T.C. Memo. 1996-424
UNITED STATES TAX COURT
ESTATE OF VERA M. MCFARLAND, DECEASED, JO MELDRIM, PERSONAL
REPRESENTATIVE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 23704-95. Filed September 19, 1996.
Thomas K. Purcell and Harris L. Bonnette, Jr., for
petitioner.
Howard P. Levine, for respondent.
MEMORANDUM OPINION
LARO, Judge: Estate of Vera M. McFarland, Deceased,
Jo Meldrim, Personal Representative, moves for partial summary
judgment, asserting that the Court must use a going concern
methodology to value a 20-percent partnership interest held by
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Vera M. McFarland at the time of her death. Petitioner supports
its motion with the pleadings, the affidavit of Personal
Representative, numerous exhibits, and a memorandum of law.
Respondent objects to petitioner's motion. Respondent supports
her objection with seven exhibits and the affidavit of her
counsel, Howard P. Levine.
For the reasons stated below, we will deny petitioner's
motion. Dollar amounts are rounded to the nearest dollar. The
term "Decedent" refers to Vera M. McFarland.
Background1
The Meldrim family has worked in the turpentine and timber
business in St. John's County, Florida, since at least
July 18, 1934, when P.J. Kemp and J.S. Meldrim were partners in a
partnership called Kemp & Meldrim. On August 24, 1938, P.J. Kemp
sold his 50-percent interest in Kemp & Meldrim to his former
partner's father, J.W. Meldrim.
The partnership of J.S. and J.W. Meldrim (Meldrim & Meldrim)
continued from 1938 until J.W. Meldrim's death in 1945. When he
died, 100 percent of his interest in Meldrim & Meldrim passed to
his three children, J.S. Meldrim (34 percent), Decedent
1
The “facts” presented in this opinion are stated solely
for purposes of deciding the motion and are not findings of fact
for this case. Fed. R. Civ. P. 52(a); Sundstrand Corp. v.
Commissioner, 98 T.C. 518, 520 (1992), affd. 17 F.3d 965 (7th
Cir. 1994). Personal Representative resided in St. Augustine,
Florida, when she petitioned the Court on behalf of Decedent's
estate. We do not know where Decedent lived at the time of her
death.
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(33 percent), and Helen Meldrim Janes (33 percent). From 1945
through 1948, the three children operated the business as a
partnership, J.S. Meldrim owning 67 percent of the partnership's
interests and Decedent and Helen Meldrim Janes each owning 16.5
percent.
On August 12, 1948, Helen Meldrim Janes sold 13.24 percent
of her 16.5-percent interest in the partnership to J.S. Meldrim
and sold the remaining 3.26 percent to Decedent. J.S. Meldrim
and Decedent operated the resulting partnership as the Meldrim
& McFarland Partnership (the Partnership) from 1948 until the
death of J.S. Meldrim in 1969; during that period J.S. Meldrim
owned 80 percent of the Partnership's interests, and Decedent
owned the remaining 20 percent. When J.S. Meldrim died, his
80-percent interest passed to his spouse and three daughters, his
spouse (Lillian Meldrim) receiving 50 percent of his 80-percent
interest in trust, and the other 50-percent interest being split
equally among his daughters; namely, Jo Meldrim, Personal
Representative, Winifred Apfeldorf, and Carolyn Moore. From 1969
through 1991, Decedent had a 20-percent interest in the
Partnership, Lillian Meldrim had a 40-percent interest in trust,
Jo Meldrim had a 13-1/3-percent interest, Winifred Apfeldorf had
a 13-1/3-percent interest, and Carolyn Moore had a 13-1/3-percent
interest.
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On September 22, 1991, Decedent died leaving her 20-percent
interest in the Partnership in trust. In connection therewith,
her will stated:
My said executrix and trustee is hereby given full
authority and power * * * to continue and carry on any
business in which I am engaged at the time of my death,
including the continuation of any partnership in which
I may be interested at the time of my death,
particularly the partnership with my said brother, J.S.
Meldrim, and that to facilitate the uninterrupted
continuance of said partnership operation, my said
executrix and trustee is hereby designated a
substituted partner in said partnership, if deemed
desirable by said executrix and trustee, for and during
the administration of my estate and said trust; * * *
When Decedent died, the Partnership owned 5,501 acres of
land and timber in St. John's County, Florida, along with other
assets. On petitioner's Form 706, United States Estate Tax
Return, Personal Representative reported that the fair market
value of Decedent's 20-percent interest in the partnership
equaled $533,895. Upon audit, respondent determined that the
fair market value was $1,147,177. Respondent valued the
20-percent interest by: (1) Valuing the Partnership's land and
timber by reference to comparable sales, (2) adding 20 percent of
this value to 20 percent of the fair market value of the other
assets of the partnership as reported on Form 706, (3) applying a
10-percent discount to take into account Decedent's fractional
interest in the Partnership, and (4) applying a 15-percent
discount to reflect other factors such as the lack of
marketability.
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Respondent determined a deficiency of $250,534 in
petitioner's Federal estate tax. Petitioner alleged in its
petition that it overpaid its estate tax because Decedent's
20-percent interest in the Partnership was worth $179,615, rather
than the $533,895 amount reported on Form 706.
