Lucas v. United States

United States Court of Appeals,

Eleventh Circuit.

No. 95-2370.

In re ESTATE OF Charles R. LUCAS, Deceased, Plaintiff.

Roy H. LUCAS; Howard C. Lucas, Co-Personal Representatives of
the Estate of Charles R. Lucas, Plaintiffs-Appellants,

v.

UNITED STATES of America, Defendant-Appellee.

Oct. 23, 1996.

Appeal from the United States District Court for the Middle
District of Florida. (No. 91-622-CIV-T-25A), Henry Lee Adams, Jr.,
District Judge.

Before HATCHETT, Chief Judge, ANDERSON, Circuit Judge, and WOOD*,
Senior Circuit Judge.

ANDERSON, Circuit Judge:

In this federal estate tax case, the government determined

that the Estate of Charles R. Lucas (the Estate) was not entitled

to "special use valuation" of certain family farm property pursuant

to section 2032A of the Internal Revenue Code. See 26 U.S.C. §

2032A. The first issue on appeal is whether the Estate's initial

effort to elect special use valuation was sufficient to constitute

"substantial compliance" with the applicable regulations, thereby

entitling the Estate to perfect its election upon notice from the

I.R.S. that the original election was deficient. See 26 U.S.C. §

2032A(d)(3). A related issue is also presented: whether the

Estate provided "substantially all the information" required on the

estate tax return with respect to the election for special use

*
Honorable Harlington Wood, Jr., Senior U.S. Circuit Judge
for the Seventh Circuit, sitting by designation.
valuation, such that the I.R.S. should have allowed the Estate to

perfect its previously deficient election. See Tax Reform Act of

1986, Pub.L. No. 99-514, § 1421, 100 Stat. 2085, 2716, as amended

by the Technical and Miscellaneous Revenue Act of 1988, Pub.L. No.

100-647, § 1014(f), 102 Stat. 3342, 3562. We find that the

Estate's election for special use valuation did not substantially

comply with the applicable regulations, nor did it provide

substantially all the information required on the tax return.

Accordingly, we affirm the district court's entry of judgment in

favor of the government.

I. FACTS AND PROCEDURAL HISTORY

Charles R. Lucas (decedent) died testate on December 15, 1985.

Howard C. Lucas and Roy H. Lucas are the decedent's sons and the

co-personal representatives of his estate. Under their father's

will, they are also the only legatees to certain Polk County,

Florida farm land, the valuation of which is at issue in this case.

After receiving an extension from the I.R.S., the Estate filed

a timely federal estate tax return on October 16, 1986. The Estate

used the March 1985 version of Form 706. On line 2 of page 2 of

the form, in response to the question, "Do you elect special use

valuation?," the Estate failed to check either the "yes" or "no"

box. Immediately below the question, Form 706 instructs that, "If

"Yes,' complete and attach Schedule N and the agreements required

by the instructions to Schedule N."

Despite its failure to check the "Yes" box on page 2 of the

return, the Estate completed a Schedule N. Schedule N of Form 706

(March 1985), entitled "Section 2032A Valuation," directs the
taxpayer: "Enter the requested information for each party who

received any interest in the specially valued property. Also

complete and attach the required agreements described in the

instructions."1 The Estate's Schedule N lists Roy H. Lucas and

Howard C. Lucas, the decedent's two sons, as the parties with an

interest in the specially valued property. Under the preprinted

headings "Fair market value" and "Special use value," the amounts

$187,500 and $40,000, respectively, are listed for Roy Lucas. The

same amounts are listed for Howard Lucas.2

1
The instruction booklet accompanying the March 1985 version
of Form 706 contains a section entitled "Instructions for
Schedule N.—Section 2032A Valuation." This section instructs the
taxpayer how to complete the Schedule N, lists the items of
information that must be included in a required attachment called
the "notice of election," and describes in detail the required
"agreement to special valuation by persons with an interest in
property."
2
On Schedule A of Form 706, where the taxpayer is required
to list and describe all of its real property, the Estate
included a description of the property that was to be specially
valued. Item numbers 3A, 3B, and 3C are described as follows:

3A Parcel # 2—West parcel consisting of 30.2 + A. of
citrus grove and woodlands fronting on the South
side of Crystal Beach Rd., and along the North
shore of Lake Millsite. The grove consists of 7.3
+ A., an old frame house occupies about 3A. near
the N.W. end of parcel. Winter Haven, Florida.

3B The remaining 22.6 A. is woodland used as native
cattle range in conjunction with adjacant [sic]
improved pasture owned by other members of Lucas
family. Agricultural use value of this parcel.
Winter Haven, Florida.

3C The grove is a very old planting, substantial foot
rot, ytd. blite or other die-back associated with
old plantings.

The highest and best use of parcels 3B and 3C is
building lots—$375,000 but the agricultureal [sic]
use valuse [sic] is.... 80,000
 The Estate attached to its return a document entitled

"Affidavit from Personal Representatives," which purported to serve

as the Estate's notice of election. This document contained most,

but not all, of the fourteen items of information required by the

applicable Treasury regulations to be included in the notice of

election. See 26 C.F.R. § 20.2032A-8(a)(3).3 Significantly, the

Estate did not attach an "agreement to special valuation by persons

with an interest in property," also called a recapture agreement,

to its return. See 26 U.S.C. § 2032A(a)(1)(B) and (d)(2); 26

C.F.R. § 20.2032A-8(a)(3) and (c).

