Estate of Simpson v. Commissioner, Docket No. 16581-91.

• Decision Date: 11 May 1994
• Docket Number: Docket No. 16582-91.,Docket No. 16581-91.
• Citation: 67 T.C.M. 2938
• Parties: Estate of Star C. Simpson, Deceased, Mark O. Simpson, Executor v. Commissioner. Estate of M.O. Simpson, Deceased, Edna J. Sullivan Simpson, Personal Representative v. Commissioner.
• Court: U.S. Tax Court

67 T.C.M. 2938

T.C. Memo. 1994-207 Estate of Star C. Simpson, Deceased, Mark O. Simpson, Executor v. Commissioner. Estate of M.O. Simpson, Deceased, Edna J. Sullivan Simpson, Personal Representative v. Commissioner.

Docket No. 16581-91.

Docket No. 16582-91.

United States Tax Court.

Filed May 11, 1994.

Charles A. Pulaski, Jr., Timothy D. Brown, and Janet E. Barton, for the petitioners. Stephen J. McFarlane, for the respondent.

Memorandum Findings of Fact and Opinion

SHIELDS, Judge:

In these consolidated cases, respondent determined: (1) That on June 12, 1973, Star C. Simpson and her husband, M.O. Simpson, made taxable gifts to their son, Melvin O. Simpson, Jr., and (2) that as a result of such gifts there is due from each parent for the calendar quarter ending June 30, 1973, a deficiency in Federal gift tax in the amount of $331,298, as well as an addition to tax under section 6651(a)¹ in the amount of $82,825.

Star C. Simpson (Mrs. Simpson), the taxpayer involved in docket No. 16581-91, died on December 18, 1985. Thereafter her husband, M.O. Simpson (Mr. Simpson), qualified as the executor of her estate, and respondent's deficiency notice was mailed to him as her executor on April 25, 1991. On the same date, April 25, 1991, respondent's deficiency notice in docket No. 16582-91 was mailed to Mr. Simpson. He died on December 31, 1991, and thereafter Edna J. Sullivan Simpson qualified as the executrix of Mr. Simpson's estate, and his grandson, Mark O. Simpson, was substituted for him as the executor of the estate of Star C. Simpson.² Melvin O. Simpson, Jr., predeceased his father on December 14, 1991. Consequently by February 1, 1993, the date of the trial of this matter, all three of the individuals involved in the transaction in question were deceased.

Shortly before the trial, petitioners filed a motion for summary judgment that the assessment of the deficiencies and additions to tax determined by respondent was barred because respondent's notices of deficiency were not issued within the period provided by section 6501(a). At the commencement of the trial, respondent filed an objection to petitioners' motion for summary judgment, together with a cross-motion for partial summary judgment, to the effect that an assessment in each case was not barred by section 6501(a). We agreed to take the parties' motions for summary judgment under advisement, but proceeded to trial. It follows, therefore, that as a preliminary matter we must dispose of the motions for summary judgment.

Under Rule 121(b), summary judgment is appropriate "if the pleadings, answers to interrogatories, depositions, admissions, and any other acceptable materials, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that a decision may be rendered as a matter of law." See Estate of Wilbanks v. Commissioner [Dec. 46,427], 94 T.C. 306, 306-307 (1990); Naftel v. Commissioner [Dec. 42,414], 85 T.C. 527, 529 (1985); Jacklin v. Commissioner [Dec. 39,278], 79 T.C. 340, 344 (1982); Espinoza v. Commissioner [Dec. 38,853], 78 T.C. 412, 416 (1982). Summary judgment is intended to expedite litigation by avoiding unnecessary and expensive trials of "phantom factual questions." Shiosaki v. Commissioner [Dec. 32,519], 61 T.C. 861, 862 (1974)(citing Cox v. American Fidelity & Casualty Co., 249 F.2d 616, 618 (9th Cir. 1957)). However, summary judgment is not a substitute for trial, since factual issues are not to be resolved in such proceedings. Espinoza v. Commissioner, supra; Shiosaki v. Commissioner, supra.

The moving party bears the burden of proving that no genuine issue exists as to any material fact and that he is entitled to judgment on the substantive issues as a matter of law. Espinoza v. Commissioner, supra at 416. In deciding whether to grant either motion for summary judgment herein, we are required to view the factual material and inferences drawn therefrom in the light most favorable to the party opposing the motion. Naftel v. Commissioner, supra at 529.

After due consideration of the situation before us, we have concluded that summary judgment is not appropriate in these cases because there are genuine issues with respect to certain material facts. Therefore, the motion for summary judgment by each party will be denied in an appropriate order, and we will proceed to the basic issues in both dockets. The issues are: (1) Whether respondent is barred from making assessments of gift tax for the second quarter of 1973 against petitioners by the expiration of the applicable period of limitations; (2) whether petitioners are liable for gift taxes, as determined by respondent, in connection with an exchange of stock which took place on June 12, 1973, and (3) whether petitioners are liable for additions to tax under section 6651(a)(1) for failing to file timely gift tax returns for the second quarter of 1973.

