Posen v. Comm'r of Internal Revenue (In re Estate of Posen) , Docket No. 9490-78.
| Decision Date | 10 December 1980 |
| Docket Number | Docket No. 9490-78. |
| Parties | ESTATE of VERA T. POSEN, DECEASED, GLORIA POSEN, ADMINISTRATRIX, PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Decedent's daughter was the administratrix and sole heir of decedent's estate. Acting in her capacity as administratrix, she sold a cooperative apartment which was part of the estate, primarily because she did not want it distributed to her as heir. Held, the expenses of selling the cooperative apartment were allowable expenses of the estate under New York State law. Held, further, sec. 20.2053-3(a) and (d)(2), Estate Tax Regs., is valid, and, therefore, because the selling expenses were not necessarily incurred in the administration of the estate, they were not deductible administration expenses. Hibernia Bank v. United States, 581 F.2d 741 (9th Cir. 1978); Pitner v. United States, 388 F.2d 651 (5th Cir. 1967); Estate of Smith v. Commissioner, 57 T.C. 650 (1972), affd. on other grounds510 F.2d 479 (2d Cir. 1975); Estate of Park v. Commissioner, 57 T.C. 705 (1972), revd. 475 F.2d 673 (6th Cir. 1973), followed. Alan Prigal, for the petitioner.
Paulette Segal, for the respondent.
Judge: Respondent determined a deficiency of $3,222 in petitioner's Federal estate taxes. Concessions having been made by petitioner, the sole issue for decision is whether expenses incurred in the sale of a cooperative apartment are deductible as administration expenses under section 2053(a)(2).1
Some of the facts have been stipulated and are found accordingly. The stipulation of facts and the accompanying exhibits are incorporated herein by this reference.
Petitioner is the Estate of Vera T. Posen (hereinafter the decedent), who died intestate on January 25, 1975. The estate tax return was timely filed with the Internal Revenue Service, New York, N.Y. Gloria Posen (hereinafter Posen), daughter of the decedent, is the only heir at law and is administratrix of the estate. Posen resided in New York, N.Y., at the time the petition herein was filed.
At her death, decedent owned and resided in a cooperative apartment. The monthly maintenance fee was $672.60.
If the apartment had been distributed to Posen as heir at law, she would have sold it. Posen did not want to live in it because the building was unsuited to her lifestyle and she did not feel she could afford the maintenance; moreover, she knew nothing about holding real estate as an investment.
On or about July 24, 1975, Posen, acting as administratrix of the decedent's estate, sold the shares of stock and assigned her proprietary lease in respect of the apartment for $56,000.
In addition to the $56,000, the decedent's estate consisted of the following assets:
+--------------------------------------------+
¦Asset ¦Date of death value ¦
+----------------------+---------------------¦
¦ ¦ ¦
+----------------------+---------------------¦
¦Bank accounts ¦$163,888 ¦
+----------------------+---------------------¦
¦Stocks and bonds ¦759 ¦
+----------------------+---------------------¦
¦Miscellaneous property¦5,852 ¦
+--------------------------------------------+
The total amount in bank accounts was held at the date of death as follows:
+---------------------------------------------------------------------------+
¦Amount ¦Type of account ¦
+--------+------------------------------------------------------------------¦
¦ ¦ ¦
+--------+------------------------------------------------------------------¦
¦$17,305 ¦Day-of-deposit-to-day-of-withdrawal ¦
+--------+------------------------------------------------------------------¦
¦786 ¦Checking account ¦
+--------+------------------------------------------------------------------¦
¦16,022 ¦Time deposit, at 6 1/2-percent interest, maturing Aug. 2, 1975 ¦
+--------+------------------------------------------------------------------¦
¦20,020 ¦Time deposit, at 6 1/2-percent interest, maturing Nov. 12, 19752 ¦
+--------+------------------------------------------------------------------¦
¦$109,755¦Other time deposits, maturing after Dec. 31, 19753 ¦
+---------------------------------------------------------------------------+
The time deposits maturing after the calendar year 1975 included one account of $10,000 opened on January 24, 1975, for a 21;2-year term at an interest rate of 63;4 percent.
