Court Opinion

ID: 9375760
Source: CourtListenerOpinion
Date Created: 2023-02-28 20:01:16.934975+00
Date Added: 2024-06-11T17:17:01.757534
License: Public Domain

United States Tax Court

                          T.C. Memo. 2023-25

    ESTATE OF RICHARD D. SPIZZIRRI, DECEASED, JOHN J.
        MCATEE, JR., PERSONAL REPRESENTATIVE,
                        Petitioner

                                    v.

            COMMISSIONER OF INTERNAL REVENUE,
                        Respondent

                               —————

Docket No. 19124-19.                            Filed February 28, 2023.

                               —————

James R. Walker, for petitioner.

Ray Malone Camp, Bryant W. Smith, and David W. Sorensen, for
respondent.

       MEMORANDUM FINDINGS OF FACT AND OPINION

       URDA, Judge: Richard D. Spizzirri was a well-to-do lawyer and
investor who passed away in 2015. During the last few years of his life,
Mr. Spizzirri paid significant sums to one of his daughters, one of his
stepdaughters, and multiple women with whom he was either socially
or romantically connected. At the time of his death, Mr. Spizzirri was
married to his fourth wife, and his estate, i.e., the Estate of Richard D.
Spizzirri (Estate), later paid $1 million to each of his wife’s three
children pursuant to an antenuptial agreement, as modified several
times during the marriage.

       The parties dispute whether Mr. Spizzirri’s payments over the
last few years of his life constitute taxable gifts, and whether the
Estate’s payments to Mr. Spizzirri’s stepchildren are claims against the

                            Served 02/28/23
                                            2

[*2] estate deductible under section 2053(a)(3). 1 The parties also spar
over the Internal Revenue Service’s (IRS) disallowance of a deduction
under section 2053(a)(2) for the Estate’s expenses to repair and
maintain two of Mr. Spizzirri’s properties.             Finally, the Estate
challenges the IRS’s determination of an addition to tax under section
6651(a)(1) for failure to timely file the estate tax return. We will sustain
the IRS’s determinations, subject to concessions made by the
Commissioner.

                               FINDINGS OF FACT

       Trial in this case began on May 19, 2021, during the Buffalo, New
York, remote trial session (via ZoomGov). We incorporate by reference
the stipulations of facts and their exhibits. The Estate’s executor lived
in Florida when he timely filed the petition in this case. At the time of
his passing, Mr. Spizzirri was living in Colorado.

I.      Background

      Mr. Spizzirri worked as a lawyer and investor focusing on the
biotechnology sector. His efforts brought him considerable wealth, part
of which he used to buy properties in New York City, the Hamptons,
Aspen, and Miami.

       Mr. Spizzirri was married four times, with his first marriage
producing four children. His fourth and final marriage was to Holly
Lueders, who had three children of her own from a previous marriage.
Mr. Spizzirri and Ms. Lueders entered into an antenuptial agreement
(Prenup) on March 4, 1997 (approximately a month before they wed),
which they modified five times over the following 18 years. The parties
agreed that the Prenup would be “construed in accordance with the laws
of the State of New York.”

        1 Unless otherwise indicated, all statutory references are to the Internal

Revenue Code, Title 26 U.S.C. (Code), in effect at all relevant times, all regulation
references are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all
relevant times, all Rule references are to the Tax Court Rules of Practice and
Procedure. All monetary amounts are rounded to the nearest dollar.
                                     3

[*3]   A.    The Prenup and Modifications

             1.     The Prenup

        The Prenup contains general recitals of the parties’ intentions
and assets at the time of marriage, as well as articles that define the
parties’ rights with respect to distinct subjects, such as the waiver of
estate rights (Article IV), property rights in the event of a dissolution of
marriage (Article V), and maintenance (Article VI). The parties
represent that Mr. Spizzirri brought between $24.7 million and $27.7
million in net assets to the marriage, while Ms. Lueders brought
approximately $1.25 million in net assets. Among other things, the
parties specify that they intended the Prenup “to fix their rights and
obligations to their property and to the support of one another in the
event of their separation or the legal termination of the marriage, and
to fix their rights and obligations in their property after death.”

                    a.     Waiver of Marital Rights

       Article IV sets forth the parties’ “waiver and release . . . of all
rights in and to each other’s estate under any rule or law . . . entitling a
surviving spouse to all or any part of the estate or property of a deceased
spouse or to any interest therein.”

       The Prenup provides that “in lieu of any other rights which may
be available to her as the surviving spouse” of Mr. Spizzirri, Ms. Lueders
would receive a mix of both money and rights in certain property.
Specifically, the Prenup requires Mr. Spizzirri to “make and keep in
effect” a will that would (1) establish a marital trust of 25% of his gross
estate that would pay Ms. Lueders no less than $200,000 per year
(indexed for inflation) and (2) grant Ms. Lueders the right to live in Mr.
Spizzirri’s Easthampton home for five years without any payment for
rent or upkeep.

       The Prenup also provides a mechanism for the sale of Mr.
Spizzirri’s Aspen house in the event of his death, with Ms. Lueders
receiving 12.5% of the gross sale proceeds. The parties further agree
that Mr. Spizzirri would pay for the schooling of Ms. Lueders’s children
from her previous marriage should she predecease him.
                                    4

[*4]                b.     Dissolution of Marriage

      Article V deals with a possible dissolution of marriage, which
includes separation, divorce, or annulment. In that circumstance, the
parties agreed to waive all rights to the separate property of the other.

