Estate of Jorgensen v. Commissioner

NOT FOR PUBLICATION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-
2
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.”).
3
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.
4
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.
5