Estate of Gertrude H. Saunders, William W. Saunders, Jr., and Richard B. Riegels, Co-Executors v. Commissioner
136 T.C. No. 18
Tax Ct.2011Background
- Decedent Gertrude H. Saunders died Nov. 27, 2004; Stonehill litigation against Saunders, Sr. was the basis for a $30M claim on estate tax returns.
- Stonehill estate asserted legal malpractice and related claims; Saunders Jr. and Bickerton represented the Saunders estate.
- Stonehill lawsuit proceeded in Hawaii courts; damages sought exceeded $2–90M; final settlement occurred for $250,000 plus fee/cost adjustments.
- Estate tax returns claimed $30M deduction for the Stonehill claim; Estate sought to treat the liability as deductible though not yet fixed.
- IRS challenged the deductibility under Treas. Reg. § 20.2053–1(b)(3) and argued postdeath events/not ascertainable as of death.
- Court bifurcated proceedings to decide ascertainability as a preliminary issue based on stipulated facts and expert reports.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Stonehill claim is deductible as of death under § 20.2053–1(b)(3). | Saunders estate contends ascertainable with reasonable certainty. | IRS contends value too uncertain; not deductible. | Not deductible; not ascertainable with reasonable certainty. |
Key Cases Cited
- Propstra v. United States, 680 F.2d 1248 (9th Cir. 1982) (post-death events relevant for disputed or contingent claims under § 20.2053–1(b)(3))
- Estate of Van Horne v. Commissioner, 78 T.C. 728 (1982) (postdeath events considered when claims are contingent; not for fixed, enforceable claims)
- Estate of Sachs v. Commissioner, 856 F.2d 1158 (8th Cir. 1988) (post-death events may be considered for disputed claims in some contexts)
- Estate of Smith v. Commissioner, 198 F.3d 515 (5th Cir. 1999) (disputed lawsuits; ascertainability standards vary by context)
- Estate of O’Neal v. United States, 258 F.3d 1265 (11th Cir. 2001) (discussion of postdeath events in valuing claims against estates)
- Marshall Naify Revocable Trust v. United States, 2010–2 USTC par. 60,603 (N.D. Cal. 2010) (discusses regulatory ascertainability standards and weighting of uncertainties)