       The Prenup further provides that in the event of a dissolution, “in
consideration of her relinquishment of any rights she has or might have
at such time to maintenance or support and any claims she has or might
have to equitable distribution,” Ms. Lueders would receive $1 million
plus $250,000 for each year they were married, not to exceed
$4.5 million. The Prenup also states that Mr. Spizzirri would provide
Ms. Lueders with a deed for a 12.5% interest in his Aspen house and
land “as additional consideration for [Ms. Lueders’s] waiver of
maintenance and equitable distribution” and that, in the event of
dissolution, the property would be sold and Ms. Lueders would receive
payment for her interest. The Prenup clarifies that the $4.5 million cap
was to be reduced by (1) any amounts paid to Ms. Lueders with respect
to her 12.5% interest in the Aspen property and (2) certain $25,000
monthly payments that Mr. Spizzirri was required to pay until the entry
of the divorce judgment.

                    c.     Maintenance

      Article VI sets forth Mr. Spizzirri and Ms. Lueders’s agreement
to waive “any and all right to seek maintenance . . . spousal support, or
alimony . . . except as herein expressly provided.”

             2.     Modification Agreements

      Mr. Spizzirri and Ms. Lueders modified the Prenup five times
from 1999 through 2009. Each of these modifications exclusively
addressed Article IV, which (as discussed above) specified the property
and money to be settled on Ms. Lueders in exchange for her waiver of
her marital rights as Mr. Spizzirri’s surviving spouse.

       As relevant here, the parties entered into a modification
agreement on November 3, 2005 (Third Modification), stating their
“desire . . . to modify and amend the [Prenup] to provide for [Ms.
Lueders] following the death of [Mr. Spizzirri]” and specifying that she
would “accept the following provisions in lieu of any other rights which
may be available to her as the surviving spouse.”             The Third
Modification alters the property that Ms. Lueders would receive at Mr.
Spizzirri’s death. It states that Mr. Spizzirri would keep in effect a will
                                     5

[*5] providing that Ms. Lueders would receive at his death (1) his
interest in his New York City penthouse apartment and $6 million (or
one-fifth of his gross estate) and (2) the right to reside at Mr. Spizzirri’s
Easthampton property for five years free of charge. The Third
Modification further provides that the will would include a bequest of
$1 million to each of Ms. Lueders’s children.

      With minor changes, these provisions remained in the following
two modification agreements. The final modification in 2009 contained
a change to Article V of the Prenup (addressing equitable distributions
upon dissolution of marriage), which provided that the lump sum that
Ms. Lueders would receive would be reduced only by Mr. Spizzirri’s
monthly payments before the entry of the divorce judgment. This
change meant that the amount paid to Ms. Lueders for her interest in
the Aspen property no longer reduced the lump-sum payment to which
Ms. Lueders was entitled under the Prenup.

      B.     Mr. Spizzirri’s Lifestyle

       Ms. Lueders and Mr. Spizzirri were estranged for several years
before his death. Mr. Spizzirri did not want for female companionship,
however. He fathered two children with two different women outside of
his marital bonds and purchased a Miami condominium with another
lady friend, Hadria Lawner.

       Over the last few years of his life, Mr. Spizzirri made large
payments to multiple women. He did not issue Form W-2, Wage and
Tax Statement, Form 1099-MISC, Miscellaneous Income, or any other
tax report for these payments.

      Some of these payments were to family: He paid one of his
daughters $15,000 in 2014 and one of his stepdaughters $25,700 and
$21,000 in 2014 and 2015, respectively. Mr. Spizzirri also made
payments to Angela Huper, the mother of one of his sons born outside of
his marriage, of $27,111, $19,175, $24,981, and $12,226 for 2011, 2012,
2013, and 2015, respectively. And he paid Hadria Lawner, with whom
he purchased a condominium, $37,500, $22,714, and $30,000 during
2013, 2014, and 2015, respectively.

       Mr. Spizzirri also paid assorted women with whom he had less
well-defined relationships. He made payments of (1) $59,661, $16,600,
and $13,400 during 2011, 2012, and 2013, respectively, to Zsusanna
Pacziga, (2) $24,100 and $25,052 during 2011 and 2012 to Eve Seiler,
(3) $22,800, $50,750, and $26,600 during 2013, 2014, and 2015,
                                     6

[*6] respectively, to or on behalf of Tatiana Mardovina, (4) $42,900 and
$30,455 during 2013 and 2014, respectively, to Tiffany Dazey Preston,
and (5) $58,550, $34,400, and $7,350 during 2012, 2013, and 2014,
respectively, to Vivien Levine.

       C.    Will and Codicils

      Although the Prenup and its modifications each provided that Mr.
Spizzirri would keep in effect a will that reflected the parties’
agreements in Article IV, he did not do so. Mr. Spizzirri had made a will
in 1979, long before he married Ms. Lueders, which, by and large,
bequeathed his estate to his children.

       Beginning in 2014, Mr. Spizzirri executed four codicils to his will.
The first three codicils specified the inheritance rights of Mr. Spizzirri’s
sons who had recently been born outside of his marriage. The last codicil
related to the condominium he owned with Hadria Lawner, providing
that his estate would pay off the mortgage and transfer his interest to
her.

