Estate of Shafer v. C.I.R.

• Decision Date: 11 December 1984
• Docket Number: No. 83-1646,83-1646
• Citation: 749 F.2d 1216
• Parties: -1531, 84-2 USTC P 13,599, 16 Fed. R. Evid. Serv. 1248 ESTATE OF Arthur Chase SHAFER, deceased, Chase Shafer, co-executor, and Resor Shafer, co-executor, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1216

749 F.2d 1216

55 A.F.T.R.2d 85-1531, 84-2 USTC P 13,599,

16 Fed. R. Evid. Serv. 1248

ESTATE OF Arthur Chase SHAFER, deceased, Chase Shafer,

co-executor, and Resor Shafer, co-executor, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

No. 83-1646.

United States Court of Appeals, Sixth Circuit.

Argued Oct. 3, 1984.

Decided Dec. 11, 1984.

David E. Gebhart, argued, Robert O. Klausmeyer, Frost & Jacobs, Cincinnati, Ohio, for petitioners-appellants.

Joel Gerber, Dan Henry Lee, Acting Chief Counsel, I.R.S., Glenn L. Archer, Michael L. Paup, Lead Counsel, William S. Estabrook, Raymond W. Hepper, argued, Tax Division, Dept. of Justice, Washington, D.C., for respondent-appellee.

Before LIVELY and KENNEDY, Circuit Judges, and CELEBREZZE, Senior Circuit Judge.

CELEBREZZE, Senior Circuit Judge.

This appeal concerns the includability of the value of a parcel of property in the gross estate of Arthur C. Shafer (Arthur). The Commissioner of the Internal Revenue Service, contending that pursuant to I.R.C. Sec. 2036(a) (1982) the value of the property should have been included in Arthur's gross estate, filed a notice of deficiency against the estate. The decedent's two sons, Arthur Chase Shafer (Chase) and Robert Resor Shafer (Resor), in their capacity as co-executors of their father's estate, petitioned the United States Tax Court for a redetermination of the deficiency. The co-executors argued that the property was not includable because Arthur had not paid for the lot and because no "transfer" within the meaning of Section 2036(a) had occurred. The Tax Court, relying upon affidavits executed by Chase and Resor and a letter from Chase to an Internal Revenue agent, concluded that Arthur had paid for the property and that there had been a "transfer" for federal estate tax purposes; consequently, the Tax Court upheld the Commissioner's notice of deficiency. Chase and Resor, asserting that the court admitted improperly into evidence the two affidavits and letter and erred in defining "transfer" for purposes of Section 2036(a), appeal from the Tax Court's determination. We conclude that the challenged documents were admitted properly into evidence and that the Tax Court, 80 T.C. 1145, interpreted correctly Section 2036(a). Accordingly, we affirm.

On June 8, 1939, Charles Whidden and Leslie Flanders conveyed by deed Lot No. 436 to Arthur C. Shafer and his wife, Eunice Shafer, for life with a remainder in Chase and Resor as tenants in common. The deed stated that the consideration had been paid by "Eunice C.R. Shafer, Arthur C. Shafer, and Arthur Chase Shafer and Robert Resor Shafer." On July 30, 1973, Eunice Shafer predeceased Arthur, Chase and Resor were appointed as co-executors of their mother's estate. The question arose at this time as to whether Lot No. 436 was includable in Eunice's gross estate. Because an Internal Revenue agent was unable to determine who paid for the lot, he requested Chase and Resor to execute affidavits concerning this matter. ¹ In compliance, Chase, who was an attorney, drew up affidavits which both he and Resor executed. Resor, in the pertinent portion of his affidavit, stated, "To the best of my memory, in all conversations with my father, he stated that he was the sole purchaser of [Lot No. 436] and the houses thereon." Similarly, in his affidavit, Chase stated, "Throughout my life both my mother and father referred to [Lot No. 436] as 'belonging' to my father.... My father always said that he had bought and paid for [Lot No. 436], and I never heard my mother contradict him when he said so." Based upon these affidavits, the Internal Revenue agent determined that the property was not includable in Eunice's gross estate.

Within one year of Eunice's death, Arthur died. Chase and Resor, again named as co-executors, failed to include the value of Lot No. 436 in their father's gross estate. In response to an inquiry by an Internal Revenue agent as to why the lot had not been included in Arthur's gross estate, Chase, in a letter dated September 15, 1976, indicated that he did not believe that Arthur had made a "transfer" within the meaning of Section 2036(a). Within this letter, however, Chase noted parenthetically, "It will amuse you to know that [Arthur] bought Lot 437 for $600, put up a small camp on it, only to find that he had put the camp on Lot 436, which he then bought for $1,200." Based upon this statement and the affidavits executed in regard to Eunice's estate, the Commissioner filed a notice of deficiency against Arthur's estate contending that under Section 2036(a) the value of the property was includable in Arthur's gross estate. The Tax Court upheld the notice of deficiency.

