t c memo united_states tax_court bestate of suzanne c pruitt deceased sandra s thompson personal representative petitioner v commissioner of internal revenue respondent docket no filed date marc k sellers for petitioner gerald w douglas for respondent memorandum findings_of_fact and opinion marvel judge respondent determined a deficiency of dollar_figure in petitioner’s federal estate_tax the sole issue’ for decision is whether gifts of real_property made by decedent’s ‘the remaining adjustments proposed in the notice_of_deficiency were not contested in the petition and are deemed to be conceded see rule b tax_court rules_of_practice and procedure - - attorney-in-fact are includable in decedent’s gross_estate under sec_2038 resolution of the issue requires us to decide whether decedent’s attorney-in-fact was authorized to make the gifts in question by certain powers of attorney granted to her by decedent findings_of_fact the parties have stipulated some of the facts the stipulated facts are incorporated in our findings by this reference suzanne c pruitt mrs pruitt or decedent died on date from complications of alzheimer’s disease decedent’s will was admitted to probate in oregon and decedent’s united_states estate and generation-skipping_transfer_tax return form_706 showed decedent’s domicile in multnomah county oregon decedent’s daughter sandra s thompson ms thompson was appointed personal representative of decedent’s estate the estate at the time the petition was filed ms thompson resided in troutdale oregon prior to decedent and her husband engaged in estate_planning discussions with their attorney james w walker mr 7all section references are to the internal_revenue_code in effect as of the date of decedent’s death and all rule references are to the tax_court rules_of_practice and procedure monetary amounts are rounded to the nearest dollar 7decedent’s husband died in date walker ms thompson attended one or two of the meetings at which the discussions took place mr walker discussed ways to reduce mr and mrs pruitt’s projected estate_tax liability and advised them on the effect of the federal gift_tax gifting schedules and charitable donations mr and mrs pruitt were concerned about the considerable size of their estate and potential estate_tax problems mr and mrs pruitt wanted their children to inherit as much of their estate as possible from through in accordance with mr walker’s advice decedent engaged in a pattern of making gifts to her daughters their husbands and her grandchildren in an attempt to reduce the size of her estate decedent personally made all the gifts during this period the gifts made by decedent from through were as follows donee’ date of gift amount robyn muckerheide dollar_figure sharon k phillips big_number sandra s thompson big_number robyn muckerheide big_number sharon k phillips big_number sandra s thompson big_number robyn muckerheide big_number sharon k phillips big_number sandra s thompson big_number robyn muckerheide big_number sharon k phillips big_number sandra s thompson big_number robyn muckerheide big_number sharon k phillips big_number sandra s thompson big_number robyn muckerheide big_number sharon k phillips big_number sandra s thompson big_number robyn muckerheide sharon k phillips sandra s thompson robyn leo sharon j sandra s robyn leo sharon j sandra s robyn leo sharon j sandra s robyn leo sharon j sandra s robyn leo sharon j sandra s robyn leo sharon j sandra s tamara kaye muckerheide richard phillips marvin r thompson muckerheide richard phillips marvin r thompson muckerheide richard phillips marvin r thompson muckerheide richard phillips marvin r thompson muckerheide richard phillips marvin r thompson muckerheide richard phillips marvin r thompson johnston irrevocable_trust sheri lea muckerheide irrevocable_trust troy alan muckerheide irrevocable_trust brent elvin phillips irrevocable_trust brian paul phillips irrevocable_trust kevin scott phillips irrevocable_trust shauna sue shigeta irrevocable_trust derek lee thompson irrevocable_trust jason rubin thompson irrevocable_trust kevin luis thompson irrevocable_trust shelly lusandra thompson irrevocable_trust todd marvin thompson irrevocable_trust robyn leo muckerheide sharon j richard phillips sandra s marvin r thompson tamara kaye johnston sheri lea muckerheide troy alan muckerheide brent elvin phillips brian paul phillips kevin scott phillips shauna sue shigeta derek lee thompson jason rubin thompson shelly lusandra thompson todd marvin robyn leo sharon j sandra s tamara kaye thompson muckerheide richard phillips marvin r thompson johnston sheri lea muckerheide big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number troy alan muckerheide big_number brent elvin phillips big_number brian paul phillips big_number kevin scott phillips big_number shauna sue shigeta big_number derek lee thompson big_number jason rubin thompson big_number shelly lusandra thompson big_number todd marvin thompson big_number sandra s thompson sharon k phillips big_number robyn muckerheide big_number ‘robyn muckerheide sharon k phillips and sandra s thompson are decedent’s three daughters leo muckerheide j richard phillips and marvin r thompson are decedent’s daughters’ husbands respectively the remaining donees are decedent’s grandchildren or related trusts with the exception of the date gifts decedent transferred the gifted funds by personal check the date gifts consisted of stock on date pursuant to mr walker’s advice decedent while domiciled in oregon executed and delivered to ms thompson a durable power of attorney’ date power the date power was a standard form form no preprinted by the stevens-ness law publishing co portland oregon the power appointed ms thompson as attorney- in-fact and granted her specific enumerated powers mr walker advised decedent that the power would allow ms thompson to do anything decedent could do relevant portions of the date power read as follows know all men by these presents that i suzanne c pruitt have made constituted and appointed and by these presents do make constitute and appoint sandra the parties stipulated that each of the powers of attorney was a durable power under oregon law s thompson my true and lawful attorney for me and in my name place and stead and for my use and benefit to lease let grant bargain sell contract to sell convey exchange remise release and dispose_of any real or personal_property of which i am now or hereafter may be possessed or in which i may have any right title or interest including rights of homestead for any price or sum and upon such terms and conditions as to my said attorney may seem proper i hereby give and grant unto my said attorney full power and authority freely to do and perform every act and thing whatsoever requisite and necessary to be done in and about the premises as fully to all intents and purposes as i might or could do if personally present hereby ratifying