Interest could be withdrawn from all the deposit accounts without penalty at any time after posting. Posting occurred every 3 months. At least $4,725 of interest was posted by June 30, 1975, and at least another $2,500 was posted by September 30, 1975. The penalty for early withdrawal of the principal for each of the time accounts maturing in 1975 was the forfeiture of 3 months' interest and payment of a reduced rate of interest of 51;2 percent upon the account. 4
As of the date of death, the deceased had no debts. Petitioner made disbursements totaling $18,645, exclusive of Federal estate tax payments and expenses incurred in connection with sale of stock in the cooperative corporation, as follows:
+------------------------------------------------------------------+
¦Item ¦Amount ¦Date paid ¦
+-------------------------------------------+--------+-------------¦
¦ ¦ ¦ ¦ ¦
+-------------------------------------------+--------+----+--------¦
¦ ¦ ¦ ¦ ¦
+-------------------------------------------+--------+----+--------¦
¦N.Y. estate tax ¦$5,500 ¦July¦24, 1975¦
+-------------------------------------------+--------+----+--------¦
¦N.Y. estate tax ¦1,000 ¦Oct.¦17, 1975¦
+-------------------------------------------+--------+----+--------¦
¦Attorney's fees ¦2,000 ¦Apr.¦9, 1975 ¦
+-------------------------------------------+--------+----+--------¦
¦Attorney's fees ¦2,000 ¦Apr.¦15, 1975¦
+-------------------------------------------+--------+----+--------¦
¦Attorney's fees ¦3,000 ¦July¦24, 1975¦
+-------------------------------------------+--------+----+--------¦
¦Apartment maintenance (including utilities)¦4,145 ¦ ¦1975 ¦
+-------------------------------------------+--------+----+--------¦
¦Funeral expenses ¦1,000 ¦ ¦1975 ¦
+------------------------------------------------------------------+
The estate also made a payment of $30,800 for Federal estate taxes on October 23, 1975, to obtain an extension of the time for filing a completed estate tax return which would otherwise have been due on October 27, 1975.
On the estate tax return, Schedule J (Funeral Expenses and Expenses Incurred in Administering Property Subject to Claims), petitioner claimed a deduction of $11,692 for “expenses incurred for maintaining and selling cooperative apartment” as follows:
+---------------------------------------+
¦Item ¦Amount ¦ ¦
+-----------------------+--------+------¦
¦ ¦ ¦ ¦
+-----------------------+--------+------¦
¦Consolidated Edison ¦$109 ¦ ¦
+-----------------------+--------+------¦
¦Maintenance ¦4,036 ¦ ¦
+-----------------------+--------+------¦
¦Subtotal ¦ ¦$4,145¦
+-----------------------+--------+------¦
¦Telephone ¦101 ¦ ¦
+-----------------------+--------+------¦
¦Answering service ¦186 ¦ ¦
+-----------------------+--------+------¦
¦Newspaper advertisement¦164 ¦ ¦
+-----------------------+--------+------¦
¦Repairs ¦3,394 ¦ ¦
+-----------------------+--------+------¦
¦Brokerage fees ¦3,360 ¦ ¦
+-----------------------+--------+------¦
¦Tax stamps ¦342 ¦ ¦
+-----------------------+--------+------¦
¦Subtotal ¦ ¦7,547 ¦
+-----------------------+--------+------¦
¦Total ¦ ¦11,692¦
+---------------------------------------+
Respondent allowed the deduction for maintenance and Consolidated Edison but disallowed the remaining deductions of $7,547. These deductions were for expenses incurred in the sale of the cooperative apartment, which were actually paid for the purposes specified above and were reasonable in amount. The propriety of such expenditures was not specifically ruled upon by any New York State court.
OPINIONThe sole issue for decision is whether expenses incurred by petitioner in the sale of a cooperative apartment5 are deductible as administration expenses under section 2053(a)(2). That section provides for a deduction from the value of the gross estate of “such amounts * * * for administration expenses * * * as are allowable by the laws of the jurisdiction * * * under which the estate is being administered.” Section 20.2053-3(a), Estate Tax Regs., states that amounts deductible as “administration expenses” are limited to expenses “actually and necessarily incurred in the administration of the decedent's estate.” In regard to selling expenses, subsection (d)(2) of section 20.2053-3, Estate Tax Regs., provides in part: “Expenses for selling property of the estate are deductible if the sale is necessary in order to pay the decedent's debts, expenses of administration, or taxes, to preserve the estate, or to effect distribution.”
Petitioner contends, and respondent disputes, that the expenses of the sale of the apartment by the estate were allowable under the laws of New York State, the...
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