O'Neal v. Comm'r of Internal Revenue
| Decision Date | 28 April 1994 |
| Docket Number | 16145–92,15760–92,15849–92,15761–92,Nos. 15753–92,15803–92 and 15851–92.,s. 15753–92 |
| Citation | 102 T.C. No. 28,102 T.C. 666 |
| Parties | Kirkman O'NEAL II, Donee/Transferee, et al.,1 Petitioners, v. COMMISSIONER OF INTERNAL REVENUE, Respondent. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
David D. Aughtry, Atlanta, GA, and Roy J. Crawford, Birmingham, AL, for petitioners.
Michael T. Breen, David Delduco, and J.Mack Karesh, Atlanta, GA, for respondent.
On Nov. 3, 1987, Gs gave their grandchildren, Ps, stock in A. Gs around Apr. 15, 1988, filed separate United States Gift (and Generation–Skipping Transfer) Tax Returns for 1987, reporting the gifts of the stock, and paid the amount of gift tax shown on the returns. Prior to Apr. 15, 1991, when the 3–year period of limitations under sec. 6501(a), I.R.C., expired as to Gs' gift tax for 1987, R never requested an extension of time for asserting a deficiency in gift tax and generation-skipping transfer tax against Gs or asserted such a deficiency. On Apr. 13, 1992, R sent to each P two notices of transferee liability for a deficiency in Gs' 1987 gift tax. Ps alleged that the notices were invalid because the period of limitations as to Gs' gift tax liability had expired when the notices were sent.
R filed a motion for partial summary judgment asking the Court to determine that the notices were valid and timely under secs. 6324 and 6901(c), I.R.C. Ps filed a cross-motion for summary judgment based on their contention that the notices were invalid since no deficiency had been asserted against Gs and the time for asserting such a deficiency had expired. Later, Ps filed a second motion for summary judgment on the ground that R is precluded by secs. 2504(c) and 2642(b), I.R.C., from revaluing the gift stock after the expiration of the period for assessment of tax against Gs had expired without a deficiency determination against them. Held, R's motion for partial summary judgment is granted, and Ps' cross-motion for summary judgment, on the ground that under sec. 6324(b), I.R.C., Ps have no liability for gift taxes of Gs since no such tax was determined against Gs prior to the expiration of the 3–year period of limitations from the date their returns were filed, is denied. Under sec. 6324(b), I.R.C., Ps are made personally liable for Gs' gift tax as transferees at law, and R's notices of transferee liability to Ps were timely under sec. 6901(c), I.R.C., allowing 1 year after the expiration of the limitations period against the transferors for R to determine a liability against the transferees. Held, further, Ps' second motion for summary judgment is denied since sec. 2504(c), I.R.C., does not prohibit R from revaluing Gs' 1987 gifts to Ps after the expiration of the period within which a deficiency could be determined against Gs for 1987 gifts, since the gifts revalued are not for a year prior to the year for which R timely mailed deficiency notices to Ps.
Pursuant to Rule 121,2 this matter is before the Court on respondent's Motion for Partial Summary Judgment (respondent's motion) and petitioners' Cross–Motion for Summary Judgment (petitioners' motion), filed September 8, 1993, and September 27, 1993, respectively. On October 18, 1993, petitioners filed a Second Motion for Summary Judgment (petitioners' second motion).
Respondent determined that petitioners are liable as donees/transferees of Kirkman O'Neal in 1987 for gift taxes of $7,040,223, for generation-skipping transfer taxes of $197,651, and for additions to tax under section 6660 of $2,171,362. Further, respondent determined that petitioners are liable as donee/transferees of Elizabeth P. O'Neal in 1987 for gift taxes of $7,038,677, for generation-skipping transfer taxes of $197,651, and for additions to tax under section 6660 of $2,170,898. Of the foregoing amounts, respondent determined the following amounts against the respective petitioners as donees/transferees:
+---------------------------------------------------------------------+
¦ ¦Amount For ¦Amount For ¦
+--------------------+-----------------------+------------------------¦
¦Petitioner ¦Mr. O'Neal's Deficiency¦Mrs. O'Neal's Deficiency¦
+--------------------+-----------------------+------------------------¦
¦Kirkman O'Neal II ¦$2,651,125 ¦$2,281,750 ¦
+--------------------+-----------------------+------------------------¦
¦David H. White ¦1,991,125 ¦1,714,000 ¦
+--------------------+-----------------------+------------------------¦
¦Margaret White Head ¦1,991,125 ¦1,714,000 ¦
+--------------------+-----------------------+------------------------¦
¦Emmet O'Neal III ¦2,641,125 ¦2,271,750 ¦
+--------------------+-----------------------+------------------------¦
¦Elizabeth White Reed¦1,991,125 ¦1,714,000 ¦
+--------------------+-----------------------+------------------------¦
¦Virginia White Page ¦1,991,125 ¦1,714,000 ¦
+--------------------+-----------------------+------------------------¦
¦Henry Craft O'Neal ¦2,651,125 ¦2,281,750 ¦
+---------------------------------------------------------------------+
The issues for decision are: (1) Whether a donee/transferee can be held liable at law as a donee/transferee for gift tax and generation-skipping transfer tax when respondent failed to assert the deficiency against the donor prior to the running of the statute of limitations against the donor; (2) whether, in accordance with section 6901, notice of liability was properly sent to petitioners; and (3) whether section 2504(c) precludes respondent from challenging the value used by the donors in reporting the gifts when the period of limitations for assessment against the donors has expired.
