1 The Honorable Henry A. Politz, Circuit Judge, Uni ted States Court of

Appeals for the Fifth Circuit, sitting by designati on. 

## F I L E D United States Court of Appeals Tenth Circuit 

### MAR 20 2001 

### PATRICK FISHER Clerk PUBLISH UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

ESTATE OF EVELYN M. McMORRIS, Deceased; JERRY D. McMORRIS, Personal Representative, Petitioner-Appellant,

v. No. 99-9031 COMMISSIONER OF INTERNAL REVENUE, Respondent-Appellee.

Appeal from United States Tax Court

(No. 1969-95)

Kevin L. Brown, Jones & Keller, P.C. (Edward T. Lyo ns, Jr., and M. Brian Cavanaugh, Jones & Keller, P.C.; John R. Wilson and Peter J. Perla, Steiner, Darling, Hutchinson & Wilson LLP, with him on the b rief), Denver, Colorado, for the appellant. John A. Dudeck, Jr. (Jonathan S. Cohen with him on the brief), Department of Justice, Tax Division, Washington, D.C., for the ap pellee.

Before BRISCOE, HOLLOWAY, and POLITZ, 1 Circuit Judges2 See 26 U.S.C. § 1014; Treas. Reg. 1.1014-3(a). 2 BRISCOE, Circuit Judge.

The Estate of Evelyn M. McMorris appeals a tax court decision in favor of the Commissioner of Internal Revenue. The tax court held that the Commissioner properly considered an event occurring after the de ath of Evelyn McMorris in disallowing her estate’s deduction pursuant to 26 U .S.C. § 2053(a)(3) for payment of federal and state income taxes owed at the time of her death. Exercising jurisdiction under 26 U.S.C. § 7482(a)(1), we rever se and remand with directions to vacate the deficiency assessment at issue here a nd to recalculate any remaining unrelated deficiencies owing.
I. The facts are undisputed. Donn McMorris, Evelyn’s husband, died in 1990, and Evelyn received 13.409091 shares of stock in NWTransport Service, Inc., from his estate. The stock was reported in Donn’s estate tax return at an appraised value of $1,726,562.50 per share as of th e date of his death and that value became Evelyn’s basis in the stock. 2 Evelyn, through her conservator Jerry McMorris, entered into an agreement with NW Transpo rt to redeem the stock for $29,500,000.00 (approximately $2,200,000.00 per share), payable over 120 months at ten percent interest.3

Evelyn died in 1991, a resident of Colorado. In he r federal estate tax return, her estate claimed deductions of $3,960,525 .00 and $641,222.00, respectively, for her 1991 federal and state income tax liabilities. Federal income tax in the amount of $3,681,703.00 and Colorado inc ome tax in the amount of $639,826.00 actually were paid with Evelyn’s 1991 i ndividual tax returns. A large part of the income reported on Evelyn’s incom e tax returns resulted from the gain on redemption of the NW Transport stock. In January 1994, the Commissioner issued a deficien cy notice to Donn’s estate disputing, among other things, the value of the NW Transport stock. Specifically, the Commissioner valued the stock at $3,618,040.00 per share. Donn’s estate contested the Commissioner’s determin ations and, after lengthy negotiations, the parties reached a settlement in J anuary 1996 for an increased value of the NW Transport stock at $2,500,000.00 pe r share as of Donn’s death. This value became the new basis for the NW Transport stock redeemed by Evelyn. As a result of her increased basis, the taxable gai n from Evelyn’s redemption of the stock was eliminated and she realized a loss. Evelyn’s estate filed an amended 1991 federal indiv idual income tax return seeking a refund of $3,332,443.00. The amended ret urn reflected a loss from redemption of the NW Transport stock and eliminated certain dividend income reported on the original return. Meanwhile, Evelyn ’s estate was challenging a3 The Commissioner also determined the estate’s allo wable deductions for

