T.C. Memo. 2004-112
UNITED STATES TAX COURT
ESTATE OF ROSE B. POSNER, DECEASED, DAVID B. POSNER,
PERSONAL REPRESENTATIVE, Petitioner v.
COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 12780-01. Filed May 10, 2004.
Mark T. Willen and Peter E. Keith, for petitioner.
C. Teddy Li, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
THORNTON, Judge: Respondent determined a $1,114,795 Federal
estate tax deficiency with respect to the Estate of Rose B.
Posner (the estate). The parties have resolved all issues raised
in the notice of deficiency. The estate contends, however, that
it is entitled to a $2,909,000 estate tax refund because certain
marital trust property was erroneously included in the gross
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estate. Resolution of this issue turns upon these two subissues:
(1) Whether Rose B. Posner (decedent) possessed a general power
of appointment over the marital trust property in question under
section 2041; and (2) whether the duty of consistency requires
the estate to treat decedent as possessing a general power of
appointment under section 2041.1 Finally, if we determine that
the estate is entitled to a refund of an estate tax overpayment,
we must decide whether this Court has jurisdiction at this
juncture to award interest on the overpayment.
FINDINGS OF FACT
The parties have stipulated most of the facts, which we
incorporate along with the associated exhibits into our findings
of fact. On October 28, 1996, decedent died in Baltimore County,
Maryland. When the petition was filed, David B. Posner (David),
the personal representative of the estate, resided in
Reisterstown, Maryland.
Mr. Posner’s Will
Decedent was formerly married to Nathan Posner (Mr.
Posner). On April 21, 1975, Mr. Posner died. He was survived by
decedent and their three children, David, Judith Geduldig, and
Carol Jean Posner Gordon.
1
Unless otherwise indicated, all section references are to
the Internal Revenue Code as amended, and all Rule references are
to the Tax Court Rules of Practice and Procedure.
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Mr. Posner’s will devised half of his estate to a marital
trust (the marital trust) for decedent’s benefit. Item II of Mr.
Posner’s will created the marital trust, and item XIV set forth
provisions for its administration. Specifically, item II of Mr.
Posner’s will provided:
If my wife, Rose B. Posner, shall survive me, I
give, devise and bequeath to my Trustees, hereinafter
named, in trust and confidence, nevertheless, for the
uses and purposes hereinafter set forth, an amount
equal to one-half (½) of the value of my adjusted gross
estate as finally determined for federal estate tax
purposes, less an amount equal to the value of all
property which passes or has passed to my said wife
either under other provisions of this Will, or outside
of this Will and which qualifies for the marital
deduction allowable for federal estate tax purposes;
provided, however, no assets shall be made a part of
this trust estate which do not qualify for said marital
deduction. This trust estate shall be administered by
my Trustees as a separate trust. * * *
Item XIV of Mr. Posner’s will provided:
Anything in this Will to the contrary
notwithstanding, and whether or not any reference is
made in any other provision of this Will to the
limitations imposed by this Section XIV, my Trustee
shall not have or exercise any authority, power or
discretion over the Marital Trust or the income
thereof, or the property constituting the same, nor
shall any payment or distribution by my Trustee be
limited or restricted by any provision of this Will,
which would in any way (a) adversely affect the
qualification of the Marital Trust, (b) prevent my
estate from receiving the benefit of the maximum
marital deduction, or (c) affect the right of my said
wife to all income therefrom or her right to dispose of
the principal and income thereof in the amount and to
the extent necessary to qualify the Marital Trust for
the marital deduction for Federal estate tax purposes under
the provisions of the law applicable to my estate.
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The parties have stipulated that Mr. Posner’s will included
none of the substantive dispositions, such as for income
beneficiaries, remaindermen, and powers of appointment, normally
found in a document establishing a testamentary trust.
In 1976, Mr. Posner’s estate filed a Federal estate tax
return, attaching thereto a copy of Mr. Posner’s will. On that
return, Mr. Posner’s estate claimed a marital deduction with
respect to the marital trust property. Respondent audited this
estate tax return and allowed the claimed marital deduction.
Decedent’s Will
Before her death, decedent and her two daughters (the
daughters) had a falling out. In her will, dated January 3,
1996, decedent effectively disinherited the daughters, leaving
most of her estate to her son David, his family, and three
charities.2 In her will, decedent directed the marital trust
property, valued at approximately $5 million, to be paid into a
revocable trust (the revocable trust). To one daughter decedent
left $100; to the other daughter she left only a photograph. The
daughters unsuccessfully challenged the will’s validity.3
2
After her death, decedent’s son, David B. Posner (David)
was appointed personal representative of her estate. David was
not a personal representative of Mr. Posner’s estate.
3
In the Circuit Court for Baltimore County, Md. (Baltimore
County circuit court), the daughters attempted to have decedent’s
will and revocable trust declared invalid, alleging fraud, undue
influence, and tortious interference by their brother, David.
