Filed: Sep. 07, 2010
Latest Update: Nov. 14, 2018
Summary: ESTATE OF LUCIEN J. LE CAER, DECEASED, LORRAINE LE CAER-DOMINI, CO-TRUSTEE AND DENISE LE CAER STAGNER, CO-TRUSTEE, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT ESTATE OF MARIE L. LE CAER, DECEASED, LORRAINE LE CAER-DOMINI, CO-TRUSTEE AND DENISE LE CAER STAGNER, CO-TRUSTEE, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT Docket Nos. 29631–07, 30041–07. Filed September 7, 2010. Husband (H) and wife (W) established an inter vivos trust that was to be split into four shares
Summary: ESTATE OF LUCIEN J. LE CAER, DECEASED, LORRAINE LE CAER-DOMINI, CO-TRUSTEE AND DENISE LE CAER STAGNER, CO-TRUSTEE, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT ESTATE OF MARIE L. LE CAER, DECEASED, LORRAINE LE CAER-DOMINI, CO-TRUSTEE AND DENISE LE CAER STAGNER, CO-TRUSTEE, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT Docket Nos. 29631–07, 30041–07. Filed September 7, 2010. Husband (H) and wife (W) established an inter vivos trust that was to be split into four shares u..
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ESTATE OF LUCIEN J. LE CAER, DECEASED, LORRAINE LE
CAER-DOMINI, CO-TRUSTEE AND DENISE LE CAER STAGNER,
CO-TRUSTEE, PETITIONER v. COMMISSIONER OF INTERNAL
REVENUE, RESPONDENT
ESTATE OF MARIE L. LE CAER, DECEASED, LORRAINE LE
CAER-DOMINI, CO-TRUSTEE AND DENISE LE CAER STAGNER,
CO-TRUSTEE, PETITIONER v. COMMISSIONER OF INTERNAL
REVENUE, RESPONDENT
Docket Nos. 29631–07, 30041–07. Filed September 7, 2010.
Husband (H) and wife (W) established an inter vivos trust
that was to be split into four shares upon the death of the
first spouse to die. After H’s death the trustees made a quali-
fied terminable interest property (QTIP) election with respect
to a portion of one share of the trust. W received a life estate
in the remaining portion of that share, but this portion
purposefully did not qualify for a marital deduction. H’s estate
paid Federal and State estate taxes. W died less than 3
months after H died. On W’s Federal estate tax return W’s
estate claimed the amounts that H’s estate paid as Federal
and State estate taxes as a credit for tax on prior transfers
under sec. 2013, I.R.C. Three years after H’s estate filed the
return, it filed with R an additional protective QTIP election.
In the notice of deficiency R disallowed the credit for tax on
prior transfers on the ground that sec. 2013, I.R.C., provides
that the amount of the credit is subject to the limitations of
sec. 2013(b) and (c), I.R.C. R also contends the protective
QTIP election was untimely. Held: The limitations of sec.
2013(b) and (c), I.R.C., apply. Held, further, the amount of
‘‘the taxable estate of the transferor’’ for the purposes of sec.
2013(b), I.R.C., is not reduced by the applicable exclusion
amount. Held, further, W’s estate may not claim a sec. 2013,
I.R.C., credit with respect to the State estate tax that H’s
estate paid. Held, further, because the property interest W
received from H was a life estate, the value of that property
interest for purposes of the sec. 2013, I.R.C., credit is deter-
mined under valuation principles in accordance with sec.
20.2013–4, Estate Tax Regs. Held, further, the QTIP protec-
tive election is untimely when filed 3 years after the estate
tax return is filed.
288
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(288) ESTATE OF LE CAER v. COMMISSIONER 289
Nick A. Moschetti, Jr., for petitioners.
Wesley J. Wong, for respondent.
OPINION
MARVEL, Judge: Respondent determined a $2,400 defi-
ciency in the Federal estate tax of the Estate of Lucien Le
Caer (Mr. Le Caer) and a $227,399 deficiency in the Federal
estate tax of the Estate of Marie L. Le Caer (Mrs. Le Caer). 1
After concessions, 2 the issues for decision are: (1) Whether
and to what extent Mrs. Le Caer’s estate may claim a credit
under section 2013 for Federal estate tax paid on the
transfer of property to Mrs. Le Caer from Mr. Le Caer’s
estate; (2) whether Mrs. Le Caer’s estate may decrease the
gross estate by or claim as an allowable deduction the
amount of the Federal and State estate tax paid with respect
to Mr. Le Caer’s estate; and (3) whether the trustees of Mr.
Le Caer’s estate filed a valid qualified terminable interest
property (QTIP) protective election and whether such election
may apply to the Rule 155 computations.
Background
The parties submitted this case fully stipulated under Rule
122. We incorporate the stipulated facts into our findings by
this reference. Mr. Le Caer was a resident of Nevada when
he died testate on January 19, 2004. Mrs. Le Caer also was
a resident of Nevada when she died testate on March 29,
2004. 3 For purposes of this Opinion the estates and the co-
trustees are referred to as petitioners.
Mr. Le Caer was born in 1924, and Mrs. Le Caer was born
in 1923. The couple had two daughters, Lorraine Le Caer-
Domini and Denise Le Caer Stagner.