II.    Probate

       Mr. Spizzirri passed away on May 12, 2015, in Pitkin County,
Colorado. The Pitkin County District Court later admitted Mr.
Spizzirri’s will and codicils to probate. Ms. Lueders filed various claims,
which sought payments of mortgages, payments to her children, and
certain real and personal property, among other things. Ms. Lueders
and the Estate ultimately reached a binding settlement of her claims on
November 22, 2016, which was thereafter approved by the Pitkin
County District Court on December 17, 2016.

       Ms. Lueders’s three children also filed claims, seeking to be paid
under the terms of the Third Modification Agreement. The Estate
thereafter made $1 million payments to each of Ms. Lueders’s three
children, plus interest payments required by Colorado law. The Estate
reported these payments to the IRS on Forms 1099-MISC.

III.   The Estate Tax Return and Notice of Deficiency

       The Estate’s federal estate tax return was due on February 10,
2016. On February 19, 2016, the Estate remitted an estate tax payment
of $11,800,000 along with a request for a six-month extension to file the
return, which was granted, extending the deadline to August 12, 2016.
                                   7

[*7] In July 2016 the Estate’s tax adviser sent a request via letter to
the IRS for a second extension of the filing deadline because of the
ongoing probate litigation with Ms. Lueders. In a letter dated August
18, 2016, the IRS informed the Estate that a second extension could not
be granted as a matter of law.

        On November 29, 2016, shortly after the settlement of the probate
litigation, the Estate filed Form 706, United States Estate (and
Generation Skipping Transfer) Tax Return. The return showed a gross
estate exceeding $81 million, a taxable estate of $30,805,768, and tax
due of $10,150,307.

       The Estate reported on the return zero dollars in adjusted taxable
gifts. It deducted as claims against the estate both the $3 million in
payments to Ms. Lueders’s children and the $623,255 appraised value
of Ms. Lueders’s right to reside in the Easthampton property for five
years. The Estate further claimed administration expense deductions,
including emergency repairs of $22,034 for the New York City
apartment and $314,890 for two decks at the Aspen property. The
Estate also deducted $455,166 for five years of estimated “property
maintenance” expenses related to Ms. Lueders’s right to reside in the
Hamptons beach house for five years.

      After processing this return, the IRS issued a refund of
$1,649,693 in light of the payment previously remitted. The IRS
thereafter began an examination into the proper estate tax liability.

       The IRS issued a notice of deficiency determining a deficiency in
estate tax of $2,251,189 as well as an addition to tax under
section 6651(a)(1) of $450,238 for failure to timely file. The notice
increased Mr. Spizzirri’s lifetime adjusted taxable gifts from zero to
$193,441. The notice disallowed the deductions claimed for the
payments to Ms. Lueders’s children and her right to reside in the
Easthampton property. It likewise disallowed the administration
expense deductions for the emergency repairs to the Aspen property and
the maintenance expenses for the Easthampton property during Ms.
Lueders’s five-year right to reside there.

                               OPINION

I.    Burden of Proof

      Generally, a taxpayer bears the burden of proving by a
preponderance of the evidence that the determinations of the
                                            8

[*8] Commissioner in a notice of deficiency are incorrect. See Rule
142(a)(1); Welch v. Helvering, 290 U.S. 111, 115 (1933). Section 7491(a)
shifts the burden to the Commissioner, however, with respect to a
factual issue relevant to a taxpayer’s liability where the taxpayer, inter
alia, provides credible evidence.

       “Credible evidence is the quality of evidence which, after critical
analysis, the court would find sufficient upon which to base a decision
on the issue if no contrary evidence were submitted (without regard to
the judicial presumption of IRS correctness).” Higbee v. Commissioner,
116 T.C. 438, 442 (2001) (quoting H.R. Rep. No. 105-599, at 240–41
(1998) (Conf. Rep.), as reprinted in 1998-3 C.B. 747, 994–95). “[W]e are
not compelled to believe evidence that seems improbable or to accept as
true uncorroborated, although uncontradicted, evidence by interested
witnesses.” See, e.g., Estate of Erickson v. Commissioner, T.C. Memo.
2007-107, 2007 WL 1364407, at *6. As we will explain, the Estate’s
evidence does not rise to the level of credible evidence, and the burden
accordingly remains on the Estate. 2

II.     Gift Tax

        A.      Legal Framework

       The gift tax imposes an excise tax on the transfer of property by
gift during the donor’s lifetime. See I.R.C. § 2501(a)(1). The gift tax is
imposed whether the gift is made directly or indirectly, whether it is real
or personal property, and whether it is tangible or intangible.
I.R.C. § 2511(a); see Dickman v. Commissioner, 465 U.S. 330, 334 (1984)
(“The language of [sections 2501(a)(1) and 2511(a)] is clear and admits
of but one reasonable interpretation: transfers of property by gift, by
whatever means effected, are subject to the federal gift tax. . . . [T]he
gift tax was designed to encompass all transfers of property . . . .”). 3

        2 Section 7491(c) places the burden of production on the Commissioner with

respect to the liability of any individual for any penalty or addition to tax. Higbee, 116
T.C. at 446. The provision has no application here as an estate is not an individual.
Estate of Jackson v. Commissioner, T.C. Memo. 2021-48, at *248; Estate of Ramirez v.
Commissioner, T.C. Memo. 2018-196, at *32.