(continued...)
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Power of Appointment Case
While the daughters’ challenge to the validity of decedent’s
will was ongoing, decedent’s children disputed ownership of the
marital trust property. The daughters contended that decedent
had possessed no power of appointment over the marital trust
property and that, therefore, the property should revert to Mr.
Posner’s estate to be distributed equally to the three children
pursuant to the residuary clause in Mr. Posner’s will. David, as
decedent’s personal representative and trustee of decedent’s
revocable trust, contended that decedent possessed and exercised
a general power of appointment over the marital trust property
and, therefore, the property should be distributed to the various
charitable organizations and other beneficiaries named in
decedent’s revocable trust instrument.
Seeking to resolve this matter, the trustee of Mr. Posner’s
estate filed a complaint for declaratory judgment in the Circuit
Court for Baltimore County, Maryland (Baltimore County circuit
court), naming decedent’s three children as defendants. On
August 11, 1997, the Baltimore County circuit court granted
3
(...continued)
The Baltimore County circuit court granted summary judgment
against the daughters. On appeal, the Maryland Court of Special
Appeals (court of special appeals) found a triable issue of fact
and remanded the case for a jury trial. See Geduldig v. Posner,
743 A.2d 247 (Md. Ct. Spec. App. 1999). On remand, the jury
found in favor of David and decedent’s estate on all counts,
upholding the validity of decedent’s will and rejecting the
daughters’ claims.
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summary judgment for the daughters, ruling that the marital trust
property was not part of decedent’s estate but instead reverted
to Mr. Posner’s estate:
The Court finds as a matter of law that, when Mr.
Posner’s Will is read in its entirety, Item XIV grants
Mrs. Posner power over the Marital Trust. However,
this power is limited to inter vivos because ambiguous
granting language must be construed only as broadly as
is necessary to fulfill the testator’s intent. See
Hutchinson v. Farmer, 190 Md. 411 [58 A.2d 638] (1948).
Furthermore, the fact that the IRS approved the marital
deduction did not establish that Mrs. Posner’s powers
were greater than inter vivos because the Trust would
have qualified for the deduction if Mrs. Posner had
either inter vivos or testamentary power.
As Mrs. Posner’s powers over the Marital Trust
were limited to inter vivos, her attempt to fund the
Revocable Trust with assets from the Marital Trust
fails. The Revocable Trust, by its terms, is not an
exercise of inter vivos power because it could not vest
until Mrs. Posner’s death. Accordingly, Mrs. Posner’s
Revocable Trust was an attempt to exercise a
testamentary power that she did not possess.
The Court concludes that the assets from the
Marital Trust therefore revert to Mr. Posner’s estate
to be distributed according to the residuary clause in
his Will. [McDonagh v. Geduldig, No. C-97-001002
(Baltimore County Cir. Ct. Aug. 11, 1997).]
The Maryland Court of Special Appeals (court of special
appeals) affirmed the Baltimore County circuit court’s ruling
that Mr. Posner’s will granted decedent no testamentary power of
appointment. Posner v. McDonagh, No. 3C971002 (Md. Ct. Spec.
App. Mar. 11, 1997). The court of special appeals was
unpersuaded that references in Mr. Posner’s will to the Federal
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estate tax marital deduction evinced his intention to grant
decedent a testamentary power of appointment:
The statements in Item XIV of Nathan Posner’s will
are very general; they simply demonstrate that he
wanted to qualify the marital trust for the marital
deduction. In light of the broadness of these
pronouncements, and in light of the fact that a marital
trust will qualify for the marital deduction if the
surviving spouse is given either an inter vivos power
of appointment or a testamentary power of appointment,
it is not at all clear that the statements in Item XIV
of Nathan Posner’s will evince an intent to grant Rose
Posner a testamentary power of disposition over the
marital trust’s assets. Given the generality of the
statements, it is almost as easy to conclude that
Nathan Posner intended to grant Rose Posner a solely
inter vivos power of appointment as it is to conclude
that he intended to grant her a testamentary power of
appointment. Thus, the language in Item XIV of the
will does not provide conclusive proof of Nathan
Posner’s intent with respect to Rose Posner’s power of
appointment over the marital trust’s assets.
Furthermore, the court of special appeals stated that under
applicable Maryland caselaw, the language in Mr. Posner’s will
“is insufficient to grant Rose Posner either an inter vivos or a
testamentary power of appointment over the marital trust’s
assets.” Id.4 The court of special appeals stated its holding
as follows: “Accordingly, we hold that Nathan Posner’s will did
not grant Rose Posner a testamentary power of appointment over
the assets of the marital trust.” Id.
4
In a subsequent case involving tax apportionment issues
relating to the marital trust property, see infra note 5, the
court of special appeals characterized this statement as dicta.