On April 21, 1992, Mr. and Mrs. Le Caer, as settlors and
cotrustees, executed the Lucien and Marie Louise Le Caer
1 We consolidated these cases for purposes of trial, briefing, and opinion under Rule 141(a).
Unless otherwise indicated, all section references are to the Internal Revenue Code (Code) in
effect for the dates of decedents’ deaths, and all Rule references are to the Tax Court Rules of
Practice and Procedure. Monetary amounts are rounded to the nearest dollar.
2 Respondent concedes the adjustments to taxable gifts with respect to both estates. Respond-
ent agrees with the computation of the State death tax credit allowable to both estates. Re-
spondent also states on brief that he does not challenge the validity of the sec. 6166 elections
that the estates made.
3 The cotrustees had a mailing address in Nevada when the petitions were filed. The record
does not disclose where the cotrustees resided when the petitions were filed.
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290 135 UNITED STATES TAX COURT REPORTS (288)
1992 Family Trust Agreement. Mr. and Mrs. Le Caer subse-
quently executed several amendments to the trust. On Feb-
ruary 19, 2002, Mr. and Mrs. Le Caer executed the Restated
Lucien and Marie Louise Le Caer 1992 Family Trust Agree-
ment (restated trust agreement), which governed the disposi-
tion and management of trust assets when Mr. and Mrs. Le
Caer died. As settlors, Mr. and Mrs. Le Caer transferred to
the trust certain property, including real estate, several
accounts at Nevada State Bank, and vehicles. The restated
trust agreement addressed the administration and distribu-
tion of the trust during Mr. and Mrs. Le Caer’s lifetime and
on the death of either spouse, irrespective of whose death
occurs first. The restated trust agreement also provided for
the disposition of assets upon the death of the second spouse
to die.
According to the restated trust agreement, upon the death
of the first spouse to die the corpus of the trust, including
any additions to the trust from the will of that spouse, was
to be divided into four shares (share A, share B, share C, and
share D). Share A was to receive the surviving spouse’s 4
separate property of the trust fund 5 and his or her interest
in the community property of the trust fund. During the life-
time of the surviving spouse, the trustee would pay all or
part of the net income and, in the trustee’s discretion, the
principal of share A, for the benefit of the surviving spouse,
the couple’s children, or their issue. The surviving spouse
had the power of appointment over share A, and if she failed
to exercise it, share A would follow the disposition of share
B upon her death.
With respect to share B, the settlors intended that share
B or a portion thereof would qualify for a marital deduction
under section 2056. Share B was to receive property as fol-
lows:
(a) Share B shall consist of property of the trust fund in an amount
equal to the maximum marital deduction as finally determined for federal
estate tax purposes which is allowable under Section 2056 of the Internal
Revenue Code * * * reduced by the aggregate value as finally determined
for federal estate tax purposes of any property (other than property
passing under this Share B) included in the * * * [estate of the first
4 The
phrase ‘‘surviving spouse’’ refers to the second spouse to die.
5 The
restated trust agreement defines ‘‘trust fund’’ as all property subject to the restated
trust agreement.
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(288) ESTATE OF LE CAER v. COMMISSIONER 291
spouse to die] for federal estate tax purposes with respect to which a mar-
ital deduction is allowable; provided, however, that such amount shall be
further reduced by the amount, if any, needed to increase * * * [the tax-
able estate of the first spouse to die] to the largest amount which will,
after application of the unified credit against the federal estate tax and the
credit for state death taxes * * *, not result in any federal estate tax being
imposed * * *
The trustee was to pay or apply for the benefit of the sur-
viving spouse the income and, in the trustee’s discretion, the
principal, of share B. The surviving spouse had the right to
invade the principal of share B in amounts not exceeding a
certain annual limit. Upon the death of the surviving spouse,
any accumulated share B income was to be distributed to
share A.
The settlors intended that share C of the trust was to con-
sist of any amount that would otherwise have passed under
share B of the trust but which the surviving spouse dis-
claimed or renounced. Share D was to consist of all of the
remainder of the trust fund property. The trustee was to pay
the income and, in the trustee’s discretion, the principal, of
share D for the benefit of the surviving spouse, the couple’s
children, or their issue. Upon the death of the surviving
spouse, the trustee was to divide shares B, C, and D among
the settlors’ children.
Also on April 21, 1992, in conjunction with the trust, Mr.
and Mrs. Le Caer executed wills. Each will disposed of the
testator’s separate property and a one-half interest in the
community property. After enumerated bequests, each tes-
tator devised the remainder of his or her estate to the trust.
Each testator directed in the respective will that all estate
taxes be paid out of the residuary estate.
In accordance with the restated trust agreement, after Mr.
Le Caer died on January 19, 2004, share B was funded in the
amount of $1,900,295. Share C was not funded. Share D was
funded in the amount of $1,500,000.
On February 18, 2004, Mr. Le Caer’s estate and Mrs. Le
Caer sold vacant land and, after paying off the mortgage
loan, received $489,288. On February 23, 2004, Mr. Le Caer’s
estate and Mrs. Le Caer sold an apartment building and,
after paying off the mortgage loan, received $217,470.