Evelyn’s 1991 federal and state individual income t ax liabilities were $3,680,038.00 and $639,826.00, respectively. Evely n’s estate did not contest either of those adjustments. 4 deficiency notice received in November 1994 concern ing an unrelated gift deduction in the amount of $140,000.00 in her estat e tax return. 3 The estate contested the deficiency in tax court and that liti gation was ongoing when Evelyn’s amended 1991 federal income tax return was filed in January 1996. In March 1996, the Commissioner filed an amended an swer in Evelyn’s estate tax litigation, asserting an increased defic iency in estate taxes. According to the Commissioner, the estate was no longer entit led to deduct Evelyn’s 1991 federal and state individual income taxes because t hose liabilities were subject to refunds. Indeed, the Commissioner approved a $3,33 0,778.00 refund of Evelyn’s 1991 federal income taxes in 1997, but the record f iled with this court does not indicate that her estate filed an amended 1991 stat e income tax return or a protective refund claim with the Colorado Departmen t of Revenue. Evelyn’s estate later conceded the Commissioner’s o riginal deficiency determination in its entirety (including disallowan ce of the $140,000.00 gift deduction). However, the estate refused to accept the Commissioner’s view that the estate’s deduction for Evelyn’s income tax liab ilities should be limited to the amount ultimately found to be due and owing by Evel yn. The estate instead took5

the position that post-death events may not be cons idered in determining the amount of its deduction for Evelyn’s individual inc ome tax liabilities because those liabilities were valid and enforceable claims against the estate at the time of Evelyn’s death. Unable to resolve their difference s, the parties submitted the case to the tax court on a fully stipulated basis. The tax court held that the estate’s deduction for Evelyn’s 1991 federal income tax liability must be reduced by the amount actually refunded in 1997. According to the tax court, it was proper for the C ommissioner to consider events occurring after Evelyn’s death in calculating this deduction because the estate challenged Evelyn’s individual income tax liability through her amended return. The tax court also held that the estate’s deduction for Evelyn’s 1991 Colorado income tax liability should be reduced to reflect t he proper amount of tax after being adjusted downward as a result of her decrease d federal taxable income. Although the record revealed that Evelyn’s estate h ad not filed an amended Colorado income tax return and Evelyn had not recei ved a refund of any 1991 state income taxes, the tax court reasoned that not hing prevented the estate from seeking such a refund on Evelyn’s behalf. The tax court determined there was an estate tax deficiency of $1,581,593.00 based on the amounts set forth in (1) the original notice of deficiency, and (2) the increase d deficiency arising from disallowance of the estate deductions for Evelyn’s 1991 individual income tax4 In its entirety, section 2053(a) provides: General rule. -- For purposes of the tax imposed by section 2001, the value of the taxable estate shall be determined by deducting from the value of the gross estate such amounts -- (1) for funeral expenses, (2) for administration expenses, (3) for claims against the estate, and (4) for unpaid mortgages on, or any indebtedness in respect of, property where the value of the decedent's interesttherein, undiminished by such mortgage or indebtedness, is i ncluded in the value of the gross estate, as are allowable by the laws of the jurisdiction, w hether within or without the United States, under which the estate is being administered. 26 U.S.C. § 2053(a). 6 liabilities. The estate appeals the latter deficie ncy determination.
II. We review decisions of the tax court “in the same m anner and to the same extent as decisions of the district courts in civil actions tried without a jury.” 26 U.S.C. § 7482(a)(1). Because this case was submitt ed to the tax court on a fully stipulated basis, we review the purely legal questi on presented by this appeal de
novo. See Duke Energy Natural Gas Corp. v. Comm’r , 172 F.3d 1255, 1258 (10th Cir. 1999).
III. Section 2053(a)(3) of the Internal Revenue Code aut horizes a deduction for “claims against the estate” in calculating the valu e of a decedent’s taxable estate. 45 See Act of Feb. 28, 1929, ch. 363, 45 Stat. 1346. 7 There is no dispute in this case that unpaid income taxes incurred by a decedent prior to death may be deducted as a claim against t he estate. See Treas. Reg. § 20.2053-6(f). Rather, the disagreement centers o n whether events occurring after a decedent’s death may be considered in calcu lating that deduction. In particular, the parties debate the effect of the 19 96 settlement between Donn’s estate and the Commissioner on the value of the sec tion 2053(a)(3) deduction taken by Evelyn’s estate for her 1991 income taxes. The estate argues the settlement is not relevant because the value of its deduction should be determined as of Evelyn’s death. The Commissioner counters th at the settlement was properly considered because the deduction is limite d to the actual amount of taxes Evelyn ultimately owed. This is an issue of first impression in our circuit , notwithstanding the Commissioner’s assertion to the contrary. Specific ally, he observes that the Eighth Circuit resolved this issue in his favor in Jacobs v. Commissioner , 34 F.2d 233 (8th Cir. 1929), shortly after Congress dividedthe former Eighth Circuit into the new Tenth and Eighth Circuits. 5 He argues that “under the statute that created the Tenth Circuit, Jacobs is a decision of the former Eighth Circuit and, th us, should be treated as binding precedent here.” Appe llee’s Br. at 30. There are two6 The Estate argues we should not even address this argument because the