On audit of the estate tax return, the I.R.S. advised the

Estate that the attempted election for special use valuation was

defective, the primary reason being the Estate's failure to attach

a recapture agreement. Subsequently, and within ninety days

following the notice from the I.R.S. about the defective election,

the Estate submitted a recapture agreement that fully complied with

the requirements of the regulations. Nevertheless, the I.R.S.

This property qualifies under Section 2032 A/S
[sic] of the I.R.C.

Winter Haven, Florida.
3
The Estate's notice of election did not contain a
"statement that the decedent and/or a member of his or her family
has owned all specially valued real property for at least 5 years
of the 8 years immediately preceding the date of the decedent's
death," as required by 26 C.F.R. § 20.2032A-8(a)(3)(x). Nor did
it contain a statement of "[a]ny periods during the 8 year period
preceding the date of the decedent's death during which the
decedent or a member of his or her family did not own the
property, use it in a qualified use, or materially participate in
the operation of the farm or other business ...," as required by
26 C.F.R. § 20.2032A-8(a)(3)(xi). With respect to these items,
the notice of election stated "affidavit attached." However, no
additional affidavits were attached.
denied special use valuation for the properties in question. The

I.R.S. took the position that the Estate's initial submission did

not substantially comply with the applicable regulations, and the

Estate therefore was not eligible subsequently to perfect its

defective election under § 2032A(d)(3). The I.R.S. increased the

amount of the gross estate, based on the excess of the fair market

value of the real property in question over its value as farm land,

and assessed a tax deficiency in the amount of $87,131.

The Estate paid the assessment, filed a claim for a refund,

and when the claim was denied by the I.R.S., filed a complaint in

federal district court. A jury trial was conducted. At the close

of the evidence, the district court awarded judgment to the

government as a matter of law, without sending the case to the

jury. This appeal followed.

II. DISCUSSION

A. Introduction: Special Use Valuation Under Internal Revenue Code
§ 2032A

For purposes of calculating the federal estate tax, the value

of real property included in the gross estate of a decedent is

generally its fair market value. See 26 U.S.C. § 2031(a); 26

C.F.R. § 20.2031-1(b). In 1976, however, Congress authorized an

alternate valuation method, "special use valuation," for certain

family farms and other family businesses. Tax Reform Act of 1976,

Pub.L. No. 94-455, § 2003, 90 Stat. 1520, 1856-62 (codified, as

amended, at 26 U.S.C. § 2032A). Special use valuation allows

qualified real property to be valued according to its actual use

(e.g., as a farm), rather than at its fair market value based on

its highest and best use (e.g., as a housing development or a
shopping mall). The rationale underlying § 2032A is to reduce the

tax burden on the estate's heirs, so that they are not forced to

sell the family farm or business in order to pay the high estate

taxes that would result if the property were taxed at its fair

market value. Estate of Sherrod v. Commissioner, 774 F.2d 1057,

1061-62 (11th Cir.1985), cert. denied, 479 U.S. 814, 107 S.Ct. 66,

93 L.Ed.2d 24 (1986); Estate of Doherty v. Commissioner, 982 F.2d

450, 453 (10th Cir.1992); H.R.Rep. No. 94-1380, 94th Cong., 2d

Sess., 21-22 (1976), reprinted in 1976 U.S.Code Cong. & Admin.News

2897, 3356, 3375-76.

To qualify for special use valuation, the estate must satisfy

several substantive conditions. The decedent must have been a

citizen or resident of the United States at the time of his or her

death, 26 U.S.C. § 2032A(a)(1)(A); the property must be located in

the United States, id. § 2032A(b)(1); the value of the property

must exceed specified percentages of the decedent's gross estate

and adjusted estate, id.; the property must devolve to a

"qualified heir," who must be a member of the decedent's family,

id., id. § 2032A(e)(1), (2); and the decedent or a member of the

decedent's family must have materially participated in the

operation of the farm or business at the time of the decedent's

death and for five of the eight years preceding the decedent's

death, id. § 2032A(b)(1).

Additionally, in order to avoid subsequent recapture of the

tax savings produced by special use valuation, the property must

remain in the ownership of the family and must be used for the

qualified use for at least ten years following the decedent's
death. 26 U.S.C. § 2032A(c). At the time of the election for

special use valuation, the qualified heirs who inherited the

property ("qualified heirs") must agree to keep the specially

valued property in the family and to operate it for the qualified

use for ten years. Id., § 2032A(c) and (d)(2). The contract

expressing such agreement by the qualified heirs, commonly called

a "recapture agreement," must be executed and filed

contemporaneously with the estate tax return. Id. § 2032A(a)(1).

In this recapture agreement, the qualified heirs must bind

themselves under state law to be personally liable to the

government for a recapture tax in the event of a premature

disposition of the property or an early cessation of the qualified

use. 26 C.F.R. § 20.2032A-8(c).

Special use valuation of qualified real property does not

occur just because the Estate satisfies all of the substantive

conditions; rather, the Estate must affirmatively elect such

treatment on the estate tax return. 26 U.S.C. § 2032A(a)(1)(B).

