TAX COURT OPINION

Case: Estate of Jane H. Gudie, Deceased, Mary Helen Norberg, Executor
Docket Number: 4089-10
Judge: Wherry
Opinion Type: reported
Filed: 11/30/2011
Pages: 15

137 T.C. No. 13 UNITED STATES TAX COURT ESTATE OF JANE H. GUDIE, DECEASED, MARY HELEN NORBERG, EXECUTOR, COMMISSIONER OF INTERNAL REVENUE, Respondent Petitioner v. Docket No. 4089-10. Filed November 30, 2011. E was never appointed executrix over·D's estate by a R determined a deficiency in I.R.C., accuracy-related E filed a petition with this Court for State probate court, but she signed D's estate's Federal estate tax return as executor. estate tax and a sec. 6662(a), penalty and issued a notice of deficiency listing E as executor. redetermination. for lack of subject matter jurisdiction, arguing this Court lacked jurisdiction because she was never appointed executrix by a State probate court and accdrdingly the notice of deficiency had been sent to the wrong person. objected, arguing that because E was in possession of property of D, she was a statutory·executor within the purview of sec. 2203, I.R.C., and the proper person to receive the notice of deficiency. E subsequently filed a motion to dismiss R E is a statutory executor within the purview of Held: sec. 2203, deficiency. this Court has jurisdiction. I.R.C. R properly issued E a notice of E timely petitioned this Court, and therefore - 2 - Edward O.C. Ord and Robert P. Hess, for petitioner. R. Malone Camp, Jr., and Donna F. Herbert, for respondent. OPINION WHERRY, Judge: The sole issue before this Court is whether we have subject matter jurisdiction. Petitioner argues we do not; respondent argu'es we do. We agree with respondent. Background The following recitation of facts is drawn primarily from Mary Helen Norberg's (Ms. Norberg) motion to dismiss for lack of subject matter jurisdiction (motion to dismiss) and responses filed by both partie . We ndte that our recitation of "facts" is solely for the purpose of ruling on the motion to dismiss and is not a finding of facts. Jane H. Gudie (decedent), a resident of California, died on June 14, 2006. Decedent had no children but was survived by two nieces, Ms..Norberg and Patricia Ann Lane (Ms. Lane). Decedent's will did not nominate either niece as her executrix. Part of decedent's estate consisted of property held in the "Jane Henger Gudie Living Trust" (decedent's trust), created July 17, 1991. The trust document originally named Ms. Norberg and Ms. Lane (the nieces as the remainder beneficiaries. Decedent retained for her life the right to revoke or amend the trust in whole or in part. - 3 - On April 1, 1995, ,the ^terms of decedent's trust were amended to name the nieces as the primary beneficiaries. On January 19, 1999, the terms of decedent'"s trust were amended to appoint. Ms. Norberg cotrustee and the nieces astsuccessor cotrustees upon decedent's death. On February 9, 1999, de:cedent and the nieces entered into a transaction where, in form; the. nieces eách agreed to pay decedent an annuity of $937,483 per year, with the first payment due in 4 years. In return,. decedent, as trustee, issued.a note to each niece, due in 4 years or upon -decedent's death, in the face amount of $3 million with 6 percent intere.s.t, secured by the assets of decedent's trust. Neither note was recorded, 'and no. payments were made. " On February 9, e2003, the unpaid annuity amounts were rolled over into new annuities and the annuity commencement date and the due date of the notes deferred for another 4 years. Again, no payments were made. On or about March-14, 2007, a Form 706, ·United States Estate (and Generation-Skipping Transfer) Tax -Return, was :filed for decedent's estate (estate -tax return). At the time the estate tax return was filed, no one swas formally appointed, qualified, or acting as executor or administrator of decedent's estate.. Ms. Norberg signed the estate tax return as executor but refuses to be'formally appointed executrix of decedent's estate under California law. The estate tax return rëported.a total gross estate less exclusion of zero and estate'taxes mowed of zero. Schedule G, Transfers During Decedent's Life, attached to the estate tax return listed assets including real estate totaling $1,890,000, furniture and furnishings totaling $100,000, and securities and bank