On March 29, 2004, Mrs. Le Caer died.
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292 135 UNITED STATES TAX COURT REPORTS (288)
On October 19, 2004, Mr. Le Caer’s estate timely filed the
Form 706, United States Estate (and Generation-Skipping
Transfer) Tax Return. The return reported a gross estate of
$3,553,224, consisting of a one-half community property
interest in various real estate valued at $1,925,879, 6 five
bank accounts at Nevada State Bank totaling $64,474, and
an account at Western National Trust Co. (Western) valued
at $1,562,871. The trustees made a QTIP election under sec-
tion 2056(b)(7) with respect to $1,405,295 of the assets
included in Mr. Le Caer’s gross estate. Accordingly, a portion
of share B in the amount of $1,405,295 qualified for a mar-
ital deduction, and a portion of share B in the amount of
$495,000 did not qualify for a marital deduction. Mr. Le
Caer’s estate reported a taxable estate of $1,995,000. After
an allowable unified credit of $555,800 and a credit for State
death taxes of $24,810, the estate reported tax payable of
$200,190, which it enclosed with the return. Mr. Le Caer’s
estate also mailed a $24,810 check for the payment of the
Nevada estate tax to the Nevada Department of Taxation.
The estate simultaneously filed a notice of protective election
under section 6166.
On November 4, 2004, a Form 706 for Mrs. Le Caer’s
estate was signed, and on December 7, 2004, it was mailed.
The return reported a $4,976,586 gross estate consisting of
Mrs. Le Caer’s interest in real estate valued at $1,572,500, 7
three bank accounts at Nevada State Bank totaling $354,039,
and the Western account valued at $1,639,752. Her gross
estate also included personal property valued at $5,000 and
the QTIP remainder of $1,405,295. Mrs. Le Caer’s estate
claimed a credit for tax on prior transfers of $225,000. The
estate reported tax due of $1,259,596, which it enclosed with
the return. The estate filed a notice of protective election
under section 6166.
On December 29, 2004, an amended Form 706 for Mrs. Le
Caer’s estate was signed, and it was subsequently mailed. On
the amended Form 706 Mrs. Le Caer’s estate reported the
same gross estate and credit for tax on prior transfers as it
6 Mr. Le Caer’s estate included in the gross estate a one-half community property interest in
the vacant land and the apartment building valued consistent with the sale prices. The values
herein refer to the values of the one-half community property interests in the assets.
7 Mrs. Le Caer’s estate reported the real estate using the same values used by Mr. Le Caer’s
estate.
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(288) ESTATE OF LE CAER v. COMMISSIONER 293
had on the original Form 706. However, on the amended
Form 706 Mrs. Le Caer’s estate claimed a $225,000 deduc-
tion as part of Schedule K, Debts of the Decedent, and Mort-
gages and Liens. The estate included the following narrative:
Federal Estate Taxes of decedents [sic] predeceased spouse, Lucien Jean
Le Caer * * *, who died on 1/19/2004, which taxes were fully paid by
decedent, and the gross estate of Lucien Jean Le Caer was not reduced by
his $225,000 Federal Estate tax liability/debt and no deduction was taken
on the 706 Federal Estate Tax Return filed for Lucien Jean Le Caer.
Mrs. Le Caer’s estate claimed an overpayment of $101,700.
Respondent audited both estates’ returns and on Sep-
tember 18, 2007, issued notices of deficiency. With respect to
each estate respondent increased taxable gifts by $5,000 and
determined the maximum allowable credit for State death
taxes. By stipulation and on brief, however, respondent con-
ceded the taxable gift adjustments and agreed with the
estates’ computations of the allowable State death credits. 8
See supra note 2. With respect to the amended Form 706
filed by Mrs. Le Caer’s estate, respondent disallowed the
entire credit for tax on prior transfers under section 2013.
Respondent also denied the claim for refund in the amended
Form 706 of Mrs. Le Caer’s estate on the ground that a
deduction for Mr. Le Caer’s estate taxes is not allowable
under section 2053.
On October 19, 2007, Mr. Le Caer’s estate filed with
respondent a ‘‘Notice of Section 2056 Schedule M Protective
Claim’’. Mr. Le Caer’s estate made the protective claim ‘‘to
preserve * * * the placing of and claiming of the personal
residence on * * * [Mr. Le Caer’s] Schedule M’’.
On December 21, 2007, both estates timely filed petitions.
Discussion
I. Contentions of the Parties
The dispute in these consolidated cases arises from the
close-in-time deaths of Mr. and Mrs. Le Caer. Mr. Le Caer’s
estate reported and paid Federal and State estate taxes of
$225,000. Mrs. Le Caer’s estate contends that it is entitled
to claim this full amount as a credit for tax on prior transfers
8 After the concessions respondent does not assert any deficiency with respect to Mr. Le Caer’s
estate.
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294 135 UNITED STATES TAX COURT REPORTS (288)
under section 2013. Mrs. Le Caer’s estate also claims in the
amended Form 706 that it is entitled to reduce her taxable
estate by $225,000 through an increase in allowable deduc-
tions. It asserts that after paying Mr. Le Caer’s Federal and
State estate taxes, Mrs. Le Caer received $225,000 less than
her estate reported on the original Form 706 after she died.
