Legal Issues: “Pitner” and “Turner”, Essay Example
This study concerns Grace Tipton, who died a wealthy woman in 2004. A month later, the court appoints her executor and administration of her estate begins. In her will, Tipton bequest $10 million to the Christian Assisted Living Foundation (CALF), but only if the charity qualified under provisions stated in §2055 and the IRS had never evaluated this charity. The executor of the will feels obligated to postpone the bequest. He instead files a Form 706 and pays the estate tax based on the charitable deduction being allowed. He then requests a closing letter from the IRS on the Form he filed. This causes an investigation by the IRS into the charitable nature of CALF.
Upon investigation of CALF, the IRS finds it to be legitimate and issues a closing letter to the executor in October 2006 approving the deduction and accepting the Form 706. A transfer of $11 million is made to CALF, which includes the original bequest and $1 million interest fees because the bequest was not satisfied within one year (under state law).
After all transfers are made, the executor files an amended Form 706 and claims a refund for the interest. It is classified on the return as an administration expense under §2053. The IRS denies this claim on the grounds that interest incurred was not necessary to the administration of the estate.
Two cases can be used in this review. In Pitner vs. the US, the plaintiffs attempted to sue the US in order to recover $75,848.19 in estate taxes. This was in regard to litigation based on an oral agreement between two brothers who had similar wills drafted and left the other as benefactor of the land, with any residuals going to their nieces.
Upon the death of both brothers, the entire estate was left to Agnes Kirk and there were no outstanding debts owed. Because there were no necessary ‘administration expenses’ under Section 2053(a) of the IRS Code of 1954 (Pitner vs. US), the judge ruled against the plaintiffs and agreed the estate taxes were to be paid.
The second case, Turner vs. US, is much like our case study. The Decedent made a bequest of $10 million to Juliette Fowler Homes, Inc. with a clause stating this was to be paid if the organization was charitable under section 2055(a) at the time of her death (Turner vs. US). Turner, the executor, waited for the closing letter from the IRS before making this bequest; however, he filed a Form 4768 for an extension to file the Form 706 in order to be certain of the charity’s status. He also paid $6,303,283.68 in estimated taxes with his extension application.
He filed the Estate Tax Return on March 30, 1998, and made a payment of $13,383.26. He did not claim this as an estate tax deduction. In 1999, the IRS performed an audit and requested information about Fowler Homes. The IRS was satisfied and issued the closing letter on October 19, 1999, and a check was issued to the charity in November 1999 for the complete amount plus interest.
The ruling in this case was the entitlement to an administrative expense deduction because of Regulation §20.2053-3 (a) where the will mandated that the beneficiary was actually in possession of an official tax exempt status before any bequest could be made (Turner vs. US). Additionally, Turner was found to have paid as soon as possible after the closing letter, thus causing no delinquency between his official notice and further accrual of interest, although substantial time had passed.
In my opinion, the plaintiff in our case study should not be awarded a refund of estate taxes paid because the executor could have filed an extension just as in Turner vs. US instead of doing nothing in that regard and filing a Form 706 instead. Furthermore, administration expenses are put into place to help those awaiting decisions, as in the case of Turner vs. US, and not for those simply wishing to receive refunds of estate taxes they are responsible for paying due to inheritance.
Pitner vs. US. No. 23364. U.S. Court of Appeals, Fifth Circuit. 18 December 1967.
Turner vs. US. No. 3:03-CV-0294-G. U.S. District Court, Northern District of Texas. 30 January 2004.
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