1993 Tax Ct. Memo LEXIS 139">*139 Decisions will be entered under Rule 155.
MEMORANDUM OPINION
NIMS,
Additional estate | |||
tax under | Additions to Tax | ||
Petitioner | sec. 2032A(c) | sec.6651(a)(1) | sec. 6651(a)(2) |
John Fisher | $ 9,993.70 | $ 2,248.58 | $ 2,498.43 |
Effie Birch | 10,861.80 | 2,443.91 | 2,715.45 |
Reba L. Mooney | 19,799.56 | 4,454.90 | 4,949.89 |
Respondent has conceded that there are no additions to tax due from any of the petitioners. Consequently, the only issue for decision is whether petitioners became liable for additional estate tax under
At the time the petitions were filed, each petitioner was a resident of Kansas.
This case was submitted fully stipulated and by this reference we incorporate the stipulated facts into this Opinion.
Petitioners' mother, Rebecca V. Fisher (decedent), died intestate on May 27, 1977, at which time she was a resident of Kansas. At the time of her death she owned real property in Chautauqua County, Kansas (the Kansas property), which she had used before her death for raising cattle with the assistance of her son, Chester Fisher (Chester). At the time of her death decedent also owned property in New Mexico (the New Mexico property).
As of the time this case was presented, in November, 1991, Chester had continuously used the Kansas property for raising cattle from at least the date of decedent's death.
Each of decedent's six children, including petitioners and their brother Chester, inherited a one-sixth undivided interest in the Kansas property and in the New Mexico property.
As to the Kansas property, decedent's personal representative elected the1993 Tax Ct. Memo LEXIS 139">*141 special use valuation authorized by
Sometime after the execution and delivery of the aforementioned agreement decedent's six children exchanged their undivided interests in the Kansas and New Mexico properties for separately held interests in such properties.
Each of the parties to the exchange was a "member of the family," as defined in
The following table reflects the special use value and fair market value of the Kansas property which each petitioner received in the exchange:
Petitioner | Special Use Value | Fair Market Value |
Jack Fisher | $ 13,238.40 | $ 48,000 |
Effie Birch | 14,396.27 | 52,200 |
Reba L. Mooney | 27,123.20 | 96,000 |
Sometime after the exchange, petitioners leased their Kansas properties on a cash rental (cash lease) basis to their brother Chester, and 1993 Tax Ct. Memo LEXIS 139">*142 have continued to do so at all subsequent times.
The parties agree that the Kansas property originally qualified for special use valuation and that each petitioner fits the definition of "qualified heir." Where the parties disagree is whether the cash leases of the Kansas property to Chester triggered the additional estate tax imposed by
The question above posed in this case is essentially the same question previously posed in
1993 Tax Ct. Memo LEXIS 139">*143 In
In a two-to-one decision the Ninth Circuit affirmed our decision in
In
we see no basis in the statute as written for distinguishing
In light of the exhaustive consideration given the question by this Court and the Ninth Circuit in
For convenience, we have reproduced Code provisions relevant for our purposes in Appendix A, together with what we deem to be adequate summaries of these provisions.
Basically, the question which must be answered is whether
The Ninth Circuit majority held that
The dissent in
In
We note, perhaps parenthetically, that Chester's cattle raising activity on the Kansas property appears to qualify under the definition of "material participation" contained in
We also note at this point that a section of the Revenue Bill of 1992, H.R. 11, 102d Cong. 2d Sess. (1992), which passed both Houses of Congress but failed to become law, would have reversed the holding of
Returning now to our Opinion in
Looking at the language of
The language defining qualified use in
The Ninth Circuit stated that "We agree with the Tax Court that Williamson's proposed interpretation of
By its language, subsection (c)(6)(A) does not stand alone in defining a cessation of qualified use. It specifically refers and incorporates into its definition subsection (c)(1)(B), the provision that requires the qualified heir to undertake the qualified use. Contrary to Williamson's assertion, then, subsection (c)(6)(A) neither modifies nor operates independently of subsection (c)(1)(B). Rather, subsection (c)(6)(A) simply clarifies 1993 Tax Ct. Memo LEXIS 139">*150 that portion of the statutory language imposing on Williamson, the qualified heir, the obligation personally to conduct a qualified use of the property. [
In our
We have considered petitioners' arguments as to why we should reject the rationale of
Accordingly, we hold for respondent on this issue. To reflect this holding, and concessions,
APPENDIX A
(a) VALUE BASED ON USE UNDER WHICH PROPERTY QUALIFIES. --
(1) GENERAL RULE. -- If --
(A) the decedent was (at the time of his death) a citizen or resident of the United States, and
(B) the executor elects1993 Tax Ct. Memo LEXIS 139">*151 the application of this section and files the agreement referred to in subsection (d)(2),
then, for purposes of this chapter, the value of qualified real property shall be its value for the use under which it qualifies, under subsection (b), as qualified real property.