and confirming all that my said attorney-in-fact shall lawfully do or cause to be done by virtue hereof on date pursuant to mr walker’s advice decedent while domiciled in oregon executed and delivered to ms thompson two durable powers of attorney date powers one was to be recorded and the other was for ms thompson to use that same day for matters unrelated to this case one of the powers was a standard form form no preprinted by the stevens-ness law publishing co portland oregon date no power and the other was a standard computer- generated form used by mr walker’s office date no power each of the date powers named ms thompson as attorney-in-fact the language of the date no power was identical in many but not all respects to the language _- _- used in the date power relevant portions of the date no power read as follows i suzanne c pruitt hereby make constitute and appoint sandra s thompson my agent and attorney in fact with power and authority to convey sell mortgage pledge consign lease and in any other manner deal in and with my property both real and personal i authorize my attorney for me and in my name generally to do and perform all and every act which is necessary or desirable to be done in order to properly conduct manage and control all my business and my property and to execute and acknowledge any and all instruments necessary or proper to carry out the foregoing powers hereby releasing all third persons from responsibility for the acts and omissions of my attorney all three powers of attorney constituted valid and binding powers of attorney under oregon law at the time decedent executed and delivered each of the powers she did so with full mental capacity the date no power provided that my said attorney and all persons unto whom these presents shall come may assume that this power_of_attorney has not been revoked until given actual notice either of such revocation or of my death it also contained par authorizing decedent’s attorney-in-fact to act with respect to certain tax and governmental matters and an effective date clause the date power did not contain similar provisions ‘the parties stipulated that none of the powers of attorney took precedence over or superseded any other power on date and on january as attorney-in-fact ms thompson made gifts of interests in decedent’s real_property by separate deeds to each of decedent’s three daughters including ms thompson and their husbands on the dates of the gifts decedent’s medical_condition had deteriorated to the point where she lacked the mental capacity to discuss the gifts with ms thompson walker prior to making the gifts deed recorded in multnomah county thompson did not have any discussions with mr summarized as follows donee sandra marvin thompson sharon dick phillips robyn leo muckerheide sandra marvin thompson sharon dick phillips robyn leo muckerheide property interest in ne meadow drive interest in ne meadow drive interest in ne meadow drive interest in ne meadow drive interest in ne meadow drive interest in ne meadow drive rach gift was confirmed by a oregon the gifts are transfer date property value dollar_figure big_number big_number big_number big_number big_number ‘all property transferred was real_property located in portland oregon - the estate filed federal gift_tax returns form_709 reporting the and gifts and claiming six annual gift_tax exclusions in each year for the values of the gifts ’ asa result the estate reported no net_gifts for and dollar_figure in net_gifts for the estate filed a timely federal estate_tax_return form_706 reporting a total gross_estate of dollar_figure and adjusted_taxable_gifts of dollar_figure the and gifts made pursuant to the powers of attorney were not included in calculating decedent’s gross_estate following an examination respondent mailed a notice_of_deficiency to the estate in which respondent determined among other things that the and gifts which were transferred during decedent’s lifetime by the decedent’s attorney in fact under a durable_power_of_attorney that did not expressly authorize the attorney in fact to make gifts are includable in the decedent’s gross_estate opinion respondent’s objections we first address respondent’s objections to the testimony of witnesses ms thompson and mr walker at trial the court conditionally admitted the testimony over respondent’s objection ‘the and gifts did not impoverish decedent or adversely impair her ability to support herself on the date of her death decedent owned assets having a value in excess of dollar_figure -- - based on the parol evidence rule and directed the parties to address the issue on brief on brief respondent contended that petitioner is attempting to expand the powers specifically granted to ms thompson through the use of oral testimony which is prohibited by the parol evidence rule prior to trial and on brief respondent raised another general objection to the testimony contending it was inadmissible hearsay a respondent’s hearsay objection on brief respondent argued that any third-party testimony regarding decedent’s intent is inadmissible because it is offered to prove the truth of the matter asserted namely that decedent intended to include a power to make gifts in each of the three powers of attorney petitioner responded that the testimony is admissible under rule sec_803 and sec_807 of the federal rules of evidence assuming arguendo that the witnesses’ testimony as to decedent’s intent is hearsay in the first instance we hold that the testimony is admissible under the on brief respondent made the following arguments that certain parts of the witnesses’ testimony constituted inadmissible hearsay at trial the decedent’s attorney mr walker testified that with respect to the powers of attorney he had discussions with the decedent that the powers allowed the decedent’s daughter to do anything that the decedent could do x any statements by the attorney which relate to this belief by the decedent including an implied intent to make gifts are inadmissible hearsay under fre the same rationale and result as in above applies to the overall testimony of the decedent’s daughter ms thompson in the present case it is respondent’s position that the testimony of continued state of mind exception to the hearsay rule see fed r evid the testimony of the witnesses involved decedent’s state of mind at the time the powers were executed the witnesses were credible and the testimony regarding decedent’s intent was relevant to the interpretation of the powers see 145_us_285 829_f2d_805 9th cir in light of our ruling we do not and need not decide whether the testimony is admissible under rule of the federal rules of evidence b respondent’s parol evidence objection respondent also contends that the testimony of ms thompson and mr walker is inadmissible under oregon’s parol evidence rule because the testimony is being offered to prove that ms thompson was authorized by