Robinson v. Comm'r of Internal Revenue (In re Estate of Robinson)
| Decision Date | 14 November 1977 |
| Docket Number | Docket No. 656-76. |
| Citation | 69 T.C. 222 |
| Parties | ESTATE of G. R. ROBINSON, DECEASED, MYRA B. ROBINSON, EXECUTRIX, PETITIONER v. COMMISSIONER of INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Held, the value of an installment obligation includable in decedent's gross estate may not be discounted for estimated income taxes payable by the estate (or the beneficiaries) on the gain included in installments collectible after decedent's death. Edward R. Smith, for the petitioner.
David L. Jordan, for the respondent.
Respondent determined an estate tax deficiency in the amount of $153,493.46 for the estate of decendent, G. R. Robinson. The parties have disposed of certain issues, and the only one remaining for decision is whether, for estate tax valuation purposes under section 2031,1 an installment promissory note in the principal amount of $1,120,000 at the date of decedent's death should be discounted in order to reflect possible Federal income taxes that may apply in respect of subsequent installment collections.
Decedent G. R. Robinson died testate on February 27, 1972, while a resident of Big Spring, Tex. Myra B. Robinson, decendent's wife and executrix, resided in Big Spring, Tex., on the date the petition was filed in the instant case. Petitioner filed its estate tax return with the Director, Internal Revenue Service Center, Austin, Tex.
Prior to September 1969, decendent, his mother, Ethleen Robinson, and his brother, Jack W. Robinson, owned all of the stock of D & R Oil Co. (hereinafter D & R Oil) and Robinson Drilling Co. (hereinafter Robinson Drilling). During June through September 1969, negotiations took place between decendent and the Mabee Petroleum Corp. (hereinafter Mabee) for the purchase by Mabee of all the assets of D & R Oil and Robinson Drilling.
The parties to those negotiations ultimately decided that the sale of the assets of D & R Oil and Robinson Drilling should be structured in such a way as to allow decedent, his mother, and his brother to take advantage of the installment sales provisions of section 453. To this end, on November 11, 1969, decendent and his wife executed a document creating three separate irrevocable trusts for their three children. On November 14, 1969, decedent and his wife sold all of their stock in Robinson Drilling to such trusts. This stock, consisting of 70.55 shares, was acquired as community property in 1955 and 1956 and had a cost basis of $7,055.
In payment for the stock, decedent and his wife received an installment promissory note in the principal amount of $1,562,000 payable in 17 installments, the first being due and payable on or before December 31, 1969, in the amount of $162,000. The second installment was due on February 28, 1970, in the amount of $200,000. The balance was payable in 15 equal annual installments of $80,000 each, beginning February 28, 1971.
An election was properly made on decedent's and his wife's joint Federal income tax return for 1969 to report the gain on this sale under the installment method pursuant to the provisions of section 453. The taxable gain reported in 1969 was computed as follows:
On February 27, 1972, the date of decedent's death, the promissory note received in exchange for the stock sold by decedent and his wife to the trusts for their children had been reduced to $1,120,000. The note bore interest at the rate of 4 percent per annum, and it was fully secured. The parties agree the value of such note should be discounted to yield 8 3/4 percent thus making its value as of the date of death $930,100 without taking into consideration the discount here claimed by petitioner for possible income tax payable on the subsequent installment collections. As of the date of the trial of the instant case, the executrix had not distributed decedent's right to receive a one-half community interest in the future installments under the note.
On its estate tax return, petitioner discounted the value of the estate's one-half community interest in the promissory note by the amount of $77,723 to reflect the income taxes allegedly expected to become payable by the estate on subsequent installment receipts. In his statutory notice of deficiency, respondent, in determining the value of the estate's one-half community interest, disallowed this discount.
OPINIONSection 2031 provides that:
The value of the gross estate of the decedent shall be determined by including * * * the value at the time of his death of all property, real or personal, tangible or intangible, wherever situated.
Section 20.2031-1(b), Estate Tax Regs., provides that the value of property includable in a decedent's estate is its “fair market value at the time of the decedent's death.” Fair market value is defined as “the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.”
Petitioner contends that in order to determine the fair market value of the installment note owned by decedent on the date of his death for purposes of the estate tax, one must look at the value of the note in the hands of decedent's estate (or his beneficiaries), taking into consideration the income tax payable on future installment receipts on the note, and not the value of the note under the traditional willing buyer-willing seller test contemplated by section 2031 and the regulations promulgated thereunder. Stated another way, petitioner contends that, even though the note would have sold on February 27, 1972, at a price of $930,100 between a hypothetical willing buyer and a willing seller, in the estate's hands the note was not worth $930,100 because of the income tax liability inherent in the note.
We do not agree with petitioner's contention. Section 20.2031-1(b), Estate Tax Regs., quoted in pertinent part above, is explicitly clear in providing that property, such as decedent's note, is to be valued, for estate tax...
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Smith ex rel. Estate of Smith v. U.S.
...the tax court has specifically refused to view the sale as one between the estate and the beneficiary. Estate of Robinson v. Commissioner, 69 T.C. 222, 225, 1977 WL 3712 (1977). In Estate of Robinson, the estate asset at issue was an installment note which constituted income in respect of a......
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Propstra v. U.S.
...to hypothetical willing-buyers and willing-sellers provides an objective standard by which to measure value. See Estate of Robinson v. Commissioner, 69 T.C. 222, 225 (1977). The use of an objective standard avoids the uncertainties that would otherwise be inherent if valuation methods attem......
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Smith v. United States, No. 04-20194 (Fed. 5th Cir. 11/15/2004)
...this test, the tax court has specifically refused to view the sale as one between the estate and the beneficiary. Estate of Robinson v. Commissioner, 69 T.C. 222, 225 (1977). In Estate of Robinson, the estate asset at issue was an installment note which constituted income in respect of a de......
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Lasalle Bank, N.A. v. Comm'r of Internal Revenue (In re Estate of Kahn)
...of an asset would be reduced to reflect taxes attributable to the gain. Further, as this Court observed in Estate of Robinson v. Commissioner, 69 T.C. 222, 225, 1977 WL 3712 (1977), a similar case discussed further infra, the broad ramifications of such an argument— demonstrate its frailty.......
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IRA valued without discount for anticipated tax liability.
...seller test does not allow an estate to reduce the value of its retirement accounts by income tax liability. See. 691 In Robinson, 69 TC 222 (1977), the Tax Court examined whether to discount the value of installment notes in an estate for future income taxes that the beneficiaries of those......