Petitioners also argue that the parties can use the QTIP elec-
tion that Mr. Le Caer’s estate filed as a part of the Rule 155
computations.
Respondent agrees that Mrs. Le Caer’s estate is entitled to
claim a credit for tax on prior transfers under section 2013.
However, respondent disputes the credit amount of $225,000
and contends that because of the limitations prescribed by
section 2013(b) and (c), only a portion of that amount is
allowable. Respondent also disagrees that the State estate
tax that Mr. Le Caer’s estate paid qualifies for the credit.
Respondent also disallowed the overpayment claim of Mrs.
Le Caer’s estate for lack of substantiation and on the ground
that the claimed deduction for Mr. Le Caer’s Federal and
State estate taxes is not an allowable deduction under sec-
tion 2053.
II. Analysis
Generally, the Commissioner’s determination is presumed
correct, and the taxpayer bears the burden of proving that it
is incorrect. Rule 142(a)(1); INDOPCO, Inc. v. Commissioner,
503 U.S. 79, 84 (1992); Welch v. Helvering,
290 U.S. 111, 115
(1933). Petitioners do not assert that the burden of proof
shifts to respondent under section 7491(a), and the record
does not allow us to conclude that the requirements of sec-
tion 7491(a)(2) are met. Accordingly, the burden of proof
remains with petitioners.
A. Section 2013 Issues
Section 2001(a) imposes a tax on the transfer of the tax-
able estate of every decedent who is a citizen or resident of
the United States. Sections 2010 through 2015 allow an
estate to claim certain credits against the estate tax.
One of the allowable credits is the credit for tax on prior
transfers under section 2013. Section 2013(a) provides for a
credit against estate tax liability of a decedent’s estate where
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the decedent received property in a transfer from a person
who died within 10 years before or 2 years after the
decedent’s death and the transfer is subject to estate tax in
the transferor’s estate. 9 See also Estate of Harrison v.
Commissioner, 115 T.C. 161, 164 (2000); sec. 20.2013–1(a),
Estate Tax Regs. The purpose of the credit is ‘‘ ‘to prevent the
diminution of an estate by the imposition of successive taxes
on the same property within a brief period.’ ’’ Estate of Har-
rison v. Commissioner, supra at 164–165 (quoting S. Rept.
1622, 83d Cong., 2d Sess. 122 (1954)). The amount of the
credit depends, in part, on the length of time that elapsed
between the deaths of the decedent and the transferor. See
sec. 2013(a). If the transferor died within 2 years of the
death of the decedent, the decedent’s estate may claim as a
credit the amount determined under section 2013(b) and (c).
Id. If the transferor predeceased the decedent by more than
2 years but within 10 years, the credit is determined as a
percentage of the amount determined under section 2013(b)
and (c). See id. The percentage gradually decreases as the
time between deaths increases. See id.
The parties agree that Mrs. Le Caer’s estate is entitled to
claim a credit under section 2013 but disagree as to the
amount. Respondent believes that the limitations of section
2013(b) and (c) apply and also believes that Nevada estate
tax does not qualify for the credit. We agree with respondent.
Section 2013(b) and (c) sets forth two limitations on the
allowable credit. The first limitation is the amount of the
Federal estate tax attributable to the transferred property in
the transferor’s estate. 10 See sec. 2013(b); secs. 20.2013–
1(b)(1), 20.2013–2, Estate Tax Regs. This limitation equals
the value of transferred property multiplied by the trans-
feror’s adjusted Federal estate tax divided by the transferor’s
adjusted taxable estate. See sec. 2013(b); sec. 20.2013–2(a),
Estate Tax Regs. For purposes of this limitation, the phrase
‘‘adjusted Federal estate tax’’ means the amount of Federal
9 In our sec. 2013 discussion, Mr. Le Caer’s estate is the transferor’s estate and Mrs. Le Caer
is the decedent.
10 Sec. 2013(b) provides:
SEC. 2013(b). COMPUTATION OF CREDIT.—Subject to the limitation prescribed in subsection(c),
the credit provided by this section shall be an amount which bears the same ratio to the estate
tax paid * * * with respect to the estate of the transferor as the value of the property trans-
ferred bears to the taxable estate of the transferor (determined for purposes of the estate tax)
decreased by any death taxes paid with respect to such estate. * * *
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296 135 UNITED STATES TAX COURT REPORTS (288)
estate tax paid with respect to the transferor’s estate plus
certain credits allowed the transferor’s estate. 11 See sec.
2013(b); sec. 20.2013–2(b), Estate Tax Regs. The phrase
‘‘transferor’s adjusted taxable estate’’ means the amount of
the transferor’s taxable estate decreased by the amount of
any ‘‘death taxes’’, including Federal and State estate taxes,
paid with respect to the transferor’s gross estate. 12 See sec.
20.2013–2(c)(1), Estate Tax Regs.