The standard for reviewing decisions of the Tax Court is well settled. While the Tax Court's findings of fact can be disturbed only if they are clearly erroneous, e.g., Commissioner v. Duberstein, 363 U.S. 278, 290-91, 80 S.Ct. 1190, 1199-1200, 4 L.Ed.2d 1218 (1960); Ohio Teamsters Educational & Safety Training Trust Fund v. Commissioner, 692 F.2d 432, 435 (6th Cir.1982), questions of law are subject to de novo review, e.g., Commissioner v. McWilliams, 158 F.2d 637 (6th Cir.1946), aff'd, 331 U.S. 694, 67 S.Ct. 1477, 91 L.Ed. 1750 (1947). An abuse of discretion standard applies generally to the Tax Court's interpretation and application of its own procedural rules, e.g., Commissioner v. Estate of Long, 304 F.2d 136, 144 (9th Cir.1962); Commissioner v. Erie Forge Co., 167 F.2d 71, 76 (3rd Cir.1948), and to the Tax Court's application of the Federal Rules of Evidence, see, e.g., I.R.C. Sec. 7482(a) (1982); United States v. Stone, 702 F.2d 1333, 1339-40 (11th Cir.1983); United States v. Medel, 592 F.2d 1305, 1314 (5th Cir.1979); United States v. Jenkins, 525 F.2d 819, 824 (6th Cir.1975) (per curiam).

Since the Tax Court allowed the statements in the two affidavits and letter to be introduced both for impeachment purposes and as substantive evidence, we must, as an initial matter, determine if they were admitted properly. ² Generally, statements such as those in the affidavits and letter would be inadmissible as hearsay. See Fed.R.Evid. 801(c). Certain statements made by parties, however, fall outside of the hearsay definition if the statements are offered against a party and the statements are made in the party's individual or representative capacity. ³ Fed.R.Evid. 801(a) & 801(d)(2)(A). We first consider whether the Chase letter of September 15, 1976 meets these two requirements.

Initially, in order for the letter to be admissible, Chase must be a "party" to this action. An executor of an estate was considered a "party" to the action under the restrictive common law rule of representative admissions. ⁴ E.g., IV J. Wigmore, Evidence in Trials at Common Law Secs. 1069 & 1076 (1972). Since the purpose of Rule 801(d)(2)(A) is to increase the admissibility of representative admissions, see Fed.R.Evid. 801(d)(2) advisory committee note ("calls for generous treatment of this avenue to admissibility"), a fortiori an executor must be a "party" within the Rule. Accord 4 J. Weinstein & M. Berger, Weinstein's Evidence p 801(d)(2)(A) (1984) (admission requires the statement be made by a "party or his representative" (footnote omitted)). Accordingly, since Chase is a co-executor of Arthur's estate, he is a party for purposes of Rule 801(d)(2)(A). ⁵

Having determined that Chase is a "party" to this action, the next inquiry concerns the extent to which Rule 801(d)(2)(A) has expanded upon the admissibility of representative admissions. The history of the rule is relevant to this question. Rule 801(d)(2)(A) was meant to overturn the prior law which permitted admissions by a representative to be introduced only if the statements were made in the representative capacity. ⁶ In contrast, the plain language of Rule 801(d)(2)(A) encompasses statements made in "either [the executor's] individual or a representative capacity." Fed.R.Evid. 801(d)(2)(A) (emphasis added). See also 4 J. Weinstein & M. Berger, Weinstein's Evidence p 801(d)(2)(A) (1984). Thus, whether Chase was acting in his capacity as executor of his father's estate or in his individual capacity when he executed the letter is irrelevant; in either case, the letter is admissible under Rule 801(d)(2)(A) as a party-admission. The Tax Court, therefore, held properly that the letter was an admission within Rule 801(d)(2)(A).

Since the affidavits contain not only direct statements by Chase and Resor, but also statements attributed by Chase and Resor to Arthur, they present an additional hearsay problem. In order to be admissible, both levels of statements within the affidavits must be excluded from the hearsay definition. Fed.R.Evid. 805; Shell v. Parrish, 448 F.2d 528, 533-34 (6th Cir.1971). As previously discussed, the direct statements made by Chase and Resor are party-admissions. In our view, the statements attributed by Chase and Resor to Arthur are also party-admissions within Rule 801(d)(2)(A). Since Arthur, through his estate, is a party to this action, his statements are a "classic example of an admission." Fed.R.Evid. 801(d)(2)(A) advisory committee note. See IV J. Wigmore, Evidence in Trials at Common Law Sec. 1081 (1972) ("No modern court doubts that a decedent, whose rights are transmitted intact to his successor, is a person whose admissions are receivable against a party claiming the decedent's rights as heir, executor, or administrator." (footnote omitted) (emphasis in the original)); accord Foster v. Commissioner, 80 T.C. 34, 120 n. 43 (1983). Thus, the Tax Court held correctly that the affidavits were admissible under the Federal Rules of Evidence.

One further impediment exists as to the admissibility of the affidavits. Tax Court Rule of Practice and Procedure 143(b), I.R.C. app. Rule 143(b) (as amended March 1, 1983), provides, "Ex parte affidavits, statements in briefs, and unadmitted allegations in pleadings...