Lefever v. Comm'r of Internal Revenue, 95-9022
| Decision Date | 13 November 1996 |
| Docket Number | No. 95-9022,95-9022 |
| Citation | 100 F.3d 778 |
| Parties | WILLIAM LEFEVER, Qualified Heir-Transferee of the Assets of the Estate of Blanche Knollenberg, BETTY LOU LEFEVER, Qualified Heir-Transferee of the Assets of the Estate of Blanche Knollenberg, Petitioners-Appellants, v. COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee |
| Court | U.S. Court of Appeals — Tenth Circuit |
Appeal from the United States Tax Court, (T.C. No. 19915-92) Patrick J. Regan of Regan & McGannon, Wichita, KS, and Juandell D. Glass, Norman, OK, for PetitionersAppellants.
Gilbert S. Rothenberg and Andrea R. Tebbets, Attorneys, Tax Division, Department of Justice, Washington, DC, for Respondent-Appellee.
Before BALDOCK, McWILLIAMS, and RONEY* Circuit Judges.
In a federal estate tax return, Petitioners valued several parcels of inherited farmland under the special use valuation election, 26 U.S.C. Section(s) 2032A, which reduced the valuation of the land from its fair market value. Seven years after they filed the election, Respondent determined that they were not putting the land to a qualifying use as required to maintain the benefits of the election, and assessed additional taxes against Petitioners.
Petitioners filed a challenge in Tax Court, contending that they were never actually entitled to the special use valuation election and that a three-year statute of limitations barred the assessments. The Tax Court ruled that the assessments were timely under a provision of the Code extending the limitations period for three years after Respondent has notice that the property is no longer being put to a qualifying use. Most significantly, the Tax Court ruled that Petitioners were precluded under the doctrine of the duty of consistency from denying the initial validity of the special use valuation election.
Petitioners appeal, challenging the Tax Court's rulings as to the liability issues and the calculation of the additional tax. We exercise jurisdiction under 26 U.S.C. Section(s) 7482 and, finding no reversible error, affirm.
The Tax Code imposes a general estate tax on the transfer of the taxable estate of every decedent who is a resident or citizen of the United States. 26 U.S.C. Section(s) 2001. The estate's executor is responsible for paying this tax. Id. Section(s) 2002. The estate tax under Section(s) 2001 is generally based on the fair market value of the taxable property, valued at its highest and best use. See Brockman v. Commissioner, 903 F.2d 518, 519 (7th Cir. 1990).
Section 2032A permits certain property used in family farming and closely-held businesses to be valued on the basis of its actual use at the time of the decedent's death rather than on the basis of its highest and best use. Whalen v. United States, 826 F.2d 668, 669 (7th Cir. 1987). With Section(s) 2032A, Congress intended to protect the heirs of family farms and small family businesses from being forced to sell the farms or businesses to pay federal estate taxes. Id. To take the election, the property must be qualified real property; the decedent must have been a citizen or resident of the United States; the executor of the estate must file the election under Section(s) 2032A; and each person having an interest in the property must sign and file a personal liability agreement under Section(s) 2032A(d)(2). 26 U.S.C. Section(s) 2032A(a)(1).
Qualified real property is real property located in the United States and is property which passes from the decedent to a qualified heir. As of the date of death, the decedent or a qualified member of the decedent's family must have been putting the property to a qualifying use. Id. Section(s) 2032A(b)(1). To qualify for the special use valuation election, the property must constitute statutory percentages of the value of the decedent's gross and adjusted estate. See id. Section(s) 2032A(b)(1) (describing the 50 percent test and the 25 percent test). Also, the decedent or member of the decedent's family must materially participate in putting the property to a qualifying use for five of eight years before the date of death. Id. Section(s) 2032A(b)(1)(C)(ii); Estate of Sherrod v. Commissioner, 774 F.2d 1057, 1062-63 (11th Cir. 1985) (discussing material participation), cert. denied, 479 U.S. 814 (1986).
A qualifying use includes the decedent or a qualified member of the decedent's family using the property as a farm or in a trade or business. 26 U.S.C. Section(s) 2032A(b)(2); Brockman, 903 F.2d at 521-22. Under either use, the family must use the property in an active trade or business. Brockman, 903 F.2d at 522; Martin v. Commissioner, 84 T.C. 620, 627 (1985), aff'd 783 F.2d 81 (7th Cir. 1986). Cash rental of the property to a non-family member is not a qualifying use. Brockman, 903 F.2d at 522; Williamson v. Commissioner, 974 F.2d 1525, 1532-33 (9th Cir. 1992); H.R. Rep. No. 1380, 94th Cong, 2d Sess. 23, reprinted in 1976 U.S.C.C.A.N. 3356, 3377 ().
To maintain the benefits of the special use valuation election, qualified heirs must, for 10 years following the date of death, continue to put the property to the same qualifying use to which it was put at the date of the decedent's death. 26 U.S.C. Section(s) 2032A(c)(1)(B); Williamson, 974 F.2d at 1530. If a qualified heir sells the property or ceases to use it for the same qualifying use during that period, the heir becomes personally liable for the imposition of an additional estate tax, designed to recapture an amount proportional to the tax saving gained by taking the special use valuation election. 26 U.S.C. Section(s) 2032A(c); Martin v. Commissioner, 783 F.2d 81, 82 (7th Cir. 1986). Importantly, this additional estate tax under Section(s) 2032A(c) is distinct from the general estate tax imposed on the transfer of a decedent's estate under Section(s) 2001.
