Koithan v. Comm'r of Internal Revenue (In re Estate of La Meres)
| Decision Date | 23 March 1992 |
| Docket Number | Docket No. 6909-88. |
| Citation | 98 T.C. 294,98 T.C. No. 24 |
| Parties | ESTATE OF EUGENE E. LA MERES, DECEASED, KATHY KOITHAN, PERSONAL REPRESENTATIVE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Decedent devised the residue of his estate to a revocable trust, which he had established prior to death, for the benefit of both charitable and noncharitable beneficiaries. The bequest did not qualify for the estate tax deduction for bequests to charitable entities because it violated the prohibition against bequests of split interests in sec. 2055(e)(2), I.R.C. After decedent's death, the trustees modified the dispositive provisions of the trust, effectively purging it of its split interest. The modification was not a “qualified reformation” under sec. 2055(e)(3), I.R.C. Held, where the only reason for the modification of the trust is to circumvent the requirements of sec. 2055(e)(2), I.R.C., no deduction for the split interest will be allowed. Estate of Burdick v. Commissioner, 96 T.C. 168 (1991), followed.
P requested and was given a 6-month extension of time to file its estate tax return. Pursuant to sec. 20.6081-1,Estate Tax Regs., a second extension was not available. P, relying on the erroneous advice of counsel, filed for a second extension of time in which to file its estate tax return. As a result, P failed to file timely and pay its estate taxes. Held further, the additions to tax under sec. 6651(a)(1) and (2), I.R.C., do not apply because the failure to file timely and pay taxes was due to reasonable cause. William S. Huff, Charles A. Ramunno, Todd A. Fisher, and David R. Child, for petitioner.
Frederick J. Lockhart, Jr., for respondent.
Respondent determined a deficiency in petitioner's Federal estate tax in the amount of $11,786,621, and additions to tax under section 6651(a)(1) 1 in the amount of $3,718,725, and under section 6651(a)(2) in the amount of $618,326.
The issues for decision are: (1) Whether the split interest charitable provisions of the Eugene E. La Meres Revocable Trust, which were modified by the post-death creation of the La Meres Beta Trust, qualify for an estate tax charitable deduction; (2) assuming that the estate tax charitable deduction is allowable, whether a subsequent adjustment in the funding for the charitable and noncharitable interests increases the allowable estate tax charitable deduction; (3) whether petitioner is liable for an addition to tax under section 6651(a)(1) for failure to file timely a Federal estate tax return; and (4) whether petitioner is liable for an addition to tax under section 6651(a)(2) for failure to pay timely Federal estate tax.
Some of the facts have been stipulated and are so found. The stipulation of facts and attached exhibits are incorporated herein by this reference.
Petitioner is the Estate of Eugene E. La Meres, deceased, Kathy Koithan, personal representative. Decedent, Eugene E. La Meres, was domiciled in Colorado at the time of his death. At the time it filed its petition in this case, petitioner's representative resided in Wheat Ridge, Colorado.
Decedent, a retired Roman Catholic priest, was actively engaged in the hotel business in California, New Mexico, and Colorado. He owned a 50-percent interest in a partnership that owned two hotels, and he owned 10 hotels as a sole proprietor. He also was actively engaged in extensive securities trading. In the years preceding his death, decedent traded between $20 and $50 million worth of stock through five different brokers. On the date of his death, decedent owned $2.6 million worth of stock. In the approximately 10 years before his death, decedent accumulated assets having a value of approximately $25 million net of liabilities.
On December 20, 1982, decedent executed his Last Will and Testament (the Will). On the same day, decedent executed a Revocable Trust Agreement, creating a trust known as the Eugene E. La Meres Revocable Trust (the Revocable Trust). Decedent also funded the Revocable Trust by transferring all his right, title, and interest in the Lamplighter Motel in Anaheim, California; the Downtown Quality Inn in Albuquerque, New Mexico; and the Best Western Rio Grande Motel in Albuquerque, New Mexico, to the Trust. Neither the Will nor the Revocable Trust was revoked or amended prior to decedent's death on April 7, 1983.
