Lefever v. Comm'r of Internal Revenue, 19915–92.
| Decision Date | 26 October 1994 |
| Docket Number | No. 19915–92.,19915–92. |
| Citation | 103 T.C. 525,103 T.C. No. 31 |
| 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, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Patrick J. Regan and Juandell D. Glass, for petitioners.
Elizabeth Downs, for respondent.
Ps as heirs of D received parcels of farmland from D's estate. For estate tax purposes, D's estate elected to specially value the farmland under sec. 2032A(a), I.R.C. As a condition precedent to the election, sec. 2032A(a), I.R.C., requires all persons having an interest in the property subject to the election to enter into an agreement described in sec. 2032A(d), I.R.C. Ps executed the written agreements described in sec. 2032A(d), I.R.C. In the agreements, Ps (1) asserted that the land was qualified real property and that they were qualified heirs of D, (2) consented to the election to value the property under sec. 2032A, I.R.C., (3) agreed and consented to the application of sec. 2032A(c), I.R.C., (4) agreed and consented to be personally liable for the additional estate tax imposed by sec. 2032A(c), I.R.C., in the event of early disposition or cessation of the qualified use of the farmland, and (5) acknowledged that the agreements were a condition precedent to the election to specially value the farmland under sec. 2032A, I.R.C. R approved the notice of special use valuation election, the estate tax return was accepted as filed, and the special use valuation election was allowed without audit. The statute of limitations has now run on D's estate. Ps leased portions of the farmland on a cash-rental basis, a nonqualified use of the property. Ps now contend that the farmland was not qualified real property at the time of D's death and that the election to specially value the farmland was invalid.
Held: Ps are bound by the duty of consistency and are estopped to deny that the farmland was qualified real property or to assert that the election to specially value the property under sec. 2032A(a) was invalid.
Respondent determined a deficiency in additional Federal estate tax under section 2032A(c) in the amount of $38,154.33 and an addition to tax under section 6651(a)(1) in the amount of $9,538.58 against petitioner William LeFever. Respondent determined a deficiency in additional Federal estate tax under section 2032A(c) in the amount of $91,850.95 and an addition to tax under section 6651(a)(1) in the amount of $22,962.74 against petitioner Betty Lou LeFever.
Unless otherwise indicated, all section references are to the Internal Revenue Code in effect for the years before the Court, and all Rule references are to the Tax Court Rules of Practice and Procedure.
After concessions,1 the issue to be decided is whether petitioners are liable for the additional estate tax under section 2032A(c) because they cash rented portions of the farmland as to which an election had been made to specially value under section 2032A(a). In reaching our decision on that issue, we must determine whether petitioners are bound by a duty of consistency that precludes them from denying that the farmland was qualified real property at the time of decedent's death and from challenging the validity of the election for special use valuation of the farmland.
Petitioners William LeFever (petitioner) and Betty Lou LeFever (Mrs. LeFever) resided in Augusta, Kansas, at the time they filed their petition in this Court. Petitioners are husband and wife. Decedent, Blanche Knollenberg, died on July 24, 1983. At the time of her death, decedent was a resident of Augusta, Kansas. Petitioner was the duly appointed executor of decedent's estate. Mrs. LeFever is decedent's daughter. Petitioners are decedent's heirs and transferees.
At the time of her death, decedent owned real property that included six parcels of farmland located in Butler County, Kansas. In her last will and testament, decedent devised one parcel (parcel 1) to her grandson, Joe B. LeFever, four parcels (parcels 2, 3, 4, and 6) to Mrs. LeFever, and one parcel (parcel 5) to petitioner.
For the years prior to decedent's death, Joseph F. Shupe (Mr. Shupe), an accountant, had prepared income tax returns for decedent and petitioners. Petitioner asked Mr. Shupe to prepare the estate tax return for decedent's estate. After reviewing information given to him by petitioners, the instructions to Form 706 (United States Estate Tax Return), the Internal Revenue Code, and other publications, Mr. Shupe concluded that parcels 1 through 5 qualified for special use valuation under section 2032A. Parcel 6, consisting of 100 acres of cultivation land and almost 50 acres of pasture, did not qualify for the special use valuation.
Mr. Shupe prepared a Form 706, United States Estate Tax Return, for decedent's estate. At the time he prepared the estate tax return, it was Mr. Shupe's opinion that the election for special use valuation was valid.
