2001 Tax Ct. Memo LEXIS 342 | Tax Ct. | 2001
2001 Tax Ct. Memo LEXIS 342">*342 Estate's
SUPPLEMENTAL MEMORANDUM FINDINGS OF FACT AND OPINION
RUWE, JUDGE: This case is before the Court on remand from the Court of Appeals for the Fifth Circuit for further consideration consistent with its opinion in
FINDINGS OF FACT
We stated the detailed and intricate2001 Tax Ct. Memo LEXIS 342">*343 facts of this case in our original opinion.
GENERAL FACTS
On April 23, 1970, Algerine Allen Smith (decedent), as lessor, entered into an oil, gas and mineral lease with Humble Oil & Refining Co. (Humble). Pursuant to this lease agreement, decedent retained a royalty interest in oil and gas production obtained from an 80-acre tract of land in Wood County, Texas. On April 23, 1970, Jessamine and Frankie Allen, decedent's aunts, also entered into oil and gas leases with Humble, pursuant to which they retained royalty interests from the oil and gas production obtained from certain tracts of land in Wood County. Humble was subsequently acquired by Exxon Corporation (Exxon).
Jessamine and Frankie Allen died in 1979 and 1989, respectively, and decedent served as the independent executrix of both estates. Upon Jessamine's death, decedent inherited a portion of Jessamine's interest in the leased property. Upon Frankie's death, decedent inherited all of Frankie's interest in the leased property, 2001 Tax Ct. Memo LEXIS 342">*344 as well as the remaining portion of Jessamine's interest, which Frankie had previously inherited.
Decedent's, Frankie's, and Jessamine's interests in the Wood County property were part of a unit formation known as the Hawkins Field Unit (HFU). The Texas Railroad Commission, which regulates oil and gas operations in Texas, approved the HFU for unitization on November 26, 1974. In a unit agreement, effective January 2, 1975, interest owners in the area utilized oil and gas rights pertaining to the unitized formation. The unit agreement embraces interests of approximately 2,200 royalty interest owners 2 and 300 working interest owners. Exxon is the sole unit operator of the HFU and possesses the exclusive right to conduct HFU operations pursuant to a unit operating agreement between Exxon and the other working interest owners. 3
During the early operation of the HFU, the Federal Government, 2001 Tax Ct. Memo LEXIS 342">*345 acting initially through the Federal Energy Administration and later through the Department of Energy (DOE), regulated the price of domestic crude oil through the application of two-tier price regulations under
In June 1978, the DOE filed suit against Exxon as operator of the HFU. The DOE contended that Exxon had misclassified crude oil produced from the HFU, which resulted in overcharges in violation of the DOE's petroleum price regulations. Exxon vigorously defended against the DOE's allegations. Nevertheless, on October 9, 1980, Exxon announced to the HFU interest owners that it would begin to withhold amounts owed to the interest owners under Exxon's posted prices for the oil produced. In justification for tendering less than the amount due under Exxon's classification of the oil, Exxon stated that it desired to create a fund for payment of any liability it might eventually have to the DOE. The amounts withheld represented the difference between the higher price charged by Exxon and2001 Tax Ct. Memo LEXIS 342">*346 the lower price the DOE contended was the maximum lawful selling price. Exxon withheld these amounts from October 1, 1980, to January 28, 1981, the date on which oil prices in the United States were decontrolled.
In response, certain HFU royalty interest owners filed suit against Exxon in October 1980 in the U.S. District Court for the District of Texas (Tyler Division), arguing that Exxon was required to pay them the full amount of their royalty. Jarvis Christian College v. Exxon Corp., docket No. TY-80-432-CA (the Jarvis Christian litigation). On February 6, 1981, decedent, individually and as executrix for the estate of Jessamine Allen, along with Frankie and other members of the Allen family (the Allen parties), filed a motion to intervene as party plaintiffs in the Jarvis Christian litigation. On February 24, 1981, the District Court filed an order granting leave to intervene.
On March 25, 1983, the U.S. District Court for the District of Columbia ruled that Exxon had violated the two-tier pricing regulations.
On February 27, 1986, Exxon paid the judgment, which amounted to just under $ 2.1 billion with interest. The amount paid consisted of $ 895,501,164 in overcharges, $ 771,997,881 in prejudgment interest, and $ 428,273,813 in postjudgment interest.