the powers of attorney to make gifts when in fact the powers of attorney contained no such provision petitioner contends that the parol evidence rule may not be invoked by a litigant who is not a party to the agreement and that in any event the testimony is offered solely to assist continued the decedent’s daughter and attorney that the decedent intended her powers of attorney to include the power to make gifts of her property is inadmissible hearsay we are not convinced that any of the examples cited by respondent are hearsay see fed r evid nevertheless we address respondent’s argument this court in determining the knowledge and intent of decedent in granting the powers of attorney when we are required to make a state law determination as to the existence and extent of legal rights and interests created by a written instrument in order to decide a case over which we have jurisdiction we must look to that state’s parol evidence rule in deciding whether or not to exclude extrinsic evidence that bears on the disputed rights and interests under the instrument 68_tc_249 affd per curiam 608_f2d_240 5th cir see also stevenson v commissioner tcmemo_1986_207 applying oregon law young v commissioner tcmemo_1985_221 since this case requires us to decide whether the power to make gifts was granted to ms thompson by the powers of attorney given to her by decedent we must examine the applicable state parol evidence rule and decide whether it reguires us to exclude the disputed testimony the parties agree that oregon state law applies oregon’s parol evidence rule codified in or rev stat sec_41 provides when the terms of an agreement have been reduced to writing by the parties it is to be considered as containing all those terms and therefore there can be between the parties and their representatives or the so-called parol evidence rule is a misnomer the rule is one of substantive law and not one of evidence 68_tc_249 affd per curiam 608_f2d_240 5th cir successors in interest no evidence of the terms of the agreement other than the contents of the writing except where a mistake or imperfection of the writing is put in issue by the pleadings or where the validity of the agreement is the fact in dispute however this section does not exclude other evidence of the circumstances under which the agreement was made or to which it relates as defined in or sec_42 or to explain an ambiguity intrinsic or extrinsic or to establish illegality or fraud the term agreement includes deeds and wills as well as contracts between parties the supreme court of oregon has not applied a literal reading of or rev stat sec_41 see hatley v stafford p 2d n or instead it has treated the statute as a codification of the common-law parol evidence rule see abercrombie v hayden corp p 2d or in abercrombie the supreme court of oregon described the oregon common-law parol evidence rule as follows the parol evidence rule in brief provides that a binding completely integrated written_agreement supersedes or discharges all agreements written or oral that were made before the completely integrated agreement to the extent that the prior agreements are within the scope of the completely integrated agreement restatement second of contracts sec_213 the rule also provides that a binding partially integrated written_agreement supersedes or discharges all agreements written or oral that were made before the partially integrated agreement to the extent that the prior agreements are inconsistent with or rev stat sec_42 provides in construing an instrument the circumstances under which it was made including the situation of the subject and of the parties may be shown so that the judge is placed in the position of those whose language the judge is interpreting the partially integrated agreement restatement second of contracts sec_213 abercrombie v hayden corp p 2d pincite fn ref omitted under oregon law a power_of_attorney creates an agency relationship x therefore the authorities and duties of an attorney in fact are governed by the principles of agency wilkinson v commissioner tcmemo_1993_336 see also scott v hall p 2d or attorneys in fact created by formal letters of attorney are merely special kinds of agents and in construing such letters or powers and determining their effect the principles of the law of agency apply ho v presbyterian church p 2d or ct app petitioner argues that oregon’s parol evidence rule does not apply in cases like this where a litigant who is not a party to the power_of_attorney is attempting to use the rule to exclude evidence regarding the intent of the principal and the circumstances surrounding the execution of the power_of_attorney we need not decide whether a litigant who is not a party to the power_of_attorney may invoke oregon’s parol evidence rule codified in or rev stat sec_41 although it is well established under oregon law that the authority conferred by a power_of_attorney cannot be enlarged by parol evidence see united_states natl bank v herron p or interpreting a limited power_of_attorney wade v northup p or interpreting a general power -- - of attorney coulter v portland trust co p or interpreting a limited power_of_attorney it is equally well established that parol evidence may be used to interpret those powers actually given see wade v northup supra pincite we may resort to ‘the circumstances under which it was made x ' so that the court may be placed in the position of those whose language it is interpreting coulter v portland trust co supra pincite see also or rev stat sec_41 applying oregon law we hold that we properly may consider the testimony of petitioner’s witnesses as evidence of the circumstances under which the powers were executed or to interpret an ambiguity in their terms however we may not use the testimony to enlarge the authority granted to ms thompson in the powers of attorney in accordance with these holdings we admit the testimony in question interpreting the powers of attorney sec_2038 provides that a decedent’s gross_estate includes any interest in property transferred by the decedent for ‘ or rev stat sec_42 provides in the construction of an instrument the office of the judge is simply to ascertain and declare what 1s in terms or in substance contained therein not to insert what has been omitted or to omit what has been inserted and where there are several provisions or particulars such construction is if possible to be adopted as will give effect to all -- - less than full and adequate_consideration if at the time of decedent’s death the enjoyment of the property was subject_to the decedent’s power to alter amend revoke or terminate see sec_2038 respondent asserts that decedent had the power_to_revoke the gifts made by ms thompson to decedent’s three daughters and their husbands on date and date the gifts because the powers of attorney did not authorize ms thompson to make gifts of decedent’s real_property therefore