Commissioner did not present it to the tax court. As a general rule, we will not consider an issue that was not raised below. See F.D.I.C. v. Noel , 177 F.3d 911, 915 (10th Cir. 1999), cert. denied , 528 U.S. 1116 (2000). We have relaxed this rule, however, where the argument presents an alter native ground for affirming a lower court ruling on a pure question of law. See Stahmann Farms, Inc. v. United States , 624 F.2d 958, 961 (10th Cir. 1980) (considering f or first time on appeal the Commissioner’s alternative theory for af firming a district court ruling adverse to taxpayer). Though we admonish all litig ants, including theCommissioner, to “give it everything they’ve got” in the lower courts, TeleCommunications, Inc. v. Comm’r , 104 F.3d 1229, 1233 (10th Cir. 1997), we will consider his new legal theory raised for the first time on appeal in support of the tax court’s ruling.

7Following the split, two district courts in our circuit concluded they w ere bound by the decisions of the former Eighth Circuit. See Thompson v. St. LouisSan Francisco Ry. Co. , 5 F. Supp. 785, 789 (N.D. Okla. 1934); In re Meyers , 1 F. Supp. 673, 674 (W.D. Okla. 1932), rev’d on other grounds sub nom. , Barbee v. Spurrier Lumber Co. , 64 F.2d 5 (10th Cir. 1933). We seemed to reach asimilar conclusion in Boynton v. Moffat Tunnel Improvement Dist. , 57 F.2d 772, 781 (10th Cir. 1932), where we discussed a former Eighth Circuit case in support of our holding and stated that “the decisions cited fr om the Supreme Court of the United States, from the Eighth Circuit Court of App eals, and from this court, are binding upon us.” However, we also relied on simil ar decisions by the Supreme Court and our own circuit and could have reached th e same holding without reference to the Eighth Circuit case. 8 fundamental problems with the Commissioner’s argume nt. 6 First, unlike the Eleventh Circuit, which chose to adopt all decisions issued by the former Fifth Circuit before its October 1, 1 981, split as binding precedent,

see Bonner v. City of Prichard , 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), we have never held that the decisions of our predec essor circuit are controlling in this court. 7Second, even assuming we are bound by the decisio ns of the former Eighth Circuit, Jacobs does not fall within that category of cases. As t he8 The Jacobs case was argued and submitted for decision on Dece mber 20,

1928. See certified copy of docket sheet in Jacobs v. Commissioner , No. 8249 (8th Cir.), attached to appellee’s brief. We take judicial notice of this court record. See Magnum Foods, Inc. v. Continental Cas. Co. , 36 F.3d 1491, 1502 n.12 (10th Cir. 1994) (“this court may appropriatel y take judicial notice of developments that are a matter of public record and are relevant to the appeal”). 9 Commissioner concedes, the Eighth Circuit decided J acobs almost four months afterthe Act creating our circuit took effect. Moreove r, we are not persuaded by the Commissioner’s argument that section 5(1) of th at Act obligates us to treat the Eighth Circuit’s post-split decision in Jacobs as a decision of the former Eighth Circuit simply because that case was argued and sub mitted prior to the effective date of the Act. 8 That section states: “If any hearing before [the former Eighth Circuit] has been held in the case, or if the case has been submitted for decision, then further proceedings in respect of the case sha ll be had in the same manner and with the same effect as if this Act had not bee n enacted.” 45 Stat. at 1348. Notably, the Act creating the Eleventh Circuit cont ains nearly identical language, see Bonner , 661 F.2d at 1207-08, yet that circuit has never a dopted the per se rule urged by the Commissioner in this case. The Eleventh Circuit has instead held that where an appeal was submitted bef ore the split but decided by the Fifth Circuit thereafter, the decision has prec edential effect only if the appeal arose in the geographical confines of the Eleventh Circuit. See Stein v. Reynolds9 Prior to its division, the former Fifth Circuit cr eated two panels: Unit A,