Discussion
Respondent determined the fair market value of Decedent's
interest in the Partnership by referring to sales of property
similar to the Partnership's assets. Petitioner argues that
Estate of Watts v. Commissioner, 823 F.2d 483 (11th Cir. 1987),
affg. T.C. Memo. 1985-595, and Golsen v. Commissioner, 54 T.C.
742 (1970), affd. 445 F.2d 985 (10th Cir. 1971), require that
petitioner's partnership interest be valued under a "going
concern" methodology.
Summary judgment is intended to expedite litigation and
avoid unnecessary and expensive trials of phantom factual issues.
Kroh v. Commissioner, 98 T.C. 383, 390 (1992); Shiosaki v.
Commissioner, 61 T.C. 861, 862 (1974). Rule 121(a), Tax Court
Rules of Practice and Procedure, provides that either party may
move for summary judgment in its favor upon any or all parts of
the legal issues in controversy. A decision may be rendered by
way of summary judgment "if the pleadings, answers to
interrogatories, depositions, admissions, and any other
acceptable materials, together with the affidavits, if any, show
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there is no genuine issue as to any material fact and that a
decision may be rendered as a matter of law." Id. par. (b).
Because summary judgment adjudicates an issue without the
benefit of a trial, the Court grants such a remedy cautiously and
sparingly, and only after carefully ascertaining that the moving
party has met the requisite criteria. Associated Press v. United
States, 326 U.S. 1, 6 (1945); Espinoza v. Commissioner, 78 T.C.
412, 416 (1982). The Court will not resolve disagreements over
material factual issues in a summary judgment proceeding.
Espinoza v. Commissioner, supra at 416; Matson Navigation Co. v.
Commissioner, 67 T.C. 938, 951 (1977). A fact is material if it
"tends to resolve any of the issues that have been properly
raised by the parties." 10A Wright et al., Federal Practice and
Procedure: Civil, sec. 2725, at 93 (2d ed. 1983). The moving
party must prove that there is no genuine issue of material fact,
and factual inferences are viewed in the light most favorable to
the nonmoving party. United States v. Diebold, Inc., 369 U.S.
654, 655 (1962); Kroh v. Commissioner, supra at 390; Preece v.
Commissioner, 95 T.C. 594, 597 (1990).
This case is not ripe for summary judgment. The parties
dispute the fair market value of Decedent's partnership interest.
The resolution of such a dispute is a question of fact, and the
trier of fact has the duty to weigh all relevant evidence of
value. Commissioner v. Scottish Am. Inv. Co., 323 U.S. 119,
123-125 (1944); Helvering v. National Grocery Co., 304 U.S. 282,
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294 (1938); Estate of Watts v. Commissioner, supra at 485. We do
not believe that we would be properly discharging our duty if we
were to set forth at this point one (and only one) method of
valuation that must be used to determine the fair market value of
Decedent's partnership interest. See Estate of Andrews v.
Commissioner, 79 T.C. 938, 944-945 (1982). Cases of valuation
require us to determine the price that a hypothetical willing
buyer would pay a hypothetical willing seller, both persons
having reasonable knowledge of all relevant facts and neither
person being under any compulsion to buy or to sell. Sec.
20.2031-1(b), Estate Tax Regs.; see also United States v.
Cartwright, 411 U.S. 546, 551 (1973); Estate of Watts v.
Commissioner, supra at 486; Estate of Bright v. United States,
658 F.2d 999, 1005-1006 (5th Cir. 1981); Estate of Newhouse v.
Commissioner, 94 T.C. 193, 218 (1990). It would be inappropriate
for us at this juncture to limit our consideration to one method
in order to determine this price.
Petitioner relies incorrectly on the Court of Appeals for
the Eleventh Circuit's opinion in Estate of Watts v.
Commissioner, supra, to support its position that Decedent's
partnership interest must be valued under a going concern
methodology. We do not read that opinion to compel such a
holding as a matter of law. Although we agree with petitioner
that the facts of Estate of Watts are somewhat similar in certain
respects to the instant case, we find significant differences
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between the two cases. For example, in Estate of Watts, the
partnership agreement provided that "The death of a partner shall
not cause the dissolution or termination of this partnership".2
In the instant case, by contrast, we find no similar provision.
Indeed, the provisions of the relevant partnership agreement are
not in the record. Although petitioner places much emphasis on
the fact that Decedent's will allowed her trustee to continue the
Partnership following Decedent's death, we are not persuaded that
this fact is dispositive. We note that the will allowed, but did
not require, the trustee to continue the Partnership.
Accordingly, we will deny petitioner's motion for partial
summary judgment.3 In so doing, we have considered all arguments
by petitioner for a contrary result, and, to the extent not
discussed above, find them to be irrelevant or without merit.
To reflect the foregoing,
2
The Court of Appeals for the Eleventh Circuit found this
provision to be critical to the outcome in Estate of Watts v.
Commissioner, 823 F.2d 483, 486 (11th Cir. 1987), affg. T.C.
Memo. 1985-595, stating that "the tax court's decision to value
decedent's interest as part of a going concern is amply supported
by the law governing Oregon partnerships, and the contractual
restrictions placed upon Mrs. Watts' partnership interest by the
partnership agreement".
3
In addition to the reasons mentioned above, we also note
that the parties dispute the substance of the Partnership's
business during the relevant years. Although the business of the
Partnership originated with turpentine and timber, much of the
Partnership's income in the years preceding Decedent's death was
derived from leases and interest.
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An appropriate order
will be issued.