the gifts must be included in decedent’s gross_estate petitioner contends that the powers of attorney authorized ms thompson to make the gifts and that therefore the gifts are not revocable the legal effect of gifts made pursuant to a power_of_attorney is determined according to state law see 309_us_78 oregon has not established either through case law or statute a bright-line_rule flatly prohibiting gifts by attorneys-in-fact to themselves or to third parties absent express written authorization in a power_of_attorney ’ consequently we must examine oregon law and decide numerous jurisdictions have adopted the rule that an agent lacks authority to make a gift of the principal’s property unless that authority is expressly given by the language of the power_of_attorney kunewa v joshua p 2d haw ct app see also 889_fsupp_369 d neb _aiello v clark p 2d alaska in re estate of crabtree n w 2d iowa whitford v gaskill s e 2d n c continued the issue presented here as we believe the highest state court would decide it see 387_us_456 estate of goree v commissioner tcmemo_1994_331 under oregon law powers of attorney must be strictly construed see united_states natl bank v herron p or wade v northup p or security sav bank v smith p or coulter v portland trust co p pincite the rule that a power_of_attorney must be strictly construed however does not require that it shall be so construed as to defeat the intention of the parties a strained construction should never be given to defeat that intention nor to embrace in the power what was not intended by the parties wade v northup supra pincite citing hemstreet v burdick ill t he intention of the donor of the power is the great principle that governs brown v laird p or although the intention of the donor ordinarily is gleaned from the language of the power_of_attorney see id where the language of the power is broad and is not free from ambiguity oregon law requires that we examine the continued fender v fender s e 2d s c f m stigler inc v h n c realty co s w 2d tex ct app bryant v bryant p 2d wash in contrast at least two states have enacted statutes providing that a general power_of_attorney contains an implied authority to make gifts of the principal’s assets under certain circumstances see ala code sec michie supp va code ann sec michie - - circumstances under which it was made including the situation of the subject and of the parties so that the judge is placed in the position of those whose language the judge is interpreting or rev stat sec_42 see also wade v northup supra pincite parol evidence may be used to interpret the language of a general power_of_attorney the parties agree that the three powers of attorney at issue in this case did not expressly authorize ms thompson to make gifts the parties do not agree however whether the power to make gifts can be inferred from the language of the powers of attorney and the circumstances surrounding their execution applying oregon law we examine the language of the powers of attorney and the facts and circumstances surrounding decedent’s execution of the powers of attorney to determine whether the power to make gifts must be inferred in order to give effect to decedent’s intent our goal is to ascertain whether decedent had the intent to confer gift-giving power upon ms thompson the date no power which was prepared by decedent’s lawyer appointed ms thompson as decedent’s agent and attorney in fact with power and authority to convey sell mortgage pledge consign lease and in any other manner deal in and with my property both real and personal emphasis added the date no power also authorized ms thompson to execute and acknowledge any and all instruments necessary or proper to carry out the foregoing powers hereby releasing all third persons from responsibility for the acts and omissions of my attorney the date power and the date no power were prepared on preprinted standard power_of_attorney forms published by the same company and used identical language in most respects they appointed ms thompson as decedent’s true and lawful attorney to exercise certain powers for me and in my name place and stead and for my use and benefit among those powers was the power to lease let grant bargain sell contract to sell convey exchange remise release and dispose_of any of decedent’s real or personal_property for any price or sum and upon such terms and conditions as to my said attorney may seem proper the powers of attorney also contained a general grant giving ms thompson full power and authority freely to do and perform every act and thing whatsoever requisite and necessary to be done in and about the premises as fully to all intents and purposes as i might or could do if personally present our review of the date no power in particular leads us to conclude that the grant of power authorizing decedent’s attorney-in-fact to transfer decedent’s real or personal_property was sufficiently broad to encompass the power to make gifts see sec_2512 where property is transferred - - for less than an adequate_and_full_consideration in money or money’s worth then the amount by which the value of the property exceeded the value of the consideration shall be deemed a gift ms thompson was authorized by the terms of the date no power not only to sell mortgage and pledge decedent’s property but also to convey decedent’s property convey is defined in black’s law dictionary 5th ed as follows to transfer or deliver to another to pass or transmit the title to property from one to another to transfer property or the title to property by deed bill of sale or instrument under seal xk the authority to convey without any qualification of that authority is broad enough to permit property conveyances for no consideration even if the word convey is interpreted to mean transfer for consideration the date no power broadly authorized ms thompson to deal with decedent’s property in any other manner and was not necessarily restricted to transactions for consideration in other cases where the applicable state law required us to ascertain the decedent’s intent in interpreting a generally worded power_of_attorney we have applied a similar analysis for example in estate of bronston v commissioner tcmemo_1988_510 we examined a power_of_attorney which granted the attorney-in-fact the authority to convey property without restriction to determine if the power to make gifts could be inferred under new jersey law the power_of_attorney did not --- - restrict conveyances to those for consideration and contained a broad grant of authority to the attorney-in-fact to do whatever the principal could do if personally present after distinguishing several decisions interpreting powers of attorney decided under new jersey law we concluded that the specific language in the power_of_attorney which authorized the attorney- in-fact to convey property without any apparent restriction could authorize gifts in