* * *
(b) QUALIFIED REAL PROPERTY. --
(1) IN GENERAL. -- For purposes of this section, the term "qualified real property" means real property located in the United States which was acquired from or passed from the decedent to a qualified heir of the decedent and which, on the date of the decedent's death, was being used for a qualified use by the decedent or a member of the decedent's family, but only if --
* * *
(C) during the 8-year period ending on the date of the decedent's death there have been periods aggregating 5 years or more during which --
(i) such real property was owned by the decedent or a member of the decedent's family and used for a qualified use by the decedent or a member of the decedent's family, and
(ii) there was material participation by the decedent or a member of the decedent's family in the operation of the farm or other business, and
* * *
(2) QUALIFIED USE. -- For purposes of1993 Tax Ct. Memo LEXIS 139">*152 this section, the term "qualified use" means the devotion of the property to any of the following:
(A) use as a farm for farming purposes, or
(B) use in a trade or business other than the trade or business of farming.
* * *
(5) SPECIAL RULES FOR SURVIVING SPOUSES. --
(A) IN GENERAL. -- If property is qualified real property with respect to a decedent (hereinafter in this paragraph referred to as the "first decedent") and such property was acquired from or passed from the first decedent to the surviving spouse of the first decedent, for purposes of applying this subsection and subsection (c) in the case of the estate of such surviving spouse, active management of the farm or other business by the surviving spouse shall be treated as material participation by such surviving spouse in the operation of such farm or business. For purposes of subsection (c), such surviving spouse shall not be treated as failing to use such property in a qualified use solely because such spouse rents such property to a member of such spouse's family on a net cash basis.
* * *
(c) TAX TREATMENT OF DISPOSITIONS AND FAILURES TO USE FOR QUALIFIED USE. --
(1) IMPOSITION OF ADDITIONAL ESTATE TAX. -- 1993 Tax Ct. Memo LEXIS 139">*153 If, within 10 years after the decedent's death and before the death of the qualified heir --
(A) the qualified heir disposes of any interest in qualified real property (other than by a disposition to a member of his family), or
(B) the qualified heir ceases to use for the qualified use the qualified real property which was acquired (or passed) from the decedent, then there is hereby imposed an additional estate tax.
* * *
(6) CESSATION OF QUALIFIED USE. -- For purposes of paragraph (1)(B), real property shall cease to be used for the qualified use if --
(A) such property ceases to be used for the qualified use set forth in subparagraph (A) or (B) of subsection (b)(2) under which the property qualified under subsection (b), or
(B) during any period of 8 years ending after the date of the decedent's death and before the date of the death of the qualified heir, there had been periods aggregating more than 3 years during which --
(i) in the case of periods during which the property was held by the decedent, there was no material participation by the decedent or any member of his family in the operation of the farm or other business, and
(ii) in the case of periods during which1993 Tax Ct. Memo LEXIS 139">*154 the property was held by any qualified heir, there was no material participation by such qualified heir or any member of his family in the operation of the farm or other business.
* * *
(e) DEFINITIONS; SPECIAL RULES. -- For purposes of this section --
(1) QUALIFIED HEIR. -- The term "qualified heir" means, with respect to any property, a member of the decedent's family who acquired such property (or to whom such property passed) from the decedent. If a qualified heir disposes of any interest in qualified real property to any member of his family, such member shall thereafter be treated as the qualified heir with respect to such interest.
(2) MEMBER OF FAMILY. -- The term "member of the family" means, with respect to any individual, only --
(A) an ancestor of such individual,
(B) the spouse of such individual,
(C) a lineal descendant of such individual, of such individual's spouse, or of a parent of such individual, or
(D) the spouse of any lineal descendant described in subparagraph (C).
For purposes of the preceding sentence, a legally adopted child of an individual shall be treated as the child of such individual by blood.
For our purposes the essential provisions 1993 Tax Ct. Memo LEXIS 139">*155 of the above Code sections may be summarized as follows:
1. If the decedent died a resident of the United States and the personal representative properly makes the special use valuation election, then the "qualified real property" may be valued specially.
2. "Qualified real property" is property owned at death by the decedent which passed at death to a "qualified heir" of the decedent and which at that time was being used for a "qualified use" by the decedent or a member of the decedent's family, --
3. If the decedent is survived by a spouse and the property passed at death to the surviving spouse, "active management" of the property by the surviving spouse is treated as "material participation" in the property by the surviving spouse, and for purposes of
4. If, within 10 years after the decedent's death and before the death of the qualified heir, the latter "disposes of any interest in qualified real property (other than by a disposition to a member of his family)",
5.
--
--
6. The definition of "Member of Family" for purposes of
1. Cases of the following petitioners are consolidated herewith: Effie Birch, Transferee, docket No. 9416-90 and Reba L. Mooney, Transferee, docket No. 9417-90.↩
2. We note that H.R. 817, 103d Cong., 1st Sess., if enacted would amend