McAlpine v. Comm'r of Internal Revenue (In re Estate of McAlpine)
| Decision Date | 24 January 1991 |
| Docket Number | Docket No. 28298-87. |
| Citation | 96 T.C. No. 6,96 T.C. 134 |
| Parties | ESTATE OF MALCOLM McALPINE, JR., DECEASED; GERALDINE McALPINE AND JOCELYN McALPINE GREEMAN, CO-INDEPENDENT EXECUTRIXES, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
P elected to value a ranch owned by decedent at the time of his death under the special use valuation provision of sec. 2032A of the I.R.C. of 1954, as amended. The election was made on the original timely filed estate tax return filed for the estate and a recapture agreement was also attached. The election and agreement were signed by the executrix of the estate but not by any of decedent's three grandchildren who were the beneficiaries of a trust to which the ranch was devised under the will. An amended estate tax return with an amended election and recapture agreement were filed within 90 days after R's agent notified the estate that the election was not valid because it was not signed by all interested persons. R disallowed the special use valuation.
HELD: The election of special use valuation was valid. It complied with all the requirements of sec. 2032A(d)(3) of the Internal Revenue Code of 1954, as amended, sec. 20.20J2A-8, Estate Tax Regs., and sec. 1421 of the Tax Reform Act of 1986. Patrick R. Gordon, for the petitioner.
Phillip A. Pillar, for the respondent.
This case was submitted fully stipulated and the facts as stipulated are so found. Respondent determined a deficiency in the estate tax of the Estate of Malcolm McAlpine, Jr. in the amount of $333,363.24, subject to credits for payments of State death taxes.
Petitioner is the Estate of Malcolm McAlpine, Jr., Deceased. Geraldine McAlpine and Jocelyn McAlpine Greeman are Co-Independent Executrixes.
Malcolm McAlpine, Jr. (hereinafter referred to as decedent), died testate on February 25, 1984. He was a citizen of the United States and a resident of Texas at the time of his death. His will was dated July 28, 1982; a codicil thereto was executed February 24, 1984. Geraldine McAlpine and Jocelyn McAlpine Greeman, were named and duly appointed Co-Independent Executrixes of the Will. Geraldine resided in Toyak, Texas, and Jocelyn resided in Denning, New Mexico, at the time the petition was filed in this case.
A timely Federal Estate Tax Return was filed for the estate on November 20, 1984, in Austin, Texas, reporting a net taxable estate of $602,693 and a net estate tax of $83,389.
Decedent owned 8,815.42 acres out of a total of 13,280 acres of a ranch located in Huerfano County, Colorado, at the date of his death.
The issue in this case is whether petitioner is entitled to a special use valuation of decedent's interest in the ranch under section 2032A for estate tax purposes. 1
Petitioner's interest in the ranch (referred to hereafter as the ranch) was reported at Item 5 of Schedule A of the Estate Tax Return. On page two of the return petitioner elected Special Use Valuation for the ranch pursuant to section 2032A.
The appropriate Schedule N to elect Special Use Valuation was properly completed and included with decedent's estate tax return, Form 706. Except with respect to the portion of the definition of “qualified real property” referring to the agreement under section 2032A(b)(1)(D), the parties agree that pursuant to section 6324B a valid lien was imposed on the ranch at the time the Notice of Election was filed with the Form 706.
A separate Notice of Election to specially value the ranch required by section 2032A(d)(1) was properly completed, complied with the requirements of section 20.2032A-8(a)(3), Estate Tax Regs., and was attached to decedent's Form 706.
The Agreement required by section 2032A(d)(2) () was filed with decedent's Form 708 and was executed by “Jocelyn McAlpine Greeman, Trustee” as qualified heir and “Jocelyn McAlpine Greeman” as an other interested party. Except for the signatures, the Agreement was properly completed and complied with the requirements of the applicable Treasury regulations.
Decedent's Will was duly probated in Taylor County, Texas. In addition to Geraldine, his wife, and Jocelyn, his daughter, decedent was survived by three grandchildren, whose names and ages were as follows:
+--------------------------------+
¦ ¦Ages as of ¦
+----------------+---------------¦
¦Name ¦Feb. 25, 1984 ¦
+----------------+---------------¦
¦Walter Greeman ¦22 ¦
+----------------+---------------¦
¦Adelia Greeman ¦20 ¦
+----------------+---------------¦
¦Tammy Jo Greeman¦9 ¦
+--------------------------------+
All of decedent's title and interest in the ranch passed at his death to a trust, according to section V of the Will.
