Source: http://www.leagle.com/xmlResult.aspx?page=2&xmldoc=2008894520F3d374_1894.xml&docbase=CSLWAR3-2007-CURR&SizeDisp=7
Timestamp: 2013-05-21 08:51:22
Document Index: 352140116

Matched Legal Cases: ['§ 20', '§ 2001', '§ 2031', '§ 20', '§ 20', '§ 7520', '§ 20', '§ 20', '§ 7520', '§ 20', '§ 20', '§ 74', '§ 6110']

II. DISCUSSIONWhile the mathematical computation of fair market value is an issue of fact, determination of the proper valuation method under the Internal Revenue Code is a question of law that this Court reviews de novo. Estate of Dunn v. C.I.R.,301 F.3d 339, 348 (5th Cir.2002). We also review the district court's interpretation of a regulation de novo, applying the rules of statutory construction. Lara v. Cinemark USA, Inc.,207 F.3d 783, 786-87 (5th Cir. 2000).A. The "Restricted Beneficial Interest" Exception to the Annuity Tables: Treasury Regulation § 20.7520-3(b)1. General Estate Tax PrinciplesThe United States imposes a tax on the taxable portions of the estates of all decedents who are citizens or residents. 26 U.S.C. § 2001. A decedent's estate is composed of "all property, real or personal, tangible or intangible." 26 U.S.C. § 2031(a). Private annuities, like those payable to Bankston, fall within this definition of a taxable estate. See Treas. Reg. § 20.2039-1(b)(1)(I).Treasury regulations provide that "the value of every item of property includible in a decedent's gross estate . . . is its fair market value at the time of the decedent's death." Treas. Reg. § 20.2031-1(b). 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 sell and both having reasonable knowledge of relevant facts." Id. The fair market value of an annuity is generally determined by resort to annuity tables prescribed by the IRS. See 26 U.S.C. § 7520(a); Treas. Reg. § 20.7520-1. These tables provide a factor composed of an interest rate component and a mortality component that is used to determine the present value of an annuity. Treas. Reg. § 20.7520-1.This Court has recognized that "[i]n enacting § 7520(a)(1) and requiring valuation by the tables, Congress displayed a preference for convenience and certainty over accuracy in the individual case." Cook v. Comm'r,349 F.3d 850, 854 (5th Cir.2003). While the tables inevitably lead to departures from true value, whatever that might be, the error costs are perceived as small in the aggregate. Id. The tables provide some measure of certainty and administrative convenience that would be disrupted if every attempt to [
520 F.3d 378
] value an annuity deteriorated into a battle of experts regarding market value. <<Prev 1 2 3 4 5 6 7 8 Next>> Footnotes1. The Transamerica annuity (owned by Transamerica Occidental Life Insurance Company) guaranteed Bankston fifteen annual lump sum payments, ranging from $25,000 in 1992 to $150,000 in 2006. The MetLife annuity (owned by MetLife Security Insurance Company) guaranteed Bankston monthly payments for fifteen years and life thereafter, beginning with $9,350 in July 1991 and increasing three percent annually. The Jamestown annuity (owned by Jamestown Life Insurance Company) guaranteed Bankston monthly payments for fifteen years and life thereafter, beginning with $7,000 in July 1991 and increasing 3 percent annually.Back to Reference2. The Estate estimated that the fair market value of the annuities at the time of Bankston's death was $1,198,900, not the $2,371,409 figure provided under the annuity tables.Back to Reference3. The regulations note that a "special" Section 7520 annuity factor may be used to value a restricted beneficial interest in some circumstances. Treas. Reg. § 20.7520-3(b)(ii). Under those circumstances, a party may request a special annuity factor from the IRS. Id. The "special" annuity factor is not an issue in this case.Back to Reference4. The Estate suggests that Cook is distinguishable from the present case because the Cook annuitant was also the owner of the annuity. Cook, 349 F.3d at 851-52. In the present case, other entities owned the Bankston annuities. We do not find this to be a significant distinction. The interest to be valued is the right to receive payments from an annuity, regardless of who owns the annuity. See Treas. Reg. § 20.2039-1. Both here and in Cook, the interest rendered non-transferable by agreement (be it a true ownership interest or merely a contractual right to receive payments) would otherwise be transferable. See 29 SAMUEL WILLISTON & RICHARD A. LORD, A TREATISE ON THE LAW OF CONTRACTS § 74.10 (4th ed.2000) ("Generally, all contract rights may be assigned in the absence of clear language expressly prohibiting the assignment. . . . ").Back to Reference5. A "contingency" is defined as "[a]n event that may or may not occur; a possibility" or "[t]he condition of being dependent on chance; uncertainty." BLACK'S LAW DICTIONARY 338 (8th ed.2004). A "power" is defined as "[t]he legal right or authorization to act or not act; a person's or organization's ability to alter, by an act of will, the rights, duties, liabilities, or other legal relations either of that person or of another." BLACK'S LAW DICTIONARY 1207 (8th ed.2004).Back to Reference6. The Estate argues it was error for the district court to cite two Technical Advice Memorandums ("TAMs") issued by the IRS; the lower court stated, though, that the TAMs had no precedential value. See 26 U.S.C. § 6110(k)(3). We do not rely on these TAMs.Back to Reference7. The Second Circuit's reversal of the Tax Court came as the result of that Circuit's expansion of the law under the "unrealistic and unreasonable" standard. Gribauskas, 342 F.3d at 88. The Second Circuit did not interpret Section 20.7520-3(b) and did not criticize the Tax Court's interpretation of that regulation. Id. We find the Tax Court's interpretation of Section 20.7520-3(b) persuasive.Back to Reference8. The $1,198,900 alternative valuation figure appears to be derived solely from a "fair market value analysis" offered as an exhibit to the Estate's original refund request. This analysis applies a twenty-five percent discount factor when valuing the annuity interest. It is unclear from the record who prepared the analysis or how the preparer arrived at the discount factor. Neither party offered an expert valuation during proceedings before the district court.Back to Reference