The principal requirements for a valid election are (1) checking

the appropriate box on the estate tax return and completing the

Schedule N; (2) completing and attaching to the return a notice of

election, which contains all of the information specified in §

2032A and the applicable regulations; and (3) attaching a

recapture agreement that has been signed by all parties with

interests in the specially valued property, expressly consenting to

personal liability for the recapture tax in the event of a

premature disposition of the property or an early cessation of its

qualified use. "Thus a Notice of Election and a Recapture
Agreement, validly and completely executed and filed

contemporaneously with the estate tax return, are essential

prerequisites if an estate that elects special use valuation is to

be in full compliance with § 2032A." Estate of Hudgins v.

Commissioner, 57 F.3d 1393, 1397 (5th Cir.1995).

Treating Congress' allowance of special use valuation as an

act of legislative grace, the I.R.S. and the courts have strictly

construed § 2032A and its requirements. See Prussner v. United

States, 896 F.2d 218, 220 (7th Cir.1990) (en banc). In response to

complaints from taxpayers who were denied special use valuation

because of their failure to comply fully with all of the procedural

requirements for a valid election, Congress passed two statutes

designed to block the I.R.S. from seizing upon slight technical

defects, which would prevent otherwise qualified taxpayers from

taking advantage of special use valuation. See McAlpine v.

Commissioner, 968 F.2d 459, 461 (5th Cir.1992). Under 26 U.S.C. §

2032A(d)(3), added by the Deficit Reduction Act of 1984, Pub.L. No.

98-369, § 1025, 98 Stat. 494, 1030-31, an estate whose initial

election for special use valuation "substantially complies" with

the applicable regulations may subsequently correct technical

deficiencies within a reasonable period (not to exceed ninety days)

following notice from the I.R.S. Section 1421 of the Tax Reform

Act of 1986 provides similar relief to certain taxpayers who

elected § 2032A treatment on the estate tax return and provided

"substantially all the information with respect to such election

required on such return of tax." Tax Reform Act of 1986, Pub.L.

No. 99-514, § 1421(a)(2), 100 Stat. 2085, 2716, as amended by the
Technical and Miscellaneous Revenue Act of 1988, Pub.L. No. 100-

647, § 1014(f), 102 Stat. 3343, 3562.

In the instant case, the Estate concedes that its election for

special use valuation did not fully comply with the applicable

regulations. However, the Estate argues that its initial effort to

elect special use valuation "substantially complied" with the

applicable regulations, thus entitling the Estate, pursuant to 26

U.S.C. § 2032A(d)(3), to correct or perfect its defective election

once notified by the I.R.S. In the alternative, the Estate

contends that it provided "substantially all the information"

required on its return with respect to the election for special use

valuation, and that it was eligible under § 1421 of the Tax Reform

Act of 1986 to perfect its previously defective election. We

address each of the Estate's arguments.

B. Section 2032A(d)(3)

It is undisputed that the Estate failed to file a recapture

agreement with the estate tax return. In addition, the Estate

omitted several items of information from the notice of election,

and failed to check the box on the portion of the tax return that

asks whether the estate intends to elect special use valuation.

Nevertheless, the Estate argues that it "substantially complied"

with the applicable regulations in its effort to elect special use

valuation, thus entitling it to correct the defects in its election

pursuant to § 2032A(d)(3). We disagree, and hold that the Estate's

failure to attach a recapture agreement is sufficient by itself to

preclude the requisite "substantial compliance" with the
regulations.4

Section 2032A(d)(3) provides as follows:

MODIFICATION OF ELECTION AND AGREEMENT TO BE PERMITTED.—The
Secretary [of the Treasury] shall prescribe procedures which
provide that in any case in which—

(A) the executor makes an election under [26 U.S.C. §
2032A(d)(1) ] within the time prescribed for filing such
election, and

(B) substantially complies with the regulations
prescribed by the Secretary with respect to such election,
but—

(i) the notice of election, as filed, does not
contain all required information, or

(ii) signatures of 1 or more persons required to
enter into the [recapture agreement] are not included on
the agreement as filed, or the agreement does not contain
all required information,

the executor will have a reasonable period of time (not
exceeding 90 days) after notification of such failures to
provide such information or agreements.

26 U.S.C. § 2032A(d)(3). "By "agreements' in the last line the

statute evidently means an additional copy or additional copies of

the agreement, containing the missing signatures." Prussner v.

United States, 896 F.2d 218, 222 (7th Cir.1990) (en banc).

The Code does not define the phrase "substantial compliance,"

and no Treasury regulations defining that phrase have been enacted.

"It is left to the courts to determine whether a taxpayer has

substantially complied with the applicable regulations such that

4
Because we conclude that the absence of the recapture
agreement is sufficient to preclude "substantial compliance" for
purposes of § 2032A(d)(3), we do not address the effect of the
Estate's omission of specific items of information from the
notice of election. With respect to the Estate's failure to
check the "Yes" box on the portion of the return that asks
whether the estate intends to elect special use valuation, see
Part II.C., infra.
perfection of an election is allowed." McAlpine v. Commissioner,