Section V(a) of the Will divided the trust into a separate trust for each of the grandchildren according to the terms thereof.
Section V(b) of the Will provided for distribution of income and principal in accordance with the terms therein. Section V(c) generally provided conditions for termination of each trust, subject to the provisions of section V(d) of the Will. Section V(e) contains a “spendthrift” clause that denies a right or power of any beneficiary to anticipate by assignment or otherwise any income or principal given to such beneficiary by the will and prohibits a transfer, assignment, sale, pledge, encumbrance or change in any manner, by a beneficiary of the beneficiary's interest in the Trust; nor shall a beneficiary's share of income or principal of the trust be subjected to or applied to the payment of such beneficiary's debts.
Section V(h) of the Will generally vested the management powers of the Trust in the trustees, according to the terms stated therein and in accordance with the Texas Trust Act, as amended by the Texas Trust Code. Section V(l) of the Will creates a special power of appointment in Jocelyn as to each of the Trusts' corpora according to the terms stated therein.
The ranch was valued at the following Special Use values and fair market values by the parties in the exhibits so identified:
+--------------------------------------------------------+
¦ ¦Special ¦Fair ¦ ¦
+----------------+-----------+--------------+------------¦
¦Item ¦use value ¦market value ¦Exhibit II ¦
+----------------+-----------+--------------+------------¦
¦a. Per 706 ¦$416,667 ¦$1,166,667.00 ¦2-B ¦
+----------------+-----------+--------------+------------¦
¦b. Per notice of¦--- ¦1,327,602.25 ¦1-A ¦
+----------------+-----------+--------------+------------¦
¦deficiency ¦ ¦ ¦ ¦
+--------------------------------------------------------+
The parties agree that the proper fair market value of the ranch at the date of decedent's death was $1,327,602.25. The parties also agree that if petitioner qualifies for Special Use Valuation, the value of decedent's interest in the ranch and includable in the estate should be the following total value:
+-----------------------------------------------+
¦Item ¦Amount ¦
+---------------------------------+-------------¦
¦Fair market value, as stipulated ¦$1,327,602.25¦
+---------------------------------+-------------¦
¦Less special use value per return¦(276,408.00) ¦
+---------------------------------+-------------¦
¦Difference ¦1,015,194.25 ¦
+---------------------------------+-------------¦
¦Less maximum sec. 2032A deduction¦(750,000.00) ¦
+---------------------------------+-------------¦
¦Excess fair market value ¦301,194.25 ¦
+---------------------------------+-------------¦
¦Plus special use value ¦276,408.00 ¦
+---------------------------------+-------------¦
¦Total value ¦577,602.25 ¦
+-----------------------------------------------+
On or about September 11, 1985, respondent's agent commenced an examination of petitioner's estate tax return. On the same date respondent advised petitioner that the special use value election was invalid because the agreement attached to the election was signed only by Jocelyn McAlpine Greeman, Trustee and was not signed by decedent's grandchildren, the individual trust beneficiaries.
On December 10, 1985, petitioner filed an Amended Notice of Election under section 2032A and an Amended Agreement to Special Valuation under section 2032A, dated December 5, 1985. These two documents were received by respondent within 90 days of respondent's notice to petitioner. The Amended Agreement was signed by all of the Trust beneficiaries, individually, except for Tammy Jo Greeman, whose signature was made by Jocelyn, as Guardian Ad Litem for Tammy Jo Greeman, pursuant to a court order. The Amended Agreement was similar to the Agreement filed with the estate tax return and complied with all requirements of the Form 706 instructions, section 2032A(d)(2), and the Treasury regulations pertaining thereto.
A Notice of Deficiency in estate tax was mailed to petitioner on May 12, 1987, and was issued by an officer of the Internal Revenue Service at Dallas, Texas. The notice determined that there was a deficiency in the estate tax due by the estate of $403,684.86, less $68,321,62 of additional State death tax credit, if substantiated. The principal adjustment in the value of the gross estate, and the only one at issue here, was explained as based on the determination that decedent's interest in the ranch did not qualify for special use valuation under section 2032A. Consequently, it was determined that the fair market value at the date of decedent's death for the ranch real property in which decedent owned both whole and fractional interests was $1,327,602.25 instead of the $418,667.00 value reported on the estate tax return, thereby increasing the value of the taxable estate by $910,935.25. An estate tax deficiency...
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