Marshall Naify Revocable Trust v. United States
672 F.3d 620
9th Cir.2012Background
- Naify devised a California tax-avoidance plan for a $660 million gain from TCI notes converted to AT&T stock and formed Mimosa, a Nevada corporation, to minimize CA tax; he transferred the notes to Mimosa and then the gain arose after TCI merged into AT&T.
- After Naify’s death in 2000, his Estate claimed a $62 million deduction for the estimated California tax that might be owed on the $660 million gain.
- The California Franchise Tax Board audited Naify’s 1999 CA return; in 2003 it assessed about $58 million, which the Estate settled for $26 million in 2004.
- The IRS disallowed the $62 million deduction but later allowed deducting the $26 million paid to settle the CA tax claim; this changed the federal estate tax liability.
- In 2009 the Trust, as successor to the Estate, filed a refund suit against the United States; the district court granted judgment on the pleadings for the Government, and the Trust appeals.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the California tax claim amount was ascertainable with reasonable certainty as of Naify’s death | Trust: amount was ascertainable (the 62M estimate) | United States: claim was contingent/unclear, not ascertainable | No; not ascertainable with reasonable certainty as of death |
| Whether post-death events can be used to value a contingent or disputed claim | Trust: post-death settlement can fix value | United States: post-death events may be considered only for contingent/disputed claims where appropriate | Post-death settlement fixed value; allowable under Propstra/related authorities |
| Whether the district court correctly treated the claim as contingent/disputed and limited the deduction to the settled amount | Trust: deduction should reflect the eventual settled value | United States: deduction limited to the settled amount as value was not certain earlier | District court correctly limited deduction to $26 million |
| Whether post-death events can contradict the established separation between certain/enforceable and contingent/disputed claims | Trust: Propstra allows broader consideration | United States: Propstra applied to contingent/disputed claims only | Propstra’s framework governs; post-death events may be considered for contingent/disputed claims |
Key Cases Cited
- Propstra v. United States, 680 F.2d 1248 (9th Cir. 1982) (post-death events relevant to disputed or contingent claims; not for certain claims)
- Estate of DuVal v. Commissioner, 4 T.C. 722 (Tax Court 1945) (considering post-death events when valuing contingent claim)
- Estate of Shedd v. Commissioner, 320 F.2d 638 (9th Cir. 1963) (estate taxed based on death-date value; post-death events sometimes considered)
- Estate of Van Horne v. Commissioner, 720 F.2d 1114 (9th Cir. 1983) (distinguishing certain/enforceable vs. contingent claims; post-death events context)
- Shapiro v. United States, 634 F.3d 1055 (9th Cir. 2011) (valuing a factual contract claim against an estate; not a broad departure from Propstra)