Estate of Meyer v. Comm'r of Internal Revenue, Docket No. 2860-71.

• Decision Date: 17 April 1972
• Docket Number: Docket No. 2860-71.
• Citation: 58 T.C. 69
• Parties: ESTATE OF ELLA T. MEYER, EAST WISCONSIN TRUSTEE COMPANY, EXECUTOR, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
• Court: U.S. Tax Court

58 T.C. 69

ESTATE OF ELLA T. MEYER, EAST WISCONSIN TRUSTEE COMPANY, EXECUTOR, PETITIONER

v.COMMISSIONER OF INTERNAL REVENUE, RESPONDENT

Docket No. 2860-71.

United States Tax Court

Filed April 17, 1972.

R. O. Schwartz and James R. Oberly, for the petitioner.

Robert M. Burns, for the respondent.

Following an initial audit of the Federal estate tax return of Ella T. Meyer, petitioner received a document from the district director of internal revenue entitled ‘Estate Tax Closing Letter’ which showed that a net estate tax of $68,883.78 had been paid and stated that the letter could be exhibited as evidence that the Federal estate tax liability of the estate had been discharged. Held: The letter did not constitute a final closing agreement under sec. 7121, I.R.C. 1954. It also does not estop the Commissioner from making a timely determination of a deficiency in estate tax based upon an increase in the valuation of certain securities included in the gross estate of the decedent.

OPINION

DAWSON, Judge:

On November 18, 1971, petitioner filed a ‘Motion for Severance of Issues' and a ‘Motion to Dismiss, or in the Alternative, to Strike Answer.’ On January 10, 1972, petitioner filed a memorandum in support of its motions, and on February 15, 1972, respondent filed a memorandum brief in reply. The Court set the motions for hearing in Milwaukee on March 13, 1972. Without objection by respondent, the motion for severance of issues was granted, and the parties submitted a full stipulation of pertinent facts with respect thereto. All of the stipulated facts are found accordingly.

At issue are (1) whether an Estate Tax Closing Letter (Form L-154) constitutes a final closing agreement within the ambit of section 7121, I.R.C. 1954, and (2) whether the issuance of such a letter by a district director of internal revenue, purportedly evidencing the fact that the Federal estate tax liability has been discharged for the designated estate, legally or equitably estops the Commissioner of Internal Revenue from thereafter determining a deficiency in estate taxes against the estate within the applicable period of limitations.

The East Wisconsin Trustee Co. was appointed the executor of the Estate of Ella T. Meyer after her death on December 18, 1966. At all times pertinent to this matter the East Wisconsin Trustee Co. had its principal place of business at Manitowoc, Wis.

A Federal estate tax return was due to be filed on March 18, 1968. A Federal estate tax return was filed on September 7, 1967, and based upon such return an estate tax was assessed in the amount of $68,883.78. The estate tax return was closed by survey after assignment on February 18, 1969. This is an internal procedure and the petitioner was not contacted or given notice of such action. An Estate Tax Closing Letter (Form L-154), dated February 25, 1969, signed by the district director of internal revenue, Milwaukee, Wis., was mailed to the East Wisconsin Trustee Co., executor, reflecting a net estate tax of $68,883.78. This letter stated:

If proof of settlement of the Federal estate tax liability is required by a third party, this closing letter, together with cancelled check(s) or receipt(s) showing payment of the net estate tax shown above, and interest and penalties (if any), may be exhibited to such third party as evidence that the Federal estate tax liability has been discharged for the above named estate.

The estate tax return reported as part of the decedent's assets 3,476 shares of the Manitowoc Co., Inc., at a value of $40 per share. In audits of two other contemporaneous estates, reporting shares of the Manitowoc Co., Inc., an estate tax examiner determined that such stock had a value of $50 per share. A Reopening Memorandum concerning the instant estate was prepared by the examining officer on July 29, 1969, and approved by the acting assistant regional commissioner (Audit) on August 4, 1969. This Reopening Memorandum is an internal document and, therefore, the petitioner did not receive a copy of the document.

A statutory notice of deficiency was mailed to the Estate of Ella T. Meyer, East Wisconsin Trustee Co., executor, on March 11, 1971, in which there was determined an estate tax deficiency of $10,368.40. The statutory notice of deficiency determined that the fair market value of 3,476 shares of the Manitowoc Co., Inc., stock was $50 per share rather than the $40 returned and that the fair market value of 35 shares of Reiss Steamship Co. was $145 per share rather than the $125 returned.

The East Wisconsin Trustee Co., executor, had not been finally discharged as executor on March 11, 1971, but it had made distribution of the estate's assets and had no assets of the estate in its hands as executor on that date.

Section 7121 of the Internal Revenue Code of 1954 sets forth the exclusive procedure under which a final closing agreement as to the tax liability of any person can be executed. Botany Worsted Mills v. United States, 278 U.S. 282 (1929); Brubaker v. United States, 342 F.2d 655 (C.A. 7, 1965); Bennett v. United States, 231 F.2d 465 (C.A. 7, 1956); George H. Baker, 24 T.C. 1021, 1024 (1955); and Earl C. Parks, 33 T.C. 298, 302 (1959), acq. 1960-1 C.B. 5. That section envisages an agreement knowingly entered into by both parties.¹ H. M. Harrington, Jr., 48 T.C. 939, 953 (1967), affirmed on another issue 404 F.2d 237 (C.A. 5, 1968).

Here no such agreement was entered into and petitioner does not so contend. Petitioner's position is that the respondent lacks authority to revalue the securities involved in this case and is estopped from doing so after the issuance of the Estate Tax Closing Letter dated February 25, 1969. In McIlhenny v. Commissioner, 39 F.2d 356 (C.A. 3, 1930), it was held that despite a prior audit, determination of a deficiency with respect to other items, and payment of the additional tax determined to be due, the Commissioner was still free, without having before him any evidence of fraud, malfeasance, misrepresentation of fact, or new evidence of any character, to disallow a deduction previously allowed and to determine an additional deficiency in income tax since no final closing agreement had been executed. The result reached in the McIlhenny case was expressly approved in Burnet v. Porter, 283 U.S. 230 (1931). See also Sherwin v. United States, 320 F.2d 137, 154 (C.A. 9, 1963); Page v. Lafayette Worsted Co., 66 F.2d 339 (C.A. 1, 1933); L. Loewy & Son v. Commissioner, 31 F.2d 652 (C.A. 2, 1929); Holmquist v. Blair, 35 F.2d 10 (C.A. 8, 1929); Austin Co. v. Commissioner, 35 F.2d 910 (C.A. 6, 1929); and Estate of Charles H. Thieriot, 7 T.C. 1119, 1123-1124 (1946).

Petitioner relies heavily upon the cases of Woodworth v. Kales, 26 F.2d 178 (C.A. 6, 1928), and Boyne City Lumber Co. v. Doyle, 47 F.2d 772 (W.D. Mich. 1930), to support its argument that the Commissioner lacks authority to revalue the securities in question. Both of those cases involved circumstances substantially different from this case. In each of those cases the Commissioner sought to change his prior estimates of the fair market values of certain assets as of March 1, 1913. In the instant case no prior valuation was made by the respondent and, as pet...