accounts totali g $5,08Ó,515.t The real estate, securities, and bank accounts were titled in the name of decedent's trust. The assets of decedent's trust were listed subject,to the outstanding debt owed to the nieces ($6 million principal plus $2,643,300 accrued ipterest). As a result, the estate tax return reported total assets transferred . during decedent' s life of negative $1,572,785. As the sole beneficiaries of d.ecedent'-s trust:, the nieces received equal shares of the trust property. According to correspondence between. the nieces, ;Ms. Norberg's husband, and Robert P. Hess (Mr. ess),·decedent'.s estate planner., the nieces each received $3,404 343.63 upon decedent's death. Respondent audi ed the estate tax return, determining (1) decedent had.made $2 983,437 of adjusted'taxable gifts in 1992 that were not reflec ed on the estate tax return; (2) claimed gifts of $279,000 de edent ma e in 2005. and 200.6: were invalid for estate and gift tax urposes; and (3) the deduction aof $8,643,300 claimed on Schedule G is..not deductible because it was not a bona fide loan and was no for full and adequate consideration. - 5 - On January 11, 2010, respondent issued a notice of deficiency to "Estate of Jane H. Gudie, c/o Mary Helen Norberg, Executor", showing a deficiency in estate tax of6 $3,833,157.92 and a section 6662(a) accuracy-related penalty of $766,631.58.1 On February 17, 2010, a petition» was filed with this Court by Mr. Hess, who is an attorney admitted to practice before this Court, on behalf of "Jane H. Gudie, Deceased; Mary Helen Norberg, Executor". At the time the petition was filed, Ms. Norberg resided in California. In the petition, Ms. Norberg alleged that respondent erred in determining that the decedeht did not receive full and adequate consideration in money or money's worth for promissory no.tes that represented bona fide claims against decedent's living trust dated September 16, 1981. 2005 and 2006 were not valid for Estate and Gift Tax purposes, There was no evidence that gifts made in Respondent filed his an~swer on April 8, 2010. On January 3, 2011, respondent's motion for leave to file amendment to answer, filed December 23, 2010, was granted. In the motion respondent alleged that the gifts made in 1992 were made to "skip persons" under section 2613 and accordingly were subject to the generation-skipping transfef tax under section 2601. The motion asserted an increased deficiency in estate tax of $4,972,876.30 . lAll section references are to the Internal Revenue Code of 1986, as amended and in effect for the date of decedent's death. All Rule references are to the Tax Court Rules of Practice and Procedure. - 6 -- and an increased section 6662(a) accuracy-related penalty of $994,575.26. On June 9, 2011, Ms. Norberg filed a motion to dismiss. On June 17, ·2011, respondent was ordered to file any response to the motion to dismiss on or before July.25,.2011. Respondent's objection to the motion to- dismiss was ·filed on July 22, 2011, with six exhibits,o d nominated A through ;F, attached. On August 26, 2011, Ms. Norberg filed two documents: (1·) A reply memorandum in support of objections to respondent's objections to motion to dismiss and (2) Mary Helen Norberg's evidentiary , objections to respon ent's objections to motion to·dismiss. . t Discussion I. Evidentiary Obiections Ms. Norberg asserts that "In ruling on a motion for summary adjudication, a trial court can only -consider admissible evidence" and that.because respondent's "factual allegations and exhibits in support:of * * * ;[respondent's objection]" are inadmissible, they "must be stricken", citing rule 56(e) of the Federal Rules of Civ 1 Procedure, Orr v·. Bank of Am., 285 F.3d 764, 773 (9th Cir.. 2002), and}Beyene v. Coleman Sec. Servs., Inc., 854 F.2d 1179, 1181·(9th Cir. 1988),_.as her authorities. In Orr v. Bank of Am., supra at 773, the Court of Appeals for the Ninth Circuit, the court to which this case is appealable absent stipulation to the contrary, stated: A trial court can only consider admissible evidence in ruling on a motion for summary judgment." Beyene v. Coleman Sec. Servs., Inc., supra at 1181, and rule 56(e) of the Federal Rules of Civil Procedure stand for the same proposition. But we are not ruling on a motion for summary judgment. We are ruling on a