which would comprise the new Fifth Circuit (Texas, Louisiana and Mississippi), and Unit B, which would become the new Eleventh Cir cuit (Georgia, Florida and Alabama). See Theodore H. Davis, Jr., Likelihood of Confusion Determinations: a Survey of Eleventh Circuit Jurisprudence , 2 J. Intell. Prop. L. 57, 62 n.6 (1994). Thus, the Stein court refers to the Unit A panel and the Unit B panel of the former Fifth Circuit in its decision. See 667 F.2d at 34. 10 Sec., Inc. , 667 F.2d 33, 34 (11th Cir. 1982). 9 But as the estate points out in this case, Jacobs arose in Missouri, which has always been in the Ei ghth Circuit. The Commissioner offers no reason why an Eighth Circuitcase decided after the split and arising outside the geographical confines of ou r circuit should be binding on this court, and we decline to announce such a rule here. Because we are not bound by Jacobs in deciding whether post-death events may be considered in valuing a deduction under sect ion 2053(a)(3), we may answer this question on a clean slate. Neither sec tion 2053(a)(3) nor the tax regulations clearly indicate whether events that oc cur after a decedent’s death are relevant in calculating a deduction for a claim aga inst the estate. The statute is silent on this issue. The regulations, on the othe r hand, contain language which arguably supports the positions of both parties. F or instance, one regulation cited by the estate provides: “The amounts that may be d educted as claims against a decedent’s estate are such only as represent person al obligations of the decedent existing at the time of his death.” Treas. Reg. § 20.2053-4. But, another11

regulation relied upon by the Commissioner permits estates to deduct a decedent’s tax liabilities as a claim against the estate even if the exact amount is not known, as long as the deduction “is ascertainable with rea sonable certainty, and will be paid.” Treas. Reg. § 20.2053-1(b)(3). In light of these apparent inconsistencies, the most we can discern “from these Regulations is that the situation we now face is not expressly contemplated.” Estate of Smith v. Comm’r , 198 F.3d 515, 521 (5th Cir. 1999). We therefore begin our analysis with the leading ca se on this issue, Ithaca Trust Co. v. United States , 279 U.S. 151 (1929). In Ithaca Trust , the decedent left the residue of his estate to his wife for life, wit h the remainder to certain charities. To ascertain the amount of the charitab le deduction for estate tax purposes, the wife’s residual was calculated with amortality table and subtracted from the principal of the estate. However, the wif e died much sooner than expected. The question for the Court was whether t he value of the estate’s deduction should be calculated according to the wif e’s life expectancy as of the date of the testator’s death or by applying the wif e’s actual date of death. In a unanimous opinion, the Court adopted a date-of-deat h valuation rule: “The estate so far as may be is settled as of the date of the t estator’s death.” Id. at 155. The Court acknowledged that “[t]he first impression is that it is absurd to resort to statistical probabilities when you know the fact,” but it stated that “the value of10 In Commissioner v. Strauss , 77 F.2d 401 (7th Cir. 1935), vacated by

stipulation , 81 F.2d 1016 (7th Cir. 1936), the Seventh Circuitdisregarded postdeath events without mentioning Ithaca Trust