appropriate circumstances id we examined the facts and circumstances surrounding the execution of the power_of_attorney and the making of the gifts noting that the decedent historically gave gifts to her children and had expressed her intention to give them gifts in the year the disputed gifts were made and we concluded that the attorney-in- fact acted on behalf of decedent continuing her usual affairs id based upon our review of the language of the power_of_attorney and the evidence of the decedent’s intent we held that the power_of_attorney authorized gifts see id see also estate of neff v commissioner tcmemo_1997_186 applying oklahoma law we concluded that oklahoma had not adopted a flat prohibition against attorneys-in-fact making gifts to themselves or to third parties absent express written authorization and that the durable_power_of_attorney at issue included the implied -- - authority to make irrevocable gifts during the principal’s lifetime because the powers of attorney in this case contain language broad enough to include the power to make gifts and therefore could be interpreted to authorize ms thompson to make the and gifts we now must examine the facts and circumstances surrounding the execution of the powers of attorney to ascertain whether decedent intended to confer gift-giving power and if so whether the gifts in question were within the spirit of the power conferred upon ms thompson wade v northup p pincite see also brown v laird p pincite petitioner offered the following evidence of decedent’s intent a substantial and consistent pattern of annual gifting extending over a period of years prior to the gifts made by ms thompson a date handwritten letter from decedent to her children ' decedent’s awareness of the potential 3the handwritten letter dated date reads as follows dear kids of ours we hope this does not shock you too much but we thought we’d like to share with you some of the rewards of our efforts and we like to think good management we thought too that it is better to give to you now instead of from a will then most of it would be consumed by old uncle sam who is always hungry we want you to enjoy it it will cause you no income_tax because it has already been paid continued - - tax_liabilities of her estate the testimony of decedent’s daughter ms thompson and decedent’s attorney mr walker and decedent’s last will and testament we review this evidence for what it shows if anything about decedent’s intent regarding the interpretation of the powers of attorney in this case beginning in and continuing annually through decedent made gifts to the natural objects of her bounty decedent gave her daughters annual gifts in amounts that increased over time in decedent expanded her gifting program to include her sons-in-law and her grandchildren when decedent executed the first of her three powers of attorney in the gifting program was well established and steadily growing and she already had made her annual gifts for the power_of_attorney was executed in connection with estate_planning by decedent and her husband which was designed to minimize to the fullest extent possible the estate and gift_tax liability of their estates and to maximize the assets passing to their family continued we realize we are getting older and do not need so much so thought it would be nice to share now just remember we love you lots and are glad you were born to us lots of love - your daddy mom -- - after the execution of the date power decedent continued to make annual gifts of her property periodically increasing the amount of the gifts and the number of donees in date decedent again made substantial gifts to her daughters their husbands and her grandchildren we believe this pattern of making annual gifts covering a period of years demonstrates and is consistent with decedent’s intention to make annual gifts of her property until her death in order to take full advantage of the annual per-donee gift_tax_exclusion thereby reducing the amount of estate_tax her estate would owe upon her death decedent’s intention to make annual gifts to her children in order to minimize her estate_tax liability is demonstrated further by her date letter to her children in which she stated it is better to give to you now instead of from a will then most of it would be consumed by old uncle sam who is always hungry we want you to enjoy it decedent’s intention shown by annual gifts beginning in and stated clearly in her letter to her daughters was to minimize the potential tax_liabilities of her estate by giving annual gifts to her family the testimony of decedent’s daughter also reinforces petitioner’s argument that decedent intended to grant the power to make gifts to her attorney-in-fact ms thompson testified that she discussed the gifting program on numerous occasions - - with her parents who were concerned about the size of their estates ms thompson also testified that when decedent delivered the powers of attorney to her decedent never indicated that ms thompson was prohibited from taking certain acts and decedent gave no specific instructions to ms thompson since decedent was told by her attorney mr walker that such powers of attorney authorized ms thompson to do whatever decedent could do with her own property and since each of the powers of attorney contained a general grant of power that would appear to a nonlawyer to be consistent with mr walker’s statement to decedent we do not find it surprising that decedent did not discuss specifically with ms thompson whether ms thompson had the power to continue the annual gifts to decedent’s family the testimony of decedent’s attorney mr walker lends support to petitioner’s argument mr walker testified that when the date power was executed my words were to her that ‘this will allow your daughter to do anything that you can do ’ with respect to the date powers mr walker testified the intent was that the agent under the power could do anything that decedent could do mr walker further testified that when he presented the date powers to decedent for execution he recalled using the words ‘this will allow your daughter to do anything that you can do ’ when mr walker was asked on cross-examination whether decedent ever told - - him whether she specifically wanted to include the power to make gifts in the powers of attorney mr walker responded i think it might have been the other way around i said that ‘this will allow your daughter to do anything that you could do’ and we specifically talked about the gifting the record amply demonstrates that decedent relied upon mr walker’s advice and acted upon it decedent understood from conversations she had had with mr walker that lifetime gifts were an important estate_planning tool and that her powers of attorney authorized her daughter to do anything decedent could do it is reasonable therefore for us to conclude on this record that decedent intended the powers of