On January 26, 1988, Exxon filed suit in the U.S. District Court for the Eastern District of Texas (Tyler Division) against the owners of royalty and mineral interests in the HFU. Exxon v. Arnold, docket No. TY-88-110-CA (E. D. Tex., Jan. 26, 1988). Exxon's suit was consolidated with the Jarvis Christian litigation at docket No. TY-80-432-CA (Consolidated Action). 4Exxon sought reimbursement from the interest owners of the amounts which it had paid to the Treasury as a result of the DOE litigation.
2001 Tax Ct. Memo LEXIS 342">*348 Decedent, individually and as the executrix of the estate of Jessamine Allen, and Frankie were parties to the suit. The HFU royalty interest owners vigorously contested Exxon's claims. On June 22, 1988, the District Court issued an order declaring the threshold issue in the Jarvis Christian litigation to be the existence of a Federal common law reimbursement claim and ordering the parties to file dispositive motions as to that issue. Pursuant to this order, on July 22, 1988, the HFU royalty interest owners filed a motion for judgment for lack of Federal statutory or common law claims, asserting that neither Federal statutory law nor common law authorized any of Exxon's claims against them. On July 5, 1989, James M. Knowles (Mr. Knowles) entered his appearance on behalf of the Allen parties in the Jarvis Christian litigation. In his notice of appearance, Mr. Knowles informed the District Court that negotiations between Exxon and the Allen parties were presently underway.
On August 25, 1989, the District Court issued an order directing Exxon to address certain of the royalty interest owners' arguments. In its order, the District Court found that Exxon had an implied cause of action2001 Tax Ct. Memo LEXIS 342">*349 under Federal common law for reimbursement; however, it noted that, "If called upon to rule today, the Court would be inclined to dismiss Exxon's claim against the royalty owners. However, the Court is also aware that Exxon has not fully addressed the above issues." On August 29, 1989, Mr. Knowles advised decedent that, in light of the order, settlement discussions should be discontinued until Exxon filed its reply to the order, except that any proposals by Exxon for a nominal or nuisance value should be considered. On August 30, 1989, a letter from R. H. Kuhlmann (Mr. Kuhlmann), on behalf of Exxon, was sent to Mr. Knowles. The letter stated that Exxon was rejecting a settlement offer by the Allen parties and proposed a counteroffer of $ 944,280 for Exxon's claim against the Allen parties. The counteroffer was not accepted.
On October 10, 1989, Exxon filed its brief addressing the royalty owners' arguments. In its brief, Exxon noted that the majority of claims had settled and indicated Exxon's willingness to settle the remaining claims.
On November 7, 1989, the District Court issued an order finding that genuine issues of material fact existed as to whether Exxon breached any duties2001 Tax Ct. Memo LEXIS 342">*350 owed to the royalty interest owners. The District Court was also persuaded that Exxon's entire cause of action for reimbursement against the royalty interest owners was not barred by the doctrine of collateral estoppel, although the factual findings regarding the reasonableness of Exxon's actions made in Exxon I would preclude relitigation of the reasonableness of the same actions in the Jarvis Christian litigation.
On November 7, 1989, the District Court also issued an order granting an oral motion for reverse bifurcation. The District Court ordered that the trial on the damages issue in the case would precede trial on the liability issue. By order dated December 5, 1989, the District Court directed the parties to file any motions for summary judgment with respect to the issue of whether Exxon had suffered any damages. Pursuant to this order, on January 16, 1990, Exxon filed a motion for partial summary judgment and a brief in support of its motion against the royalty interest owners. Exxon argued that it should recover the pro rata share of all amounts paid to the U.S. Treasury as a result of the DOE litigation, including prejudgment and postjudgment interest. Also on January 16, 1990, the2001 Tax Ct. Memo LEXIS 342">*351 royalty and working interest owners filed a joint motion for summary judgment and a memorandum in support of their motion against Exxon. In their accompanying memorandum, the interest owners denied that any amounts were owed to Exxon, regardless of whether any liability under law could attach to them, because Exxon had not, in fact, suffered any loss in paying the approximately $ 2.1 billion judgment. 5
On March 14, 1990, the royalty interest owners filed a joint opposition to Exxon's motion for partial summary judgment. In the joint opposition, the interest owners alleged that Exxon had "profited handsomely from its overcharges" and that the elderly interest owners faced "a very real risk" that they would not be able to recoup in their lifetimes any payments made to Exxon through tax-loss carryforwards to offset prior overpayments of income taxes attributable to the overcharges. On April 19, 1990, Exxon filed2001 Tax Ct. Memo LEXIS 342">*352 a reply to the royalty interest owners' joint opposition to Exxon's motion for partial summary judgment. In its reply, Exxon denied the interest owners' allegations and characterized them as unsupported and incorrect as a matter of law.