968 F.2d 459, 461 (5th Cir.1992).

In answering the question presented—whether a taxpayer who

fails to attach any kind of recapture agreement to the estate tax

return has "substantially complied" with the regulations for making

an election—we start with the statute itself. The language of §

2032A(d)(3)(B)(ii) allows the taxpayer to correct a defective

election where the taxpayer "substantially complies with the

regulations ... with respect to [the] election, but ... signatures

of 1 or more persons required to enter into the [recapture

agreement] are not included on the agreement as filed, or the

agreement does not contain all required information...." The

foregoing language implies that the taxpayer who has submitted a

recapture agreement, albeit with defects, will be allowed to

correct those defects. It does not suggest that such relief should

be afforded to the taxpayer who has failed to submit any kind of

recapture agreement with his or her return. See Estate of Hudgins

v. Commissioner, 57 F.3d 1393, 1400-01 (5th Cir.1995) (holding §

2032A(d)(3) is available for the correction of "hypertechnical

glitches," not the complete failure to file a recapture agreement);

McDonald v. Commissioner, 853 F.2d 1494, 1497-98 (8th Cir.1988)

(explaining that § 2032A(d)(3) allows the taxpayer to correct

"slight technical failures" in an otherwise acceptable recapture

agreement).

The legislative history of the Deficit Reduction Act of 1984

also indicates that the failure to attach any kind of recapture

agreement to the estate tax return precludes "substantial
compliance" for purposes of § 2032A(d)(3). According to the

conference report, the recapture agreement itself, as originally

filed, must substantially comply with the regulations, and thus the

defects subject to correction must be minor. The report states:

[A]n agreement to the current use valuation election may be
perfected under this provision provided the agreement, as
filed with the estate tax return, evidences substantial
compliance with the requirements of the regulations. To be
eligible for perfection, the agreement as originally filed
must at a minimum be valid under State law and must include
the signatures of all parties having a present interest or a
remainder interest other than an interest having a relatively
small value. The right to perfect agreements is intended to
be limited to cases where, for example, a parent of a minor
remainderman, rather than a guardian ad litem, as required
under State law, signs the agreement. Similarly, failure to
designate an agent in the agreement as filed may be corrected
under this provision.

H.R.Conf.Rep. No. 861, 98th Cong., 2d Sess. 1241, reprinted in 1984

U.S.Code Cong. & Admin.News 697, 1445, 1929 (footnote omitted).

The complete failure to attach a recapture agreement to the estate

tax return is not the type of defect contemplated by the drafters

of § 2032A(d)(3).5

The attachment of a recapture agreement to the estate tax

return is part and parcel of a valid election for special use

valuation, thus leading to the conclusion that a taxpayer cannot

5
As explained in the text below, it is clear that the
Estate's total failure to attach a recapture agreement renders
the Estate ineligible for the relief afforded by § 2032A(d)(3).
Thus, we need not address the more difficult issues involving the
effect of various deficiencies in a timely filed recapture
agreement. Nor need we address the possible tension between the
statutory language of § 2032A(d)(3) (implying that the filing of
a signed recapture agreement might constitute substantial
compliance, notwithstanding the need to obtain additional
signatures) and the language of the legislative history quoted
above, to the effect that the agreement as initially filed must
contain signatures of all except interests of small value. See
McAlpine v. Commissioner, 968 F.2d 459, 463 (5th Cir.1992).
substantially comply with the regulations for making an election

without attaching a recapture agreement. See Estate of Hudgins v.

Commissioner, 57 F.3d 1393, 1398 (5th Cir.1995) (explaining that a

recapture agreement "is an integral and indispensable element of a

special use valuation election"). Section 2032A(a)(1) provides

that an estate may enjoy special use valuation only where "the

executor elects the application of this section and filed the

agreement referred to in subsection (d)(2) [i.e., the recapture

agreement]." 26 U.S.C. § 2032A(a)(1)(B) (emphasis added). The

Treasury regulations and the legislative history accompanying §

2032A confirm that an election for special use valuation is not

valid unless a recapture agreement is submitted contemporaneously

with the estate tax return. See 26 C.F.R. § 20.2032A-8(a)(3) ("An

election under this section is made by attaching to a timely filed

estate tax return the agreement described in paragraph (c)(1) of

this section [i.e., the recapture agreement] and a notice of

election...."); H.R.Rep. No. 94-1380, 94th Cong., 2d Sess. 27

(1976), reprinted in 1976 U.S.Code Cong. & Admin.News 2897, 3356,

3381 ("One of the requirements for making a valid election is the

filing with the estate tax return a written [recapture] agreement

signed by each person in being who has an interest (whether or not

in possession) in any qualified real property with respect to which

the [special] use valuation is elected.").

To be valid, the recapture agreement must be executed by all

parties who have any kind of property interest in the specially

valued property. 26 U.S.C. § 2032A(d)(2); 26 C.F.R. § 20.2032A-

8(c)(1). In the agreement, the qualified heirs to the specially
valued property must express consent to personal liability for the

recapture tax imposed by § 2032A(c), which is triggered by an early

disposition of the property or an early cessation of the qualified

use. 26 C.F.R. § 20.2032A-8(c)(1). To aid the Commissioner in

collecting the recapture tax, the recapture agreement must be

binding under local law on all parties with an interest in the

property, and it must designate an agent for the parties with

satisfactory evidence of authority to act for all parties to the

agreement in dealing with the I.R.S. on matters arising under §

2032A. Id. § 20.2032A-8(c)(1). The personal liability of the

qualified heirs through the recapture agreement is complemented by

26 U.S.C. § 6324B, which gives the United States a lien on the

specially valued real property to aid in the collection of the

recapture tax. As the Fifth Circuit recently explained, the

availability of a statutory lien against the property does not

diminish the importance of the recapture agreement:

Personal liability of the heirs [through the recapture
agreement] enhances the likelihood that the property will be
kept in the family and used for qualified purposes, and that
the Commissioner would be able to recover the defaulted tax
benefit if, by the time recapture is triggered, the value of
the property shall have so declined that the § 6324 lien is
then wholly or partially worthless.... The heirs' agreement
to be personally liable for the tax consequences is equally
indispensable, for "without the heirs' signatures, the
election on the original return may not effectively bind the
heirs."