motion to dismiss for lack of subject matter jurisdiction.2 The U.S. Supreme Court has held where, as here, "there is no statutory direction for procedure upon an issue of jurisdiction, the mode of its determination is left~ to the trial court." Gibbs v. Buck, 307 U.S. 66, 71-72 (1939). .When an issue of jurisdiction is raised, either by a party or on our own initiative, we "may inquire by affidavits or otherwise, into the facts as they exist." Land v. Dollar, 330 U.S. 731, 735 n.4 (1947), overruled by implication on other grounds by Larson v. Domestic & Foreign 2Ms. Norberg, in her objection, states: lacks subject matter jurisdiction, pursuant to This is due to the fact This Court should treat this motion as a motion for summary judgment seeking an order ruling that this Court Tax Court Rules 40 and 121. that the motion to dismiss is supported by a declaration under penalty of perjury under 28 U.S.C. 1746, which authorizes declarations in lieux of affidavits. We view Ms. Norberg's position as an attempt to circumvent established precedent and bring evidentiary rules not applicable in jurisdictional questions into play. have jurisdiction, we are not bound by evidentiary rules applicable in deciding motions for summary judgment. In deciding whether we - 8 - Commerce Corp., 337 U.S. 682 (1949); see also Stevens v. Redwing, 146 F.3d 538 (8th Cir. 1998).. None of respond nt's exhibits kwill be stricken, and the Court will examine alll the facts before us in determining whether we have jurisdiction over this case. II. Subiect Matter Jurisdiction A. Introduction The Tax Court is a court of limited jurisdiction and may exercise jurisdiction only to the extent authorized by Congress. Adkison v. Commissioner, 592 F.3d 1050, 1052' (9th Cir. 2010), affg. on other grounds 129 T.C. 97 (2007). Our jurisdiction. to redetermine a defici ncy depends upon÷ the issuance of a valid notice of deficiency and a timely filed petition. Rule 13(a), (c); Monge v. Commissioner, 93 T.C. 22, 27 (1989). Section 6212 (a) expressly authorizes the Commissioner, after determining a deficiency, to send a notice of deficiency to the taxpayer. In the instance of an estate tax deficiency, once the Commissioner is notified of the existence of a fiduciary relationship, the fiduciary steps into the shoes of the taxpayer for tax purposes, and the notice of deficiency is to be sent to the fiduciary. Sec. 6212(b) (3); Rule 60(a); Estate of McElroy v. Commissioner, 82 T.C. 509, 512 (1984); Estate of Kisling v. Commissioner, T.C. Memo. 1993-119; sec. 301.6212-1(b) (3), Proced. & Admin. Regs. The taxpayer (or fiduciary) in turn has 90 days from the date the notice of deficiency is mailed (150 days ,if the notice is mailed to a taxpayer outside of' the United States) to file a petition in this Cour;t for a xedetermination of the deficiency.. Sec. 621'3(a);1Rule 60(a); Estate of_ Moffat v. 4 Commissioner, 46 .T.C. 499, 5.01 (1966) . B. Ms. Norberg'st Argument . Ms. Norberg, relying on Hulburd v. Commissioner,. 296'U.S.. 300 (1935), argues that "the notice was issued and mailed to the wrong taxpayer".3 Although unclear, we surmise Ms.- Norberg's argument is that she was not a fiduciary within the meaning of section 6212(b) (3). She states thath she was never appointed executrix of decedent's -estate by a California probate court and no action of any kind seeking her appointment as executrixs will be taken.. According to.Ms'. ;Norberg,? the notice of deficiency . should have been addressed to "Jane Henger Gudie Living Trust dated July 17,' 1991, Mary Hélen Norberg and Patricia Ann Lane successor co-trustees, or to Norberg as a transferee". .. 3Hulburd v. Commissioner, 296 U.S. 300 (1935), did not involve the validity of a deficiency notice, but rather the personal in a dissolved corporation. assertion, Hulburd has little, if any, hand. li.ability of the executor and legatee of a shareholder Thus, contrary to Ms'. Norberg's relevance to the case at C. Respondent's Argument - 10 - Respondent argues that Ms. Norberg.was in actual or constructive receipt of property of decedent and thus "as statutory executor.within the meaning of section 2203, was the proper person to whom to issue the notice of deficiency pursuant to section 6212 (b) (31) and the proper party to bring the instant case pursuant to Tax Court Rule 