On March 23, 1990, decedent, as executrix of Frankie's estate, filed a Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. 6 The amount of $ 944,280 was deducted as a claim against Frankie's estate pursuant to
Decedent died testate on November 16, 1990, in Texas. James Allen Smith, decedent's son, is the executor of decedent's estate, and he filed a Form 706 on July 12, 1991. On the Form 706, the estate claimed a deduction of $ 2,482,719 for a claim against the estate pursuant to
2001 Tax Ct. Memo LEXIS 342">*354 On July 21, 1994, respondent issued a notice of deficiency. In the notice of deficiency, respondent determined that the estate's deduction for Exxon's claim against the estate was allowable in the amount of $ 681,840, rather than $ 2,482,719, because "it has not been established that any greater amount is deductible under the provisions of the Internal Revenue Code."
PRIOR COURT PROCEEDINGS
The main issue for decision in this case was the amount the estate was entitled to deduct pursuant to
Additionally, we had to decide the issue of whether the income tax benefit derived by the estate as a result of the application of
The estate appealed our decision. The Court of Appeals for the Fifth Circuit held that Exxon's claim must be valued as of the decedent's date of death and, thus, must be appraised on information known or available up to (but not after) that date. 9 The actual value of Exxon's claim prior to either settlement or entry of a judgment is inherently imprecise, yet "even a disputed claim may have a value, to which lawyers who settle cases every day may well testify, fully as measurable as the possible future amounts that may eventually accrue on an uncontested claim." [
2001 Tax Ct. Memo LEXIS 342">*356
On remand, we were instructed to admit and consider evidence of predeath facts and occurrences that are relevant to the date-of-death value of Exxon's claim, without admitting or considering postdeath facts and occurrences such as the estate's settlement with Exxon.
A determination of fair market value, being a question of fact, will depend upon the circumstances in each case. No formula can be devised that will be generally applicable to the multitude of different valuation issues arising in estate and gift tax cases. 2001 Tax Ct. Memo LEXIS 342">*357 . . . A sound valuation will be based upon all the relevant facts, but the elements of common sense, informed judgment and reasonableness must enter into the process of weighing those facts and determining their aggregate significance. [
The Court of Appeals then emphasized that "every lawsuit is unique; thus it is incumbent on each party to supply the Tax Court with relevant evidence of predeath facts and occurrences supporting the value of the Exxon claim advocated by that party."
The Court of Appeals also disagreed with our holding that the
Of course, once the Tax Court determines, on remand, the gross value of the2001 Tax Ct. Memo LEXIS 342">*358 Exxon claim for purposes of
The Court of Appeals ultimately remanded the case for further proceedings consistent with the instructions provided in its opinion.
OPINION
The Internal Revenue Code imposes a Federal estate tax on the transfer of the taxable estate of a decedent who is a citizen or resident of the United States.
BURDEN OF PROOF
Before the trial on remand, the estate filed a Motion to Place Burden of Proof on Respondent. The estate argued that the Court of Appeals2001 Tax Ct. Memo LEXIS 342">*359 for the Fifth Circuit rejected respondent's presumption of correctness and that the burden had shifted to respondent to prove the existence and amount of the deficiency. We denied the estate's motion prior to the trial on remand.
The Court of Appeals said nothing about rejecting respondent's presumption of correctness. Rather, the Court of Appeals said: "it is incumbent on each party to supply the Tax Court with relevant evidence of predeath facts and occurrences supporting the value of the Exxon claim advocated by that party."
As a general rule, the Commissioner's determination bears a presumption of correctness, and the burden of proof rests with the taxpayer.
Deductions are a matter of legislative grace, and the taxpayer bears the burden of proving the entitlement to any deduction claimed.
