Vitt's Estate v. U.S., s. 82-1823
| Decision Date | 16 May 1983 |
| Docket Number | 82-1872,Nos. 82-1823,s. 82-1823 |
| Parties | 83-1 USTC P 13,522 ESTATE OF Verlena M. VITT, Deceased; Kathryn Wedemeier, Executrix, Appellee, v. UNITED STATES of America, Appellant. ESTATE OF Verlena M. VITT, Deceased; Kathryn Wedemeier, Executrix, Appellant, v. UNITED STATES of America, Appellee. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Edward E. Murphy, Jr., Garry Seltzer, Murphy & Associates P.C., Clayton, Mo., for appellant-cross-appellee Estate of Verlena M. Vitt, Deceased.
Glenn L. Archer, Jr., Asst. Atty. Gen., Michael L. Paup, Robert A. Bernstein, Michael J. Roach, Attys., Tax Div., Dept. of Justice, Washington, D.C., for the U.S.
Before ARNOLD and BENNETT, * Circuit Judges, and HENLEY, Senior Circuit Judge.
This appeal and cross-appeal raise questions concerning the applicability of the doctrines of equitable estoppel and equitable recoupment in an estate tax refund suit. The district court 1 concluded that although equitable estoppel was not a bar to the inclusion of certain property in the decedent's estate, principles of recoupment required that the estate be permitted to recover estate taxes previously paid with respect to the same property. We affirm.
Prior to his death in 1964, Edward W. Vitt, then husband of Verlena Vitt, the decedent whose estate initiated the present refund action, acquired approximately 2,190 acres of land in Eastern Missouri. Although he apparently supplied all the consideration for this property, Edward titled the land in the names of both Verlena and himself, as tenants in the entirety. Subsequently, by three separate deeds, the Vitts conveyed this property to their two daughters. As grantors, however, they retained a life estate for their joint lives and for the life of the survivor; each of the daughters received a life estate in an undivided one-half interest in the land, with a remainder to their children. The treatment of Edward's and Verlena's respective interests in this property for estate tax purposes forms the basis for the present litigation.
In 1964 Edward died intestate, and Kathryn Wedemeier, his daughter, was appointed administratrix of his estate. Pursuant to section 2036 of the Internal Revenue Code, which pertains to transfers of property with retained life estates, fifty per cent of the value of the 2,190 acres was included in Edward's estate. Subsequently, the Internal Revenue Service proposed an estate tax deficiency in the amount of $42,764.81, based in part on its determination that the entire value of the real property, less the actuarial value of Verlena's life estate, was includible in Edward's gross estate. Actuarial calculations by the examiner indicated that under this approach Edward's estate should have included 76.066% of the property's value. In taking this position, the government relied upon a Revenue Ruling, Rev.Rul. 57-448, which provided for the inclusion under section 2036 of more than fifty per cent of the value of property in circumstances such as those involved in the Vitts' case.
After conference and negotiations, the estate consented to the assessment of a deficiency based in part upon the inclusion of 76.066% of the value of the 2,190 acres in Edward's gross estate. This deficiency, along with accrued interest, was subsequently paid.
Thereafter the IRS issued Rev.Rul. 69-577, which revoked the prior ruling on which the government had relied in requiring the inclusion in Edward's gross estate of more than fifty per cent of the value of the real property. In essence, the new revenue ruling held that where each spouse had a right to one-half the income from property held as tenants in the entirety under local law, only half the value of that property would be includible in the gross estate of each of the cotenants. Under this position, only half the value of the 2,190 acres would have been included in Edward's gross estate. The new ruling was published approximately two months prior to the time the statute of limitations was to expire with respect to a refund claim by Edward's estate. The estate, however, was apparently unaware of the government's change in position. Consequently, no claim for refund was filed, and the limitations period expired.
Legal ownership of the 2,190 acres remained unchanged between the deaths of Edward and Verlena, and Verlena retained her life estate in the realty until she died in September of 1975. Following her death, an estate tax return was filed which reported her interest in the real property but assigned it no value for estate tax purposes. No value was attributed to this interest because, in the estate's view, it pertained to property which was not includible in Verlena's estate due to the prior treatment of that property in Edward's estate.
The IRS, after examining the return, proposed a deficiency based upon the inclusion in Verlena's estate of fifty per cent of the value of the 2,190 acres, relying upon Rev.Rul. 69-577. This deficiency was paid by the estate, which then initiated the present refund action. Essentially, it asserted that the government should be estopped from including more than 23.934% of the property's value in determining the estate tax due, because 76.066% of that land's value had previously been included in Edward's estate under the position first taken by the government. In the alternative, the estate urged that the doctrine of equitable recoupment be applied with respect to the alleged overpayment of estate taxes made by Edward's estate in connection with the property.
The case was submitted to the district court, sitting without a jury, on a stipulation of uncontested facts, along with certain exhibits and depositions. As indicated, the court concluded that the government was not estopped from including fifty per cent of the value of the acreage in Verlena's estate. It reasoned, however, that recoupment principles were applicable, and that the estate was therefore entitled to recover $28,370.70, which represented the overpayment of tax and interest made by Edward's estate as the result of the erroneous inclusion of more than half the value of that property in his gross estate. The estate now challenges the court's conclusion that equitable estoppel does not apply in this case, while the government contends that the use of recoupment principles was error.
In its cross-appeal, the estate argues that the district court erred in concluding that the doctrine of equitable estoppel did not bar the Commissioner from including more than 23.934% of the value of the real property for purposes of determining the tax due on Verlena's estate. It is urged that in the circumstances of this case the application of estoppel is proper. We disagree.
The Commissioner's inclusion of half the value of the 2,190 acres in Verlena's estate comports with current law, and is essentially the correction of a prior legal error. It is undisputed that the position taken by the IRS with respect to the inclusion of more than half the value of this property in Edward's gross estate was incorrect; several judicial decisions had adopted...
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