On or about April 24, 1984, in his capacity as executor of decedent's estate, petitioner filed Form 706, United States Estate Tax Return, on behalf of decedent's estate,2 which included the following attachments:
(1) Appraisals of parcels 1 through 6;
(2) Notice of Election of Section 2032A of the Internal Revenue Code (notice of election);
(3) Statement of Material Participation;
(4) Agreement of Consent to Application of Section 2032A of the Internal Revenue Code signed by petitioner;
(5) Agreement of Consent to Application of Section 2032A of the Internal Revenue Code signed by Joe B. LeFever; and
(6) Agreement of Consent to Application of Section 2032A of the Internal Revenue Code signed by Mrs. LeFever.
Based on comparable sales, the appraiser of the land valued the real property, as of the date of decedent's death, as follows: Parcel 1 had a fair market value of $203,000; parcel 2 had a fair market value of $149,000; parcel 3 had a fair market value of $72,000; parcel 4 had a fair market value of $168,000; parcel 5 had a fair market value of $120,000; and parcel 6 had a fair market value of $68,000. The comparable sales used by the appraiser did not identify or distinguish the composition of the land, in terms of cultivation or pastureland. Under the capitalization of income method, the appraiser valued parcels 1 through 5 for purposes of the special use valuation under section 2032A as follows:
+--------------------------------------------------------------------+
¦Parcel/ ¦Number ¦Cash Rent ¦Tax per ¦Value ¦Total ¦
+-------------+--------+------------+--------+------------+----------¦
¦Land Use ¦of Acres¦Per Acre 1 ¦Acre 2 ¦per Acre 3 ¦Valuation ¦
+--------------------------------------------------------------------¦
¦ ¦
+--------------------------------------------------------------------¦
¦1¦Cultivation¦107 ¦$33.70 ¦$3.57 ¦$258.6266 ¦$27,673.05¦
+-+-----------+--------+------------+--------+------------+----------¦
¦ ¦Pasture ¦53 ¦15.15 ¦3.57 ¦99.3991 ¦5,268.15 ¦
+-+-----------+--------+------------+--------+------------+----------¦
¦ ¦Total ¦160 ¦ ¦ ¦ ¦32,941.20 ¦
+--------------------------------------------------------------------¦
¦ ¦
+--------------------------------------------------------------------¦
¦2¦Cultivation¦42.7 ¦33.70 ¦2.04 ¦271.7597 ¦11,604.14 ¦
+-+-----------+--------+------------+--------+------------+----------¦
¦ ¦Pasture ¦117.3 ¦15.15 ¦2.04 ¦112.5322 ¦13,200.02 ¦
+-+-----------+--------+------------+--------+------------+----------¦
¦ ¦Total ¦160 ¦ ¦ ¦ ¦24,804.16 ¦
+-------------+--------+------------+--------+------------+----------¦
¦ ¦ ¦ ¦ ¦ ¦ ¦
+-------------+--------+------------+--------+------------+----------¦
¦3¦Cultivation¦37.6 ¦33.70 ¦3.05 ¦263.0901 ¦9,892.19 ¦
+-+-----------+--------+------------+--------+------------+----------¦
¦ ¦Pasture ¦42.4 ¦15.15 ¦3.05 ¦103.8627 ¦4,403.78 ¦
+-+-----------+--------+------------+--------+------------+----------¦
¦ ¦Total ¦80 ¦ ¦ ¦ ¦14,295.97 ¦
+--------------------------------------------------------------------¦
¦ ¦
+--------------------------------------------------------------------¦
¦4¦Cultivation¦131.7 ¦33.70 ¦2.57 ¦267.2103 ¦35,191.60 ¦
+-+-----------+--------+------------+--------+------------+----------¦
¦ ¦Pasture ¦28.3 ¦15.15 ¦2.57 ¦107.9828 ¦3,055.91 ¦
+-+-----------+--------+------------+--------+------------+----------¦
¦ ¦Total ¦160 ¦ ¦ ¦ ¦38,247.51 ¦
+--------------------------------------------------------------------¦
¦ ¦
+--------------------------------------------------------------------¦
¦5¦Cultivation¦15.9 ¦33.70 ¦1.46 ¦276.7382 ¦4,400.14 ¦
+-+-----------+--------+------------+--------+------------+----------¦
¦ ¦Pasture ¦104.1 ¦15.15 ¦1.46 ¦117.5107 ¦12,232.87 ¦
+-+-----------+--------+------------+--------+------------+----------¦
¦ ¦Total ¦120 ¦ ¦ ¦ ¦16,633.01 ¦
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¦ ¦
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