The burden of overcoming the presumption of correctness in a deduction case properly rests with the taxpayer, who is the best source of information for determining entitlement to the claimed deductions. In a deduction case, 2001 Tax Ct. Memo LEXIS 342">*361 therefore, we apply the general rule of not looking behind the notice of deficiency to determine whether it is arbitrary. * * *
Consequently, the estate bears the burden of proving the amount of its
THE LAW OF THE CASE DOCTRINE
The estate argues that it has met its burden of establishing the amount of its
We note that the estate, in relying on its interpretation of the opinion of the Court of Appeals, has decided not to follow the Court of Appeals's guidance that "it is incumbent on each party to supply the Tax Court with relevant evidence of predeath facts and occurrences supporting the value of the Exxon claim advocated by that party."
Under the law of the case doctrine, the decision of a legal issue by an appellate court establishes the law of the case and must be followed in all subsequent proceedings in the same case at both the trial and appellate levels.
The parties agree that Exxon was seeking $ 2,482,719 from decedent at the time of her death. However, contrary to the estate's argument, the Court of Appeals did not find that Exxon's claim was enforceable to the extent of this amount. Rather, the Court of Appeals found that the amount of the estate's
Although we are persuaded that, on these facts, the Commissioner is not permitted to consider -- much less rely exclusively on -- the amount of the post-death settlement of the Exxon claim when valuing Decedent's allowable estate tax deduction, we are also persuaded that the estate is not entitled to deduct the full amount that was being claimed by Exxon at
Decedent's death. Rather, for the reasons2001 Tax Ct. Memo LEXIS 342">*364 that follow, we conclude that the correct analysis requires appraising the value of Exxon's claim based on the facts as they existed as of death. [
The Court of Appeals further stated:
The actual value of Exxon's claim prior to either settlement or entry of a judgment is inherently imprecise, yet "even a disputed claim may have a value, to which lawyers who settle cases every day may well testify, fully as measurable as the possible future amounts that may eventually accrue on an uncontested claim." [
Thus, although Exxon had a claim against decedent at the time of her death, the amount Exxon was seeking was not the amount the estate was entitled to deduct under
In
in Estate of Smith, the date of death value was not established when the Fifth Circuit chose to follow Ithaca Trust and disregard post-death events. The date of death value was unknown. The amount claimed by Ms. Smith's estate to be the date of death value was only the litigation demand amount being made by Exxon at her date of death. It was therefore necessary for the Fifth Circuit to request a recalculation upon remand.
We face a similar situation here. We conclude that the
* * *
* * * we find that no case holds that the value at the date of death is2001 Tax Ct. Memo LEXIS 342">*366 the demand amount, $ 9,407,226, being made here by the government at the date of death. We therefore vacate the opinion of the district court on this issue and remand for evidentiary hearing on valuation. [
The Court of Appeals for the Eleventh Circuit concluded by providing valuation instructions on remand nearly identical to those provided by the Court of Appeals for the Fifth Circuit. Id.
In the instant case, the estate's argument that it is entitled to deduct the full amount of Exxon's claim was rejected by the Court of Appeals when it remanded the case for a determination of the fair market value of Exxon's claim as of decedent's date of death. 11 Accordingly, we follow the valuation instructions enunciated by the Court of Appeals in order to determine the proper amount of the estate's
VALUATION OF EXXON'S CLAIM AS OF DECEDENT'S DATE OF DEATH
As mentioned earlier, the estate's only argument is that the law of the case doctrine entitles it to deduct the entire amount that Exxon was seeking from decedent. The estate failed to present other evidence supporting the value it advocates. 122001 Tax Ct. Memo LEXIS 342">*367
Respondent did supply this Court with relevant evidence of predeath facts and occurrences supporting the value of the Exxon claim he advocates. Respondent relied on the report and testimony of his expert witness, Mark K. Glasser (Mr. Glasser), to support his determination that the value of Exxon's claim as of decedent's date of death was not more than $ 681,840. Mr. Glasser has practiced2001 Tax Ct. Memo LEXIS 342">*368 law for 23 years, focusing principally upon oil and gas, securities, and general corporate litigation. He has served as counsel to a number of oil companies and has handled numerous oil and gas litigation disputes, including disputes over royalty claims. In 1993, Mr. Glasser began training to become a mediator. Since that time, he has mediated approximately 450 cases, including oil and gas disputes involving claims by and against major oil companies. He has authored publications on mediation and arbitration of disputes and also trained other mediators and arbitrators. We find that Mr. Glasser, a lawyer who has settled and mediated numerous cases involving disputes similar to the one between Exxon and decedent, is qualified to render his opinion as an expert for purposes of this case. See, e.g.,
Mr. Glasser identified his assigned task as ascertaining the value of2001 Tax Ct. Memo LEXIS 342">*369 Exxon's claim as of decedent's date of death and offering an expert opinion on the value of the claim as of that time. Mr. Glasser relied primarily on documentary evidence relating to the Jarvis Christian litigation. Mr. Glasser's opinion was based principally upon the District Court's orders issued before decedent's death regarding the liability issue in that case.