Gordon v. Posner, 790 A.2d 675, 679 (Md. Ct. Spec. App. 2002).
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By order dated June 30, 1999, the Maryland Court of Appeals,
Maryland’s highest court, declined to hear the appeal of the
court of special appeals’ decision.
The Estate’s Federal Estate Tax Return
While the above-described litigation was pending, David, as
personal representative of decedent’s estate, filed a request for
an extension of time to file the estate’s Federal estate tax
return and remitted estate tax of $6.5 million. On July 30,
1998, notwithstanding the uncertainty of the outcome of the State
court litigation, David filed the estate’s Federal estate tax
return, wherein the marital trust property was included in
decedent’s gross estate.5
On July 12, 2000, the estate filed a claim for an estate tax
refund of $2,909,000, on the ground that the litigation in the
Maryland State courts had proved the inclusion of the marital
5
These actions triggered more litigation. In July 1999,
the daughters filed a complaint in the Circuit Court for
Baltimore City, Md. (Baltimore City circuit court), against David
and the trustee of the marital trust. They sought declaratory
relief, asking the court to rule that David was not entitled to
claim any contribution from the marital trust for the estate
taxes he had paid. On cross-motions for summary judgment, the
Baltimore City circuit court held that decedent’s three children
had to bear responsibility for the estate taxes paid on the
marital trust assets and that any future IRS refund of these
taxes should be distributed equally among decedent’s three
children. Gordon v. Posner, No. 24-C-99-03489 (Baltimore City
Cir. Ct. Oct. 24, 2000). The court of special appeals affirmed
this decision. Gordon v. Posner, 790 A.2d at 675. By order
dated Jan. 31, 2002, the Maryland Court of Appeals declined to
hear the appeal of the court of special appeals’ decision.
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trust property in decedent’s gross estate (as reported on the
estate’s estate tax return) to have been in error. On July 10,
2001, respondent issued a notice of deficiency disallowing the
refund claim.6
OPINION
I. Introduction
Section 2001 imposes an estate tax determined, in part, by
the value of the taxable estate. Sec. 2001(b). The taxable
estate is defined as the gross estate less deductions. Sec.
2051. The gross estate generally includes the value of any
property with respect to which the decedent has a general power
of appointment at the time of his or her death. Sec. 2041(a)(2).
With exceptions inapplicable here, a general power of appointment
is defined as a power that is exercisable in favor of the
decedent, the decedent’s estate, the decedent’s creditors, or the
creditors of the decedent’s estate. Sec. 2041(b)(1).
A power to make an inter vivos appointment of property is a
general power of appointment if it is exercisable in favor of the
decedent or the decedent’s creditors, regardless of whether the
power is also exercisable in favor of the decedent’s estate or
the creditors of the decedent’s estate. Jenkins v. United
6
Respondent made a number of adjustments to the estate’s
estate tax return and determined an estate tax deficiency. The
parties have resolved all issues except respondent’s disallowance
of the claimed refund.
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States, 428 F.2d 538, 544-545 (5th Cir. 1970); Estate of Edelman
v. Commissioner, 38 T.C. 972, 976-977 (1962); see also Martin v.
United States, 780 F.2d 1147, 1148 n.1 (4th Cir. 1986); Condon
Natl. Bank v. United States, 349 F. Supp. 755, 759-760 (D. Kan.
1972); sec. 20.2041-1(c), Estate Tax Regs.
II. Did Decedent Possess a General Power of Appointment Over the
Marital Trust Property?
A. The Parties’ Positions
As discussed below, the court of special appeals has ruled
that Mr. Posner’s will granted decedent no testamentary power of
appointment over the marital trust property. Respondent does not
dispute that ruling. Respondent contends, however, that Mr.
Posner’s will granted decedent an inter vivos general power of
appointment over the marital trust property so as to make it
includable in her gross estate pursuant to section 2041(a). The
estate argues that under applicable Maryland law, as adjudicated
by the court of special appeals, decedent possessed no power of
appointment over the marital trust property. Accordingly, the
estate contends, inclusion of the marital trust property in
decedent’s gross estate, as reported on the estate’s estate tax
return, was in error.
B. Decisions of the Maryland Courts
State law, which creates legal interests and rights in
property, including powers of appointment, determines the nature,
scope, and validity of such legal interests and rights. See
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Morgan v. Commissioner, 309 U.S. 78, 80 (1940); Estate of
Pierpont v. Commissioner, 336 F.2d 277, 281 (4th Cir. 1964),
affg. T.C. Memo. 1962-286; Estate of Allen v. Commissioner, 29
T.C. 465, 467-468 (1957). Federal law, in turn, determines the
Federal taxation of such interests or rights. Morgan v.