60(a)". D. Analysis Our conclusion, explained below, is that Ms. Norberg, because she was in actual or constructive possession of property of decedent, was a.statutory executor.. As such,, she had the responsibility and authority to file the estate- tax return. By filing the estate tax return, she notified respondent of a fiduciary relationship and was the.proper person to receive the notice of deficiency. Section 2203 deEines "executor" for purposes of. the Federal estate tax as "the e:ecutor or administrator of the decedent, or, if there is no executor or administrator appointed, qualified, and acting within the United States, then any person in actual or constructive possess on of any property of the decedent." In her objection, Ms. Norberg states she "was never in possession of any assets of the probate estate of Jane H. Gudie, or of other estates, with respect. to any and all times relevant to our motion to dismiss." Ms. Norberg attached to her objection the signed - 11 - declaration o.f Mr. Hess, who also,states thata "Norberg was not ever in possession of any assets of the probate estate of Jane H. Gudie". Ms. Norberg an¶ Mr. H.ess, carefully confine. their statements to the "probate;es.tate". The fact that the property Ms. Norberg received did not pass through probate is immaterial to this discussion. This Court has previously held·in situations like this that "the fact tha) * * * property interests passed * * * directly rather than as part of decedent's probate estate is immaterial." Estate ofåGuida. v. Commissioner, 69 T.C. 811, .. 813 (1978); see a·lso Estate of Wilson v-. Commissioner, 2 T.C. 1059, 1083-1084 (1943) (stating that if taxpayers could distinguish between probate gnd nonprobate property to.defeat- the estate tax, "the law would:soon.be a nullity·"). On....the facts before us, Ms. Norberg was in actual or constructive possess1on of decedent's property at the time the estate tax return was filed. At the4time the estate tax return was filed, there was no one appointed,. qualified, or acting as executor or administrator of decedent's estate. Therefore Ms. Norberg qualified as a statutory executor of decedent's estate 4Decedent was considered the owner of'the trust property pursuant. to sec. 676(a), which provides: treated as the owner of any tportion of a trust, whether or not he is treated as,such owner under. any other provision of this part, where at any time the power to revest such portion is exercisable y the grantor or a nonadverse party, or both." in the grantor title to "The grantor ,shall be - 12 - for purposes of the Federal estate tax.5 See sec. 2203'; Huddleston v. Commissioner, 100 T.C. 17, 30-31 (1993); Estate of Guida v. Commissioner, supra lat 813; New York Trust Co. v. Commissioner, 26 T.C. 257, 261-262 1(1956);' Allen v. Commissioner, T.C. Memo. 1999-385. Section" 6018 (a) (1) directs the executor in 'cases where the decedent's gross estate exceeds the applicable exclusion amount to file an estate ta< return. See also sec. 20.6018-2, Estate Tax Regs. -Therefore, as statutory executor, Ms. Norberg had the responsibility and authority to file the -estate tax return. Section 6036 provides in part: "every executor (as defined in section 2203),- shäll give notice ,0f his qualification as such to the Secretary in such manner and at such time as may- be required by regulations of the Secretary." Section 6903(a) provides: SEC. 6903 (å) . Rights and Obligations. of . Fiduciary.--Upo notice to the Secretary that any person is actinc for another person in a fiduciary capacity, such fiduciary shall assume the powers, rights, duties, and privileges of such other person in respect of a tax imposed by this title (except as 5We are not appointing Ms . Norberg executor for purposes of State law or providing her the authority that comes with being appointed executor ur der State law., Nor are we concluding that Ms. Norberg is potendially liable for the entire deficiency. This Court has previously stated: determination of def ciency against an estate, even though the executor or personal representative is named as' the person to receive the notice, 1s 'not a determination of deficiency against the executor or pers nal representative in his or her personal capacity." Estate of Walker v. Commissioner, 90 T.C. 253, 257 (1988) . It is clear