The second limitation is the amount of the Federal estate
tax attributable to the transferred property in the decedent’s
estate. See sec. 2013(c); secs. 20.2013–1(b)(2), 20.2013–3,
Estate Tax Regs. The credit is limited to the difference
between (1) the net estate tax payable with respect to the
decedent’s estate, determined without regard to any credit
under section 2013, and (2) the net estate tax determined as
described immediately above but computed by subtracting
from the decedent’s gross estate the value of the property
transferred adjusted by any charitable deduction, if
applicable. 13 See sec. 20.2013–3(a), Estate Tax Regs. The
credit for tax on prior transfers is limited to the smaller of
the two limitations. Sec. 20.2013–1(b), Estate Tax Regs.
On both the original and the amended Forms 706, Mrs. Le
Caer’s estate claimed as a credit against prior transfers
$225,000, which equals the sum of the Federal and State
estate taxes that Mr. Le Caer’s estate paid. Mrs. Le Caer’s
estate calculated the credit amount without taking into
account section 2013(b) and (c). Petitioners contend that the
only portion of Mr. Le Caer’s estate that was subject to
estate tax was the nonmarital portion of share B in the
amount of $495,000. In petitioners’ view, the limitations on
11 The
parties do not contend any of these credits are relevant.
12 The
regulations also provide that the amount of exemption allowed in computing the trans-
feror’s taxable estate must be added to the transferor’s taxable estate. See sec. 20.2013–2(c)(1),
Estate Tax Regs. Unlike sec. 2013, sec. 20.2013–2(c), Estate Tax Regs., does not reflect the re-
peal of sec. 2052, I.R.C. 1954, that had provided for such exemption. See Tax Reform Act of
1976, Pub. L. 94–455, sec. 2001(a)(4), (c)(1)(C)(i), 90 Stat. 1848, 1850 (repealing specific exemp-
tion under sec. 2052 and amending sec. 2013(b)).
13 The Code sets out the second limitation in sec. 2013(c)(1):
SEC. 2013(c). LIMITATION ON CREDIT.—
(1) IN GENERAL.—The credit provided in this section shall not exceed the amount by which—
(A) the estate tax imposed by section 2001 or section 2101 (after deducting the credits
provided for in sections 2010, 2012, and 2014) computed without regard to this section, ex-
ceeds
(B) such tax computed by excluding from the decedent’s gross estate the value of such
property transferred and, if applicable, by making the adjustment hereinafter indicated.
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the tax credit are not triggered when Mr. Le Caer passed no
other property subject to the estate tax. We disagree. Section
2013(a) provides: ‘‘If the transferor died within 2 years of the
death of the decedent, the credit shall be the amount deter-
mined under subsections (b) and (c).’’ (Emphasis added.)
Nothing in section 2013 or the regulations thereunder condi-
tions the application of the limitations of section 2013(b) and
(c) as proffered by petitioners, and we conclude both limita-
tions apply.
Petitioners also challenge respondent’s method of calcu-
lating the limitation amount on the ground that by using the
amount of the taxable estate respondent effectively denies
the full amount of credit. We understand petitioners’ argu-
ment to focus on the mechanics of calculating the first limita-
tion, specifically, the amount used as the denominator in the
formula. In petitioners’ view, for purposes of the calculation,
Mr. Le Caer’s taxable estate should be reduced by the
‘‘$1,500,000 applicable credit amount’’ 14 because this amount
bore no estate tax ‘‘[yielding] the reality of only $495,000
being taxed’’.
We reject petitioners’ argument. To compute the first
limitation, section 2013(b), as interpreted by section 20.2013–
2, Estate Tax Regs., uses as the denominator the amount of
‘‘the taxable estate of the transferor (determined for purposes
of the estate tax)’’ minus death taxes paid with respect to
such estate. Section 2051 defines ‘‘taxable estate’’ as the
gross estate minus certain enumerated deductions (for
example, a marital deduction). Section 2013(b) does not
authorize deducting from the taxable estate of the transferor
the applicable exclusion amount or any other amount besides
death taxes.
Our conclusion finds support in the changes that section
2013(b) underwent in 1976. Before 1976 section 2013 was
titled ‘‘Credit for Tax on Prior Transfers’’ and section 2013(b)
described a limitation on the amount of the credit. Section
2013(b) of the 1954 Code provided that the taxable estate of
the transferor should be decreased by any death taxes paid
with respect to such estate. This portion of the formula was
similar to that set forth in the current section 2013(b). How-
14 Petitioners apparently refer to the exclusion amount of $1,500,000 applicable in the case
of estates of decedents dying during 2004. See sec. 2010(c). Such applicable exclusion amount
corresponds to the applicable credit amount of $550,800. See secs. 2010(c), 2001(c).
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298 135 UNITED STATES TAX COURT REPORTS (288)
ever, section 2013(b) of the 1954 Code provided that the tax-
able estate should then be increased by the exemption pro-
vided by section 2052 or 2106(a)(3) or by the corresponding
provisions of prior laws. In 1976 Congress repealed the
exemption under section 2052 and enacted section 2010,
which introduced a unified credit. See Tax Reform Act of
1976, Pub. L. 94–455, sec. 2001(a)(2), (4), 90 Stat. 1848. By
the same public law Congress amended section 2013(b) to
strike out the phrase ‘‘and increased by the exemption pro-
vided for by section 2052 or section 2106(a)(3).’’ 15 Id. sec.