Commissioner, supra.7
“[T]he highest court of the state is the final arbiter of
what is state law. When it has spoken, its pronouncement is to
be accepted by federal courts as defining state law”. West v.
Am. Tel. & Tel. Co., 311 U.S. 223, 236 (1940). On the other
hand, we are not necessarily bound to follow decisions of State
intermediate appellate courts. Commissioner v. Estate of Bosch,
387 U.S. 456, 465 (1967); Estate of Rapp v. Commissioner, 140
F.3d 1211, 1216 (9th Cir. 1998), affg. and remanding on another
ground T.C. Memo. 1996-10; Estate of Harper v. Commissioner, 93
T.C. 368, 374 (1989); Estate of Pangas v. Commissioner, 52 T.C.
99, 101 (1969). Instead, we give “proper regard” to decisions of
State intermediate appellate courts if these decisions are on
7
“If it is found in a given case that an interest or right
created by local law was the object intended to be taxed, the
federal law must prevail no matter what name is given to the
interest or right by state law.” Morgan v. Commissioner, 309
U.S. 78, 81 (1940). To this same end, the term “power of
appointment” includes all powers that are in substance and effect
powers of appointment regardless of the nomenclature used in
creating the power and regardless of local property law
connotations. Sec. 20.2041-1(b)(1), Estate Tax Regs.; see also
Martin v. United States, 780 F.2d 1147, 1148 (4th Cir. 1986).
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point. See Commissioner v. Estate of Bosch, supra; Estate of
Casey v. Commissioner, 948 F.2d 895, 898 (4th Cir. 1991), revg.
T.C. Memo. 1989-511; Ward v. Commissioner, 87 T.C. 78, 91-92
(1986); Estate of Fulmer v. Commissioner, 83 T.C. 302, 306
(1984). Therefore, in deciding whether decedent possessed a
general power of appointment, relevant decisions of the Maryland
Court of Appeals are binding on this Court. Decisions of the
court of special appeals, on the other hand, are not binding;
these decisions, if on point, are entitled to “proper regard”.
In Posner v. McDonagh, No. 3C971002 (Md. Ct. Spec. App. Mar.
11, 1999), the court of special appeals held that decedent
possessed no testamentary power of appointment. The estate
relies heavily on the statement in the court of special appeals’
unreported opinion that Mr. Posner’s will was “insufficient to
grant Rose Posner either an inter vivos or a testamentary power
of appointment over the marital trust’s assets.” Id. This
statement, however, is dicta; the only issue before the court of
special appeals was whether decedent possessed a testamentary
power of appointment. Indeed, in a subsequent published opinion
involving the apportionment of taxes relating to the marital
trust property, the court of special appeals characterized its
prior statement as dicta:
On appeal, this Court held that Rose did not have
a testamentary power of appointment over the assets of
the Marital Trust, and affirmed the trial court. In
dicta, we also stated that the language of Nathan’s
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will was “insufficient to grant Rose Posner either an
inter vivos or a testamentary power of appointment
. . . .” [Gordon v. Posner, 790 A.2d 675, 679 (Md. Ct.
Spec. App. 2002); emphasis added.]
Consequently, although we give the decisions of the court of
special appeals proper regard, those decisions do not squarely
answer the question whether decedent possessed an inter vivos
power of appointment over the marital trust property.
On reply brief, respondent argues that the only Maryland
decision that is “legally effective” with respect to this
question is the ruling of the Baltimore County circuit court,
which held that decedent lacked a testamentary power of
appointment over the marital trust property and stated in part:
“when Mr. Posner’s Will is read in its entirety, Item XIV grants
Mrs. Posner power over the Marital Trust. However, this power is
limited to inter vivos”. McDonagh v. Geduldig, No. C-97-001002
(Baltimore County Cir. Ct. Aug. 11, 1997).
As a threshold matter, we note that the Baltimore County
circuit court is a State trial court, not an intermediate State
appellate court. Although decisions of a State trial court are
given some weight and proper regard if on point, see Commissioner
v. Estate of Bosch, supra at 465, we must carefully consider the
nature of the trial court litigation, see Estate of Ahlstrom v.
Commissioner, 52 T.C. 220, 229 (1969), and the subsequent
proceedings on appeal.
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In ruling that Mr. Posner’s will gave decedent no
testamentary power, the Baltimore County circuit court stated
that item XIV of Mr. Posner’s will was a granting clause that
granted decedent only an inter vivos power of appointment.8 In
its affirmance, the court of special appeals relied on the lack
of specificity in Mr. Posner’s will regarding the claimed
testamentary power of appointment. The court of special appeals
did not endorse the circuit court’s statement that item XIV was a
granting clause that granted decedent an inter vivos power of
appointment.