attorney to include the power to make gifts finally a review of decedent’s will confirms that the and gifts were to the same individuals who would have inherited the properties under the terms of decedent’s will in her will decedent bequeathed all her real and personal_property to her three daughters if she was not survived by her husband decedent’s husband died in date petitioner and respondent base their arguments on two opinions of the court_of_appeals for the fourth circuit interpreting virginia state law 36_f3d_332 4th cir affg tcmemo_1993_ and 948_f2d_895 4th cir -- p7 - revg tcmemo_1989_511 petitioner contends that the facts in estate of ridenour are analogous to the instant case and that estate of casey is factually distinguishable respondent on the other hand asserts that the supreme court of oregon would rely heavily on the holding and rationale of estate of casey and that the holding in estate of ridenour has no application to the present case although each of these cases involves an issue identical to the one presented here and may be helpful to our analysis the cases applied virginia state law and are not controlling when the court_of_appeals for the fourth circuit decided estate of casey virginia’s highest court had not decided whether the power to make gifts must be stated expressly in a power_of_attorney in order to validate gifts made pursuant to the power_of_attorney see estate of casey v commissioner supra pincite in the absence of guidance from virginia’s highest court the court_of_appeals concluded that the power_of_attorney must be construed strictly the court_of_appeals examined the record for the decedent’s intent and concluded that the decedent did not intend to confer upon the attorney-in-fact the power to make gifts see id the power to make gifts was not listed expressly in the power_of_attorney and the provisions of the power read in context suggest most strongly that the only asset transfer powers intended to be conferred by the enumeration of the - - specific and general powers were transfers for value id pincite the decision of the court_of_appeals for the fourth circuit in estate of casey is distinguishable from the instant case although the power_of_attorney in estate of casey authorized the decedent’s attorney-in-fact to lease sell grant convey assign transfer mortgage and set over decedent’s property such actions were required to be taken for such consideration as he may deem advantageous id pincite in addition the case record as summarized in the opinions of this court see estate of casey v commissioner tcmemo_1989_511 and the court_of_appeals for the fourth circuit does not disclose with the same clarity as in the present case what understanding if any decedent had regarding the scope of authority conferred by the power_of_attorney that she signed in contrast the powers of attorney at issue here do not limit the authority of the attorney-in-fact to conveyances for consideration as she deems advantageous and the record in the instant case contains evidence from which we can ascertain decedent’s intention to confer broad authority on her attorney-in-fact the decision of the court_of_appeals for the fourth circuit in estate of ridenour is also distinguishable one year after estate of casey was decided the virginia legislature enacted a statute recognizing an implied gift power in a power_of_attorney which grants broad general powers to the attorney-in-fact ’ in estate of ridenour the court_of_appeals for the fourth circuit ‘we acknowledge however that many of the facts in 36_f3d_332 4th cir affg tcmemo_1993_41 are similar to the facts at hand for example the decedent joseph ridenour joseph had a history of making gifts to his family that were in part tax driven in joseph suffered from acute renal failure and could no longer effectively communicate with others acting pursuant to a power_of_attorney which contained no language limiting the authority to business transactions or requiring consideration in exchange for the attorney-in-fact’s disposition of property joseph’s son james made substantial cash gifts to family members including himself from joseph’s checking account james wrote the checks on date joseph died on date the gifts were not included as part of joseph’s gross_estate on his federal estate_tax_return va code ann sec michie provides in pertinent part as follows gifts under power_of_attorney --a if any power_of_attorney or other writing authorizes an attorney-in-fact or other agent to do execute or perform any act that the principal might or could do or evidences the principal’s intent to give the attorney-in-fact or agent full power to handle the principal’s affairs or deal with the principal’s property the attorney-in-fact or agent shall have the power and authority to make gifts in any amount of any of the principal’s property to any individuals or to organizations described in sec_170 and sec_2522 of the internal_revenue_code or corresponding future provisions of federal tax law or both in accordance with the principal’s personal history of making or joining in the making of lifetime gifts -- - affirming the tax_court held that the newly enacted statute had retroactive effect and required a decision in favor of the taxpayer ’ in this case however we are not guided by a specific state statute clarifying when we may infer the power to make gifts from a general power_of_attorney therefore the approach taken in estate of ridenour differs from our analysis without an explicit ruling by the supreme court of oregon or a statute enacted by its legislature we cannot decide this case based on a bright-line_rule that an agent lacks authority to make gifts of the principal’s property unless the agent is expressly given that power in the power_of_attorney we must rely instead upon oregon law which requires us to consider both the strict letter and the spirit of the power conferred upon the agent wade v northup p or we recognize the l ’the court noted however that its decision in 948_f2d_895 4th cir revg tcmemo_1989_511 and the statute can be reconciled with the statute expanding and clarifying the holding of the case estate of ridenour v commissioner supra pincite commenting on the analysis that it applied in estate of casey the court stated this court therefore found that the appropriate method to resolve the question was to review the complete text of the particular instrument and the circumstances of its execution to determine whether we could infer in it a power though unexpressed to make the gifts at issue casey thus stands for the proposition that to infer an implied gift power the court must look to the intent of the person granting power_of_attorney estate of ridenour v commissioner supra pincite --- - potential for self-dealing that exists when an agent acting pursuant to a durable_power_of_attorney has the power to make gifts especially after the principal becomes incapacitated