         3 Although the donor is primarily responsible for paying the gift tax, see

I.R.C. § 2502(c), if the donor dies before paying the gift tax, the personal representative
of the donor’s estate is responsible for paying the tax out of the estate, as a debt due to
the United States from the estate, see Treas. Reg. § 25.2502-2.
                                    9

[*9] “Donative intent on the part of the transferor is not an essential
element in the application of the gift tax to the transfer.” Treas. Reg.
§ 25.2511-1(g)(1). “The application of the tax is based on the objective
facts of the transfer and the circumstances under which it is made,
rather than on the subjective motives of the donor.” Id.

       The tax is imposed on “taxable gifts,” which is defined as the total
amount of gifts made during the calendar year less specified deductions.
I.R.C. § 2503(a). Section 2503(b) provides an annual exclusion from gift
tax. As relevant here, the annual exclusion was $13,000 during 2011
and 2012 and $14,000 for 2013 through 2015. See What’s New – Estate
and Gift Tax, IRS, https://www.irs.gov/businesses/small-businesses-
self-employed/whats-new-estate-and-gift-tax (last updated Dec. 20,
2022).

      B.     Mr. Spizzirri’s Largesse From 2011 Through 2015

       The Estate failed to meet its burden to prove that Mr. Spizzirri’s
significant payments to various family members and friends from 2011
through 2015 were not gifts subject to the gift tax. From 2011 through
2015, Mr. Spizzirri paid sizable sums to one of his daughters, one of his
stepdaughters, and seven women with whom he had social or romantic
relationships.

        The Estate argues that the payments to these individuals were
not taxable gifts but rather payments for care and companionship
services during the last years of his life. In support, the Estate offered
the testimony of one of Mr. Spizzirri’s daughters, his executor, and one
of his lawyers.

       We first note that the Estate’s failure to call the recipients
themselves (aside from Mr. Spizzirri’s daughter) could give rise to an
adverse inference that, had they been called, their testimony would not
have supported the Estate’s contentions. See Wichita Terminal Elevator
Co. v. Commissioner, 6 T.C. 1158, 1165 (1946), aff’d, 162 F.2d 513 (10th
Cir. 1947).

       Even if we lay aside such an adverse inference, the Estate has
failed to establish that Mr. Spizzirri’s payments were not gifts. Mr.
Spizzirri paid the amounts at issue by checks that contain no indication
that they were meant as compensation. Mr. Spizzirri did not issue or
file any Forms 1099 or W-2 related to these payments, nor did he report
these payments on his personal income tax returns.
                                          10

[*10] The trial witnesses did not address Mr. Spizzirri’s payments to
six of the nine recipients at issue, much less establish that the payments
to them were not gifts. 4 As to the remaining three recipients, the trial
testimony reflected that they helped Mr. Spizzirri in various ways
during the last few years of his life from running errands to staying by
his bedside when he was in the hospital.

        The testimony did not resolve, however, whether Mr. Spizzirri’s
payments to them were anything other than gifts to express his
appreciation to loyal and steadfast friends. As Mr. Spizzirri’s lawyer put
it: “I knew him to say these women were his friends. And that’s why he
was generous with them.” For her part, Mr. Spizzirri’s daughter could
shed a little more light on her father’s affairs, testifying that one of the
women who helped him “sort of did everything—like a secretarial—
wife—I don’t know.”

      In short, the documentary and testimonial evidence fails to clear
up the murky relationship between Mr. Spizzirri and the recipients of
his payments, and thus is insufficient to establish that the payments at
issue were not gifts. 5

        4 On brief the Estate concedes that the payments to Mr. Spizzirri’s daughter
were gifts but argues that the payments to or on behalf of “Angela Huper were support
for [Mr. Spizzirri’s] child and not gifts.” The Estate presented no testimony on this
point, and the memorandum lines and recipients of the checks contradict this
assertion.
        5  At trial, the Estate sought to introduce a 2019 IRS Office of Chief Counsel
memorandum obtained through a Freedom of Information Act request, as Exhibit 502-
P. The Estate argued that this memorandum is relevant both to (1) understanding the
amounts that the IRS considered (or chose not to consider) when determining Mr.
Spizzirri’s gift tax liability in the notice of deficiency and (2) evaluating the IRS’s
compliance with section 6751(b) in asserting the late-filing penalty. Assuming
arguendo that neither the attorney-client privilege nor the work product doctrine
applies, we nonetheless decline to admit Exhibit 502-P on relevance grounds. The
memorandum has no bearing on our decision as to the correctness of the gift tax
liability as we “will not look behind a deficiency notice to examine the evidence used or
the propriety of [the Commissioner’s] motives or of the administrative policy or
procedure involved in making his determinations.” Greenberg’s Express, Inc. v.
Commissioner, 62 T.C. 324, 327–28 (1974). As to section 6751(b), the approval
requirement in section 6751(b)(1) does not apply to any addition to tax under section
6651, as in this case. I.R.C. § 6751(b)(2)(A).
                                     11

[*11] III.   Estate Tax

       A.    Overview

       The estate tax imposes a tax “on the transfer of the taxable estate
of every decedent who is a citizen or resident of the United States.”
I.R.C. § 2001(a). A decedent’s gross estate includes “the value at the
time of his death of all property . . . wherever situated.” I.R.C. § 2031(a).
For purposes of determining the taxable estate, the value of the gross
estate is reduced by permissible deductions, including claims against
the estate that are allowable by applicable state law and administration
expenses. I.R.C. §§ 2051, 2053(a)(2) and (3).