Estate of Hudgins v. Commissioner, 57 F.3d 1393, 1398-99 (5th

Cir.1995) (quoting McDonald v. Commissioner, 89 T.C. 293, 305 n.

31, 1987 WL 43888 (1987), aff'd in part and rev'd in part, 853 F.2d

1494 (8th Cir.1988), cert. denied, 490 U.S. 1005, 109 S.Ct. 1639,

104 L.Ed.2d 155 (1989)).
 The foregoing explanation of the essential nature of a

recapture agreement leads ineluctably to the conclusion that a

taxpayer does not "substantially comply" with the requirements for

electing special use valuation without submitting a recapture

agreement with the return. Moreover, the case law from every

circuit court of appeals to have considered this issue, as well as

the United States Tax Court, clearly supports this holding. See

Estate of Hudgins v. Commissioner, 57 F.3d 1393, 1405 (5th

Cir.1995) ("[W]e hold today that a special use valuation election

can never be in substantial compliance with the requirements of §

2032A if the estate tax return in which the election is made is not

accompanied by a Recapture Agreement or some reasonable facsimile

thereof, signed by the holders of all interests (other than de

minimis) in the qualified assets, and personally binding the

interest holders under state law to be liable for tax deficiencies

in the event of disqualifying use or disposition of the property

during the statutory period."); Prussner v. United States, 896

F.2d 218, 223 (7th Cir.1990) (en banc) (holding that the failure to

attach the recapture agreement to the estate tax return is a

default for which § 2032A(d)(3) provides "no absolution");

McDonald v. Commissioner, 853 F.2d 1494, 1497-98 (8th Cir.1988)

(holding that a timely-filed recapture agreement, which contained

"neither the name nor the signature of anyone with an interest in

the property," did not "substantially comply" with the regulations

and thus could not be perfected later); Estate of Merwin v.

Commissioner, 95 T.C. 168, 173, 1990 WL 120054 (1990) ("Failure to

attach a recapture agreement, whether or not a notice of election
is attached, alone precludes the requisite substantial compliance

[under § 2032A(d)(3) ].").

For the foregoing reasons, we hold that the Estate has not

satisfied the substantial compliance provision of § 2032A(d)(3) and

thus is not entitled under that section to perfect its deficient

election. We now turn to the Estate's other argument.

C. Section 1421 of the Tax Reform Act of 1986

The Estate also contends that § 1421 of the Tax Reform Act of

1986 (hereinafter "§ 1421") excuses its failure to submit a

recapture agreement with its estate tax return. Section 1421, as

amended, provides as follows:

SEC. 1421. INFORMATION NECESSARY FOR VALID SPECIAL USE
VALUATION ELECTION.

(a) IN GENERAL.—In the case of any decedent dying before
January 1, 1986, if the executor—

(1) made an election under section 2032A of the
Internal Revenue Code of 1954 on the return of tax
imposed by section 2001 of such Code, and

(2) provided substantially all the information with
respect to such election required on such return of tax,

such election shall be a valid election for purposes of
section 2032A of such Code.

(b) EXECUTOR MUST PROVIDE INFORMATION.—An election
described in subsection (a) shall not be valid if the
Secretary of the Treasury or his delegate after the date of
the enactment of this Act requests information from the
executor with respect to such election and the executor does
not provide such information within 90 days of receipt of such
request.

Tax Reform Act of 1986, Pub.L. No. 99-514, § 1421, 100 Stat. 2085,

2716, as amended by the Technical and Miscellaneous Revenue Act of

1988, Pub.L. No. 100-647, § 1014(f), 102 Stat. 3343, 3562.

In order for a defective election to be deemed valid under §
1421(a), three conditions must be satisfied: (1) the decedent must

have died before January 1, 1986; (2) the taxpayer must have "made

an election" for § 2032A treatment on the estate tax return; and

(3) the taxpayer must have "provided substantially all the

information with respect to such election required on such return

of tax."6 In this case, the first condition has been satisfied,

because the decedent died on December 15, 1985. The parties

disagree, however, on whether the second and third requirements

have been satisfied.

With respect to the second condition, the government argues

that the Estate failed to make an election for special use

valuation on its estate tax return. Indeed, the Estate failed to

check the box, on page 2 of the return, which is designated for

electing special use valuation. This failure to check the

appropriate box, the government points out, distinguishes this case

from the cases that the Estate relies upon in its brief. See

Prussner v. United States, 896 F.2d 218, 225 (7th Cir.1990) (en

banc) ("All that is required [under § 1421] ... is the making of an

election on the estate tax return—that is, the marking of the box

for the election. The taxpayer who checks the box—that was done

here—and provides substantially all the information that the return

requires with respect to the election is home free."); Estate of

Doherty v. Commissioner, 982 F.2d 450, 456 (10th Cir.1992)

(following Prussner and noting that the taxpayer "marked the box

6
Notwithstanding the satisfaction of these three conditions,
special use valuation may be denied if the executor of the estate
fails to respond in a timely manner to a request for the missing
information pursuant to § 1421(b).
for the election on the estate's tax return").

