Miller v. Comm'r of Internal Revenue (In re Estate of Mapes)
| Decision Date | 29 October 1992 |
| Docket Number | No. 1038–89.,1038–89. |
| Citation | 99 T.C. No. 27,99 T.C. 511 |
| Parties | ESTATE OF Kenneth R. MAPES, Deceased, Dyanne K. Miller and Donald R. Mapes, Co–Executors, Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Stanley L. Tucker and Thomas F. Hartzell, for petitioner.
Richard A. Stone, for respondent.
Respondent determined a deficiency of $106,470.41 in petitioner's Federal estate tax. We are called upon to decide two issues. The first is whether petitioner is entitled to elect the special use valuation of farm property provided by section 2032A. Unless stated otherwise, all section references are to the Internal Revenue Code in effect on the date of the decedent's death. This issue turns on whether the decedent's farm property satisfies the 50–percent test of section 2032A(b)(1)(A) for qualified real property. The second issue for decision is whether petitioner made a valid election under section 2032 to use the alternate valuation method.
Some of the facts have been stipulated and are so found. The stipulations of fact filed by the parties and the exhibits attached thereto are incorporated herein by this reference.
Mr. Kenneth R. Mapes died on February 6, 1985. He was approximately 75 years of age and was a resident of Carthage, Illinois, at the time of his death. Letters testamentary were issued by the Circuit Court, Ninth Judicial District, Carthage, Illinois, to his daughter, Ms. Dyanne K. Miller, and to his son, Mr. Donald R. Mapes, as coexecutors.
The subject estate tax return states, as of the time the return was filed, that Ms. Miller's address was 808 Wabash, Carthage, Illinois 62321, and Mr. Donald R. Mapes' address was 451 Lambourne Avenue, Worthington, Ohio 43085. The Stipulation of Facts filed by the parties states as follows:
The petitioner is the Estate of Kenneth R. Mapes, Deceased, Dyanne K. Miller and Donald R. Mapes, Co–Executors, whose legal address at the time the petition in this case was filed was 608 Wabash Street, Carthage, Illinois 62321.
The record in this case does not otherwise disclose the legal residence of either of the coexecutors at the time the petition in this case was filed.
Before he died, the decedent was a farmer. He owned three tracts of farmland in Hancock County, Illinois, on the date of his death. Tract 1 consisted of 124 acres of well managed prairie soil and was improved with an old double crib and a machine storage shed. Tract 2 consisted of 120 acres of well managed prairie soil and was improved with a six-room frame dwelling, a horse barn, and a double crib. Tract 3 consisted of only 1 acre.
From at least 1981, the decedent leased tracts 1 and 2 to a tenant farmer under a share rental arrangement. The decedent paid 50 percent of all direct crop expenses, plus certain other expenses, such as real estate taxes, building insurance, and capital repairs. The tenant supplied farming equipment and machinery, and he grew corn and soybeans on the decedent's land. The decedent and the tenant divided the harvested crop equally.
The decedent's usual practice was to delay the sale of his share of the harvested crop until the spring of the following year. On the date of his death, the decedent owned grain in storage worth $30,719.41, consisting of 6,000 bushels of corn worth $16,044.41 and 2,500 bushels of beans worth $14,675. All of the decedent's grain in storage had been grown during the prior year, 1984.
On their joint Federal income tax returns for 1981 through 1984, the decedent and his wife reported the following income and expenses from the 50–percent share rental arrangement described above:
+-------------------------------------------------------+
¦ ¦ ¦ ¦Other ¦ ¦
+----+-------------+------------+----------+------------¦
¦Year¦Rental Income¦Depreciation¦Deductions¦Net Profit ¦
+----+-------------+------------+----------+------------¦
¦1981¦$42,147.28 ¦$1,219.53 ¦$13,466.27¦$27,461.48 ¦
+----+-------------+------------+----------+------------¦
¦1982¦41,613.00 ¦1,655.97 ¦12,836.09 ¦27,120.94 ¦
+----+-------------+------------+----------+------------¦
¦1983¦38,022.02 ¦1,609.34 ¦13,000.52 ¦1 23,412.16¦
+----+-------------+------------+----------+------------¦
¦1984¦39,585.00 ¦1,609 ¦13,380.00 ¦24,596.00 ¦
+-------------------------------------------------------+
FN1. Due to a mathematical error, the decedent's 1983 return incorrectly reports total deductions of $29,010 and a net profit of $9,012.
The decedent's cash operating expenses per crop acre were consistent with those of similar central Illinois farms operated on a share rental basis during the same period.