       B.    Claims Against the Estate

             1.     Legal Framework

       The deduction for claims against the estate is subject to
section 2053(c)(1)(A), which provides that “the deduction allowed . . . in
the case of claims against the estate . . . shall, when founded on a
promise or agreement, be limited to the extent that they were contracted
bona fide and for an adequate and full consideration in money or
money’s worth.” The “purpose of this section . . . was to prevent
deductions, under the guise of claims, of what were in reality gifts or
testamentary distributions.” Carney v. Benz, 90 F.2d 747, 749 (1st Cir.
1937); see also Estate of Pollard v. Commissioner, 52 T.C. 741, 744
(1969).

       The Estate must establish that “the promise resulting in the
claim on the estate ‘was contracted for in good faith for value which
augmented the decedent’s estate.’”           See Estate of Kosow v.
Commissioner, 45 F.3d 1524, 1531 (11th Cir. 1995) (quoting Leopold v.
United States, 510 F.2d 617, 624 (9th Cir. 1975)), vacating and
remanding T.C. Memo. 1992-539; see also Estate of Tiffany v.
Commissioner, 47 T.C. 491, 497 (1967).             “The ‘bona fide’ and
‘consideration’ elements in section 2053(c)(1)(A) are related but separate
requirements, and if either is missing the deduction fails under this
section.” Estate of Cole v. Commissioner, T.C. Memo. 1989-623, 1989
WL 138921, rev’d on other grounds sub nom. Devore v. Commissioner,
963 F.2d 280 (9th Cir. 1992).
                                   12

[*12]               a.    Bona Fide

       The bona fide requirement generally prohibits a deduction “to the
extent it is founded on a transfer that is essentially donative in
character (a mere cloak for a gift or bequest).” Treas. Reg. § 20.2053-
1(b)(2)(i). “[T]ransactions among family members are subject to
particular scrutiny, even when they apparently are supported by
monetary consideration, because that is the context in which a testator
is most likely to be making a bequest rather than repaying a real
contractual obligation.” Estate of Huntington v. Commissioner, 16 F.3d
462, 466 (1st Cir. 1994), aff’g 100 T.C. 313 (1993); see also Estate of
Tiffany, 47 T.C. at 499.

        Treasury Regulation § 20.2053-1(b)(2)(ii) supplies guidance on
this front, setting forth factors to evaluate whether a claim involving
family members is bona fide. Among other “[f]actors indicative (but not
necessarily determinative) of the bona fide nature of a claim,” the
Treasury Regulation considers whether (1) “[t]he transaction underlying
the claim or expense occurs in the ordinary course of business, is
negotiated at arm’s length, and is free from donative intent,” (2) “[t]he
nature of the claim or expense is not related to an expectation or claim
of inheritance,” (3) “[p]erformance by the claimant is pursuant to the
terms of an agreement between the decedent and the family member,
. . . and the performance and the agreement can be substantiated,” and
(4) all amounts paid in satisfaction of the claim “are reported by each
party for Federal income . . . tax purposes . . . in a manner that is
consistent with the reported nature of the claim.” Id.

                    b.    Consideration

       In addition to being contracted bona fide, section 2053(c)(1)(A)
requires that claims against the estate be contracted for “an adequate
and full consideration in money or money’s worth” to be deductible.
Satisfaction of this requirement “may not be predicated solely on the fact
that the contract is enforceable under State law,” Estate of Glover v.
Commissioner, T.C. Memo. 2002-186, 2002 WL 1774231, at *14, but
instead necessitates “a higher standard of consideration,” Estate of Carli
v. Commissioner, 84 T.C. 649, 658 (1985).

       “In good tax code fashion, there is a further provision,
§ 2043(b)(1), which tells us that some things do not constitute
‘consideration in money or money’s worth.’” Estate of Herrmann v.
Commissioner, 85 F.3d 1032, 1035 (2d Cir. 1996), aff’g T.C. Memo.
                                            13

[*13] 1995-90, 1995 WL 84623. Specifically, “a relinquishment or
promised relinquishment of dower or curtesy, or of a statutory estate
created in lieu of dower or curtesy, or of other marital rights in the
decedent’s property or estate, shall not be considered to any extent a
consideration ‘in money or money’s worth’.” I.R.C. § 2043(b)(1). 6 The
purpose of this provision “was to eliminate a particular form of estate
tax avoidance which involved the contractual conversion of a wife’s
dower (or other property rights she may have as surviving spouse) into
a deductible claim against the gross estate.” Estate of Glen v.
Commissioner, 45 T.C. 323, 333 (1966). 7 In sum, a spouse’s inheritance
rights in the decedent’s property do not constitute consideration under
section 2053(c)(1)(A). Estate of Rubin v. Commissioner, 57 T.C. 817,
823–24 (1972), aff’d without published opinion, 478 F.2d 1399 (3d Cir.
1973).

       Spousal rights of support and maintenance lie outside the
strictures of section 2043(b) and accordingly are treated differently for
purposes of section 2053(c)(1)(A). As the U.S. Court of Appeals for the
Eleventh Circuit has observed, “the IRS does not dispute that the waiver
of support rights may constitute full and adequate consideration under
§ 2053; nor could it.” Estate of Kosow v. Commissioner, 45 F.3d at 1531;
see also Estate of Carli, 84 T.C. at 657, 661; Estate of Fenton v.
Commissioner, 70 T.C. 263, 275 (1978). “Therefore, the claim for
payment after the death of the decedent, to the extent that it is based
on such release [of spousal support rights], is deductible . . . as a claim
based upon an adequate and full consideration in money or money’s
worth to the extent of the value of the . . . support rights.” Estate of
Fenton, 70 T.C. at 275.

