136 T.C. 406
T.C.2011Background
- Decedent Gertrude H. Saunders died November 27, 2004; Saunders, Jr. and Richard B. Riegels were coexecutors of the Saunders estate.
- Stonehill estate asserted claims against Saunders for legal malpractice, breach of confidence, duty of loyalty, and fraudulent concealment arising from Saunders’s possible disclosures to the IRS; damages sought exceeded $90 million.
- Saunders’ estate deducted $30 million for the Stonehill claim on its estate tax return, later reduced to $1; the IRS denied the deduction in 2009.
- Valuation experts for both sides offered conflicting analyses of the Stonehill claim’s value and its ascertainability as of the decedent’s death.
- The court bifurcated proceedings to decide whether the Stonehill claim was ascertainable with reasonable certainty as of the decedent’s death for purposes of §20.2053‑1(b)(3), Estate Tax Regs., with trial on value to follow if ascertainability favored the estate.
- Postdeath settlement occurred for $250,000, but the court did not consider this settlement in determining ascertainability at the death date.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Stonehill claim was deductible as of decedent’s death under §20.2053-1(b)(3). | Saunders estate contends the claim was ascertainable with reasonable certainty and payable, justifying a deduction. | Respondent argues the claim was too uncertain to be ascertained with reasonable certainty at death and thus not deductible. | Not deductible; the Stonehill claim lacked reasonable certainty as of decedent’s death. |
Key Cases Cited
- Ithaca Trust Co. v. United States, 296 U.S. ali (1929) (estates settle as of decedent’s death; postdeath events generally not valued for asset purposes)
- Estate of Van Horne v. Commissioner, 720 F.2d 1114 (9th Cir. 1983) (discusses postdeath events in contingent claims; distinguishes enforceable vs. contingent claims)
- Propstra v. United States, 680 F.2d 1248 (9th Cir. 1982) (postdeath events relevant for disputed or contingent claims)
- Estate of Sachs v. Commissioner, 856 F.2d 1158 (8th Cir. 1988) (contingent claims and deduction standards for estates)
- United States v. Stonehill, 83 F.3d 1156 (9th Cir. 1996) (antecedent Stonehill litigation informing valuation disputes in estates)