T.C. Memo. 1996-361
UNITED STATES TAX COURT
ESTATE OF LOUISE NEVELSON, DECEASED, MIKE NEVELSON,
EXECUTOR, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 7754-92. Filed August 6, 1996.
On May 12, 1995, the Court filed a stipulation of
settled issues in this case. In relevant part, the
stipulation provided that: (1) E would provide R with
documentation necessary to substantiate certain
administration expenses on or before Jan. 15, 1996, and
(2) the parties would submit a decision document to the
Court on or before Apr. 15, 1996. R now moves for
entry of decision based on this stipulation. E moves
to defer entry of decision until the earlier of:
(1) June 6, 2001, (2) payment of D’s Federal gift
taxes, or (3) any other date agreed to by the parties.
Held: The Court will grant R’s motion and enter a
decision based on the stipulation.
Richard J. Bronstein, for petitioner.
Meryl Silver, for respondent.
- 2 -
MEMORANDUM OPINION
LARO, Judge: Respondent moves for entry of decision, and
she has lodged a proposed decision with the Court. Executor
objects to respondent’s motion, and he moves to defer entry of
decision until the earlier of: (1) June 6, 2001, (2) payment of
Decedent’s Federal gift taxes, or (3) any other date agreed to by
the parties. Respondent objects to Executor’s motion.
As discussed herein, we will grant respondent’s motion and
enter her proposed decision. Unless otherwise stated, section
references are to the Internal Revenue Code in effect for the
relevant dates. Rule references are to the Tax Court Rules
of Practice and Procedure. Dollars, unless otherwise noted, are
rounded to the nearest dollar. The term “Decedent” refers to
Louise Nevelson. The term “Executor” refers to Mike Nevelson.
Background
Decedent was an artist until her death on April 17, 1988.
When she died, she resided in New York County, New York.
Decedent’s estate includes thousands of her works of art.
Executor resided in New Fairfield, Connecticut, when he
petitioned the Court on April 14, 1992, to redetermine
respondent’s determination of a $6,553,148 deficiency in
Decedent's estate's Federal estate tax and a $327,657 addition
thereto under section 6653(a).1 Respondent’s determination was
1
Respondent agrees with Executor that the deficiency and
addition to tax will be $5,453,185 and $272,659, respectively, if
(continued...)
- 3 -
reflected in a notice of deficiency issued to petitioner on
January 16, 1992.
Executor later petitioned the Court on December 30, 1993, to
redetermine respondent’s determination with respect to Decedent’s
Federal gift taxes. This determination, which appeared in a
notice of deficiency dated October 27, 1993, was as follows:
Taxable Additions to Tax
Year Sec. Sec.
Ended Deficiency 6651(a) 6653(a)(1)
12/31/76 $169,765 $42,441 ---
3/31/77 48,891 12,223 ---
3/31/79 154,717 38,679 ---
3/31/80 689,139 172,285 ---
3/31/81 144,291 36,073 ---
12/31/82 741,731 185,433 ---
12/31/83 482,500 --- $24,125
12/31/84 178,240 44,560 ---
12/31/85 1,344,795 336,199 ---
12/31/86 142,983 35,746 ---
12/31/87 267,002 66,750 ---
12/31/88 228,353 57,088 ---
Respondent also determined that Decedent was liable for an
addition to her 1983 gift tax under section 6653(a)(2).
The two cases resulting from the petitions were consolidated
on July 28, 1994, for purposes of trial, briefing, and opinion.
On May 12, 1995, the resulting case was settled with the
simultaneous execution of a decision document in the gift tax
case and a stipulation of settled issues (the Stipulation) in the
estate tax case. A decision was entered in the gift tax case on
May 26, 1996, determining deficiencies in Decedent’s gift taxes
1
(...continued)
the maximum credit allowable for State death taxes under sec.
2011 is allowed.
- 4 -
and additions thereto totaling more than $1 million. Respondent
assessed these deficiencies on July 28, 1995. To date, Executor
has not made any payments with respect thereto.
The Stipulation states as follows:
THE PARTIES hereby stipulate and agree that:
1. They have agreed to resolve the above-entitled
case on the basis that the works of art created by the
decedent and unsold on the date of her death were not
transferred by the decedent to Sculptotek, Inc. during
her lifetime and are therefore includible in her gross
estate.
2. The gross estate is $12,123,455.73.
3. The total amount of adjusted taxable gifts is
$2,856,317.00.
4. (a) The administration expenses claimed on
petitioner’s Form 706, as adjusted by the statutory
notice of deficiency issued by respondent, will be
allowable as deductible expenses.
(b) Additional administration expenses,
including statutory executor’s commissions under New
York law and reasonable legal fees, also will be
allowable as deductible expenses to the extent such
expenses are properly claimed as administrative
expenses and are substantiated.
