In Uncategorized on 12/01/2011 at 16:56

Now You See Her, Now You Don’t

The late Jane H. Gudie wanted to avoid probate. She played the living trust gambit, and that worked as far as her native California went. She also wanted to avoid estate tax, but that isn’t going to go so well.  Her trustee/beneficiary Mary Helen Norberg filed a 706 and listed herself as executor, even though she never qualified and never planned to qualify in California or anywhere else. Judge Wherry tells the story, finding that Tax Court has jurisdiction, in Estate of Jane H. Gudie, Deceased, Mary Helen Norberg, Executor, 137 T.C. 13, filed 11/30/11.

As it’s a motion to dismiss, Judge Wherry stresses he isn’t finding facts, just backstopping Tax Court subject matter jurisdiction.

Mary Helen and her sister Ms. Lane were the nieces and sole beneficiaries of the late Jane H.’s largesse–and it was large, about $5 million. Mary Helen and Ms. Lane went through a purported deal whereby the nieces agreed to make annuity payments to the late Jane H. in exchange for Jane H.’s promissory note, secured by the trust assets. If the note was bona fide, the claim against the estate would wipe out those assets. Of course, the nieces never made Payment One to the late Jane H. This carefully-crafted piece of estate tax planning was the work of Robert P. Hess, qualifications unstated.

Jane H. shuffles off this mortal coil. Mary Helen files a 706, signing as executor, although she never was and claims she never will be. IRS, not impressed either with the annuity-note gambit nor Mary Helen’s now-you-see-me, now-you-don’t routine, hits the estate with a great deficiency, claiming GST, gifts within the 3 years before death, and sundry other delictions.

Mary Helen moves to dismiss her own petition for want of subject matter jurisdiction, claiming IRS’ SNOD was sent to her as executor, which she isn’t and never was, and not to the trustees.

Judge Wherry finds Mary Helen was in possession, whether actual or constructive is not stated and it doesn’t matter, of the property of the late Jane H., at least enough to trigger Section 2203 and make her a statutory executor. “…Ms. Norberg, because she was in actual or constructive possession of property of decedent, was a statutory executor. As such, she had the responsibility and authority to file the estate tax return. By filing the estate tax return, she notified respondent of a fiduciary relationship and was the proper person to receive the notice of deficiency.

“Section 2203 defines ‘executor’ for purposes of the Federal estate tax as ‘the executor or administrator of the decedent, or, if there is no executor or administrator appointed, qualified, and acting within the United States, then any person in actual or constructive possession of any property of the decedent.’ In her objection, Ms. Norberg states she ‘was never in possession of any assets of the probate estate of Jane H. Gudie, or of other estates, with respect to any and all times relevant to our motion to dismiss.’ Ms. Norberg attached to her objection the signed declaration of Mr. Hess, who also states that ‘Norberg was not ever in possession of any assets of the probate estate of Jane H. Gudie’. Ms. Norberg and Mr. Hess carefully confine their statements to the ‘probate estate’. The fact that the property Ms. Norberg received did not pass through probate is immaterial to this discussion. This Court has previously held in situations like this that ‘the fact that * * * property interests passed * * * directly rather than as part of decedent’s probate estate is immaterial.’ Estate of Guida v. Commissioner, 69 T.C. 811, 813 (1978); see also Estate of Wilson v. Commissioner, 2 T.C. 1059, 1083-1084 (1943) (stating that if taxpayers could distinguish between probate and nonprobate property to defeat the estate tax, ‘the law would soon be a nullity’).” 137 T. C. 13, at pp. 10-11.

Mary Helen argues that IRS’ affidavits and exhibits are insufficient evidence to defeat her motion, but Judge Wherry steers a course between the motion for summary judgment and the motion to dismiss. In the latter case, the Court is free to look at what it likes. In the former, FRCP 56(e) rules the roost, and there must be admissible evidence. So IRS’ papers stay in, and so does Mary Helen.

Mary Helen claims she never filed Form 56, notifying IRS of her executorship, and therefore she wasn’t. Judge Wherry notes that the Form 56 instructions say a fiduciary may (my emphasis) so notify IRS, but there are other ways–like filing a 706 and signing it as executor. And since Mary Helen never gave notice that she wasn’t a fiduciary until after the SNOD, Mary Helen is definitely in.

Finally, Mary Helen, in her usual style, both raises and doesn’t raise the statute of limitations, but Judge Wherry steers that aside. “Although the argument is unclear, in her motion to dismiss Ms. Norberg appears to argue that the period of limitations on assessment has expired. In her objection to respondent’s (IRS’) objection, Ms. Norberg states she ‘did not and is not asserting in this motion any issue regarding statute of limitations’ and asks us not to rule on this issue. We need not analyze this issue here but do note two things. First, pursuant to sections 6503(a)(1) and 6213(a), the period of limitations on assessment, if open when a notice of deficiency was sent, would generally be suspended if a timely petition was filed until such time as the Secretary is no longer prohibited from assessing the tax. Second, the statute of limitations is an affirmative defense, not a jurisdictional matter. See Rule 39; Freytag v. Commissioner, 110 T.C. 35, 41 (1998).” 137 T. C. 13, at p. 15.

Don’t expect surprises at trial or in the decision.

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