In Mr. Glasser's opinion, the documents relating to the Jarvis Christian litigation indicated that there was a great deal of uncertainty surrounding Exxon's claim against the royalty owners. On one hand, the District Court found that Exxon had the right to seek recovery from the royalty owners under a theory of equitable recoupment. On the other hand, Mr. Glasser believed that the District Court's orders were discouraging to Exxon concerning the probability that Exxon would prevail on its claim. Mr. Glasser believed that Exxon and the royalty owners, at the time of decedent's death, could have anticipated that there was a "greater likelihood" that Exxon would be awarded substantially less than all of the damages that it claimed.
As part of his valuation determination, Mr. Glasser relied on the District Court's orders2001 Tax Ct. Memo LEXIS 342">*370 entered on August 25 and November 7, 1989. In the August 25, 1989, order, the District Court declared that Exxon had a viable cause of action for equitable recoupment against the royalty owners, but it also noted that the court was inclined to dismiss Exxon's claim against the royalty owners. In the November 7, 1989, order, the District Court stated that it "remains persuaded that Exxon at least owed the royalty interest owners the duty to act as a reasonably prudent operator and perhaps owed an even higher fiduciary or "quasi-fiduciary duty'." Mr. Glasser concluded that the net effect of the two orders could only have greatly encouraged the royalty owners and correspondingly discouraged Exxon about the probability that Exxon would prevail on its claim against the royalty owners. Additionally, Mr. Glasser believed that the District Court would have found it inequitable for the royalty owners to be accountable for any interest that accrued as a result of Exxon's perceived intractability before the DOE. Thus, Mr. Glasser felt that the orders would have motivated Exxon to settle the royalty owners' cases on a highly discounted basis. On the basis of Mr. Glasser's personal experience representing2001 Tax Ct. Memo LEXIS 342">*371 companies of Exxon's stature in controversial matters such as DOE litigation, he believed Exxon would be eager to end the matter quickly and discreetly. Mr. Glasser also considered the fact that Mr. Knowles, the attorney for the Allen parties, whom Mr. Glasser described as a most able practitioner of oil and gas litigation, had recommended rejection of Exxon's offer to settle the claims against the Allen parties.
In order to make a valuation determination, Mr. Glasser took into consideration evidence of predeath events, and he assigned mathematical probabilities to: (1) Whether the royalty owners would be held liable to Exxon; (2) Exxon's claim for recoupment of the base amount paid to the DOE; and (3) Exxon's claim for recoupment of prejudgment and postjudgment interest. Mr. Glasser felt that there was not more than a 50-percent probability that a jury would find in favor of Exxon on the liability issue. Assuming Exxon did obtain a favorable ruling on the liability issue, Mr. Glasser felt that there was not more than a 50-percent probability that Exxon would be awarded decedent's pro rata portion, $ 1,032,315, of the base amount paid by Exxon to the DOE judgment. Finally, Mr. Glasser2001 Tax Ct. Memo LEXIS 342">*372 felt that there was not more than a 30-percent probability that Exxon would recover the $ 1,450,404 of prejudgment and postjudgment interest that it paid to the DOE attributable to decedent's pro rata share. Applying all these probabilities, Mr. Glasser ultimately determined that the value of the Exxon claim as of decedent's date of death was $ 475,639.35. Mr. Glasser provided the following chart summarizing his calculations:
Probability of affirmative
findings on liability: 50%
Probability of assessment of
damages on $ 1,032,315 base
paid by Exxon: 50%, or $ 516,157.50
Less 50% liability
discount = $ 258,078.75
Probability of assessment of
pre-and post-judgment
interest of $ 1,450,404: 30%, or $ 435,121.20
Less 50% liability
discount = $ 217,560.60
Total $ 475,639.35
2001 Tax Ct. Memo LEXIS 342">*373 In addition to the report and testimony of Mr. Glasser, other evidence indicates that the value of Exxon's claim as of decedent's date of death was significantly less than the amount Exxon was seeking from decedent. We note the contents of the Form 706, signed by decedent on March 21, 1990, under penalties of perjury, and filed by decedent in her capacity as executrix of Frankie's estate. The Form 706 with its accompanying schedules and statements, including Mr. Kuhlmann's letter that was attached to the Form 706, indicates that Exxon was willing to settle its claim against all the Allen parties for $ 944,280. Despite the fact that the Allen parties rejected this offer, presumably because they thought Exxon's proposal was too high, decedent, as executrix for Frankie's estate, deducted the amount of Exxon's offer of $ 944,280 to settle claims against all of the Allen parties. The full amount of Exxon's claim against Frankie was $ 1,888,777.