        6We look to section 2043(b)(1), as it applies “[f]or purposes of this chapter,” i.e.,
“Chapter 11—Estate Tax.” Although section 2043(b)(2) provides an exception to
section 2043(b)(1), it is inapplicable here as it relates only to the circumstance where
there has been a divorce within three years of a written agreement.
        7 “Normally, of course, a married couple will have no reason to structure

bequests to each other as contractual debts” because the Internal Revenue Code
provides a deduction from the taxable estate for most property transferred to the
surviving spouse under section 2056(a). Estate of Herrmann v. Commissioner, 85 F.3d
at 1035. As relevant here, “life estates (and other terminable interests), are not eligible
for the marital deduction,” otherwise “the value they represent would escape transfer
tax both when the first and when the . . . surviving spouse die.” Id.; see also I.R.C.
§ 2056(b).
                                    14

[*14]        2.     Bequests and Right-To-Reside

      The Estate claimed a deduction under section 2053(a)(3) for the
bequests of $1 million to each of Ms. Lueders’s three children and the
value of her five-year right to reside in the Easthampton property.
These claims do not satisfy either the bona fide or the consideration
requirements, however.

       As an initial matter, the claims were not contracted bona fide but
were “essentially donative in character.” Treas. Reg. § 20.2053-
1(b)(2)(i). Ms. Lueders’s right to reside in the Easthampton property
and the payments of $1 million did not stem from the performance under
an agreement between Mr. Spizzirri and the various beneficiaries. See
Treas. Reg. § 20.2053-1(b)(2)(ii)(D); see also Estate of Woody v.
Commissioner, 36 T.C. 900, 904 (1961). To the contrary, these bequests
were testamentary gifts, see Treas. Reg. § 20.2053-1(b)(2)(ii)(B), as
evidenced by the Prenup’s description (echoed in the Third Modification)
that the provisions in Article IV were “in lieu of any other rights which
may be available to [Ms. Lueders] as [Mr. Spizzirri’s] surviving spouse”
and the requirement that Mr. Spizzirri “make and keep in effect a will”
embodying these arrangements. Nor has the Estate provided any
evidence that Ms. Lueders and her children included these amounts as
income, as might belie the conclusion that the payments under
Article IV were gifts. See id. subdiv. (ii)(E).

       We likewise conclude that the claims were not contracted for with
adequate and full consideration in money or money’s worth. In New
York, prenuptial agreements are governed by traditional rules of
contract interpretation. Van Kipnis v. Van Kipnis, 900 N.E.2d 977, 980
(N.Y. 2008). “As with all contracts, prenuptial agreements are
construed in accord with the parties’ intent, which is generally gleaned
from what is expressed in their writing.” Id. The parties here clearly
took pains to keep the consideration for the relinquishment of each right
separate and distinct, and we will not second guess their expressed
intention.

       Article IV of the Prenup addresses the parties’ “waiver and
release . . . of all rights in and to each other’s estate” as surviving
spouses. As relevant here, Ms. Lueders agreed to accept, inter alia, the
right to reside in Easthampton for five years and a payment of $1 million
to each of her children “in lieu of any other rights which may be available
to her as the surviving spouse” of Mr. Spizzirri. The Prenup (as revised
by the Third Modification) makes plain that the consideration for the
                                   15

[*15] claims at issue is Ms. Lueders’s waiver of her marital rights, which
runs directly contrary to the prohibition staked out in section 2043(b).

       The Estate responds that the claims at issue were supported by
Ms. Lueders’s waivers of spousal support and equitable distribution,
asserting that the value of the waivers exceeded the value of the claims
at issue. The Prenup refutes the Estate’s argument, expressly
specifying the property that Ms. Lueders would receive in the event of a
dissolution of marriage “in consideration of her relinquishment of any
rights she has or might have at such time to maintenance or support
and any claims she has or might have to equitable distribution.” The
property promised to Ms. Lueders in Article V in consideration for the
waiver of her spousal rights in the case of divorce is distinct from the
property settled on Ms. Lueders and her children in Article IV (as
modified) in exchange for inheritance rights. We see no reason to redraft
the parties’ agreement to reallocate the consideration that they specified
for the relinquishment of certain rights. See Estate of Morse v.
Commissioner, 69 T.C. 408, 418 (1977) (“[A] consideration hypothetically
full and adequate within the statutory meaning has no relevance if the
asserted consideration was not part of the bargain between the
parties.”), aff’d per curiam, 625 F.2d 133 (6th Cir. 1980).

      Although we have had occasion previously to examine
consideration in the context of “simple” antenuptial agreements, we do
not believe that those agreements are apposite and thus our previous
holdings provide no support to the Estate here. See Estate of Pollard,
52 T.C. at 744; see also Estate of Herrmann v. Commissioner, 1995 WL
84623, at *7–8. “[T]he determination whether the transaction imports
a single contract or several contracts depends not on the number of
promises or the number of things promised but on whether there has
been a single expression of mutual assent to all the promises as a unit
or whether the parties expressed their assent separately to the various
promises.” 15 Williston on Contracts (Williston) § 45:3 (4th ed. 2022).
Pollard and Herrmann involved straightforward antenuptial
agreements “in which the various obligations [were] mutually
interdependent.” Estate of Pollard, 52 T.C. at 744; see also Estate of
Herrmann v. Commissioner, 1995 WL 84623, at *2–4, *7–8; 15 Williston
§ 45:3 (describing general dependency as a contract where “all the
promised performances on both sides must be regarded as the agreed
exchange for each other”).

