the best test for determining whether the patient is free of cancer. A surgical examination of the affected area provides a stronger criterion for determining whether a particular cancer has been eradicated. Due to dangers inherent in the procedure, Gordon was not subjected to a surgical examination to confirm that his cancer was completely eradicated.
On December 5, 1985, Gordon attempted suicide by shooting himself in the head with a handgun. A note written by Gordon at the time of the suicide attempt reveals that he believed that he would inevitably succumb to esophageal cancer and that he did not want to prolong the suffering of his family.
Gordon was rushed to Methodist Hospital following the suicide attempt and received treatment there until January 9, 1986. At the time of his discharge from Methodist Hospital, Gordon was suffering from several maladies or complications including fracture of the mandible and maxilla (jaw area), glaucoma of both eyes, immunosuppression secondary to chemotherapy, left upper lobe pneumonia, chronic obstructive lung disease, and adult respiratory distress syndrome.
Upon discharge from Methodist Hospital, Gordon was directly admitted to M.D. Anderson where he received his fourth course of chemotherapy treatment. During this admission, Gordon was referred to Dr. Frank Adams (Dr. Adams), a psychiatrist, for an evaluation of his mental state. Dr. Adams' notes state in pertinent part: "Dementia evident in his simplified & economical cognitive style."
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