Petitioners William and Betty Lou LeFever, together with their son Joe LeFever, inherited six parcels of farmland in Butler County, Kansas, from Decedent Blanche Knollenberg, who died in July 1983. Petitioners' accountant prepared the corresponding federal estate tax return based on information provided by Petitioners. Petitioners filed the estate tax return on April 24, 1984. Upon the accountant's advice, Petitioners filed a special use valuation election under Section(s) 2032A, which reduced by $585,078 the taxable value, normally based on the fair market value, of five of the six parcels of farmland owned by Decedent. 26 U.S.C. Section(s) 2032A. The sixth parcel clearly did not qualify for the special use election and is not part of this appeal. As attachments to the estate tax return filed on Decedent's behalf, Petitioners filed appraisals of parcels 1 through 6, the Section(s) 2032A notice of election, a statement of material participation, and agreements to the application of the special use valuation election signed by Petitioners and Joe LeFever. In the agreements, Petitioners and Joe LeFever consented to personal liability for any additional taxes imposed as a result of a sale of the inherited property or the cessation of a qualifying use. See id. Section(s) 2032A(c)(5). Also they expressly recognized that the agreements were a condition precedent to gaining the benefits of the election. See id. Section(s) 2032A(d)(2).
In July 1990, the Internal Revenue Service sent Petitioners a questionnaire as part of a program to evaluate whether taxpayers were properly using special use valuation elections. Petitioners returned the questionnaire to the IRS in early August 1990. Based on Petitioners' answers, an IRS estate tax attorney mailed Petitioners a second letter, in October 1990, requesting additional information, including information on whether portions of the property subject to the special use valuation election were being cash rented to nonfamily members. Petitioners responded to the letter in February 1991. They reported that portions of parcels 2 through 5 were being cash rented.
In separate notices of deficiency, dated July 22, 1992, Respondent determined that Petitioners were liable for a deficiency in additional estate tax under Section(s) 2032A because certain acres of parcels 2 through 5 were being cash rented to non-family members. Respondent issued the notices some seven years after Petitioners filed the estate tax return.
In September 1992, Petitioners filed this challenge to the assessments in Tax Court. Before the Tax Court, Petitioners argued that the special use valuation election was invalid at the date of its filing because parcels 2 through 5 had never been put to a qualifying use. In fact, parcels 2 through 5 had been cash rented to non-family members at the time of Decedent's death and continued to be cash rented after her death. Petitioners argued that the estate tax return should have notified Respondent that the election was invalid, and, thus, that the tax assessments under Section(s) 2032A(c) were barred by the Code's three-year statute of limitations. Petitioners also argued that Respondent had not pleaded an affirmative defense, such as estoppel, in response to their position that the limitations period had expired.
In contrast, Respondent argued that the assessments were timely under a provision of the Code extending the limitations period for assessing additional taxes under Section(s) 2032A for three years after Respondent has notice that a taxpayer has ceased putting specially-valued property to a qualifying use. 26 U.S.C. Section(s) 2032A(f). Respondent contended that she first received notice that parcels 2 through 5 were not being put to a qualifying use after receiving Petitioners' responses to the first questionnaire on August 13, 1990, and, thus, that the assessments were timely as they were issued on July 22, 1992.
Four months after trial, Respondent moved in the Tax Court for leave to amend her answer to conform to...
To continue reading
Request your trial
-
Estate of Kanter v. C.I.R.
...Rule 41 is reviewed for abuse of discretion. See Estate of Ashman v. Comm'r, 231 F.3d 541, 542 n. 2 (9th Cir. 2000); LeFever v. Comm'r, 100 F.3d 778, 786 (10th Cir.1996); Braude v. Comm'r, 808 F.2d 1037, 1039 (4th Cir.1986). It was not an abuse of discretion for the Tax Court to allow the a......
-
Milton H. Greene Archives, Inc. v. Cmg Worldwide
...understood to encompass both the taxpayer and parties with sufficiently identical economic interests.'" Id. (quoting LeFever v. Comm'r, 100 F.3d 778, 788 (10th Cir.1996)). The Ninth Circuit set forth the elements necessary for application of the duty of consistency in Estate of Ashman v. Co......
-
United States v. Parks
...at the property's highest and best use. 26 U.S.C. § 2001; Estate of McCoy v. C.I.R., 809 F.2d 333, 333 (6th Cir. 1987); LeFever v. C.I.R., 100 F.3d 778, 782 (10th Cir. 1996). Section 2032A of the Internal Revenue Code, 26 U.S.C. § 2032A, allows for special valuation of certain estate proper......
-
Summum v. Callaghan, 96-4191
...absent en banc reconsideration or a superseding contrary decision of the United States Supreme Court. LeFever v. Commissioner of Internal Revenue, 100 F.3d 778, 787 (10th Cir.1996). Because we believe that Summum has stated a cause of action under the Free Speech Clause of the federal const......
-
The New Basis Reporting and Consistency Regime (irc Sections 6035 and 1014(f))
...had to use the estate tax values. See Janis v. Commissioner (9th Cir. 2006) 461 F.3d 1080; LeFever v. Commissioner (10th Cir. 1996) 100 F.3d 778.13. All references to "section" in this article refer to the Internal Revenue Code, unless otherwise stated.14. Pub.L. No. 114-141, 129 Stat. 443.......