Keech v. Sundberg
| Decision Date | 20 April 1988 |
| Citation | 752 P.2d 1302,90 Or.App. 609 |
| Parties | George E. KEECH and Susan H. Coulter, both as Personal Representatives of the Estate of Edwin Keech and individually as the sole heirs of said estate, Appellants, v. Royal A. SUNDBERG, William A. Rauch and David E. Benneth, dba Sundberg, Rauch & Benneth, CPAs, Respondents. 85-0851; CA A44004. |
| Court | Oregon Court of Appeals |
Allen T. Murphy, Jr., Portland, argued the cause for appellants. With him on the briefs were Richardson, Murphy & Lawrence and Murphy & Lawrence, Portland.
Brian J. Scott, Portland, argued the cause for respondents. With him on the brief was Bittner & Barker, P.C., Portland.
Before WARDEN, P.J., and VAN HOOMISSEN and GRABER, JJ.
This is an action for accounting malpractice. Defendants are certified public accountants. Plaintiffs are the estate of Edwin Keech (Keech) and its personal representatives, George Keech and Susan Coulter, who also are the deceased's only heirs. Defendants prepared the federal estate tax return for the estate, and it is that tax return on which the present action is based. Plaintiffs claim that defendants negligently prepared the return. The trial court granted summary judgment to defendants, plaintiffs appeal, and we affirm.
The following facts are undisputed. Keech was born in 1900 and died in June, 1982. He and his wife owned a farm of about 1,200 acres until her death in 1979; thereafter, Keech owned the farm alone until his death. He operated the farm until he leased it to the Helmses for the period November, 1976, to November, 1981. From November, 1981, to November, 1982, Keech leased the farm to the Ruckerts. Each lease was for a fixed annual rent. Neither the Helmses nor the Ruckerts are related to Keech.
Plaintiffs contend that defendants negligently failed to take advantage of IRC § 2032A, which provides generally that certain farms and closely held businesses can be valued at their "current use value" rather than the standard "highest and best use." 1 Had plaintiffs been able to take advantage of § 2032A, their tax savings would have been substantial. Defendants contend that, as a matter of law, plaintiffs were not entitled to the § 2032A "special use valuation" and that, therefore, there was no malpractice.
We agree with defendants. Subsection (b)(1)(C)(i) of § 2032A requires, in part, that during the "8-year period ending on the date of the decedent's death there have been periods aggregating 5 years or more during which [the property was] used for a qualified use by the decedent or a member of the decedent's family [.]" (Emphasis supplied.) Plaintiffs offer two theories: (1) the property satisfied those requirements, and (2) the property did not need to satisfy the requirements because the property qualified under (b)(1)(C)(ii). Both theories are incorrect.
Neither Keech nor any member of his family used the property for a qualified use in five of the eight years before he died. For that reason, the property did not qualify under (b)(1)(C)(i). Plaintiffs concede that, in the eight years preceding Keech's death, he leased the farm for five and one-half years to non-family members. The lease was for a fixed annual rent that was not in any way dependent on farm production. Unless Keech's leasing of the farm was a "qualified use," plaintiffs could not qualify for the special use valuation. By the clear terms of the statute, regulations under it, 2 and cases interpreting the statute, 3 the leasing of the farm was not a qualified use. Plaintiffs do not cite, and we have not found, any source suggesting that a fixed rent lease could be a "qualified use." Indeed, plaintiffs appear to agree that the regulations and cases go against them; they simply assert that all the authorities are wrong.
Plaintiffs then argue that the tenants' use of the farm for farming purposes satisfies the qualified use requirement. In support of this proposition, plaintiffs point out that (b)(2)(A) requires that the property be used "as a farm" but does not say who must use it; therefore, they say, the tenants' use suffices. The argument is plainly wrong. Subsection (b)(1)(C)(i) requires that the property be used for a qualified use "by the decedent or a member of the decedent's family." 4
Next, plaintiffs apparently 5 argue that, because Keech may have satisfied (b)(1)(C)(ii) by materially participating in the farm operation while the farm was leased, they need not meet the qualified use requirements of (b)(1)(C)(i). That argument requires that we read (b)(1)(C)(i) and (ii) in the disjunctive and ignore the "and" between them. The plain words of the statute do not permit us to do so.
Plaintiffs rely on a portion of legislative history that, by its own terms, applies to "a trade or business other than the trade or business of farming." (Emphasis supplied.) H.R.Rep. No. 1380, 94th Cong., 2d Sess., 23, reprinted in 1976 U.S.Code Cong. & Ad.News 3356, 3377. They suggest that we substitute the single word "farming" for the phrase "a trade or business other than the trade or business of farming." They do not suggest why we should reach legislative history when the statute and regulations are clear, nor why we should make the substitution. The contention is without merit.
Plaintiffs also rely on dictum in Schuneman v. United States, 570 F.Supp. 1327, 1331 (C.D.Ill.1983), rev'd 783 F.2d 694 (7th Cir.1986), to support their position that decedent could satisfy the "qualified use" requirement by "materially participating" in the farm's operation. See 570 F.Supp. 1331, discussed at 783 F.2d 697. The dictum does not help plaintiffs. First, the district court was later contradicted by the Seventh Circuit. The appellate court, consistent with the decisions of other appellate courts and with the words of the statute, held that "material participation" and "qualified use" are separate prerequisites under § 2032A. 783 F.2d at 697; see also Estate of Sherrod, supra, 774 F.2d at 1064. Second, the Seventh Circuit held that the Schuneman property met the qualified use requirement, because the decedent's rental income from her lease of the farm was substantially dependent on production. 783 F.2d at 701. Here, in contrast, the lease was for a fixed annual rent.
In their second assignment of error, plaintiffs contend that the trial court erred in granting summary judgment because § 2032A(b)(4) exempts certain estates, allegedly including Keech's, from the requirements of (b)(1)(C)(ii ). This argument also lacks merit. As explained above, the dispute here is whether the estate satisfied, or had to satisfy, the "qualified use" test of (b)(1)(C)(i ). Subsection (b)(1)(C)(ii) is not relevant.
Because the property did not qualify under § 2032A, plaintiffs could not have been damaged by defendants' failure to pursue § 2032A. Summary judgment was proper. Olson v. Wheelock, 68 Or.App. 160, 163, 680 P.2d 719 (1984).
Affirmed.
1 At the times relevant to this action, § 2032A provided, in pertinent part:
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