and we agree that we must be wary when asked to infer from a power_of_attorney a power to make gifts when the attorney-in-fact has made the gifts in question to herself and to individuals related to her see wilkinson v commissioner tcmemo_1993_336 acknowledging as we must that a decision inferring a power to make gifts from the general language of a durable_power_of_attorney must be made with great caution we nevertheless must decide this case based on the best information available to us and our review of applicable state law after reviewing oregon law and examining the decisions of the supreme court of oregon this court and other courts for guidance we are convinced that a decision to infer the power to make gifts from the general language of a durable_power_of_attorney is warranted in this case because there is no case law or statute in the controlling jurisdiction prohibiting an inferred power to make gifts the controlling jurisdiction considers the principal’s intention in interpreting the power_of_attorney there is a substantial pattern of gifting by the principal preceding the gifts made by the attorney-in-fact the gifts made by the attorney-in-fact are consistent with the principal’s prior gifting the gifts do not deplete the principal’s assets to the principal’s - - detriment and it is clear there has been no fraud or abuse by the agent we conclude on the record in this case that it was decedent’s intention to include the power to make gifts in the powers of attorney given to ms thompson and that the gifts made by ms thompson on date and date were authorized by those powers of attorney we hold that decedent did not have the right to revoke the gifts on the date of her death and that the gifts are not includable in decedent’s gross_estate under sec_2038 we have considered all remaining arguments made by the parties for contrary holdings and to the extent not discussed find them to be irrelevant or without merit to reflect the foregoing decision will be entered under rule


internal_revenue_service number release date index number 6050p ------------------------------------------------------------ ---------------- ----------------------------- ------------------------- --------------------------------------- - department of the treasury washington dc third party communication none date of communication not applicable_person to contact ------------------------ id no ------------- telephone number -------------------- refer reply to cc pa apjp b01 plr-140749-05 date date ----------------------------------------------------------------- re --------------------------------------------------------------------------------------------- re --------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- legend company -------------------------------------------------- dear --------------- this letter responds to a letter dated date submitted by company’s authorized representative on its behalf requesting certain rulings under sec_6050p of the internal_revenue_code code facts company annually purchases millions of past due consumer accounts_receivable from credit card issuers and other consumer debt issuers that have charged-off the accounts after unsuccessful attempts to collect company typically acquires accounts in portfolios that may include to big_number accounts from a debt issuer company acquires title to the accounts and will seek to collect on the accounts over a long period of time only rarely does company decide to write-off an account the balance of an individual_account may vary from a few dollars to thousands of dollars the amount that the debt issuer may have charged-off on an account may include principal interest and other charges charged-off amount within the first week after acquiring a portfolio of accounts company stores the accounts onto its collection database within approximately ------------------------------------ --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- plr-140749-05 --------------------------------------------------------------------------------------------------------- ----------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------- throughout each year company sends letters and makes automated and manual phone calls to debtors on accounts for which it has correct addresses and phone numbers if company does not have a correct address or phone number for an account it will run the account through skip tracing efforts each year ---------------------- --------------------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------company continues these efforts from year to year unless the account is settled or company decides not to continue collection activity and to write-off the account as permitted by federal and state law company reports accounts to three major credit bureaus twice a month ------------------------------------------------------------------------------------ --------------------------------------------- company uses this information in seeking to collect on its accounts company rotates accounts to different collectors every six months if an assigned collector has been unable to collect on the account company rotates accounts that have been assigned to third party collection agencies as well as accounts assigned to its own collectors company continues to rotate accounts from year to year unless the account is settled or company decides not to continue collection activity and to write-off the account company’s collectors negotiate payment terms and settlement amounts with debtors if a debtor refuses to pay and company thinks that the debtor has the ability to pay company will take legal action and file suit provided the statute_of_limitations has not expired if the statute_of_limitations has expired company will pursue other collection activities as permitted by federal and state law company also files claims against the estates of bankrupt debtors and deceased debtors in continuing its collection efforts on accounts each account accrues interest on the charged-off amount during the period of time that company holds the account ----------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- ----------- company may hold more than one account for the same debtor it has been company’s longstanding standard business practice to settle on the basis of each account of a debtor rather than to settle on the basis of all accounts of the debtor rulings requested plr-140749-05 company’s collection practices constitute significant bona_fide collection activity within the meaning of sec_1_6050p-1 of the income_tax regulations regulations for purposes of the non-payment testing_period identifiable_event under sec_1_6050p-1 company may report discharges of indebtedness of dollar_figure or more on the basis of each account of a debtor rather than on the basis of all accounts of the debtor if a settlement involves a discharge of interest and principal company is required to report