We are not persuaded that the Estate's failure to mark the

appropriate box on its tax return is sufficient, by itself, to

preclude relief under § 1421. In this case, despite the failure to

mark the box, the Estate expressed a clear intent on the estate tax

return to elect special use valuation. Specifically, the Estate

completed a Schedule N, which appears at page 15 of the return and

is entitled "Section 2032A Valuation." A taxpayer would not

complete a Schedule N unless an election for special use valuation

was intended. In addition to the Schedule N, the Estate attached

to its return a document entitled "Affidavit from Personal

Representatives," which contained much of the information required

by 26 C.F.R. § 20.2032A-8(a)(3) to be included in a § 2032A "notice

of election" and which clearly indicated the Estate's intent to

elect special use valuation for the real property designated on the

Schedule A as Parcels 3A, 3B, and 3C. Under these circumstances,

we conclude that the Estate "made an election under section 2032A"

on its tax return, however awkwardly, thus satisfying the second

condition for relief under § 1421.

The third condition for § 1421 relief is that the Estate must

have "provided substantially all the information with respect to

such election required on such return of tax." § 1421(a)(2). The

government argues that the Estate failed to provide substantially

all of the required "information" because it failed to submit a
7
recapture agreement with its return. The Estate, on the other

7
In addition to omitting the recapture agreement, the Estate
also omitted certain items of information from its notice of
election. See supra note 3. However, the government apparently
hand, contends that a recapture agreement does not constitute

"information" for purposes of § 1421(a)(2). We confront a split of

authority on the issue of whether the phrase "information with

respect to such election required on such return of tax," as used

in § 1421(a)(2), includes the recapture agreement. Compare

Prussner v. United States, 896 F.2d 218, 225-28 (7th Cir.1990) (en

banc)8 with Estate of Merwin v. Commissioner, 95 T.C. 168, 181,

1990 WL 120054 (1990).9

concedes that, with the exception of the omitted recapture
agreement, the Estate provided "substantially all the
information" required on the estate tax return with respect to
the § 2032A election.
8
The Tenth Circuit, in Estate of Doherty v. Commissioner,
982 F.2d 450, 456-57 (10th Cir.1992), indicated that it was
"greatly persuaded by the rationale of Prussner." Id. at 456.
Although this dicta in Doherty indicates approval of the Prussner
rationale, the holding in Doherty is not necessarily inconsistent
with the holding of this opinion. Doherty involved a taxpayer
who failed to attach to the estate tax return a previously
obtained appraisal of the fair market value of the property
sought to be specially valued. Id. at 455. The face of the Form
706 in Doherty apparently did not direct the taxpayer to include
the missing appraisal. Id. at 451-52. By contrast, in the
instant case (and in Prussner ), the face of the Form 706 directs
the taxpayer to attach a recapture agreement.

Although the face of the Form 706 in Doherty did not
alert the taxpayer that an appraisal had to be attached, the
instructions accompanying the Form 706 clearly directed the
taxpayer to attach "copies of written appraisals of the fair
market value of the real property." Thus, Doherty stands
for the proposition that a taxpayer who fails to follow the
instructions accompanying Form 706 is nevertheless entitled
to relief under § 1421. In the instant case, because the
face of the Form 706 directs the taxpayer to attach a
recapture agreement, we need not decide whether the failure
to provide substantially all the information elicited by the
separate instructions accompanying the return precludes
relief under § 1421. Accordingly, we express no opinion on
that particular issue.
9
The Eighth Circuit, in McDonald v. Commissioner, 853 F.2d
1494 (8th Cir.1988), cert. denied, 490 U.S. 1005, 109 S.Ct. 1639,
104 L.Ed.2d 155 (1989), employed an interpretation of § 1421
 As in any case of statutory interpretation, we start with the

language of the statute itself. See Kelly v. Robinson, 479 U.S.

36, 43, 107 S.Ct. 353, 357, 93 L.Ed.2d 216 (1986). In our opinion,

the ordinary meaning of the word "information," in the context of

the phrase "information with respect to such election required on

such return," § 1421(a)(2), is broad enough to include the

recapture agreement.10 As consultation with dictionaries confirms,

the word "information" can encompass a broad range of meaning. The

language of the statutory phrase, "information with respect to such

election," elaborates the scope of the meaning in this context,

i.e., information with respect to such election. Clearly, the

statute at this point is referring to the data which the statute

and regulations indicate are necessary for the election. The

recapture agreement is one such item, indeed a significant one.

See Estate of Merwin v. Commissioner, 95 T.C. 168, 182, 1990 WL

120054 (1990) (explaining that the word "information" includes

"everything that section 2032A and the corresponding regulations

require for a valid election," including a recapture agreement).

