Court Opinion

ID: 9491268
Source: CourtListenerOpinion
Date Created: 2023-08-05 14:08:50.57351+00
Date Added: 2024-06-11T17:54:37.435612
License: Public Domain

D.W. NELSON, Circuit Judge,
dissenting:
As the majority recognizes, the sole issue for consideration in this case is whether the Tax Court erred in holding that the securities law restrictions that attached to shares of stock owned by McClatchy during his lifetime did not affect the federal estate tax liability of McClatehy’s estate. Because I believe that the Tax Court’s decision was correct, I respectfully dissent from the majority’s opinion.
The federal estate tax is not assessed against the decedent, but against the decedent’s estate. See 26 U.S.C. § 2001(a) (“A tax is hereby imposed on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States.”); Estate of Curry v. United States, 706 F.2d 1424, 1429 (7th Cir. 1983) ■ (holding that for estate tax purposes “property is to be valued as it exists in the hands of the estate”). In my view, it follows that McClatchy’s stock was properly valued as it existed in the hands of his estate, rather than as it existed in his own hands. The Tax Court therefore did not err in deciding that the securities restrictions, which attached to the shares while in McClatchy’s possession, vanished at the moment of death when the shares passed from McClatchy, an affiliate subject to the restrictions, to his non-affiliate estate.
As the Tax Court explained in its opinion, Ahmanson Foundation v. United States, 674 F.2d 761 (9th Cir.1981), is directly on point. In Ahmanson, this court distinguished between “pre-distribution” and “post-distribution” transformations in the value of a decedent’s property. In the words of the Ahmanson court:
Ordinarily death itself does not alter the value of property owned by the decedent. However, in a few instances ... death does change the value of property. The valuation should ... take into account transformations brought about by those aspects of the estate plan which go into effect logically prior to the distribution of property in the gross estate to the beneficiaries.
Id. at 768 (citations omitted). Applying the logic and language of Ahmanson to the instant case, McClatehy’s death altered the value of his property by causing the shares to be passed to his non-affiliate estate, thereby voiding the restrictions that had previously attached on account of MeClatchy’s affiliate status. As in Ahman-son, the transformation at issue here — the lapse of the securities restrictions — went into effect prior to the distribution of McClatchy’s property to his beneficiaries. Under Ahmanson, this pre-distribution transformation must be considered in determining McClatchy’s estate tax liability.
The hypotheticals offered by the Ahman-son court to illustrate the difference between pre-distribution and post-distribution transformations in a decedent’s property fully support the Tax Court’s decision. For example, the Ahmanson court posed the following scenario: “[I]f a public figure ordered his executor to shred and burn his papers, and then to turn the ashes over to a newspaper, the value to be counted would be the value of the ashes, rather than the papers.” Id. Here, McClatehy’s estate plan ordered that the stock be transferred to his executors prior to being distributed to his beneficiaries. Like the papers in the Ahmanson example, the stock should be valued in the aftermath of the pre-distribution transformation, free of the restrictions that attached while the stock was still in McClatchy’s possession.
The majority reasons that whereas the property transformation in the Ahmanson *1096“ashes” example was occasioned by “death alone,” the property transformation in the case at bar was occasioned by the non-affiliate status of decedent’s estate. Given that the papers in the Ahmanson hypothetical were not burned and shred as a direct result of the decedent’s death, but rather as the result of an order contained within the estate plan, I find the piajority’s distinction unconvincing.
Moreover, I believe that the Fifth Circuit’s opinion in United States v. Land, 303 F.2d 170 (5th Cir.1962), which the majority.cites in support of its decision, only bolsters the Tax Court’s reasoning. The Land court held that in determining the federal estate tax, restrictions applicable by virtue of the decedent’s status in life must be disregarded:
To find the fair market value of a property interest at the decedent’s death we put ourselves1 in the position of a potential purchasér of the interest at that time. Such a person would not be influenced in his calculations by past .risks that had failed to materialize or by restrictions that had ended. Death tolls the bell for risks, contingencies, or restrictions which exist only during the life of the decedent.
Id. at 173. Here, McClatehy’s death “tolled the bell” for the securities law restrictions that existed only during his lifetime. In the words of the Tax Court, the restrictions “evaporated at the moment of death.”
' McClatchy attempts to confuse the issue by obscuring the difference between the transfer to • his estate and the subsequent transfer to his beneficiaries or legatees. McClatchy maintains, for example, that “[ejhanges in the value of an asset which occur by reason of the identity and status of the recipient, not death, must be ignored for estate tax purposes.” McClatchy’s use of the generic term “recipient” blurs the line between the. estate and the ultimate beneficiary of the decedent’s property interest. Of course, it is well-established that changes in value resulting from distribution to beneficiaries or legatees are not accounted for in determining the federal estate tax. See, e.g., Ithaca Trust Co. v. United States, 279 U.S. 151, 155, 49 S.Ct. 291, 73 L.Ed. 647 (1929). However, this court held in Ahmanson that there is a sharp distinction for estate tax purposes between pre- and post-distribution changes in the value of a decedent’s property.
Because the proper focus in this case is on the difference between pre- and post-distribution. changes in the decedent’s estate, I believe that Estate of Bright v. United States, 658 F.2d 999 (5th Cir.1981), on which McClatchy and the majority rely, is inappo-site. In that case, the Fifth Circuit held that property is to be valued for estate tax purposes in the hands of the estate, not in the hands of the legatee after distribution. The Bright court exclusively addressed the contrast between the pre-death moment and the post-distribution moment:
[T]he fact that Mr. and Mrs. Bright held their- stock during her lifetime as a control block of 55% is an irrelevant fact. It is a fact which antedates her death, and no longer exists at the time of her death. Dictum in Land' also suggests that the post-death fact-that the estate’s 27.5% will pass to Mr. Bright as trustee of the testamentary trust-is also irrelevant.
Id. at 1002. Concerned only with the periods pre-death and post-distribution, Bright does not involve a pre-distribution value transformation like the one at issue in the present case.
This case is one of the “few instances” where death itself — not distribution— changes the value of property owned by the decedent. Ahmanson, 674 F.2d at 768 (“[I]n a few instances ... death does change the value of the property.”); see also Land, 303 F.2d at 172 (“It is only in the few cases where death alters value, as well as ownership, that it is necessary to determine whether the value at the time of death reflects the change caused by death____”). The majority resolves this case by relying on the familiar distinction between the estate tax (a tax on the passing of property) and the inheritance tax (a tax on the receipt of property by the decedent’s beneficiaries). This case, however, does not at all concern the moment of distribution or inheritance. Rather, it involves a pre-distribution value transformation resulting from the passing of shares to the decedent’s estate, and should be considered in accordance with other cases of its kind. The Tax Court properly considered *1097this pre-distribution transformation by assessing McClatchy’s stock in the hands of his non-affiliate estate.
I respectfully dissent.