Court Opinion

ID: 216140
Source: CourtListenerOpinion
Date Created: 2011-05-04 23:20:22+00
Date Added: 2024-06-11T17:28:27.105641
License: Public Domain

NOT FOR PUBLICATION

                   UNITED STATES COURT OF APPEALS                          FILED
                            FOR THE NINTH CIRCUIT                           MAY 04 2011

                                                                        MOLLY C. DWYER, CLERK
                                                                         U.S. COURT OF APPEALS

ESTATE OF ERMA V. JORGENSEN,                    No. 09-73250
Deceased; JERRY LOU DAVIS,
Executrix and Co-Trustee; GERALD R.             Tax Ct. No. 21936-06
JORGENSEN, Co-Trustee,

             Petitioners,                       MEMORANDUM*

  v.

COMMISSIONER OF INTERNAL
REVENUE,

             Respondent.

                            Appeal from a Decision of the
                              United States Tax Court

                   Harry A. Haines, Tax Court Judge, Presiding

                      Argued and Submitted April 13, 2011
                             Pasadena, California

Before: REINHARDT, HAWKINS, and GOULD, Circuit Judges.

       The Estate of Erma V. Jorgensen (the “Estate”) appeals the tax court’s

affirmance of the Commissioner of the Internal Revenue’s (“Commissioner”)

         *
           This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
assessment of an estate tax deficiency. Concluding that certain transfers decedent had

made to two family limited partnerships should remain included in the estate

valuation, the tax court found that decedent had retained the economic benefits and

control of such property and that the transfers did not involve a bona fide sale for full

consideration. See 26 U.S.C. § 2036(a). We review these determinations for clear

error, Estate of Bigelow v. Comm’r, 503 F.3d 955, 964, 970 n.6 (9th Cir. 2007), and

affirm.

      On appeal, the Estate does not contest the tax court’s determination that §

2036(a) applies; that is, it acknowledges decedent retained some benefits in the

transferred property (because she had written checks on partnership accounts to pay

some personal expenses and make some family gifts), but argues that these amounts

should be considered de minimis or that the application of the section should be

limited to the actual amount accessed by decedent. These arguments are made for the

first time to this court and run contrary to stipulations made by the Estate below.

      In any event, these arguments are also without merit. We do not find it de

minimis that decedent personally wrote over $90,000 in checks on the accounts post-

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transfer,1 and the partnerships paid over $200,000 of her personal estate taxes from

partnership funds. See Strangi v. Comm’r, 417 F.3d 468, 477 (5th Cir. 2005) (post-

death payment of funeral expenses and debts from partnership funds indicative of

implicit agreement that transferor would retain enjoyment of property); see also

Bigelow, 503 F.3d at 966 (noting payment of funeral expenses by partnership as

supporting reasonable inference decedent had implied agreement she could access

funds as needed).

      Nor did the tax court clearly err by concluding there was an implied agreement

decedent could have accessed any amount of the purportedly transferred assets to the

extent she desired them. The actual amount of checks written for decedent’s benefit

does not undermine the court’s finding that she could have accessed more, it was only

      1
         We acknowledge that decedent attempted to repay some of these funds upon
discovery of the errors by an accountant, although it appears they were repaid to the
wrong partnership. However, it was the failure to observe partnership formalities and
the fact she had access to the accounts (including her name on the checks for JMA II)
despite being only a limited partner that the tax court found significant in determining
there was an implicit retention of economic benefits. See Bigelow, 503 F.3d at 966
(“The Tax Court’s finding that partnership formalities were not observed buttresses
the conclusion that there was an implied agreement.”); Estate of Reichardt v. Comm’r,
114 T.C. 144, 155 (2000) (“[Y]earend and . . . post-mortem adjusting entries made by
[a CPA] were a belated attempt to undo decedent’s commingling of partnership and
personal accounts.”).

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used to buttress the court’s conclusion that decedent had such access to the funds if

needed.2

      Nor did the tax court clearly err by concluding decedent’s transfer was not a

bona fide sale for adequate and full consideration. Although not per se inadequate,

transfers to family partnerships such as this are subject to heightened scrutiny, and,

to be bona fide, must objectively demonstrate a legitimate and significant nontax

reason for the transfers. Bigelow, 503 F.3d at 969. Here, the type of assets transferred

(marketable securities) did not require significant or active management, there was

some disregard of partnership formalities, and the nontax justifications are either weak

or refuted by the record (including formation of a second family partnership to hold

higher-basis assets for gift-giving purposes, purportedly for the same nontax

justifications that the original partnership could have already served). See, e.g.,

Bigelow, 503 F.3d at 970-72; Strangi, 417 F.3d at 480-82. Thus, as the tax court

found, the overriding objective purpose appeared to be a mere “recycling of value”

into the partnership vehicle to permit discounted gift-giving and/or reduce the ultimate

estate tax owed (by reducing the stated value of the securities due to a lack of control

      2
        The Second Circuit’s opinion in Stewart v. Comm’r, 617 F.3d 148 (2d Cir.
2010), as a real estate possession case, is factually inapposite.

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and marketability). See Estate of Thompson v. Comm’r, 382 F.3d 367, 378-81 (3d Cir.

2004).

      Finally, there was no error in not applying the burden-shifting provision of 26

U.S.C. § 7491.    When, as here, the tax court decides the case based on the

preponderance of the evidence and without regard to presumptions of correctness, §

7491’s burden-shifting is simply not relevant. See Whitehouse Hotel Ltd. P’ship v.

Comm’r, 615 F.3d 321, 332-33 (5th Cir. 2010); Blodgett v. Comm’r, 394 F.3d 1030,

1039 (8th Cir. 2005).

      AFFIRMED.

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