The statutory language then specifies the portion of that broader

different from that of Merwin or our opinion in this case.
McDonald indicated that § 1421 requires substantial compliance
with the separate instructions accompanying Form 706, with no
discussion of the relevance of the directions on the return form
itself, although its facts may not have required a holding of
that breadth. Accord Foss v. United States, 865 F.2d 178 (8th
Cir.1989). As noted in note 8, supra, we express no opinion on
the effect of the taxpayer's failure to comply with the separate
instructions accompanying Form 706.
10
We recognize that the Seventh Circuit in Prussner v.
United States, 896 F.2d 218, 226-28 (7th Cir.1990) (en banc) is
contra. For the reasons discussed below, we respectfully
disagree with the Prussner interpretation.
range of items (i.e., those necessary for the election) that the

taxpayer must provide, i.e., those items "required on such return."

In the instant case, the return form specifically directed that the

"required agreements" be attached.

Our interpretation finds strong support in the structure of

the statute. The very next subsection of this same 1986 statute,

§ 1421(b), also uses the word "information" in a manner that

undoubtedly contemplates the inclusion of recapture agreements.11

Section 1421(b) provides that "[a]n election described in

subsection (a) shall not be valid if the Secretary ... requests

information from the executor with respect to such election and the

executor does not provide such information within 90 days of

receipt of such request." (Emphasis added). Clearly, as used in

§ 1421(b), Congress intended the phrase "information" to include a

recapture agreement. As noted above, the recapture agreement is an

essential ingredient for a valid election; it is unreasonable to

suppose that Congress was not contemplating in § 1421(b) that the

Secretary could request information including the recapture

agreement. Accord Merwin, 95 T.C. at 182.

Our interpretation is confirmed by the legislative history of

§ 1421. Apparently, the face of the June 1982 version of Form 706

failed to specify the requirement of filing the recapture agreement

with the return. As a result, many taxpayers who had used that

11
It is true that in a related statute, I.R.C. §
2032A(d)(3), the statutory language more precisely uses both the
term "information" and the term "agreement." See Prussner, 896
F.2d at 228. However, we find more persuasive the use of the
word "information" in a broader, inclusive sense in the very next
subsection of the same 1986 Act.
version of the Form 706 failed to submit recapture agreements, and

were denied special use valuation. The conference report

accompanying § 1421 explains:

The Senate amendment provides that estates of individuals
dying before January 1, 1986, that substantially complied with
the requirements enumerated on the Federal Estate Tax Return
(as opposed to Treasury Department regulations) are allowed to
perfect defective elections within 90 days of being notified
of errors by the Treasury. Specifically, the March 1982
edition of Form 706, Federal Estate Tax Return, did not
specify that the required agreement had to be submitted with
the estate tax return. This provision, therefore, permits
late filing of the required agreements for estates that used
the March 1982 version of Form 706.

H.R.Conf.Rep. No. 841, 99th Cong., 2d Sess. II-770-71 (1986),

reprinted in 1986 U.S.Code Cong. & Admin.News 4075, 4858-59.

Although the legislative history refers to the "March 1982" version

of Form 706, Congress in fact meant to refer to the June 1982

version. Prussner, 896 F.2d at 226; Merwin, 95 T.C. at 178.

Running throughout the legislative history is the indication that

the purpose of the statute was to permit later perfection of the

election by a taxpayer who could have been misled by an absence of

information on the tax return, i.e., where the taxpayer has

substantially complied with the requirements enumerated on the

return. Thus, the report of the Senate Finance Committee states:

Reasons for Change

The committee is concerned that, in certain cases, the
Federal estate tax return (Form 706) provided by the Treasury
Department for filing estate tax returns did not sufficiently
inform taxpayers of what information must be provided to elect
current use valuation and that an agreement to the election is
required to be attached to Form 706. The committee
determined, therefore, that limited relief permitting
taxpayers additional time to supply information is appropriate
where taxpayers could have been misled by an absence of
information on Form 706.

Explanation of Provision
 The bill provides that, if an estate ... provided
substantially all the information elicited by Form 706, ...
the election is valid if the estate provides ... additional
information necessary to perfect the election.... (This
provision permits notices of election and [recapture]
agreements to the election to be filed late where the estate
timely filed those documents to the extent requested and
described on Form 706.)

S.Rep. No. 313, 99th Cong. 2d Sess. (1986) (Emphasis added).

Despite the clear indication in the legislative history, and

indeed the statute itself, that the purpose of the statute was to

permit later perfection by taxpayers who "substantially complied

with the requirements enumerated" on the return (i.e., those who

timely filed those documents to the extent requested on the

return), the Prussner court would apparently permit later

perfection by taxpayers who merely checked the election box on the

return. The Prussner court gave two reasons for its holding: its

view that a recapture agreement is not "information" in the

ordinary sense of the word; and the fact that the recapture

agreement is attached to the return rather than written out "on"

the return. Id., 896 F.2d at 225-26.