. 12 the thing to be taxed must be estimated as of the t ime when the act is done,” i.e. , the passing of the decedent’s estate at death. Id. The Court therefore concluded by stating that, as “[t]empting as it is to correctuncertain probabilities by the now certain fact, we are of opinion that it cannot be d one.” Id. Several courts have relied on the date-of-death val uation rule announced in Ithaca Trustto hold that events occurring after a decedent’s d eath are irrelevant in valuing an estate’s deduction under section 2053(a) (3). See Estate of Smith , 198 F.3d at 520-26 (allowing estate to deduct date-of-d eath value of claim against it even though estate later settled for lesser amount) ; Propstra v. United States , 680 F.2d 1248, 1253-56 (9th Cir. 1982) (same); Estate o f Van Horne v. Comm’r , 78 T.C. 728, 732-39 (1982) (same), aff’d , 720 F.2d 1114 (9th Cir. 1983); Greene v. United States , 447 F. Supp. 885, 892-95 (N.D. Ill. 1978) (declin ing to consider creditor’s failure to comply with statute of limitations for filing claim after decedent’s death in allowing estate’s deduction forclaim); Russell v. United
States , 260 F. Supp. 493, 499-500 (N.D. Ill. 1966) (same) ; Winer v. United States , 153 F. Supp. 941, 943-44 (S.D.N.Y. 1957) (same). 10 While most of these courts acknowledged that Ithaca Trustinvolved a different section of the federal estate tax statute, i.e. , charitable bequest deductions under the precursorto 26 U.S.C. §13

2055, they interpreted the opinion as announcing a broad principle that the value of a taxable estate should be determined as closely as possible to the date of the decedent’s death. Other courts, however, have refused to extend the p rinciple of Ithaca Trust beyond charitable bequest deductions, holding that postmortem events may properly be considered in calculating the value of a claim against the estate deduction

. See Estate of Sachs v. Comm’r , 856 F.2d 1158, 1160-63 (8th Cir. 1988) (holding that Commissioner could rely on retr oactive tax forgiveness legislation enacted four years after decedent’s death in disallowing estate deduction for paying those taxes); Comm’r v. Estate of Shively , 276 F.2d 372, 373-75 (2d Cir. 1960) (holding that decedent’s estate could not deduct full dateof-death value of spousal support obligations becau se ex-wife re-married before estate filed return); Jacobs , 34 F.2d at 235-36 (holding that husband’s estate could not deduct amount of claim against it arising from antenuptial agreement as a result of wife’s waiver of claim after husband’s de ath); Estate of Kyle v. Comm’r , 94 T.C. 829, 848-51 (1990) (disallowing estate’s de duction for date-of-death value of litigation claim against it because case w as resolved in estate’s favor six years after decedent’s death); Estate of Hagmann v. Comm’r , 60 T.C. 465, 466-69 (1973) (refusing to allow estate to deduct valid cl aims against it because creditors never filed those claims after decedent’s death), a ff’d per curiam , 492 F.2d 79611 In Commissioner v. State Street Trust Co. , 128 F.2d 618 (1st Cir. 1942),

the First Circuit considered post-death events without discussing Ithaca Trust

. 14 (5th Cir. 1974). 11 Although these courts have offered a variety of r easons why Ithaca Trust should be limited to charitable bequests, three rec urring themes
emerge. One explanation for not extending Ithaca Trustto claims against the estate is that the congressional purpose underlying that d eduction is different from that of deductions for charitable bequests. According t o this rationale, the date-ofdeath valuation rule does not apply to section 2053 (a)(3) because the purpose of that deduction is to appraise the decedent’s actual net worth at death, while the purpose of section 2055 is to encourage charitable bequests by ensuring that if a testator makes a charitable gift in a prescribed fo rm, a deduction will be allowed in a specified amount. See, e.g. , Sachs , 856 F.2d at 1162 (“there is no legislative interest behind the § 2053(a)(3) deduction in encou raging claims against the estate in the same way that date-of-death valuation encourages charitable bequests”). Another justification for not applying Ithaca Trust to section 2053(a)(3) is based on the other deductions in the section. This approach places heavy reliance on the fact that section 2053(a) allows a deduction not only for claims against the estate but also for funeral and estate administrati on expenses. Under this view,15