To the contrary, as previously discussed, in holding that
Mr. Posner’s will gave decedent no testamentary power of
appointment, the court of special appeals stated in dicta that
Mr. Posner’s will was “insufficient to grant Rose Posner either
an inter vivos or a testamentary power of appointment over the
marital trust's assets.” Posner v. McDonagh, supra. In light of
this statement, and considering the basis on which the court of
special appeals affirmed the circuit court’s ruling, we are
reluctant to assign much weight to the Baltimore County circuit
court’s statement that Mr. Posner’s will granted decedent an
8
In the Baltimore County circuit court proceeding, the
daughters argued that item XIV of Mr. Posner’s will was only a
saving clause and thus granted no powers. In the alternative,
the daughters argued that if item XIV was a granting clause, the
clause granted only inter vivos, not testamentary, power. The
Baltimore County circuit court accepted this latter argument.
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inter vivos power of appointment over the marital trust property.
To the contrary, we believe that the Baltimore County circuit
court’s conclusions in this regard were effectively set aside by
the court of special appeals. Cf. Hudson v. Commissioner, 100
T.C. 590, 594 (1993) (stating that for purposes of applying
collateral estoppel, “where a trial court’s conclusions of law or
findings of fact are not passed on by the appellate court, the
trial court’s conclusions of law or findings of fact are
effectively set aside”).
Finding no other rulings of Maryland courts that are
dispositive in determining whether Mr. Posner’s will granted
decedent an inter vivos general power of appointment, we must
make our best effort to determine how Maryland’s highest court
would decide the issue. See Commissioner v. Estate of Bosch, 387
U.S. at 465; West v. Am. Tel. & Tel. Co., 311 U.S. at 237; Estate
of Casey v. Commissioner, supra at 898.
C. Analysis
A threshold issue is whether Mr. Posner’s will conferred
upon decedent any sort of a power of appointment--testamentary or
inter vivos, general or limited. The parties have stipulated
that Mr. Posner’s will “did not include any of the substantive
dispositions, such as income beneficiaries, remaindermen, and
powers of appointment, normally found in a document establishing
a testamentary trust.” (Emphasis added.) The holding of both
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Maryland courts to adjudicate the issue was that Mr. Posner’s
will created no testamentary power of appointment. Inasmuch as
Mr. Posner’s will contains no substantive provisions regarding
powers of appointment of any sort, we are persuaded that Mr.
Posner’s will also failed to create an inter vivos power of
appointment (as the court of special appeals stated in dicta).
Respondent argues that the failure of item II of Mr.
Posner’s will to provide substantive dispositions of income and
principal is a “scrivener’s error” and that items II and XIV of
Mr. Posner’s will, when read together, clearly establish his
intent to create a trust and grant decedent “a right to all trust
income, and a general power of appointment over the trust, such
that the trust would qualify for the Federal estate tax marital
deduction.” We are unpersuaded that the absence of substantive
dispositions should be regarded as a mere scrivener’s error.
Rather, we believe that because of the lack of such dispositions,
the will fails to confer on decedent a power of appointment with
respect to the marital trust property. We discern in Mr.
Posner’s will a directive that the marital trust property should
qualify for the Federal estate tax marital deduction. The will
does not provide, however, the necessary terms for satisfying
this directive. Reading Mr. Posner’s will as respondent suggests
would be tantamount to rewriting Mr. Posner’s will to include
these provisions, which we are not at liberty to do. See Gaither
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v. Fidelity-Baltimore Natl. Bank & Trust Co., 115 A.2d 711 (Md.
1955).9
Items II and XIV of Mr. Posner’s will refer to the Federal
estate tax marital deduction. On this basis, respondent argues
that this case comes squarely within the rationale of Guiney v.
United States, 425 F.2d 145 (4th Cir. 1970). In Guiney v. United
States, supra at 147, the testator used the words “general power
of appointment” to describe the power given to his wife and
referenced “the marital deduction as provided by the Internal
Revenue Code of 1954”. The Court of Appeals for the Fourth
Circuit found that this “unmistakably precise language”
manifested “a clear and forthright desire to clothe his widow
with the ‘general power of appointment’ necessary to accomplish
the marital deduction and by express reference brought the power
he created squarely within the Code’s requirements.” Id. at 149.
The Court of Appeals concluded:
Thus, the widow here is given specific authorization to
appoint to herself or her estate, as the testator
9
Moreover, we do not construe item XIV of Mr. Posner’s will
as a granting clause giving decedent a general power of
appointment. Instead, we agree with the statement of the court
of special appeals in Gordon v. Posner, 790 A.2d at 678, that
item XIV is more in the nature of a “marital deduction ‘savings
clause.’” Cf. Estate of Fine v. Commissioner, 90 T.C. 1068
(1988) (holding that a will provision precluding the executor
from taking any discretionary action that would diminish the
marital deduction did not affect the means or order of
distribution of the estate as set forth in other will
provisions), affd. without published opinion 885 F.2d 879 (11th
Cir. 1989).