     The Prenup, on the other hand, sets forth a highly reticulated
scheme, with each article addressing a specific right and detailing the
                                          16

[*16] corresponding consideration. In this case, “the performance of a
promise on one side may, by the terms of the agreement, be set off as an
agreed exchange for a corresponding performance on the other side,
although these performances may not be all the performances which the
contract requires.” 15 Williston § 45:3. In short, Pollard and Herrmann
involve a type of contract different from the Prenup, in which there is
“particular dependency between these promises of partial performance.”
Id. The result of the previous cases thus does not obtain. 8

       C.      Administration Expenses

               1.      Legal Framework

       Section 2053(a)(2) allows a deduction from the gross estate for
administration expenses as permitted by the laws of the state where the
estate is administered, i.e., Colorado in this case. Treasury Regulation
§ 20.2053-3(a) explains that the deduction is “limited to such expenses
as are actually and necessarily, incurred in the administration of the
decedent’s estate; that is, in the collection of assets, payment of debts,
and distribution of property to the persons entitled to it.” “The expenses
contemplated . . . are such only as attend the settlement of an estate and
the transfer of the property of the estate to individual beneficiaries or to
a trustee . . . .” Id.

       8   Even if we were to conclude that we should not treat distinct articles
distinctly, the Estate would fare no better. We and other courts have previously
determined that the waiver of spousal support rights attendant to the dissolution of a
marriage can constitute full and adequate consideration. See, e.g., Estate of Kosow v.
Commissioner, 45 F.3d at 1531–34; Estate of Fenton, 70 T.C. at 275. Courts have
considered that a waiver of spousal support rights (or agreement to accept lesser
support) as part of the arm’s-length negotiations surrounding such a dissolution can
constitute adequate consideration as it essentially augments the income of the spouse
who otherwise would be responsible for support payments under state law. See, e.g.,
Estate of Kosow v. Commissioner, 45 F.3d at 1531–34; Leopold, 510 F.2d at 624. This
situation differs from one where a spouse prospectively trades away in an antenuptial
agreement an unrealized, contingent right to support or maintenance in exchange for
“the right to a definite part of her husband’s estate.” See Estate of Herrmann v.
Commissioner, 85 F.3d at 1040–41. In that instance, “[w]hat [the waiving spouse] gave
up added nothing to her [spouse’s] estate; what she received depleted it.” Id. at 1041.
Similarly, Ms. Lueders’s prospective relinquishment of her spousal support rights in
the Prenup does not constitute full and adequate consideration.
        We likewise reject the Estate’s argument that the payments to Ms. Lueders’s
children qualified for the marital deduction of section 2056(a), as the payments were
plainly not made to Mr. Spizzirri’s surviving spouse. See Estate of Spencer v.
Commissioner, 43 F.3d 226, 231 (6th Cir. 1995), rev’g T.C. Memo. 1992-579.
                                           17

[*17] “Expenses necessarily incurred in preserving and distributing the
estate, including the cost of storing or maintaining property of the estate
if it is impossible to effect immediate distribution to the beneficiaries,
are deductible . . . .” Treas. Reg. § 20.2053-3(d)(1); see also Marcus v.
DeWitt, 704 F.2d 1227, 1230 (11th Cir. 1983). “Expenses for preserving
and caring for the property may not,” however, “include outlays for
additions or improvements; nor will such expenses be allowed for a
longer period than the executor is reasonably required to retain the
property.” Treas. Reg. § 20.2053-3(d)(1). Moreover, expenses incurred
to enhance the salability of a decedent’s residence are generally not
deductible under section 2053. See Estate of Grant v. Commissioner,
T.C. Memo. 1999-396, 1999 WL 1111778, at *10–11, aff’d, 294 F.3d 352
(2d Cir. 2002).

                2.      Repairs to the Aspen House

       The Estate deducted on its return administration expenses
including $314,890 for “emergency repairs due to unsafe conditions” and
“continued maintenance” with respect to various decks at Mr. Spizzirri’s
Aspen house. The Estate argues in its reply brief that the expenditures
were incurred to prepare the property for sale.

       As an initial matter, the Estate did not raise this issue until its
reply brief. We could accordingly deem this issue conceded or forfeited. 9
See, e.g., Clay v. Commissioner, 152 T.C. 223, 236 (2019), aff’d, 990 F.3d
1296 (11th Cir. 2021); Dutton v. Commissioner, 122 T.C. 133, 142 (2004)
(“Our practice is not to consider new issues raised for the first time in
an answering brief.”).