2001(c)(1)(C)(i), 90 Stat. 1850. Notably, Congress did not
amend section 2013(b) to reflect the newly enacted unified
credit in the calculation. 16 Accordingly, we conclude that in
computing the taxable estate of the transferor Mrs. Le Caer’s
estate is not entitled to subtract the applicable exclusion
amount from her taxable estate.
Mrs. Le Caer’s estate also contends that it is entitled to
claim a section 2013 credit with respect to the Nevada estate
tax that Mr. Le Caer’s estate paid. Mrs. Le Caer’s estate
argues that Nevada estate tax is a pure pickup or sponge
tax 17 consisting of actual Federal estate tax but allocated to
Nevada and accordingly it qualifies for credit under section
2013.
We first consider the nature of the Nevada estate tax. Gen-
erally, estates of decedents dying before December 31, 2004,
can credit the Federal estate tax with the amount of any
State death taxes. Sec. 2011(f). Nevada imposes a tax on the
transfer of the taxable estate of a Nevada resident in the
amount of the maximum credit allowable against the Federal
estate tax for the payment of State death taxes. See Nev.
Rev. Stat. Ann. sec. 375A.100 (LexisNexis 2007). Therefore,
Nevada estate tax is a pickup or sponge tax, as petitioners
correctly point out. However, the method of calculating
15 The U.S. Department of the Treasury did not amend sec. 20.2013–2(c), Estate Tax Regs.,
which was promulgated before 1976, see T.D. 6296, 1958–2 C.B. 432, 456, to reflect the repeal
of sec. 2052.
16 In 1997 Congress amended sec. 2010(a). See Taxpayer Relief Act of 1997 (TRA 1997), Pub.
L. 105–34, sec. 501, 111 Stat. 845. Before TRA 1997, sec. 2010(a) allowed each estate a credit
of a specified amount. See sec. 2010(a), I.R.C. 1986. After TRA 1997, sec. 2010(a) allows each
estate ‘‘a credit of the applicable credit amount’’ which is determined by reference to the applica-
ble exclusion amount specified in sec. 2010(c). See sec. 2010(a), (c). Our analysis is not affected
by the change in sec. 2010(a).
17 A pickup or sponge tax is a State death tax that is levied in an amount equal to the Federal
estate tax credit. See Black’s Law Dictionary 1596 (9th ed. 2009).
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(288) ESTATE OF LE CAER v. COMMISSIONER 299
Nevada estate tax does not make it a Federal estate tax.
Although estates compute the amount of Nevada estate tax
by reference to the available Federal estate tax credit, it is
the State of Nevada that imposes the tax. See id. On the
other hand, the Federal estate tax is imposed by section 2001
of the Code.
Section 2013(a), however, allows a credit only for Federal
estate tax paid, regardless of whether the State tax is cal-
culated by reference to the Federal tax. If Congress desired
to extend the credit to amounts paid as State death taxes, it
would not have used the phrase ‘‘Federal estate tax’’. The
phrase ‘‘Federal estate tax’’ in section 2013(a) contrasts with
the broader wording of section 2013(b), which addresses the
computation of the first limitation. Section 2013(b) provides
that in calculating the denominator, ‘‘any death taxes’’ paid
should be subtracted from the taxable estate of the trans-
feror. Death taxes include Federal estate tax and all other
death taxes imposed by any taxing authority, within or with-
out the United States. See sec. 20.2013–2(c)(1), Estate Tax
Regs. Section 2013(a), on the other hand, refers only to the
Federal estate tax. We conclude that Mrs. Le Caer’s estate
may not claim a section 2013 credit with respect to the State
estate tax.
Petitioners argue that the application of the credit under
section 2013 amounts to a denial of due process and a taking
without just compensation, results in double taxation, con-
tradicts the legislative intent of section 2013, and is discrimi-
natory. Petitioners do not explain these arguments, nor do
they cite any authority for the propositions. Although peti-
tioners’ argument is not entirely clear, we understand peti-
tioners’ argument to raise a challenge to respondent’s
application of the limitations contained in section 2013(b)
and (c) and not to section 2013 or the Federal estate tax in
general. Petitioners are contending, in effect, that respond-
ent’s calculation of the credit under section 2013 results in
double taxation and contradicts the legislative intent of sec-
tion 2013.
Generally, the plain meaning of statutory language is
conclusive, and we normally examine the statute’s legislative
history only if the statute is ambiguous. See Burlington N.
R.R. v. Okla. Tax Commn., 481 U.S. 454, 461 (1987). Peti-
tioners, however, do not identify any ambiguity in section
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300 135 UNITED STATES TAX COURT REPORTS (288)
2013. Instead, they complain about the unfairness of sec-
tion 2013 as enacted and assert that this Court should
remedy the unfairness by giving the estate a credit for which
there is no statutory foundation. We reject this argument for
several reasons. First, petitioners have failed to identify any
unfairness in the application of section 2013 that would
render the limitations under section 2031(b) and (c) unconsti-
tutional; and second, petitioners’ concern about unfairness is
more appropriately addressed to Congress than to this Court,
which is required to apply the statute as written.