only discharges of stated principal of dollar_figure or more law and analysis ruling sec_6050p of the code provides that any applicable_entity that discharges indebtedness of any person during a calendar_year must file an information_return reporting the discharge sec_6050p defines an applicable_entity to include an organization with a significant trade_or_business of lending money sec_1 6050p- a of the regulations provides that lending money is a significant trade_or_business if the organization lends money on a regular and continuous basis during the calendar_year sec_1_6050p-2 provides that lending money includes acquiring an indebtedness sec_1_6050p-1 of the regulations provides that upon the occurrence of an identifiable_event during a calendar_year an applicable_entity must report cancellation of indebtedness of dollar_figure or more during the calendar_year unless an exception to reporting applies sec_1_6050p-1 provides eight identifiable events that trigger reporting of cancellation of indebtedness sec_1_6050p-1 of the regulations provides a rebuttable_presumption that an identifiable_event has occurred during a calendar_year if a creditor has not received a payment at anytime during a month testing_period ending at the close of the year in applying the non-payment testing_period to an organization that purchases debt on december of each year the organization must determine how long it has not received payment see sec_1_6050p-1 the sec_6050p reporting requirements apply to discharges of indebtedness that occur on or after date see sec_1_6050p-2 of the regulations if the non-payment testing_period identifiable_event or any other identifiable_event occurred prior to the effective date of sec_1_6050p-2 no reporting is required upon the occurrence of a subsequent identifiable_event if however an identifiable_event has not occurred before the effective date of sec_1_6050p-2 an organization must determine if an identifiable_event including the non-payment testing_period identifiable_event has occurred during or during any subsequent year for purposes of sec_6050p reporting plr-140749-05 an organization can rebut the presumption that the non-payment testing_period identifiable_event occurred by engaging in significant bona_fide collection activity during the last months that is more than nominal or ministerial see sec_1 6050p- b iv of the regulations this would require the organization to pursue collection activity beyond merely generating an automated mailing see sec_1 6050p- b iv a the organization can also rebut the presumption if the facts and circumstances on january of the following year indicate the debt has not been discharged see sec_1_6050p-1 the facts and circumstances may include the existence of a lien relating to the debt see sec_1_6050p-1 based on the facts submitted and the representations made company engages in numerous collection activities throughout each year until the account is settled or company decides not to continue collection activity and to write-off the account for example -------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------------------------- --------------------------------------------------these collection activities are significant and are more than merely nominal or ministerial ruling sec_1_6050p-1 of the regulations provides that an applicable_entity must report cancellation of indebtedness of dollar_figure or more during a calendar_year sec_1 6050p- a provides that an applicable_entity is not required to aggregate multiple discharges of indebtedness of less than dollar_figure for purposes of sec_6050p reporting unless the separate discharges are pursuant to a plan to evade the reporting requirements of sec_6050p of the code based on the facts submitted and the representations made company discharges debt on the basis of each account of a debtor rather than on the basis of all accounts of the debtor this has been company’s standard business practice prior to being subject_to the sec_6050p reporting requirements there is no indication that company’s practice is pursuant to a plan to evade the reporting requirements of sec_6050p of the code ruling sec_6050p of the code provides that no information reporting is required under sec_6050p if the amount of the discharge is less than dollar_figure sec_1 6050p- a of the regulations provides that except as provided in sec_1_6050p-1 an applicable_entity must report cancellation of indebtedness of dollar_figure or more during a calendar_year plr-140749-05 sec_1_6050p-1 of the regulations defines indebtedness to mean any amount owed including stated principal fees stated_interest penalties administrative costs and fines sec_1_6050p-1 provides that an applicable_entity is not required to report the discharge of an amount that is interest sec_1_6050p-1 provides that in the case of a lending transaction an applicable_entity is not required to report discharges of amounts other than stated principal sec_1_6050p-2 provides that lending money includes acquiring an indebtedness company acquires debt and therefore is considered to be engaged in the trade_or_business of lending money and lending transactions company is not required to report discharges of interest and is required to report only discharges of stated principal of dollar_figure or more conclusions accordingly based on the information submitted and representations made we conclude that company’s collection practices constitute significant bona_fide collection activity within the meaning of sec_1_6050p-1 of the regulations for purposes of the non-payment testing_period identifiable_event under sec_1_6050p-1 company may report discharges of indebtedness of dollar_figure or more for each account of the debtor and if a settlement involves discharge of interest and principal company is required to report only discharges of stated principal of dollar_figure or more except as expressly provided herein no opinion is expressed or implied concerning the tax consequences of any aspect of any transaction or item discussed or referenced in this letter this ruling is directed only to the taxpayer requesting it sec_6110 of the code provides that it may not be used or cited as precedent in accordance with the power_of_attorney on file with this office a copy of this letter is being sent to your authorized representative plr-140749-05 the rulings contained in this letter are based upon information submitted and representations made by the taxpayer and submitted under penalty of perjury while this office has not verified any of the material submitted in support of the request for rulings it may be subject_to verification on examination sincerely yours donna welch senior counsel administrative provisions judicial practice procedure administration enclosures copy of this letter copy for sec_6110 purposes cc ---------------------------- ------------------------------------- ------------------------