Court Opinion

ID: 4485346
Source: CourtListenerOpinion
Date Created: 2020-01-16 21:17:21.233359+00
Date Added: 2024-06-11T14:53:47.781787
License: Public Domain

Dawson, Chief Judge, dissenting: I respectfully disagree with the majority opinion. In an attempt to reach what it perceives to be an equitable result, the majority engages in too narrow an interpretation of the language of section 2032A(d)(2). This interpretation results in an inequity to the other parties involved — the surviving tenants in common. In order to qualify for special use valuation under section 2032A(d)(2), an executor must ñle a— written agreement signed by each person in being who has an interest * * * in any property designated in such agreement consenting to the application of subsection (c) with respect to such property. [Emphasis added.] Section 20.2032A-8(c)(2), Estate Tax Regs., designates those persons with an interest in property as follows: (2) Persons having an interest in designated property. An interest in property is an interest which, as of the date of the decedent’s death, can be asserted under applicable local law so as to affect the disposition of the specially valued property by the estate. Any person in being at the death of the decedent who has any such interest in the property, whether present or future, or vested or contingent, must enter into the agreement. Included among such persons are owners of remainder and executory interests, the holders of general or special powers of appointment, beneficiaries of a gift over in default of exercise of any such power, co-tenants, joint tenants and holders of other undivided interests when the decedent held only a joint or undivided interest in the property or when only an undivided interest is specially valued, and trustees of trusts holding any interest in the property. An heir who has the power under local law to caveat (challenge) a will and thereby affect disposition of the property is not, however, considered to be a person with an interest in property under section 2032A solely by reason of that right. Likewise, creditors of an estate are not such persons solely by reason of their status as creditors. [Emphasis added.] The rules governing the effect of the signing of the agreement by persons with an interest in property are provided in section 20.2032A-8(c)(1), Estate Tax Regs., as follows: (c) Agreement to special valuation by persons with an interest in property— (1) In general. The agreement required under section 2032A(a)(1)(B) and (d)(2) must be executed by all parties who have any interest in the property being valued based on its qualified use as of the date of the decedent’s death. In the case of a qualified heir, the agreement must express consent to personal liability under section 2032A(c) in the event of certain early disposition of the property or early cessation of the qualified use. See section 2032A(c)(6). In the case of parties (other than qualified heirs) with interests in the property, the agreement must express consent to collection of any additional estate tax imposed under section 2032A(c) from the qualified property. The agreement is to be in a form that is binding on all parties having an interest in the property. It must designate an agent with satisfactory evidence of authority to act for the parties to the agreement in all dealings with the Internal Revenue Service on matters arising under section 2032A and must indicate the address of that agent. [Emphasis added.] The majority narrowly interprets the reference to property in section 2032A(d)(2) to apply only to property owned by the decedent. I think the language of section 2032A(d)(2) is broader and necessarily so. I view the purpose of section 2032A(d)(2) as providing notice to all parties with an interest in the property that there is a possibility the property could later be subject to recapture tax. I agree with the majority that the surviving tenants in common herein would not be personally liable for the recapture tax. Respondent has not argued that they would be personally liable and the regulations clearly and properly do not provide for personal liability. However, their interest in the property may be affected by the recapture tax because of the nature of a tenancy in common, i.e., the entire property may have to be sold at a partition sale to satisfy the recapture tax. In addition, the property the decedent owns is the interest of a tenant in common and, as the majority notes, each tenant in common is deemed to own "a physically undivided part of the entire parcel.” Therefore, by definition, the decedent’s interest is intertwined with that of the surviving tenants in common. ' To support its view that the other tenants in common had no interest in the decedent’s property, the majority points out that the property interest of the surviving tenants in common was unaffected by the decedent’s death, e.g., their bases remained the same and they incurred no liability for the decedent’s estate tax. While I agree with this statement, it is irrelevant to the crucial factor here and that is that the property of the other tenants in common is affected by the section 2032A election. Under the majority’s view, the following scenario is possible. The decedent’s estate could elect and qualify for a special use valuation under section 2032A without informing the other tenants in common. Once the election is made, a lien is imposed