Findings of Fact

Some of the facts have been stipulated and are so found, including an agreement by the parties that, for the purposes of these proceedings, petitioners were residents of Carmel, California, when their petitions were filed herein. The stipulations of facts and attached exhibits are incorporated by this reference.

M.O. Simpson and Star C. Simpson were citizens of Canada. Prior to 1960, they were also residents of Canada, where Mr. Simpson had founded and originally owned all of the stock in Combined Engineered Products, Ltd. (Compro), a Canadian corporation. By 1973, Compro had become a conglomerate whose stock was publicly traded on the Toronto and Montreal stock exchanges and whose five subsidiary corporations manufactured gears, snowplows, elevators, and other products. By this time, Mr. and Mrs. Simpson had moved to Arizona and their son, Melvin O. Simpson, Jr. (Melvin), had become the chief operating officer of Compro and owned a majority of its outstanding stock as the result, at least in part, of gifts of such stock made to him by Mr. Simpson in 1959, 1960, and 1961.

After moving to Arizona in 1960, Mr. and Mrs. Simpson resided for the remainder of their lives at Willow Springs, a cattle ranch (the ranch) located in Pinal County about 40 miles north of Tucson. The ranch, its 1,600 head of cattle, other livestock, and equipment, were the assets of Lazy V.P. Ranches, Inc. (Lazy V.P.), an Arizona S corporation, whose 6,525 shares of outstanding common stock were owned in equal amounts by Mr. and Mrs. Simpson.

The ranch is the largest single tract of land in its area and one of the largest ranch operations in Arizona. It consists of over 68,424 acres, including 14,609.52 deeded acres, 52,810.78 acres under grazing leases from the State, and 1,003.92 acres under grazing leases from the Bureau of Land Management.³ The ranch's location is remote, since it is approximately 40 miles from the nearest full-service shopping center in Tucson. Its residence and headquarters are situated on a gravel road 10 miles from the nearest paved country road. At the date of trial, there was no appreciable development of other land in the area.

The improvements on the ranch are the most extensive in that part of Arizona. The principal residence is "a showplace" with over 5,200 square feet of living area plus an enclosed patio. The residence is surrounded by a beautifully landscaped yard, a heated pool, a pool house with an area of 1,000 square feet, stables, and a help house. Scattered throughout the property are 9 additional help houses, several barns and corrals, 25 wells, 19 separate fenced pastures, 26 dirt tanks or ponds, and over 10 miles of water line on which there are 7 storage tanks and 14 stock watering troughs. The remote location of the ranch, the nature and extent of its improvements, and the amount of work involved in maintaining and supervising its facilities and its operation are factors which tend to reduce its probable purchasers to a small number. Probable purchasers of the ranch would be limited to those persons having the ability and psychology to deal with such factors, as well as the requisite wealth to consummate its purchase.

Mr. Simpson, who was in his 70s in 1972, supervised the operation of the ranch and apparently did so until his death in 1991. He had been an accountant before he founded Compro, and, according to his own accountant, James W. Monroe (Mr. Monroe), he was a very detail-oriented man, who kept meticulous records and controlled all aspects of the ranch operation.⁴ Since the ranch had sales, and substantial amounts of cash, only after the spring and fall roundups, Mr. Simpson followed the practice of making advances to Lazy V.P. as needed and withdrawing funds when available after the roundups to cover the advances and to permit annual cash gifts by Mr. and Mrs. Simpson to their son, Melvin, his wife, and their five children. Mrs. Simpson was knowledgeable about the family's business transactions, but Mr. Simpson made the decisions and spoke for them both.

Mr. Monroe first met Mr. Simpson in or about the fall of 1972, when Mr. Monroe's accounting firm, Unrau & Regier, was in the process of acquiring the certified public accounting practice of C.T.R. Bates and his son, Robert L. Bates, who had been the accountants for Mr. and Mrs. Simpson since they moved to the United States in 1960. Starting with the 1972 taxable year, Mr. Monroe's firm did the accounting for the Simpsons. As a general rule, this consisted of Mr. Simpson's sending or bringing to Mr. Monroe in or about February of each year the information needed for the preparation of income and gift tax returns for the preceding year. The information included a schedule of every check that the Simpsons had written during the year. With this information, Mr. Monroe's firm prepared income and gift tax returns for Mr. and Mrs. Simpson for the years 1972 through 1977. When completed, the returns were sent to the Simpsons, who signed and filed them with respondent. Copies of the gift tax returns...