White v. US
| Citation | 881 F. Supp. 688 |
| Decision Date | 30 March 1995 |
| Docket Number | Civ. A. No. 92-11672-RCL. |
| Parties | Eric S. WHITE, Administrator, C.T.A., of the Estate of Lucy Lee Bennett, Plaintiff, v. UNITED STATES of America, Defendant. |
| Court | U.S. District Court — District of Massachusetts |
Gerald B. O'Grady, III, Tyler & Reynolds, P.C., H. Theodore Cohen, McGregor & Shea, P.C., Boston, MA, for plaintiff.
Susan M. Poswistilo, Asst. U.S. Atty., Boston, MA, Henry J. Riordan, Trial Atty., Tax Div., U.S. Dept. of Justice, Washington, DC, for defendant.
Report and recommendation accepted.
REPORT AND RECOMMENDATION RE: DEFENDANT UNITED STATES' MOTION FOR SUMMARY JUDGMENT (DOCKET ENTRY # 23); PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT (DOCKET ENTRY # 13)
Pending before this court are cross motions for summary judgment in the above styled action to recover federal estate taxes. Defendant United States of America ("defendant") filed a motion for summary judgment seeking to dismiss this action. (Docket Entry # 23). Plaintiff Eric S. White, Administrator, C.T.A., of the Estate of Lucy Lee Bennett ("plaintiff") opposes summary judgment (Docket Entry # 26) and moves for summary judgment to recover federal estate taxes, interest and penalties, if any, on amounts of $113,032.57 and $3,026.33 paid by plaintiff in 1991 together with accrued interest. (Docket Entry # 14). Defendant opposes the motion. (Docket Entry ## 20 & 24). After conducting a hearing on plaintiff's motion for summary judgment, this court took the motion under advisement. (Docket Entry # 27). This opinion also addresses defendant's motion for summary judgment. (Docket Entry # 23).
On July 31, 1957, Lucy Lee Bennett, a/k/a/ Lucy Lee Perry ("Bennett"), signed an indenture establishing a revocable trust ("the trust"). Under the fifteenth article, Bennett reserved the right to amend the trust with a written instrument delivered to the trustees. In order to amend the trust, the trustees had to receive the written instrument.1 In addition, any amendment would not effect any prior lawful act made by the trustees. The pertinent language reads that:
The Donor reserves the right by written instrument delivered to the Trustees hereunder to alter, amend or revoke this Indenture in whole or in part, but without effect upon any lawful act of the Trustees prior to the receipt of such instrument.
.
By written instrument dated September 5, 1980, Bennett amended the trust to delete the third and fourth articles and to substitute the following language as the third article:
During the lifetime of the Donor and while she is married the Trustees shall distribute from principal the sum of $6,000 per annum in securities and/or cash to Carol Lee Herbel, daughter of the Donor, Eric S. White and Joseph N. White, sons of the Donor, Brian C. Herbel, Bradley N. Herbel, Sarah W. White, Emily S. White and David T. White, grandchildren of the Donor, and to any other grandchildren of the Donor, and to any other grandchildren of the Donor subsequently born.
(Docket Entry # 24, Ex. C). The September 1980 amendment set the date for the distributions, exclusive of the first distribution, as "immediately after the first of the successive years." It is undisputed that Bennett remained married from the date of this amendment to her death. (Docket Entry # 16).
By written instrument dated August 9, 1982, Bennett made another amendment to the trust by: (1) adding the names of two donees; (2) directing that the missed 1981 and 1982 distributions be made together; and (3) directing that the 1983 and subsequent distributions be made with the amounts set forth in the September 1980 amendment, albeit to the enlarged list of donees. The August 1982 amendment reads, in part, as follows:
Whereas no principal distributions were made under Article Third during the year 1981, I direct that the 1981 distributions and the 1982 distributions shall be currently made together and the 1983 and subsequent distributions shall revert to the amounts provided in Article Third but to the enlarged list of Donees.
(Docket Entry # 24, Ex. D).
On January 30, 1987, Bennett died. At the time of her death, the trustees had made distributions to the designated donees for the years 1981, 1982, 1984 and 1985. Significantly, however, the trustees had not made the distributions for the years 1983, 1986 and 1987 despite the language that the trustees "shall" make such distributions on "the first of the successive years." (Docket Entry # 16).
After Bennett's death, the trustees distributed the 1983, 1986 and 1987 missed distributions to the donees. On or about October 1, 1987, plaintiff filed for an extension of time and paid an estate tax of $910,000. In December 1987 plaintiff filed an estate tax return on form 706. Therein, plaintiff reported an estate tax liability of $813,756.27 and claimed a refund of $96,243.53 in light of the prior payment of $910,000. (Docket Entry # 24, Ex. J & S; Docket Entry ## 15 & 16).