       Even if we were to overlook this failure, the Estate has not proved
its entitlement to deduct the deck repair expenses. On its tax return,
the Estate claimed a fair market value based on a 2015 appraisal report
on the Aspen property. That report noted that the decks showed signs
of “considerable deferred maintenance” and that “the decking may need

        9 The Estate asserts in a conclusory statement in its opening brief that certain

property maintenance expenses with respect to the Easthampton property are
deductible. The Estate has failed to develop this argument and, consequently, has
forfeited the issue. See, e.g., Rowen v. Commissioner, 156 T.C. 101, 115–16 (2021)
(explaining that a “litigant has an obligation to spell out its arguments squarely and
distinctly, or else forever hold its peace” (quoting Schneider v. Kissinger, 412 F.3d 190,
200 n.1 (D.C. Cir. 2005))).
                                        18

[*18] to be replaced,” which it factored into its fair market value of $8.5
million.

       Although the executor credibly testified as to his view that the
decks “needed extensive repair in order to pass any inspection,” his view
was not echoed in the appraisal report (which did not address structural
integrity), and the Estate has not provided any corroboration that the
replacement of the decks was necessary for a sale or to maintain the fair
market value claimed on its return. On the limited record before us we
cannot say that the Estate has met its burden to show that the
expenditures for replacing the decks were necessary for preservation
and care of the property, rather than improvements to make the house
more attractive for potential buyers. 10

IV.    Addition to Tax

       A.      Section 6651(a)(1) Failure to Timely File

       Section 6651(a)(1) imposes an addition to tax for a taxpayer’s
failure to file a required return on or before the specified filing date,
including extensions. As explained supra note 2, the Estate bears the
burden of proof with respect to its liability for the addition to tax. See
Estate of Jackson, T.C. Memo. 2021-48, at *248; Estate of Ramirez, T.C.
Memo. 2018-196, at *32.

       The addition to tax is inapplicable if the taxpayer’s failure to file
the return was due to reasonable cause and not to willful neglect. I.R.C.
§ 6651(a)(1); see also United States v. Boyle, 469 U.S. 241, 243 (1985);
Williams v. Commissioner, T.C. Memo. 2022-7, at *4. The Estate bears
the burden of proof with regard to the “reasonable cause” exception to
section 6651(a). See Boyle, 469 U.S. at 245; Higbee, 116 T.C. at 447.

       “Reasonable cause” exists if the taxpayer exercised ordinary
business care and prudence but was nevertheless unable to file the
return on time. See McMahan v. Commissioner, 114 F.3d 366, 368–69
(2d Cir. 1997), aff’g T.C. Memo. 1995-547; Treas. Reg. § 301.6651-1(c)(1).
Reliance on a tax professional can constitute reasonable cause if that
professional advises the taxpayer on a substantive tax issue, such as
whether a liability exists or a return must be filed. Boyle, 469 U.S.
at 250–51. To claim reasonable reliance on professional advice, the

       10 Although the Estate submitted as a proposed trial exhibit some fragmentary

documentation relating to these expenses, the Estate did not move for the exhibit’s
admission at trial. We accordingly do not consider it.
                                      19

[*19] taxpayer must prove that “(1) [t]he adviser was a competent
professional who had sufficient expertise to justify reliance, (2) the
taxpayer provided necessary and accurate information to the adviser,
and (3) the taxpayer actually relied in good faith on the adviser’s
judgment.” Neonatology Assocs., P.A. v. Commissioner, 115 T.C. 43, 99
(2000), aff’d, 299 F.3d 221 (3d Cir. 2002).

       B.     Failure to Establish Reasonable Cause for Failure to
              Timely File

        The Estate acknowledges that it did not file a timely return but
asserts that its failure was due to reasonable cause and not willful
neglect. Specifically, the Estate identifies Ms. Lueders’s probate
litigation as the reason for the delay, claiming that it did not want to file
an incomplete or misleading return. The Estate, however, “was required
to file a timely estate tax return based upon the ‘“best information
available”’ and then, if necessary, file an amended return.” Estate of
Wilbanks v. Commissioner, T.C. Memo. 1991-45, 1991 WL 11522, aff’d,
953 F.2d 651 (11th Cir. 1992); see also Treas. Reg. § 20.6081-1(c) and (d).
We see nothing to indicate that the probate litigation deprived the
Estate of sufficient information to file a proper return.

        The Estate further claims that it had reasonable cause for failing
to file the estate tax return because it relied upon its tax return preparer
to obtain a second extension of the filing date. Although Mr. Langer
attempted to obtain a second extension, he credibly testified that he
advised the Estate to file the return before the August 12, 2016,
extended deadline. The Estate thus fails to establish that it reasonably
relied on professional advice. See Schweizer v. Commissioner, T.C.
Memo. 2022-102, at *8.

       The Estate finally contends that the net amount due on the date
prescribed for payment was zero because it remitted an overpayment
before the filing deadline and that the penalty should be based on that
amount. The penalty for the late filing of estate tax returns applies,
however, even when full payment is made on time. See Estate of Liftin
v. United States, 754 F.3d 975, 978 (Fed. Cir. 2014). 11

        11 The Commissioner concedes that the IRS made a calculation error in

determining the penalty, which stemmed from its treatment of the Estate’s timely
payment of $11.8 million. Consistent with the parties’ agreed calculations, the
addition to tax shall be reduced to $120,299.
                                    20

[*20] V.     Conclusion

      For the reasons set forth above, we will sustain the deficiency
determinations by the IRS, subject to concessions made by the
Commissioner and any related computational adjustments.                 The
Estate’s liability for the addition to tax under section 6651(a)(1) shall be
reduced to $120,299.

      To reflect the foregoing,

      Decision will be entered under Rule 155.