We disagree with Prussner 's reading of the statute. As

noted above, we believe that the word "information," as used in §

1421(a)(2), is broad enough to include the recapture agreement.12

Moreover, we think that Prussner erred in relying on the

technicality that the recapture agreement is attached to the tax

return, as opposed to being "on" the return itself. The text of §

12
The broad definition of "information" in the dictionaries
belies the suggestion in Prussner, 896 F.2d at 226, that the word
"information" cannot include a report of a commitment. The
definition in the various dictionaries is inconsistent with the
Prussner notion that the term is limited in meaning to inert data
with no real life consequences.
1421(a)(2) requires that the taxpayer shall have "provided

substantially all the information ... required on such return of

tax." The Seventh Circuit interpreted the phrase "required on such

return of tax" as referring to the location where the taxpayer

supplies the relevant information, and thus held that the

substantial compliance provision of § 1421(a)(2) does not apply to

documents that must be attached to the return. We respectfully

suggest that Prussner 's is a technical interpretation of the

statutory language, which misses its true import. To be eligible

to perfect the return, the statute requires that the taxpayer must

have "provided substantially all the information ... required on

such return." The most reasonable reading of the statutory

language is that the phrase "required on such return" refers to the

word "information." Thus, the taxpayer must have provided—whether

written in the spaces provided on the return or attached to the

return—the "information," or substantially all of it, which the

return directs should be provided.

We respectfully suggest that the Prussner court

inappropriately watered down the statutory requirement of

substantial compliance by relying upon an unduly narrow

interpretation of the statutory term "information" and a technical

construction of the statutory phrase "required on such return of

tax," and by failing to accord proper significance to the

legislative history and to the fact that Congress in the same 1986

Act, in the very next subsection (i.e., § 1421(b)), employed the

same term "information" in a context which clearly encompasses the
recapture agreement.13

The Tax Court in Estate of Merwin v. Commissioner, 95 T.C.

168, 1990 WL 120054 (1990), rejected the Prussner court's

interpretation for the same reasons that we do. Merwin concluded

that the phrase "required on such return" means "requested by the

face of Form 706." Id. at 179. Thus, if the taxpayer uses a

version of Form 706 that on its face requests a recapture

agreement, then the recapture agreement constitutes "information"

required to satisfy the substantial compliance language of §

1421(a)(2). The Tax Court supported this interpretation of the

statute by quoting from the legislative history noted above.

Under Merwin 's interpretation of § 1421, the estate's initial

return need not include a recapture agreement if the face of Form

706 makes no reference to a required "agreement" or to specific

instructions describing a recapture agreement. Id., 95 T.C. at

179. Thus, a taxpayer who used the June 1982 version of Form 706

would have provided "substantially all the information ... required

on such return of tax" even if a recapture agreement had not been

attached. However, consistent with the statutory language and

legislative history quoted above, a different rule applies to

taxpayers who use nonmisleading versions of the Form 706:

In contrast to the June 1982 version of Form 706, if the face
of the applicable Form 706 refers expressly to a required
"agreement' or to specific instructions that describe a
recapture agreement, Congress appears to have intended the

13
We need not and do not address another holding of the
Prussner court, i.e., its rejection of the I.R.S. argument that
the relief afforded by the 1986 Act is limited to those taxpayers
who filed their returns on the June 1982 version of Form 706.
Moreover, as indicated in our discussion in Part II.B., we agree
with the Prussner holding with respect to I.R.C. § 2032A(d)(3).
 "information with respect to such election required on such
return of tax' to expand accordingly.... An estate will then
satisfy section 1421(a)(2) only if it provides substantially
all of the expanded information base. The reason the estate
should be held to a higher level of compliance under these
circumstances is that the face of the Form 706 is sufficient
to alert the estate to additional requirements, and misled
taxpayers were the exclusive congressional concern underlying
section 1421....

Merwin, 95 T.C. at 180.

We find Merwin persuasive. We hold that the word

"information," as used in § 1421(a)(2), includes the recapture

agreement in this case, where the face of the applicable Form 706

refers to the "required agreements." The instant case involves the

March 1985 version of Form 706, not the June 1982 version addressed

in the legislative history. Unlike the June 1982 version of Form

706 (the face of which makes no reference to a required "agreement"

nor to the applicable parts of the instructions), the face of the

March 1985 form tells the taxpayer that a recapture agreement must

be attached to the return. Specifically, line 2 (on page 2) asks

the taxpayer: "Do you elect special use valuation?" Immediately

below this question, the March 1985 form states: "If "Yes,'

complete and attach Schedule N and the agreements required by the

instructions to Schedule N." Similarly, Schedule N, which is part

of the return, directs the taxpayer: "Enter the requested

information for each party who received any interest in the

specially valued property. Also complete and attach the required

agreements described in the Instructions." Because these

references appear on the face of the March 1985 version of Form

706, we conclude in this case that a recapture agreement

constitutes "information with respect to such election required on
such return of tax" for purposes of § 1421(a)(2).14

In order to take advantage of § 1421, the taxpayer must have

provided "substantially all" of the "information" requested by the

tax return. In light of our earlier discussion of the importance

of the recapture agreement, and in light of our holding that the

omission of a recapture agreement precludes "substantial

compliance" with the requirements for electing special use

valuation for purposes of § 2032A(d)(3), we readily conclude that

the Estate in this case failed to provide "substantially all the

information ... required on such return of tax" within the meaning

of § 1421(a)(2).

III. CONCLUSION

For all the foregoing reasons, the judgment of the district

court is AFFIRMED.

14
In this case, because the Form 706 itself expressly
referred to the required agreements, we need not address issues
involving a different version of the form with perhaps less
specific reference (e.g., incorporation of directions in the
instructions which accompany the return) to the omitted
information. See supra notes 8 & 9.