Petitioners argue, alternatively, that in the event we hold
that the limitations of section 2013(b) and (c) apply, as we
do, the value of the property interest transferred to Mrs. Le
Caer by Mr. Le Caer’s estate for purposes of calculating the
section 2013 credit should be $495,000 18 and not the present
value of a life estate. Petitioners point out that Mr. Le Caer’s
estate paid estate tax on the $495,000 amount and not on the
present value of the life estate received by Mrs. Le Caer. In
making this argument, petitioners ignore the language of
section 20.2013–4, Estate Tax Regs. Mrs. Le Caer received a
limited property interest in the form of a life estate in share
B. Section 20.2013–4(a), Estate Tax Regs., provides that if
the decedent receives a limited interest such as a life estate
in property that was included in a transferor’s gross estate,
the value of the interest is determined as of the date of the
transferor’s death on the basis of recognized valuation prin-
ciples.
Petitioners do not dispute that Mrs. Le Caer received a life
estate, and they have offered no credible evidence that
respondent incorrectly determined the value of the life estate
in calculating the section 2013(b) and (c) limitations or the
allowable section 2013 credit. Consequently, we sustain
respondent’s determination regarding the amount of the
credit allowable under section 2013.
B. Overpayment Claim
In the amended return Mrs. Le Caer’s estate increased
allowable deductions by $225,000 and claimed an overpay-
ment of $101,700. The estate contended that Mrs. Le Caer
18 The $495,000 amount is the amount of share B of the trust that did not qualify for the mar-
ital deduction.
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(288) ESTATE OF LE CAER v. COMMISSIONER 301
had paid $225,000 of Federal and State taxes with respect to
Mr. Le Caer’s estate and that his estate was not reduced by
the tax liabilities. Respondent disallowed the overpayment
claim on the ground that a deduction for Federal estate taxes
of Mrs. Le Caer’s predeceased spouse’s estate was not an
allowable deduction under section 2053. On brief petitioners
contend that in the original Form 706 Mrs. Le Caer’s gross
estate was overstated by $225,000 because Mr. Le Caer’s
estate paid estate taxes for his estate totaling $225,000. Peti-
tioners claim: ‘‘Marie did not receive such $225,000 she only
received the balance of the nonmarital property $270,000
($495,000 – 225,000). Accordingly, her gross estate was over-
stated by $225,000’’. Respondent counters that this version of
petitioners’ overpayment claim should be disallowed because
of lack of substantiation.
Regardless of whether petitioners seek to reduce the
overall estate tax burden on Mrs. Le Caer’s estate by
reducing the gross estate by $225,000, as their opening brief
suggests, or by increasing the allowable deductions by
$225,000, as the amended Form 706 reports, 19 the overpay-
ment claim is not allowable. Petitioners failed to prove that
the value of Mrs. Le Caer’s estate was overstated. Petitioners
did not introduce any evidence to show that the Federal and
State estate taxes with respect to Mr. Le Caer’s estate were
in fact paid with assets of Mrs. Le Caer or of her estate or
that the Form 706 filed on behalf of Mrs. Le Caer’s estate
incorrectly reported the estate’s assets. Moreover, a review of
the cashflow resulting from the sale of real estate by Mr. Le
Caer’s estate and Mrs. Le Caer suggests that Mr. Le Caer’s
estate’s share of the sale proceeds from the sale of real estate
19 On brief petitioners insist that $225,000 is a reduction of the gross estate rather than a
deduction, whereas in the amended Form 706 Mrs. Le Caer’s estate claimed a $225,000 increase
in allowable deductions. Generally, sec. 2053(a) allows as deductions from the value of the gross
estate amounts for (1) funeral expenses, (2) administration expenses, (3) claims against the es-
tate, and (4) unpaid mortgages or any indebtedness in respect of property, where the value of
the decedent’s interest therein is included in the value of the gross estate undiminished by such
indebtedness or mortgage. Mrs. Le Caer, as a transferee of Mr. Le Caer’s estate, could have be-
come personally liable for any unpaid estate tax with respect to Mr. Le Caer’s estate. See sec.
6324(a)(2). However, such liability would have arisen only if the estate tax imposed on Mr. Le
Caer’s estate was not paid when due. See id. Mr. Le Caer’s estate’s Federal estate liability was
paid on Oct. 19, 2004, and the payment was timely. Accordingly, Mrs. Le Caer’s estate is not
entitled to increase allowable deductions by $225,000.
The record contains a jointly stipulated Form 843, Claim for Refund and Request for Abate-
ment, that the trustees filed with respect to the Estate of Mr. Le Caer, dated Oct. 5, 2007. Peti-
tioners argue on brief that the Form 843 sets forth a reduction of Mrs. Le Caer’s gross estate.
The Form 843, however, was filed with respect to Mr. Le Caer’s gross estate.
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302 135 UNITED STATES TAX COURT REPORTS (288)
was most likely the source of payment of the estate taxes
and, to the extent so used, was not transferred to or other-
wise included in Mrs. Le Caer’s estate.
The pertinent timeline supports our conclusion. Mr. Le
Caer’s estate filed the Form 706 on October 19, 2004. The
return reported a Federal estate tax liability of $200,190.
The checks that paid the Federal and Nevada estate tax
liabilities were dated October 12, 2004. A representative of
Mrs. Le Caer’s estate signed the original Form 706 on
November 4, 2004. As of November 4, 2004, the trustees
knew the value of Mr. Le Caer’s estate that passed, net of
estate taxes, to Mrs. Le Caer and the remaindermen.