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obviously was not referring to a Maryland (limited)
general power of appointment. By his use of the words
“general power of appointment,” coupled with his
expressed “intention to take advantage of the marital
deduction as provided by the Internal Revenue Code of
1954,” the testator was clearly referring to the
general power of appointment provisions of section 2041
of the Code, which empower the donee to appoint to
herself or her estate. [Id. at 150.]
Unlike the will in Guiney, Mr. Posner’s will contains no
language referring to a “general power of appointment” and,
indeed, contains no substantive dispositions of the marital trust
property. Item II of Mr. Posner’s will does not expressly
provide for the disposition of income or principal of the marital
trust, and it contains no direction regarding the distribution of
principal upon termination of the trust. It refers only to the
Federal estate tax marital deduction. Item XIV also refers to
the marital deduction but contains no language that we might
reasonably interpret to grant decedent a general power of
appointment. The references to the marital deduction alone in
items II and XIV are insufficient to create a general power of
appointment in decedent’s favor. See Estate of Pierpont v.
Commissioner, 336 F.2d at 281.
D. Conclusion
In conclusion, we defer to the ruling of the court of
special appeals that Mr. Posner’s will gave decedent no
testamentary power of appointment. Moreover, we believe that the
Maryland Court of Appeals would conclude, as the court of special
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appeals stated in dicta, that the language in Mr. Posner’s will
was also insufficient to give decedent an inter vivos power of
appointment over the marital trust property. Consequently, we
hold that decedent possessed no general power of appointment for
purposes of section 2041(a)(2).
III. Duty of Consistency
On its estate tax return, Mr. Posner’s estate claimed a
marital deduction for the marital trust property.10 In doing so,
respondent contends, Mr. Posner’s estate represented that
decedent possessed a general power of appointment over the
marital trust property.11 Respondent argues that the duty of
10
Sec. 2056(a) allows a marital deduction from a decedent’s
gross estate for the value of any interest in property passing to
the decedent’s surviving spouse. Sec. 2056(c), as in effect at
the time of Mr. Posner’s death, limited the aggregate amount of
the marital deduction to 50 percent of the value of the adjusted
gross estate.
11
A marital deduction is generally not allowable for any
“terminable interest”, which is a property interest that will
terminate or fail “on the lapse of time, on the occurrence of an
event or contingency, or on the failure of an event or
contingency to occur”. Sec. 2056(b)(1); Estate of Davis v.
Commissioner, T.C. Memo. 2003-55. Sec. 2056(b)(5) modifies this
general rule by allowing a marital deduction for property with
respect to which the surviving spouse is given a life estate with
a general power of appointment.
We point out that Mr. Posner died before the 1981 enactment
of the qualified terminable interest property (QTIP) rules of
sec. 2056(b)(7). See Economic Recovery Tax Act of 1981, Pub. L.
97-34, sec. 403(d), 95 Stat. 302 (effective generally for estates
of decedents dying after Dec. 31, 1981). Pursuant to the QTIP
rules, if certain conditions are met, property with respect to
which the spouse has a qualifying life interest may qualify for
(continued...)
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consistency precludes decedent’s estate from now taking the
contrary position, upon which its claim for refund is predicated,
that decedent possessed no general power of appointment.12 As
explained below, we disagree.
As developed in caselaw, the duty of consistency (sometimes
called quasi-estoppel) prevents a taxpayer from benefiting in a
later year from an error or omission in an earlier year that
cannot be corrected because the time to assess tax for the
earlier year has expired. Estate of Letts v. Commissioner, 109
T.C. 290, 296 (1997), affd. without published opinion 212 F.3d
600 (11th Cir. 2000). The duty of consistency may apply if: (1)
The taxpayer made a representation of fact or reported an item
for tax purposes in one tax year; (2) the Commissioner acquiesced
11
(...continued)
the marital deduction even though the spouse is given no power
over the property’s ultimate disposition. H. Rept. 97-201, at
159-160 (1981), 1981-2 C.B. 352, 377-378; see Estate of Cavenaugh
v. Commissioner, 100 T.C. 407, 415 (1993), affd. in part, revd.
in part on other grounds and remanded 51 F.3d 597 (5th Cir.
1995). The Internal Revenue Code specifically requires that if
the spouse still holds the QTIP at death, its value must be
included in the spouse’s gross estate. Sec. 2044. By contrast,
the Internal Revenue Code contains no specific provision (apart
from the general rule of sec. 2041(a)(2), which brings into the
gross estate property with respect to which the decedent has a
general power of appointment) requiring property transferred
pursuant to sec. 2056(b)(5) to be included in the spouse’s gross
estate.
12
Respondent raised the duty of consistency as an
affirmative defense and consequently has the burden of showing
that it applies. See Rule 142(a); Hull v. Commissioner, 87 F.2d
260, 262 (4th Cir. 1937), revg. 33 B.T.A. 178 (1935).