since these expenses are calculated after death, Co ngress must also have intended that claims against the estate be ascertained by po st-mortem events. See, e.g. , Jacobs , 34 F.2d at 236 (“funeral expenses, administration expenses, and claims against the estate, under this paragraph, were inte nded by Congress to be determined in the course of an orderly administrati on of the estate”). The third reason these courts reject a date-of-deat h valuation approach is they do not consider it sensible to allow an estate to deduct a claim it does not ultimately owe or pay. See, e.g. , Shively , 276 F.2d at 375 (“To permit an estate such a deduction under these circumstances would be to prefer fiction to reality and would defeat the clear purpose of [the precurso r to section 2053(a)(3)].”). We do not find any of these explanations particular ly persuasive. Even assuming Congress had different motives for allowin g deductions under section 2053 than it did for deductions under section 2055, this distinction “fails to explain why deductions for claims against the estat e should be computed [any] differently from charitable bequests.” Propstra , 680 F.2d at 1255 n.11. Further, we find it insignificant that Congress placed funer al and estate administration expenses, which are calculated after death, with cl aims against the estate in section 2053(a), because that section also contains a deduction for unpaid mortgages, which may be calculated without referenc e to post-death events. Finally, we note that the emphasis on actuality in valuing claims against the estate16

is at odds with the Supreme Court’s admonition thatas “[t]empting as it is to correct uncertain probabilities by the now certain fact, we are of opinion that it cannot be done.” Ithaca Trust , 279 U.S. at 155. Thus, instead of facing compelling arguments why we should reject date-of-d eath valuation for claims against the estate, we are left with ambiguous inte rpretations of the appropriate method for calculating section 2053(a)(3) deduction s. These ambiguities, of course, do not automatically lead to the conclusion that events occurring after a decedent’s death may never be considered in valuing a claim against the estate. But neither do they pr ovide us license to ignore the Supreme Court’s pronouncement that “[t]he estate so far as may be is settled as of the date of the testator’s death.” Ithaca Trust , 279 U.S. at 155. We therefore agree with the Fifth Circuit that a “narrow reading of Ithaca Trust , a reading that limits its application to charitable bequests, is u nwarranted.” Smith , 198 F.3d at 524. Accordingly, we hold that the date-of-death v aluation rule announced in Ithaca Trustapplies to a deduction for a claim against the est ate under section 2053(a)(3). As a result, in this circuit, events w hich occur after the decedent’s death may not be considered in valuing that deducti on. Sound policy reasons support our adoption of the date-of-death valuation principle for section 2053(a)(3) deductions. Speci fically, this principle provides a bright line rule which alleviates the uncertainty a nd delay in estate administration17

which may result if events occurring months or even years after a decedent’s death could be considered in valuing a claim agains t the estate. See Appellant’s Opening Br. at 22 (“This uncertainty would make est ate administrators -- who are personally liable for the estate tax -- more reluct ant to satisfy estate obligations and distribute estate assets.”); Robert C. Jones, N ote, Estate and Income Tax: Claims Against the Estate and Events Subsequent to Date of Death , 22 U.C.L.A. L. Rev. 654, 680 (1975) (“A large part of the delay involved in the probate of estates is attributable to a final determination of tax liabilities. . . . [A]llowing postmortem events occurring during the administrati on of the estate to govern, contributes to probate delay.”). Our holding resol ves these problems by bringing more certainty to estate administration, an ideal w hich has long been promoted by judge and commentator alike. See Shively , 276 F.2d at 376 (Moore, J., dissenting) (“In the field of estate tax law it is particularly important that there be as much certainty as possible.”); Jones, Estate and Income Tax , supra , at 681 (“the current approach to timing the valuation of c laims must be made more certain and consistent”). Although our holding ultimately benefits the estate in this case, application of the rule we announce today just as easily can favor the Commissioner. As one commentator has observed, when it serves his intere sts the Commissioner “has not been loathe to employ the principle that deductible claims against the estate18

become fixed at death.” Craig S. Palmquist, The Es tate Tax Deductibility of Unenforced Claims Against a Decedent’s Estate , 11 Gonz. L. Rev. 707, 712 (1976). For example, in Estate of Lester v. Commis sioner , 57 T.C. 503 (1972), the estate was obligated by a divorce decree to pay $1,000.00 per month to the decedent’s ex-wife. The estate made twenty-four payments and then settled with the ex-wife by purchasing an annuity policy for herbenefit for $78,700.00. The estate argued it was entitled to deduct at least $1 02,700.00, the total of its payments and the annuity policy, as a claim againstthe estate. Invoking Ithaca
Trust , the Commissioner insisted the deduction was limit ed to $92,456.16, the actuarial value of the ex-wife’s life expectancy as of the decedent’s death. The tax court agreed with this position:

