Estate of True v. Commissioner
| Decision Date | 06 July 2001 |
| Docket Number | Docket No. 3409-98.,Docket No. 3408-98.,Docket No. 10940-97. |
| Parties | Estate of H.A. True, Jr., Deceased, H. A. True III, Personal Representative, and Jean D. True, et al.<SMALL><SUP>1</SUP></SMALL> v. Commissioner. |
| Court | U.S. Tax Court |
Introduction ........................................................................................ 32
Issue 1. Does Book Value Price Specified in Buy-Sell Agreements Control Estate and Gift Tax Values of
Subject Interests in True Companies? ...................................................... 33
FINDINGS OF FACT .................................................................................... 33
I. Background ............................................................................. 33
A. True Family ......................................................................... 33
B. Formation and Growth of True Companies .............................................. 33
1. Reserve Drilling ................................................................. 33
2. True-Brown Partnerships .......................................................... 34
3. True Oil and True Drilling ....................................................... 34
4. Belle Fourche Pipeline Co. ....................................................... 34
5. Black Hills Oil Marketers, Inc./True Oil Purchasing Co./Eighty-Eight Oil Co./Black
Hills Trucking, Inc. ............................................................ 35
6. True Ranches ..................................................................... 36
7. White Stallion Ranch, Inc. ....................................................... 36
8. Other True Companies ............................................................. 36
C. Methods of Accounting Used by True Companies ........................................ 36
D. Family Members' Employment in True Companies ........................................ 37
E. Family Gift Giving and Business Financing Practices ................................. 37
II. True Family Buy-Sell Agreements ........................................................ 38
A. Origin and Purpose .................................................................. 38
B. First Transfers of Interests in Belle Fourche, True Oil, and True Drilling to True
Children ........................................................................... 38
C. Wyoming U.S. District Court Cases on Belle Fourche and True Oil Transfers ........... 40
D. Tamma Hatten's Withdrawal From True Companies ....................................... 41
E. Use of Similar Buy-Sell Agreements in All True Companies Except White Stallion
Amendments and Waivers ............................................................. 42
F. Unique Provisions of White Stallion Buy-Sell Agreement .............................. 44
G. Future of True Family Buy-Sell Agreements ........................................... 45
III. Transfers in Issue ..................................................................... 45
A. 1993 Transfers of Partnership Interests by Dave True ................................ 45
B. 1994 Estate Transfers ............................................................... 45
C. 1994 Transfers by Jean True ......................................................... 46
IV. Subsequent Income Tax Litigation Regarding Ranchland Exchange Transactions ............. 46
OPINION ............................................................................................. 47
I. Do Family Buy-Sell Agreements Control Estate Tax Value? ................................ 47
A. Framework for Analyzing Estate Tax Valuation Issues ................................. 47
B. Development of Legal Standards ...................................................... 48
1. Case Law Preceding Issuance of Regulations ....................................... 48
2. Regulatory Authority and Interpretive Rulings .................................... 49
3. Case Law Following Issuance of Regulations and Revenue Ruling 59-60 .............. 50
a. Was Agreement Entered Into for Bona Fide Business Reasons? ....................... 50
b. Was Agreement a Substitute for Testamentary Dispositions? ........................ 51
1. Testamentary Purpose Test .................................................... 51
2. Adequacy of Consideration Test ............................................... 51
4. Statutory Changes ................................................................ 53
II. Do 1971 and 1973 Gift Tax Cases Have Preclusive Effect? ................................ 53
A. Petitioners' Collateral Estoppel Argument ........................................... 53
B. Legal Standards for Applying Collateral Estoppel .................................... 54
C. Collateral Estoppel Impact of 1971 and 1973 Gift Tax Cases .......................... 55
1. Bona Fide Business Arrangement Issue ............................................. 55
2. Whether Book Value Equaled Fair Market Value as of Agreement Date Issue .......... 55
III. Do True Family Buy-Sell Agreements Control Estate Tax Values? .......................... 56
A. Was the Offering Price Fixed and Determinable Under the Agreements? ................. 56
B. Were Agreements Binding During Life and at Death? ................................... 56
C. Were Agreements Entered Into for Bona Fide Business Reasons? ........................ 58
D. Were Agreements Substitutes for Testamentary Dispositions? .......................... 59
1. Testamentary Purpose Test ........................................................ 59
a. Decendent's Health When He Entered Into Agreements ............................ 59
b. No Negotiation of Buy-Sell Agreement Terms .................................... 59
c. Enforcement of Buy-Sell Agreement Provisions .................................. 61
d. Failure To Seek Significant Professional Advice in Selecting Formula Price .... 61
e. Failure To Obtain or Rely on Appraisals in Selecting Formula Price ............ 62
f. Exclusion of Significant Assets From Formula Price ............................ 62
g. No Periodic Review of Formula Price ........................................... 63
h. Business Arrangements With True Children Fulfilled Dave True's
Testamentary Intent .......................................................... 63
2. Adequacy of Consideration Test ................................................... 64
a. Petitioners' Brodrick v. Gore/Golsen Argument ................................. 64
b. Petitioners' Assertion That Respondent Impermissibly Applied Section 2703
Retroactively ................................................................. 65
c. Did Tax Book Value Pricing Formula Represent Adequate and Full
Consideration? ............................................................... 66
3. True Family Buy-Sell Agreements Were Substitutes for Testamentary Dispositions ... 70
E. Conclusion: True Family Buy-Sell Agreements Do Not Determine Estate Tax Values ...... 70
IV. Do True Family Buy-Sell Agreements Control Gift Tax Values? ............................ 71
A. Framework for Analyzing Gift Tax Valuation Issues ................................... 71
B. Buy-Sell Agreements Do Not Determine Value for Gift Tax Purposes .................... 71
C. Application of Gift Tax Rules to Lifetime Transfers by Dave and Jean True ........... 72
1. True Family Buy-Sell Agreements Do Not Control Gift Tax Values ................... 72
2. Lifetime Transfers by Dave and Jean True Were Not in Ordinary Course of
Business ........................................................................ 73
V. Impact of NonControlling Buy-Sell Agreements on Estate and Gift Tax Valuations ......... 73
Issue 2. If True Family Buy-Sell Agreements Do Not Control Values, What Are Estate and Gift Tax
Values of Subject Interests? .............................................................. 74
FINDINGS OF FACT .................................................................................... 74
I. True Oil ............................................................................... 74
II. Belle Fourche .......................................................................... 75
III. Eighty-Eight Oil ....................................................................... 75
IV. Black Hills Trucking ................................................................... 76
V. True Ranches
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1 firm's commentaries
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Sale To An IDIT For A Promissory Note ' The Best Estate Planning Strategy (Gimmick) Going
...671-4(b)(2)(i)(A) and 301.6109-1(a)(2)(i)(B). 4. Frazee v. Commissioner, 98 T.C. 554 (1992); Estate of True v. Commissioner, 82 T.C.M 27 (2001), aff'd on other grounds, 390 F.3d 1210 (10th Cir. 2004). See also Ltr. Ruls. 9408018 and 5. For an article advocating abolition of the grantor trus......