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in or relied on that fact for that year; and (3) the taxpayer
desires to change the representation previously made in a later
tax year after the earlier year has been closed by the statute of
limitations. Id. at 297; LeFever v. Commissioner, 103 T.C. 525,
543 (1994), affd. 100 F.3d 778 (10th Cir. 1996).
Spouses, as well as their estates, may have sufficient
identity of interests so that one may be estopped under the duty
of consistency by a prior representation of the other. Estate of
Letts v. Commissioner, supra at 298; Cluck v. Commissioner, 105
T.C. 324, 333-336 (1995). Respondent contends that Mr. Posner’s
estate and decedent’s estate have sufficient identity of
interests that the duty of consistency is applicable. For
purposes of this discussion, we assume, without deciding, that
there was privity of interest between Mr. Posner’s estate and
decedent’s estate.
On brief, respondent acknowledges that the duty of
consistency applies “if the inconsistency is a question of fact
or a mixed question of fact and law. It does not apply to mutual
mistake on the part of a taxpayer and the Service concerning a
pure question of law.” See LeFever v. Commissioner, 100 F.3d at
788; Herrington v. Commissioner, 854 F.2d 755, 758 (5th Cir.
1988), affg. Glass v. Commissioner, 87 T.C. 1087 (1986); S. Pac.
Transp. Co. v. Commissioner, 75 T.C. 497, 560 (1980); Unvert v.
Commissioner, 72 T.C. 807, 816 (1979), affd. 656 F.2d 483 (9th
- 22 -
Cir. 1981).13 With little elaboration, respondent contends on
brief that the inconsistency in question here is a “mixed
question of fact and law”, so that the duty of consistency
applies. We disagree.
In Crosley Corp. v. United States, 229 F.2d 376, 380 (6th
Cir. 1956), the Court of Appeals for the Sixth Circuit noted that
the duty of consistency “is probably applicable in cases where
the factual situation is such as to justify the taxpayer in
taking either of two possible positions” but generally does not
apply “when the error is one of law arising out of a definite
13
In Bennet v. Helvering, 137 F.2d 537, 539 (2d Cir. 1943),
Judge Learned Hand considered and rejected the application of a
duty of consistency based purely on a legal inconsistency, which
he referred to as “a kind of estoppel as to the law”:
That theory is, not that the taxpayer was here
“estopped” as to any fact by his earlier return, but
that if the earlier assessment were made upon one
theory of law, the same theory must be consistently
followed thereafter * * * . With deference * * * [this
theory] seems to us, not only to have all the vices of
an estoppel as to the facts, but not to have even the
excuse which that doctrine has: i.e., that in making
his return a taxpayer does represent that it contains
his complete gross income; something which the
Commissioner cannot know. * * *
See also Ross v. Commissioner, 169 F.2d 483, 493-494 (1st Cir.
1948). For a contrary view that the “fact versus law”
distinction should be eliminated from the duty of consistency
doctrine, see Johnson, “The Taxpayer’s Duty of Consistency,” 46
Tax L. Rev. 537, 552-553 (1991). Inasmuch as respondent has
conceded that the duty of consistency does not apply to a “mutual
mistake on the part of a taxpayer and the Service concerning a
pure question of law,” we need not delve deeper into these
matters here.
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factual situation”. In the instant case, the inconsistency arose
because of a mutual mistake in deciding how Mr. Posner’s will
should be construed under Maryland law--a purely legal issue.
See McIntyre v. Byrne, 141 A.2d 692, 695 (Md. 1958) (“The
construction of a will is a matter of law for the court to
determine”). Mr. Posner’s estate did not misrepresent the
property or type of property that Mr. Posner had devised to
decedent. Respondent has not alleged any facts to show that the
estate has been inconsistent with respect to any factual
positions or to suggest that the inconsistency in question arose
from anything other than a purely legal error in the context of
“a definite factual situation”. Crosley Corp. v. United States,
supra at 380.14
Moreover, the duty of consistency “does not apply where all
pertinent facts are known to both the Commissioner and the
14
In Estate of Letts v. Commissioner, 109 T.C. 290, 302-303
(1997), affd. without published opinion 212 F.3d 600 (11th Cir.
2000), we concluded that the inconsistency at issue involved a
mixed question of fact and law as to whether certain property
that the decedent’s husband devised to her in trust was
“terminable interest” property; i.e., an interest passing to the
decedent that would end on the lapse of time, on the occurrence
of an event or contingency, or on the failure of an event or
contingency to occur. See sec. 2056(b). In Estate of Letts,
unlike the instant case, a copy of the predeceased spouse’s will
was not attached to the earlier estate tax return, nor did the
Commissioner audit the earlier estate tax return. Thus the
Commissioner did not know or have reason to know the operative
facts and circumstances underlying the position taken on that
return. For these reasons, Estate of Letts is distinguishable
from the instant case.