We think there is no reason in this case to go beyo nd the principle of Ithaca Trust Co. v. United States , supra -- that the value of the judgment in the divorce proceedings is to be determined as of the date of the husband’s death by the use of the t ables employed here by the Commissioner, which take into consideration the contingency of the wife’s death prior to final paym ent of the installments to become due. There is no need to go into the effect of events su bsequent to the husband’s death, i.e. , how the estate finally freed itself of a continuing and admitted liability. Id. at 507. Thus, as the facts of Lesterdemonstrate, whether our holding benefits the government or the taxpayer depends on the parti cular circumstances of each

case. In this case, the tax court concluded it was approp riate to consider post-19

mortem events because the estate later sought a ref und of Evelyn’s 1991 federal income tax and could have done the same with regard to her state income tax. Emphasizing that “a claim that is valid and enforce able at the date of a decedent’s death must remain enforceable in order for the estate to deduct the claim,” McMorris v. Commissioner , 77 T.C.M. (CCH) 1552, 1554 (1999), the tax court reasoned that once the estate challenged Evelyn’s t ax liabilities, they were “no longer a valid and enforceable claim against the es tate,” id. at 1555. As support, the tax court cited its prior holding in Estate of Smith v. Commissioner , 108 T.C. 412 (1997), rev’d and vacated , Smith , 198 F.3d 515, which distinguished cases involving the valuation of claims that are certain and enforceable on the date of a decedent’s death from cases where the enforceabilityof the claims were unknown at death because they were disputed or contingent. Under this approach, the former claims are calculated as of the date of deat h, while the latter claims are calculated by considering post-death events. See id. at 419. In examining the “enforceable” nature of the estate ’s claims in this case, the tax court did not have the benefit of the Fifth Circuit’s subsequent decision in Smith , which concluded that “this dichotomy, which disti nguishes between enforceability on the one hand and valuation on the other, . . . is not a sound basis for distinguishing claims in this context.” 198 F. 3d at 525. As the Fifth Circuit explained:20

There is only a semantic difference between a claim that may prove to be invalid and a valid claim that may prove to h ave a value of zero. For example, if given the choice between bei ng the obligor of (1) a claim known to be worth $1 million with a 50 percent chance of being adjudged unenforceable, or (2) a claim known to be enforceable with a value equally likely to be $1 mi llion or zero, a rational person would discern no difference in choo sing between the claims, as both have an expected value $500,000. Id. Because the tax court in Smithimproperly relied on the “contingent” nature of the estate’s claim to consider post-death events , the Fifth Circuit remanded the case with instructions that the tax court “neither . . . admit nor consider evidence of post-death occurrences when determining the date -of-death value of [the] claim.” Id. at 526. In this case, instead of focusing on whether the es tate’s section 2053(a)(3) deduction for Evelyn’s income tax liabilities “rema ined enforceable” for an infinite period of time, the tax court should have examined whether the estate properly calculated that deduction as of the date o f Evelyn’s death. Had the tax court done so, it would have recognized that the in creased deficiency at issue in this appeal was not premised on a date-of-death mis calculation. The increased deficiency was based solely on the fact that the fe deral and state income taxes incurred by Evelyn in 1991 became subject to a refu nd as a result of a settlement between another estate and the Commissioner in 1996 . Therefore, the tax court erred when it considered that settlement in calculating the total tax deficiency for Evelyn’s estate.21 IV. We REVERSE the tax court’s ruling that events occur ring after death may be considered in valuing a claim against the estate deduction. We REMAND to the tax court with directions to VACATE the determi nation of the estate tax deficiency at issue and to recalculate any remainin g unrelated deficiencies owing.