C. QTIP Protective Election
Petitioners contend that Mr. Le Caer’s estate filed a mar-
ital deduction, or QTIP, protective claim that can be applied
as part of the Rule 155 calculations. Respondent contends
the ‘‘protective claim’’ is invalid.
Generally, an estate may deduct from the value of the
gross estate the value of property passing from the decedent
to his or her surviving spouse (marital deduction). See sec.
2056(a); sec. 20.2056(a)–1(a), Estate Tax Regs. The Code does
not allow a marital deduction for terminable interest prop-
erty passing from a decedent to his or her surviving spouse
(terminable interest rule). Sec. 2056(b). A terminable interest
is an interest passing from a decedent to his or her surviving
spouse that will 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. Sec. 2056(b)(1). The terminable interest
rule denies a marital deduction if (1) an interest passing to
the surviving spouse is a terminable interest, (2) an interest
in such property passes from the decedent to someone other
than his or her surviving spouse for less than full or ade-
quate consideration in money or money’s worth, and (3) the
third person will possess or enjoy the property after the
termination or failure of the interest passing to the surviving
spouse. Id.
Section 2056(b)(7) provides for an exception to the ter-
minable interest rule for QTIP. It allows a marital deduction
for QTIP although the surviving spouse receives only an
income interest. Under section 2056(b)(7) a decedent may
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(288) ESTATE OF LE CAER v. COMMISSIONER 303
pass to his or her surviving spouse an income interest in
property for his or her spouse’s lifetime. After the death of
the surviving spouse the property passes to the beneficiaries
designated by the first spouse to die. Three requirements
must be met for terminable interest property to qualify as
QTIP: (1) The property passes from the decedent, (2) the sur-
viving spouse has a qualifying income interest for life in the
property, and (3) the executor of the estate of the first spouse
to die makes an affirmative election to designate the prop-
erty as QTIP. Sec. 2056(b)(7)(B). Upon the death of the sur-
viving spouse, the value of his or her gross estate includes
the value of QTIP.
The executor of the estate must make the QTIP election
with respect to property on the decedent’s ‘‘return of tax
imposed by section 2001.’’ Sec. 2056(b)(7)(B)(v). A ‘‘return of
tax imposed by section 2001’’ means the last estate tax
return filed by the executor on or before the due date of the
return, including any extensions. Sec. 20.2056(b)–7(b)(4)(i),
Estate Tax Regs. If the estate does not file a timely return,
this phrase means the first estate tax return filed by the
executor after the due date. Id.
An executor of the estate of the first spouse to die may
make a protective election to treat property as QTIP if the
executor reasonably believes that there is a bona fide issue
when the Federal estate tax return is filed and it concerns
whether an asset is includable in the decedent’s gross estate
or the amount or nature of the property the surviving spouse
is to receive. Sec. 20.2056(b)–7(c)(1), Estate Tax Regs. The
protective election must identify the specific asset, group of
assets, or trust to which the election applies and the specific
basis for the protective election. Id.
The regulations explain in detail the time and manner for
making the QTIP election and do not specify a different time
and manner for a protective QTIP election. It is reasonable to
conclude, therefore, that a timely protective election is one
that is made with respect to property on a decedent’s return
of tax imposed by section 2001 as required by section
2056(b)(7)(B)(v) and section 20.2056(b)–7(b)(4)(i), Estate Tax
Regs. This conclusion is consistent with section 20.2056(b)–
7(c)(2), Estate Tax Regs., which provides that ‘‘The protective
election, once made on the return of tax imposed by section
2001, cannot be revoked.’’ (Emphasis added.) Applying the
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304 135 UNITED STATES TAX COURT REPORTS (288)
definition of the ‘‘return of tax imposed by section 2001’’
under section 20.2056(b)–7(b)(4)(i), Estate Tax Regs., in the
case of a timely filed return, such as Mr. Le Caer’s Form 706,
the executor of the estate may make a protective election no
later than the due date of the return. Generally, the due date
of the return is 9 months after the date of the decedent’s
death. Sec. 6075(a).
Mr. Le Caer died on January 19, 2004. The due date of his
return was October 19, 2004, which is when the Form 706
was mailed. The trustees of Mr. Le Caer’s estate made an
election under section 2056(b)(7) with respect to $1,405,295
of the assets that were a part of share B, thereby qualifying
that property for a marital deduction. The trustees did so by
filing Schedule M, Bequests, etc., to Surviving Spouse, along
with the Form 706. On October 19, 2007, the attorney for
Mr. Le Caer’s estate filed a document entitled ‘‘Notice of Sec-
tion 2056 Schedule M Protective Claim’’. Because the protec-
tive election was filed 3 years after October 19, 2004, and
was not made on the Form 706 as required by section 2056,
we conclude the protective election was untimely.
We have considered all of the arguments raised by either
party, and to the extent not discussed, we find them to be
irrelevant or without merit.
To reflect the foregoing,
Decision will be entered for petitioner in
docket No. 29631–07.
Decision will be entered under Rule 155 in
docket No. 30041–07.
f
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