In February 1988 the Internal Revenue Service ("the IRS") paid the estate a refund of $96,243.53 with interest of $2,098.42, resulting in a total payment of $98,341.95. On schedule K of form 706, plaintiff listed as a debt of the decedent, $180,000 for the distributions to the donees made after Bennett's death under the trust for the years 1983, 1986 and 1987. Plaintiff described the $180,000 debt on the schedule as:
Distributions to decedent's issue required by Second Amendment dated September 5, 1980 to Trust u/i dated July 31, 1957 but not in fact made during decedent's lifetime. $54,000 for the years 1983, 1986 & 1987.
(Docket Entry # 24, Ex. J & S; Docket Entry # 15).
In 1990 the IRS audited plaintiff's form 706. The IRS disallowed the $180,000 deduction set forth in schedule K. In its explanation of the adjustment, the IRS stated that the $180,000 deduction for the distributions not made during Bennett's lifetime were not allowable under 26 U.S.C. § 2053(c)(1)(A). The IRS therefore included the $180,000 amount for the distributions in the gross estate. (Docket Entry # 24, Ex. J & O; Docket Entry # 15)
On November 8, 1990, the IRS sent plaintiff a statutory notice of a $79,559.89 estate tax deficiency. The estate agreed to pay the deficiency with interest. On January 14, 1991, the IRS assessed a $79,559.89 deficiency in estate tax and $3,472.68 in interest. On March 19, 1991, the estate paid the IRS $113,032.47 and on May 22, 1991, the estate paid an additional $3,026.33.2 As a result, as of October 26, 1992, the estate had paid in full the estate tax plus the deficiency. (Docket Entry # 24, Ex. O & S).
In February 1992 plaintiff filed form 843 seeking a refund of the $113,032.47 and $3,026.33 payments with interest. Plaintiff provided the IRS with a detailed explanation as to why the $180,000 amount of the distributions was a valid and enforceable claim against the trust at the time of Bennett's death and, therefore, properly excluded from the date of death value of the trust. Plaintiff alternatively sought inclusion of the $180,000 amount as a schedule K debt. (Docket Entry # 24, Ex. Q).
By letter dated May 11, 1992, the IRS disallowed the claim for a refund. (Docket Entry # 24, Ex. R). This action for a refund pursuant to 26 U.S.C. § 6532(a)(1) followed.
While both parties move for summary judgment (Docket Entry ## 13 & 23), this court analyzes the cross motions for summary judgment separately and under different frameworks. With regard to defendant's motion for summary judgment, plaintiff bears the underlying burden of proof and, hence, must present definite and competent evidence to survive summary judgment. Webb v. I.R.S., 15 F.3d 203, 205 (1st Cir. 1994) (citing Bonilla-Aviles v. Southmark San Juan, Inc., 992 F.2d 391, 393 (1st Cir. 1993)).
Summary judgment is permissible when "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Inferences are drawn in favor of the nonmoving party. Space Master International, Inc. v. City of Worcester, 940 F.2d 16 (1st Cir.1991); Herbert W. Price v. General Motors Corporation, 931 F.2d 162 (1st Cir.1991).
In deciding whether a factual dispute is genuine, this court must determine whether "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); accord Aponte-Santiago v. Lopez-Rivera, 957 F.2d 40, 41 (1st Cir. 1992) (citing Anderson). "A fact is `material' if it might affect the outcome of the suit under the governing substantive law." Beck v. Somerset Technologies, 882 F.2d 993 (5th Cir.1989) (citing Anderson).
Where, as here, the taxpayer brings an action for a refund, there is a presumption that the IRS' decision, which denied the inclusion of the $180,000 amount in schedule K and rejected the argument that the $180,000 should be excluded from the calculation of the fair market value of the gross estate, is correct. See United States v. Janis, 428 U.S. 433, 440, 96 S.Ct. 3021, 3025, 49 L.Ed.2d 1046 (1976) (); Connor v. C.I.R., 847 F.2d 985, 989 (1st Cir.1988); Lefebvre v. C.I.R., 830 F.2d 417, 419 n. 3 (1st Cir.1987) (); Estate of Todisco v. C.I.R., 757 F.2d 1, 6 (1st Cir.1985) (); United States v. Rexach, 482 F.2d 10, 16 (1st Cir.), cert. denied, 414 U.S. 1039, 94 S.Ct. 540, 38 L.Ed.2d 330 (1973); Compton v. United States, 334 F.2d 212, 216 (4th Cir.1964).
Turning to the correctness of the decision to disallow inclusion of the $180,000 as a schedule K...
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