5. (a) The amount of federal gift tax,
including interest and penalties, that the parties have
agreed is due in the related proceeding bearing docket
no. 27393-93 will be allowed as deductions to the
extent such tax, interest, and penalties are paid.
(b) The amount of related New York gift tax,
including interest and penalties, also will be allowed
as deductions to the extent such tax, interest, and
penalties are paid.
6. New York State death taxes in the amount of
$312,200.51 or such amount necessary to secure the
maximum credit allowable will be allowed as a credit to
the extent such taxes are paid.
- 5 -
7. Petitioner shall produce the documentation
necessary to substantiate the expenses referred to in
paragraph 4(b) on or before January 15, 1996.
8. A decision document in the above-entitled case
shall be filed on or before April 15, 1996.
Upon mutual agreement of the parties, the Court extended the
last day by which the decision document had to be filed to
June 14, 1996.
Discussion
Respondent moves the Court to enter a decision based on her
decision document lodged with the Court. The lodged document
reflects the terms of the Stipulation, taking into account only
those administration expenses that Executor had substantiated as
of the date of respondent’s motion herein. Executor's principal
objection to respondent’s proposed decision is that, in computing
the estate tax deficiency owed by the estate, the proposed
decision fails to allow deductions for expenses that have not yet
been incurred. Executor asks the Court to defer entry of
decision for up to 5 years so that Decedent’s estate may benefit
from all of the deductions to which the estate allegedly is
entitled.2 Executor alleges that Decedent’s estate will incur
2
The length of the requested deferral appears to be based
on a letter that petitioner’s counsel received from a valuation
company in New York, New York. In relevant part, the author of
the letter states:
In my view the Estate of Louise Nevelson is in a unique
position to realize, within a period of three to five
years, very substantial economic rewards from its
extraordinary collection of work by this major artist.
* * * It has the ability to bring to market works by
(continued...)
- 6 -
additional administration expenses, such as executor’s
commissions, legal fees, accounting fees, bookkeeping fees, and
expenses relating to sales of art necessary to raise cash for the
payment of taxes and other art-related expenses. Executor
alleges that he cannot currently pay Decedent’s gift taxes
because the estate is short on cash, and the estate will have to
consummate a “substantial transaction” in order to pay Decedent’s
gift taxes.3 Executor alleges that he cannot sell the estate’s
assets in the near future because he will receive less than fair
value.
Executor relies primarily on Estate of Bailly v.
Commissioner, 81 T.C. 246, supplemented by 81 T.C. 949 (1983), in
support of his motion. Executor also asserts that the Court will
be minimally inconvenienced by holding the record open for the
requested period of time.
We disagree with Executor’s arguments, and we find his
reliance misplaced. First, Estate of Bailly is clearly
distinguishable on its facts. In that case, the Commissioner had
no objection to a deferral of the decision, whereas here the
2
(...continued)
the artist in a variety of price levels; and it is in
the enviable position of being capable of presenting
for sale to experienced collectors and museums examples
of the most highly recognizable and prized sculptures
of her career, as well as more modestly valued works
that are attractive to beginning collectors and smaller
museums.
3
Executor also claims that Decedent’s Federal gift taxes
remain unpaid because he has yet to receive a bill from the
Internal Revenue Service. We give this argument little regard.
- 7 -
deferral sought by the Executor is directly contrary to the terms
of the parties' Stipulation. Subsequent to that case, Congress
provided an alternative for relief in similar cases. See sec.
7481(d); Rule 262.
Executor agreed with respondent to settle the case according
to the terms of that Stipulation. Two of these terms are that:
(1) “Petitioner shall produce the documentation necessary to
substantiate the [additional administration] expenses referred to
in paragraph 4(b) on or before January 15, 1996," and (2) “A
decision document in the above-entitled case shall be filed on or
before April 15, 1996.” In entering into these terms, as well as
the Stipulation in general, both Executor and respondent agreed
to concede some rights which each might have asserted against the
other. See Saigh v. Commissioner, 26 T.C. 171, 177 (1956). The
Stipulation, like a contract, binds both parties to the terms
thereof, Stamos v. Commissioner, 87 T.C. 1451, 1455 (1986), and
must be enforced by this Court unless justice requires that we do
otherwise, see Adams v. Commissioner, 85 T.C. 359, 375 (1985);
Sennett v. Commissioner, 69 T.C. 694 (1978); Saigh v.
Commissioner, supra. Under the facts at hand, justice does not
require that we do otherwise. The Stipulation, voluntarily
entered in to as a settlement of this lawsuit, must be given
binding effect. The parties struck a bargain in the Stipulation,
and Executor must live with the benefits and burdens of it.
Accordingly, we will grant respondent’s motion for entry of
decision based on her proposed decision. We have considered all
- 8 -
arguments made by Executor for a contrary result. To the extent
that we have not discussed any of his arguments, we have found
them to be without merit.
To reflect the foregoing,
An appropriate order and
decision will be entered.