Decedent died testate, and pursuant to the Will, the residue of his estate was transferred to the Revocable Trust. Articles VII and VIII of the Revocable Trust Agreement provided for the distribution of corpus and income of the Revocable Trust upon decedent's death as follows:
7.01 DEBTS AND DEATH TAXES. On Settlor's death, to the extent the trust estate holds United States treasury bonds eligible for redemption at par in payment of the federal estate tax, Trustee shall pay the federal estate tax redemption, to the extent necessary, in payment of such tax. In addition, Trustee may, but shall not be obligated to, pay directly or pay to Settlor's personal representative all expenses of administration, the expenses of Settlor's last illness and funeral, Settlor's debts, and the balance of any death taxes payable by reason of Settlor's death, as Settlor's personal representative shall direct, and if there is no personal representative of Settlor's estate, as Trustee determines, all without contribution from any person and without appointment. No payments under this Section 7.01 shall be made from assets not includable in Settlor's gross estate for federal estate tax purposes.
7.02 TANGIBLE PERSONAL PROPERTY. Any items of tangible personal property held by Trustee at Settlor's death, other than items of tangible personal property which are held by Trustee and which are used in any lawful business operations of Settlor, shall be distributed in accordance with Article III of Settlor's last will and testament executed December 20, 1982 * * *.
7.03 SPECIAL DISTRIBUTION. On Settlor's death, Trustee shall pay from the income and/or principal of the trust estate the sum of One Hundred Thousand Dollars ($100,000.00) to those Missions of the Roman Catholic Church of the United States, that Trustee shall determine * * *.
7.04 RESIDENCE. On Settlor's death, if Settlor is survived by MARLENE LINN of Arvada, Colorado, Trustee shall distribute to her any interest then held by the Trust in any real property occupied by Settlor as his principal residence at the time of his death, including any insurance policies and claims under such policies on such property.
7.05 QUALITY INN. On Settlor's death, if EDWARD BRABSON of Albuquerque, New Mexico, is then employed by Settlor or any entity primarily owned by Settlor, Trustee shall distribute to him the undivided ownership interest in * * * the motel business known as the Downtown Quality Inn, Albuquerque, New Mexico. The undivided ownership interest to be distributed shall be a full three percent (3%) (of 100%) for each calendar year or fraction thereof from July 1, 1982 to the date of Settlor's death, provided that no more than an undivided fifty percent (50%) interest shall be distributed. * * *
8.01 PRINCIPAL. Upon Settlor's death the then remaining principal and any accumulated income of the trust estate and any property added to the trust estate by Settlor's will, except as otherwise provided in Article VII, Article XIII, or Section 8.02, shall be held in perpetuity by Trustee and the income therefrom shall be distributed as provided in this Article.
8.02 QUALITY INN. Commencing the year following the year of Settlor's death, Trustee shall distribute annually to EDWARD BRABSON of Albuquerque, New Mexico, from the principal of the trust estate, the undivided ownership interest * * * in * * * the motel business known as the Downtown Quality Inn, Albuquerque, New Mexico. The undivided ownership interests to be distributed shall be a full three •percent (3%) (of 100%) per year, provided that such distributions shall cease for any year following the year EDWARD BRABSON ceases * * * to act as chief operating officer for the hotels and motels held as part of the trust estate pursuant to Section 11.09, and further provided that no more than an undivided fifty percent (50%) interest, in the aggregate, shall be distributed pursuant to this Section and Section 7.05. * * *
8.03 INCOME DISTRIBUTIONS AFTER SETTLOR'S DEATH. After the death of the Settlor, the Trustee shall pay * * * the following individuals or organizations 2 the respective amounts of the net income of the trust estate set forth below:
A. To see (sic) REVEREND JOHN KUHN, * * * Five Thousand ($5,000.00) per year for the five (5) years commencing with the year following the year of Settlor's death. If, however, Reverend Kuhn dies prior to the expiration of said five (5) year period, this distribution shall cease for any year following the year of his death.
B. To LOUISE JOB, * * * Five Thousand Dollars ($5,000.00) per year for the five (5) years commencing with the year following the year of Settlor's death. If, however, Louise Job dies prior to the expiration of said five (5) year period, this distribution shall cease for any year following the year of her death.
C. Settlor's sister, PATRICIA SOKOLOSKI, * * * the sum of Seven Thousand Dollars ($7,000.00) per year for the remainder of her life, commencing with the year following the year of Settlor's death. The forgoing distributions to Patricia Sokoloski Shall be subject to annual increase as provided in Section 9.03.
D. To MR. & MRS. GERHART LINN, * * * the sum of Five Thousand Dollars ($5,000.00) per year for the joint lives of Mr. & Mrs. Linn, said distributions to commence in the year following the year of Settlor's death. The foregoing distributions to Mr. & Mrs. Linn shall be subject to annual increase as...
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