that a - 13 - otherwise specifically.provided and except that the tax shall be collected from the estate of such other person), until notice is given that the fiduciary capacity has terminated. Ms. Norberg's filing of the estate tax return gave r! respondent notice for purposes of sections 6036 and 6903 that she was to be treated as the executor and fiduciary of decedent's estate. Section 20.6036-2, Estate Tax Regs., provides in relevant part: "The requirement of section 6036 for notification of qualification as executor of an estate shall be satisfied by the filing of the estate tax return required by section 6018". Section 301.6036-1(c), Proced. & Admin. Regs., provides: "When a notice is required under § 301.6903-1 of a person acting in fiduciary capacity and is also required of such person under this section, notice given in accordance with the provisions of this section shall be considered as complying with both sections." Hence, filing the estate tax return as executor was adequate notice for purposes of both sections 6036.and 6903.6 'Ms. Norberg argues that "the filing of an estate tax return does not constitute notice for liability purposes" or apparently in Ms. Norberg's views, relationship entitling the filer of the estate tax return to act for the estate pursuant Notice Concerning Fiduciary Relationship, adequate notice. She argues Form 56, is necessary for to the Commissioner of a fiduciary to sec. 6903(a). We disagree. The instructions on Form 56 state: "You must notify the IRS of the creation or termination of a fiduciary relationship under section 6903 and give notice of qualification under section 6036. You may use Form 56 to provide this notice to tÑe IRS". While filing a Form 56 provides adequate notice, as explained above, it (continued...) - 14 - Ms. Norberg never gave respondent a notice of termination. Therefore she was never relieved of her powers, rights, duties, and privileges as a fiduciary of decedent's estate for Federal estate tax purposes. She was the proper individual to receive the notice of deficiency under section 6212 and had the capacity to contest the notice of deficiency upon which this case is based. See Rule 60 ( ) (1); Huddleston v. Commissioner, supra at 30-31; Estate of Sivyer v. Commissioner, 64 T.C. 581 (1975); Allen v. Commissione¼, supra; see also Estate of Kisling v. Commissioner, T.C. Memo. 1993-119 (stating tÑat the fiduciary of the estate was required to look after its interests). Respondent properly mailed a notice of deficiency to "Estate of Jane H. Gudie, c/o Mary Helen Norberg, Executor", and Ms. Norberg's timely petition gave this Court jurisdiction. See also Estate of Callahan v. Commissioner, T.C. Memo. 1981-357 (stating: "The function of a statutory notice of deficiency is to afford * * * [the taxpayer] a fulJ and fair opportunity to present its case in this Court."). In conclusion, the notice of deficiency was appropriately addressed to Ms. Nort·erg and she had the authority to file the '(...continued) the exclusive method by which a person can inform the IRS is not that he or she is acting in a fidµciary capacity. 1(c), Proced. & Admin. Regs.; sec. 20.6036-2, Estate Tax Regs. Sec. 301.6036- - 15 - petition in this case. Her timely petition in response to the valid notice of deficiency gives this Court jurisdiction. III. Statute of Limitations Although the argument is unclear, in her motion to dismiss Ms. Norberg appears to argue that the period of limitations on assessment has expired. In her objection to respondent's objection, Ms. Norberg states she "did not and is not asserting in this motion any issue redarding statute of limitations" and asks us not to rule on this issue. We need not analyze this issue here but do note two things. First, pursuant to sections 6503(a) (1) and 6213(a), the period.of limitations on assessment, if open when a notice of deficiency was sent, would generally be suspended if a timely petition was filed until such time as the Secretary is no longer prohibited from assessing the tax. Second, the statute of limitations is an affirmative defense, not a jurisdictional matter. See Rule 39; Freytag v. Commissioner, 110 T.C. 35, 41 (1998). To reflect the foregoing, An appropriate order will be issued denying petitioner's motion to dismiss for lack of subiect matter iurisdiction.