Even if you prevail in your Jacobean wrestling with IRS, you still have to limbo your way under the $2 million net worth bar to get your Section 7430 goodies, the legal and administrative fees awarded to those parties who prevail at the metaphorical ford of the Jabbok (see Genesis 32:22-32).

Estate of Mildred T. Quidley Deceased, Karen Q. Pierce, Executor, actually prevails in her bout with the IRS; and mirabile dictu, IRS concedes she did.

You can read it for yourself in Docket No. 7799-10, filed 1/10/14, a designated hitter over the signature of the redoubtable Chief Judge, Michael B. (“Iron Mike”) Thornton.

But KQ can’t show that the late Mildred T.’s real and personal property at the instant she quitted this vale of tears was worth less than $2 million. The top line on the Form 706 read north of $2.1 million.

While KQ argued that acquisition cost and not FMVDOD measured the asset side of the net worth calculation (and although the statute doesn’t define “net worth”, everyone agrees it’s FMV of assets minus liabilities), she dropped that argument, and, remarkably, couldn’t show any liabilities to offset.

She claimed the Section 2032A farmland election kept the late Mildred T.’s estate in bounds, but Ch J Iron Mike slugs that one. “Petitioner’s section 2032A election does not affect the fair market value of the estate’s assets for purposes of applying the net worth requirement. Generally, for estate tax purposes, property is valued at fair market value based on its highest and best use. See sec. 2031; sec. 20.2031-1(b), Estate Tax Regs. Section 2032A, however, permits an estate to elect to value real property used for farming and small business purposes on the basis of income capitalization rather than on the basis of highest and best use.  These special valuation rules apply, however, only for purposes of calculating estate tax liability. In fact, section 2032A(a), expressly states that the special valuation provisions apply for ‘purposes of this chapter [i.e., Chapter 11–The Estate Tax]’;  consequently they do not apply for purposes of Chapter 76–Judicial Proceedings, which includes section 7430.” Order, at pp. 4-5. (Citations and footnote omitted, but see my blogpost “Foolish Consistency? – Part Deux”, 10/21/13).

OK, we got the top line, the asset side, but KQ has nothing for the liabilities side of the calculation, so she (and the Estate) are out.

Except they don’t owe tax, interest or penalties.