Estate of Sherrod v. Comm'r of Internal Revenue, Docket No. 5531–82.
| Decision Date | 26 March 1984 |
| Docket Number | Docket No. 5531–82. |
| Parties | ESTATE OF H. FLOYD SHERROD, H. FLOYD SHERROD, JR., AND ESTALEE SHERROD SANDLIN, CO-EXECUTORS, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
At death decedent was beneficial owner of 1,478 acres of land. During the last 25 years of his life, 1,108 acres were in timber, 270 acres in row crops, and 100 acres in pasture. All of it was under exclusive management and control of decedent until 5 years before his death when he placed it in a revocable living trust. Thereafter until his death management and control were exercised by decedent's son, who was one of the trustees. Management included (1) the negotiation of annual rental agreements on the crop and pasture lands, (2) contact from time to time with tenants to check their performance and to see if they knew of any problem with respect to the timberland, (3) supervision of timberland by personal inspection and contact with tenants and adjoining landowners to protect against trespassers, insect infestation and disease, (4) negotiation of cutting contracts and (5) payment of local taxes. Held, the 1,478 acres qualify for special use valuation under section 2032A(b) and section 20.2032A-3(b)(1), Estate Tax Regs. Held, further, this Court is without jurisdiction to review respondent's determination that the estate does not qualify to pay the tax in installments under sections 6166 and 6166A. J. Gilmer Blackburn and Mark Daniel Maloney, for the petitioner.
Linda J. Wise, for the respondent.
Respondent determined a deficiency of $170,693.08 in the Federal estate tax due from the Estate of H. Floyd Sherrod. After concessions, the issues remaining for decision are: (1) does the estate qualify for special use valuation under section 2032A1 for certain land; (2) does the Tax Court have jurisdiction to review respondent's determination that the estate does not qualify to pay the estate tax in installments as provided in sections 6166 and 6166A; and (3) if the Tax Court has such jurisdiction, does the estate so qualify?
Some of the facts have been stipulated. The stipulation of facts and exhibits attached thereto are incorporated herein by reference.
H. Floyd Sherrod, a citizen and resident of the United States, died on December 1, 1977. At his death he was the sole beneficiary of a revocable trust which he had created on October 20, 1972 and with respect to which his two children and only surviving heirs were the trustees. After Mr. Sherrod's death, the children, H. Floyd Sherrod, Jr. and Estalee Sherrod Sandlin, qualified as the executors of his estate.
Subsequently, the executors filed a Federal estate tax return on which they reported that the estate included cash, life insurance, notes receivable, miscellaneous personal items, and 13 groupings of real property, including 1,478 acres of land on which special use valuation was claimed pursuant to section 2032A. On the return the executors also made a timely election to pay the estate tax including any deficiency in installments under sections 6166 and 6166A.
After an audit the respondent issued a deficiency notice in which he determined among other things that the special valuation provisions of section 2032A were not applicable to any part of the 1,478 acres of land and that the estate did not qualify for installment payment of the estate tax. The executors, H. Floyd Sherrod, Jr. and Estalee Sherrod Sandlin, who were then residents of Alabama and Virginia, respectively, filed a timely petition for a review of the determinations made by the respondent.
Part of the 1,478 acres of land on which special use valuation was claimed was located in Colbert County, Alabama. It consisted of two non-contiguous tracts, one of 258 acres and the other of 700 acres. The balance of the land on which the special valuation was claimed consisted of a single tract containing 520 acres located in Madison County, Alabama, at a distance of about 100 miles from the Colbert County property.
At the death of Mr. Sherrod, the 700 acre tract in Colbert County was all in timber, mostly hardwoods, but with some pine and other softwoods. Of the 258 acre tract, 48 acres were in the same kind of timber and the balance of 210 acres was in row crops (170 acres) and pasture (40 acres).
At Mr. Sherrod's death, all of the timberland in Colbert County had been in a state of natural forestation for at least 80 years. The last cutting of this timber prior to his death occurred in 1940 or 1941. This was a selective cutting and therefore the age of the timber on the land at his death in 1977 was about 45 to 50 years.
For at least eight years prior to his death, all of the crop land in Colbert County had been rented to an unrelated party under annual oral agreements for a fixed rent which was not dependent upon production. During the same period the pasture land had not been put to any use.