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taxpayer”, especially if “the crucial facts are known to both
parties and the erroneous deductions are due to a mutual mistake
of law.” S. Pac. Transp. Co. v. Commissioner, supra at 560; cf.
Interlochen Co. v. Commissioner, 232 F.2d 873 (4th Cir. 1956),
affg. 24 T.C. 1000 (1955); Hull v. Commissioner, 87 F.2d 260, 262
(4th Cir. 1937) (stating that “a party either knowing the facts,
or in a position to know them, cannot claim the benefit of
estoppel”), revg. 33 B.T.A. 178 (1935). In the instant case,
respondent had reason to know all the relevant facts. When Mr.
Posner’s estate filed its estate tax return, it adequately
disclosed the relevant facts and documents, attaching a copy of
Mr. Posner’s will.15 Respondent audited the estate tax return of
Mr. Posner’s estate and allowed the marital deduction.16
15
Respondent claims that when Mr. Posner’s estate filed the
estate tax return, it made a “factual representation” that
decedent possessed a general power of appointment over the
marital trust property. We are not convinced that this is a
factual representation; rather, it is a legal conclusion. In
attaching Mr. Posner’s will to the estate tax return, Mr.
Posner’s estate disclosed all underlying facts necessary to reach
this conclusion or an alternative conclusion. Cf. Estate of
Ashman v. Commissioner, T.C. Memo. 1998-145 (“The Commissioner
may rely on representations in a return signed under penalties of
perjury absent sufficient facts that provide actual or
constructive knowledge to the contrary.” (Emphasis added.)),
affd. 231 F.3d 541 (9th Cir. 2000).
16
Cf. Estate of Letts v. Commissioner, supra at 300 (“The
Commissioner acquiesces in or relies on a fact if a taxpayer
files a return that contains an inadequately disclosed item of
which the Commissioner was not otherwise aware, the Commissioner
accepts that return, and the time to assess tax expires without
an audit of that return.” (Emphasis added.)).
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Respondent has not alleged any facts to suggest that this audit
was insufficient in any regard other than in the failure to apply
the law correctly. Under these circumstances, respondent cannot
be viewed as justifiably relying on the legal representation on
the estate tax return of Mr. Posner’s estate.
The executor of Mr. Posner’s estate and the executor of
decedent’s estate, as well as respondent’s agents upon audit of
Mr. Posner’s estate’s estate tax return, all acted in accordance
with the mutual mistake of law that Mr. Posner’s will gave
decedent a general power of appointment. Indeed, when he filed
the estate tax return of decedent’s estate, decedent’s executor
included the marital trust property in decedent’s gross estate
and paid the resulting estate tax. He steadfastly maintained in
the State court litigation that decedent possessed a testamentary
power of appointment over the marital trust property. Only after
the court of special appeals rejected this position and the
Maryland Court of Appeals declined to hear the appeal did he file
the refund claim. Respondent has not carried his burden to show
that the duty of consistency should apply in these circumstances.
Accordingly, we hold that the marital trust property is not
includable in decedent’s gross estate.
IV. Accrued Interest on the Overpayment
The estate requests that we award it interest on its
overpayment of estate tax pursuant to sections 6611 and 6621.
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This Court generally does not have jurisdiction to enter a
decision for interest upon an overpayment. Estate of Baumgardner
v. Commissioner, 85 T.C. 445, 452-453 (1985); Harrison v.
Commissioner, T.C. Memo. 1994-614; see sec. 6512(b)(1). As an
exception to this general rule, however, section 6512(b)(2)
provides that if the Secretary fails “to refund the overpayment
determined by the Tax Court, together with the interest thereon
as provided in subchapter B of chapter 67, then the Tax Court
upon motion by the taxpayer, shall have jurisdiction to order the
refund of such overpayment and interest.”
The estate makes no allegation that it paid the interest it
claims or that this interest is part of its overpayment of estate
tax. Cf. Estate of Baumgardner v. Commissioner, supra. On the
contrary, the claimed interest appears to be interest that has
accrued upon its overpayment. Likewise, this case does not
involve interest on an overpayment that the Commissioner has
credited or refunded. Cf. Sunoco, Inc. & Subs. v. Commissioner,
122 T.C. 88 (2004) (holding that under certain circumstances this
Court has overpayment jurisdiction under section 6512(b) with
regard to overpayment interest in the case of overpayments
credited or refunded by the Commissioner).
We hold that we do not have jurisdiction at this juncture to
enter a decision for interest upon the estate’s overpayment of
estate tax.
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Because of concessions by the parties and the fact that the
estate is claiming an overpayment,
Decision will be
entered under Rule 155.