The facts set forth below are based on the pleadings, facts stipulated by the parties, and other pertinent materials in the record. Rule 121(b). They are stated solely for the purpose of deciding the issues raised by respondent's motion, petitioners' motion, and petitioners' second motion.
Some of the facts have been stipulated and are found accordingly.
At the time he filed his petition in his case, petitioner Kirkman O'Neal II resided in Cambridge, Massachusetts. At the time they filed their petitions in their individual cases, petitioners David H. White, Margaret White Head, Emmet O'Neal III, and Virginia White Page resided in Birmingham, Alabama. At the time she filed her petition in her case, petitioner Elizabeth White Reed resided in Tupelo, Mississippi. At the time he filed his petition in his case, petitioner Henry Craft O'Neal resided in Houston, Texas.
Kirkman O'Neal and Elizabeth P. O'Neal are petitioners' grandparents (the grandparents or Mr. O'Neal and Mrs. O'Neal). Emmet O'Neal II and Elizabeth Shannon, who are not parties to these cases, are the son and daughter, of the grandparents.
O'Neal Steel, Inc. (the company), is a Delaware corporation and is a family owned and operated business. For the past 20 years, the company has been a steel service/distribution business which sells standard grades and configurations of steel to customers with orders hopefully large enough to make handling the order profitable, but small enough to prevent the customer from dealing directly with the steel manufacturing mill.
There are two classes of the company's common stock. The first class is called class A common stock (the class A stock) and is nonvoting common stock. According to the financial statements of the company for the year ended June 30, 1987, the class A stock had a par value of $50 per share and 171,859 of the 200,000 authorized shares were outstanding. The second class of common stock is called class B common stock (the class B stock) and is voting common stock. According to the financial statements of the company for the year ended June 30, 1987, the class B stock had a par value of $50 per share and 223 of the 1,500 authorized shares were outstanding.
On June 28, 1951, the shareholders of the company adopted buy-sell restrictions (the buy-sell restrictions) which were incorporated into the company's bylaws at section 17 () on July 9, 1951.
The buy-sell restrictions bestowed a right of first refusal on certain O'Neal family members and bound all stock in the company by whomever held. As amended from time to time, the buy-sell restrictions have continued as a part of the company's bylaws.
On or about November 24, 1976, the class A stock of the company was valued by the company and its directors at $54 per share and the class B stock was valued at $61 per share using the prior reports and other data. This valuation, along with data from the accounting firm Deloitte, Haskins & Sells, served as the basis for an amendment to the buy-sell restrictions made on November 24, 1976, and a more detailed amendment made on December 10, 1976, setting the option prices at $54 per share of class A stock and $61 per share of class B stock.
On November 3, 1987, Mr. O'Neal made the following gifts of the class A stock:
+-------------------------------+
¦ ¦Number of¦
+---------------------+---------¦
¦Donee ¦Shares ¦
+---------------------+---------¦
¦Kirkman O'Neal II ¦7,043 ¦
+---------------------+---------¦
¦Emmet O'Neal III ¦7,043 ¦
+---------------------+---------¦
¦Virginia White Page ¦5,283 ¦
+---------------------+---------¦
¦Margaret White Head ¦5,283 ¦
+---------------------+---------¦
¦David H. White ¦5,283 ¦
+---------------------+---------¦
¦Henry Craft O'Neal ¦7,043 ¦
+---------------------+---------¦
¦Emmet O'Neal II ¦1 ¦
+---------------------+---------¦
¦Elizabeth White Reed ¦5,283 ¦
+-------------------------------+
On November 3, 1987, Mr. O'Neal made the following gifts of the class B stock:
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