The parties have stipulated that the timber on the Colbert County property at the death of the decedent had a fair market value of $43,200 and that such timber does not qualify for special use valuation under section 2032A. The parties have also stipulated that the fair market values and the special use values under section 2032A, if applicable, of the Colbert County land were as follows on the date of the decedent's death:
+-------------------------------------------------------------+
¦Description ¦Acres ¦Fair market value ¦Special use value ¦
+-------------+-------+-------------------+-------------------¦
¦ ¦ ¦ ¦ ¦
+-------------+-------+-------------------+-------------------¦
¦Cropland ¦170 ¦$188,579 ¦$50,678 ¦
+-------------+-------+-------------------+-------------------¦
¦Pasture land ¦40 ¦44,371 ¦4,916 ¦
+-------------+-------+-------------------+-------------------¦
¦Timberland ¦748 ¦151,280 ¦36,688 ¦
+-------------+-------+-------------------+-------------------¦
¦Totals ¦958 ¦384,230 ¦92,282 ¦
+-------------------------------------------------------------+
At the death of Mr. Sherrod, 360 acres of the 520 acre tract in Madison County were also in timber, mostly hardwoods. This land had been in a state of natural forestation for 40 or 50 years at its acquisition by the decedent in 1952. The age of the timber on the land at the date of his death was about 15 to 20 years since the property had been subjected to a selective cutting in about 1960 or 1961.2
The balance of the 520 acres was in row crops (100 acres) and pasture (60 acres). From 1972 until the death of Mr. Sherrod in 1977, all of the crop land and 32 acres of the pasture land had been rented to Robert Spears, an unrelated party, under annual oral agreements for a fixed rent which was not dependent upon production. During these five years, Mr. Spears rotated corn and soy beans on the crop land and used the 32 acres of pasture land which he rented for access between the 100 acres of crop land and his adjoining farm. During this period the remaining 28 acres of pasture land was not put to any use. For at least five years prior to 1972, all of the crop land and pasture land was rented to a Mr. Jones and a Mr. Bell for use in their cattle operation. The rental agreements with Mr. Jones and Mr. Bell were similar to those with Mr. Spears in that they were annual agreements for a fixed rent which was not dependent upon production.
Here again the parties have stipulated that the timber on the Madison County property had a fair market value of $14,800 on the date of Mr. Sherrod's death, and that such timber does not qualify for special use valuation under section 2032A. The parties have also stipulated that the fair market values and the special use values under section 2032A, if applicable, of the Madison County land on the date of death were as follows:
+-------------------------------------------------------------+
¦Description ¦Acres ¦Fair market value ¦Special use value ¦
+-------------+-------+-------------------+-------------------¦
¦ ¦ ¦ ¦ ¦
+-------------+-------+-------------------+-------------------¦
¦Cropland ¦100 ¦$83,655 ¦$34,304 ¦
+-------------+-------+-------------------+-------------------¦
¦Pasture land ¦32 ¦ ¦ ¦
+-------------+-------+-------------------+-------------------¦
¦(rented) ¦ ¦ ¦ ¦
+-------------+-------+-------------------+-------------------¦
¦Pasture land ¦28 ¦17,745 ¦3,560 ¦
+-------------+-------+-------------------+-------------------¦
¦(other) ¦ ¦ ¦ ¦
+-------------+-------+-------------------+-------------------¦
¦Timberland ¦360 ¦78,800 ¦18,459 ¦
+-------------+-------+-------------------+-------------------¦
¦Totals ¦520 ¦180,200 ¦56,323 ¦
+-------------------------------------------------------------+
As previously stated, H. Floyd Sherrod, Sr., was a citizen and resident of the United States. He was also a lifelong resident of Colbert County, Alabama. He was born there in 1890 and grew up on a farm owned by his father who was a successful full time farmer.
In 1917, Mr. Sherrod inherited part of the Colbert County land from his father's estate. He acquired the balance of the Colbert County property from other members of his family at different times between 1917 and 1949. He bought the Madison County property in a single transaction in 1952.
Mr. Sherrod completed the local college for teachers and thereafter taught school and served as a school principal until 1940. During this period he also failed on a part time basis. His farming at this...
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