From the beginning of 1982 through the date of his death on February 6, 1985, the decedent paid both farm expenses and general living expenses from a single checking account at Farmers State Bank. On the date of the decedent's death, the balance of the funds in this account was $92,694.35. The decedent deposited investment interest and crop proceeds into the account and interest was credited to this account in the following amounts:
+--------------------------------------------------+
¦ ¦Interest Income¦Crop Proceeds¦Interest ¦
+---------+---------------+-------------+----------¦
¦Period ¦Deposited ¦Deposited ¦Credited ¦
+---------+---------------+-------------+----------¦
¦1982 ¦$ 67,621.14 ¦$ 37,603.25 ¦— ¦
+---------+---------------+-------------+----------¦
¦1983 ¦47,676.53 ¦38,012.27 ¦$ 4,208.80¦
+---------+---------------+-------------+----------¦
¦1984 ¦55,184.66 ¦39,585.43 ¦6,428.77 ¦
+---------+---------------+-------------+----------¦
¦Jan. 1985¦8,687.17 ¦— ¦680.12 ¦
+---------+---------------+-------------+----------¦
¦Total ¦$179,169.50 ¦$115,200.95 ¦$11,317.69¦
+--------------------------------------------------+
Certificates of deposit were purchased with funds from this account in the amounts of $40,000 in 1982, $85,519.16 in 1983, and $50,000 in 1984, a total of $175,519.16.
The coexecutors of the decedent's estate filed a timely return on IRS Form 706, United States Estate (and Generation–Skipping Transfer) Tax Return. Schedule A of that return, dealing with real estate, lists the three tracts of farmland owned by the decedent when he died. In summary, that schedule reports the following:
+------------------------------------------------------+
¦Tract 1 ¦ ¦ ¦ ¦
+---------------------+---------------------+-+--------¦
¦Fair market value ¦$261,000 ¦ ¦ ¦
+---------------------+---------------------+-+--------¦
¦Real estate taxes ¦(3,658) ¦ ¦ ¦
+---------------------+---------------------+-+--------¦
¦ ¦257,342 ¦ ¦ ¦
+---------------------+---------------------+-+--------¦
¦Special use value ¦123,891 ¦ ¦ ¦
+---------------------+---------------------+-+--------¦
¦Special use value ¦ ¦ ¦ ¦
+---------------------+---------------------+-+--------¦
¦as adjusted for liens¦ ¦ ¦$120,233¦
+---------------------+---------------------+-+--------¦
¦ ¦ ¦ ¦ ¦
+---------------------+---------------------+-+--------¦
¦Tract 2 ¦ ¦ ¦ ¦
+---------------------+---------------------+-+--------¦
¦Fair market value ¦$256,000 ¦ ¦ ¦
+---------------------+---------------------+-+--------¦
¦Real estate taxes ¦(4,836) ¦ ¦ ¦
+---------------------+---------------------+-+--------¦
¦ ¦251,164 ¦ ¦ ¦
+---------------------+---------------------+-+--------¦
¦Special use value ¦126,820 ¦ ¦ ¦
+---------------------+---------------------+-+--------¦
¦Special use value ¦ ¦ ¦ ¦
+---------------------+---------------------+-+--------¦
¦ ¦as adjusted for liens¦ ¦121,984 ¦
+---------------------+---------------------+-+--------¦
¦ ¦ ¦ ¦ ¦
+---------------------+---------------------+-+--------¦
¦Tract 3 ¦ ¦ ¦ ¦
+---------------------+---------------------+-+--------¦
¦Fair market value ¦$1,000 ¦ ¦ ¦
+---------------------+---------------------+-+--------¦
¦Real estate taxes ¦(40 ¦)¦960 ¦
+---------------------+---------------------+-+--------¦
¦Total real property ¦ ¦ ¦$243,177¦
+------------------------------------------------------+
The fair market value reported on Schedule A for each tract is substantiated by a document attached to the return entitled “Real Estate Appraisal”. In that document, an appraiser, Mr. R.L. Cunningham, states that, on the date of the decedent's death, the fair market value of tract 1 was $261,000, the fair market value of tract 2 was $256,000, and the fair market value of tract 3 was $1,000.
The special use value of tracts 1 and 2, as reported on Schedule A, is substantiated by another document attached to the return entitled “Appraisal of Farm Real Estate Under I.R.S. 2032A(e)(7)”. In that document, Mr. Cunningham states that, on the date of the decedent's death, the value of the decedent's farmland, determined in accordance with the method of valuing farms prescribed by section 2032A(e)(7), is $123,890.88 in the case of tract 1 and $126,819.60 in the case of tract 2. Parenthetically, we note that the parties now agree that the aggregate special use value of tracts 1 and 2 is $250,711, i.e., $123,891 in the case of tract 1, and $126,820 in the case of tract 2.
There is also attached to the subject estate tax return a document entitled “Election of Special Use Valuation as Authorized by ...
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