upon the property pursuant to section 6324B. The estate could then, for some reason, cease its qualified use of the property. To satisfy its lien, the Government could then sell the property pursuant to section 7403. Since the property herein is held as a tenancy in common, the entire property would have to be sold at a partition sale. Although the other tenants in common would receive their share of the proceeds from such involuntary sale, it is likely that the amount they receive for their interest will be less than they could have received otherwise. This scenario is not totally unrealistic because a similar situation may be found in Rodgers v. United States, 461 U.S. 677 (1983). In Rodgers, a husband and wife held a homestead interest in joint tenancy. The husband died and the wife remarried. A Federal District Court ordered the sale of the family home pursuant to section 7403 to meet the separate debts of the husband’s estate. The Supreme Court was faced with the question of whether a family home, in which a delinquent taxpayer had an interest at the time he incurred his indebtedness but in which the taxpayer’s spouse, who did not owe any of that indebtedness, also had a separate homestead right, could be sold to meet the delinquent taxpayer’s separate debts. The Supreme Court upheld the sale based upon the supremacy of Federal law, noting that section 7403 provided for a sale of the property. It rejected any claim of Fifth Amendment conflicts because the wife received money for her interest in the property. Here the majority ignores the possibility of this scenario perhaps for fear that the other co-tenants would refuse to sign the agreement and prevent the special use valuation. I do not think this fear should motivate our actions. The tax code cannot act to anticipate and resolve family disharmony. In such cases, the decedent’s estate could act to partition the property and then elect a special valuation for its portion. In reaching its result, the majority holds that section 20.2032A-8(c)(2), Estate Tax Regs., is invalid. It adopts a narrow view of section 2032A(d)(1), stating that section 2032A(d)(1) only grants authority to the Secretary to prescribe regulations as to the manner of making an election under 2032A. It concludes that the Secretary’s authority to prescribe regulations as to the contents of the agreement must be derived from section 7805, making section 20.2032A-8(c)(2), Estate Tax Regs., an interpretative rather than a legislative regulation. This is a strained construction of section 2032A(d)(1) which is used by the majority to make it easier to invalidate the regulation. But regardless of whether the regulation is legislative or interpretative, I think the regulation is a reasonable interpretation of the statute. The Secretary promulgated section 20.2032A-8(c)(2), Estate Tax Regs., to provide guidance as to the persons who should sign the agreement under section 2032A. In this task the Secretary was guided by the very broad language of section 2032A(b)(2) and by the legislative history. The legislative history does not specifically define who is considered to be a "person with an interest in property.” However, the comments of the Joint Committee staff suggest that two such types of persons are envisioned: (1) Qualified heirs, and (2) other persons with an interest. See Staff of Joint Comm, on Taxation, General Explanation of the Tax Reform Act of 1976, 1976-3 C.B. (Vol. 2) 554-555. The Secretary, no doubt, realized the danger in a narrow interpretation of who held an interest in property. Accordingly, the Secretary has expressly included the situation herein of "co-tenants” of an undivided interest holding with the decedent in section 20.2032A-8(c)(2), Estate Tax Regs., as persons with an interest who must sign the agreement.1 This regulation should be upheld unless it is found to be unreasonable and plainly inconsistent with section 2032A. Edward L. Stephenson Trust Co. v. Commissioner, 81 T.C. 283, 287 (1983). Because of the broad language of section 2032A, the comments of the Joint Committee staff, and the possible injustice that can occur to the surviving co-tenants, I think section 20.2032A-8(c)(2), Estate Tax Regs., is reasonable and is not in conflict with the words of the statute. I would sustain the validity of the regulation, and not upset established procedures which have been followed and accepted in the past. In my judgment, the language of section 2032A(d)(2) should be broadly interpreted to protect all parties involved, not just the petitioner herein. The decedent’s estate reaps a substantial benefit under the special use valuation of section 2032A. To obtain the benefit of the election, all that the estate had to do was file an agreement signed by all the persons with an interest in the property. This is certainly a slight burden compared to the benefit the estate would receive. I stress that this is an elective provision and, if the estate expects to enjoy its benefits, it should be required to go through the "hoops” specified by the reasonable procedures of the regulation. For the reasons stated above, I would hold for the respondent. Simpson, J., agrees with this dissent.  This regulation is cited without comment in R. Stephens, G. Maxñeld & S. Lind, Federal Estate and Gift Taxation, par. 4.04[6] (5th ed. 1983), and 5 B. Bittker, Federal Taxation of Income, Estates and Gifts, sec. 132.6.9 (1981 rev.).