The parties agree that Exxon was seeking $ 2,482,719 from decedent at the time of her death. This amount included amounts sought from Jessamine's and Frankie's interests, which decedent had inherited. Thus, Exxon's counteroffer was approximately2001 Tax Ct. Memo LEXIS 342">*374 38 percent of the total amount it was seeking from the Allen parties. 13 This counteroffer by Exxon to the Allen parties was not accepted. 14 Additionally, the evidence in the record indicates that the Jarvis Christian defendants vigorously contested Exxon's claims. These facts, including Mr. Glasser's testimony, support a finding that the fair market value of Exxon's claim as of decedent's date of death was significantly less than the amount Exxon was seeking, and not more than the $ 681,840 allowed in the notice of deficiency.
2001 Tax Ct. Memo LEXIS 342">*375
The estate argues that the
The estate's argument is contrary to the express language contained in the Court of Appeals's opinion. On the issue of the2001 Tax Ct. Memo LEXIS 342">*376
Of course, once the Tax Court determines, on remand, the gross
value of the Exxon claim for purposes of
calculation of the
simple mathematical calculation, the result of which will
diminish the gross value of the Exxon claim, dollar for dollar,
to produce a net deduction from the Estate. * * * [
The Court of Appeals also provided the following instructions:
Thus, on remand, when appraising the net value of the
deduction allowed the estate under
must be taken of the
have inured to the benefit of the Estate if it had ultimately
been held liable (or settled) for a sum equal to the appraised
date-of-death gross value of Exxon's claim. [
reference omitted.]
On the basis of the Court of Appeals's instructions, we reject the estate's contention that we are precluded from considering the
Respondent calculated the amount of the
CONCLUSION
Valuing a lawsuit can be a difficult task. As the Court of Appeals noted:
The actual value of Exxon's claim prior to either settlement2001 Tax Ct. Memo LEXIS 342">*378 or
entry of a judgment is inherently imprecise, yet "even a
disputed claim may have a value, to which lawyers who settle
cases every day may well testify, fully as measurable as the
possible future amounts that may eventually accrue on an
uncontested claim." [
(1st Cir. 1963)).]
See also
Obviously, the position of a DEFENDANT in a pending lawsuit
is not a thing commonly bought or sold. There is certainly no
ready market in which the Estate could pay another to assume its
place as the subject of Exxon's claim. * * * [Estate of Smith v.
The evidence indicates that respondent and Mr. Glasser studied the instructions set forth by the Court of Appeals and attempted to adhere2001 Tax Ct. Memo LEXIS 342">*379 to those instructions in reaching their valuation determinations. In reaching our decision, we have evaluated the evidence presented in a manner we believe is consistent with the instructions provided by the Court of Appeals for the Fifth Circuit. Respondent presented credible evidence supporting a valuation of Exxon's claim that is below the amount previously allowed as a deduction in the notice of deficiency. Nevertheless, respondent does not seek to reduce the amount of the estate's
2001 Tax Ct. Memo LEXIS 342">*380 Decision will be entered under Rule 155.
Footnotes
1. Unless otherwise indicated, all section references are to the Internal Revenue Code in effect as of the date of decedent's death, and all Rule references are to the Tax Court Rules of Practice and Procedure.↩
2. Decedent, Jessamine, and Frankie were royalty interest owners.↩
3. Exxon was the HFU's largest working interest owner.↩
4. Hereinafter, we shall refer to this consolidated action as the Jarvis Christian litigation.↩
5. The Allen parties expressly adopted the joint motion for summary judgment filed on Jan. 16, 1990.↩
6. Decedent's name is signed on the line for "Signature(s) of executor(s)". The following certification is contained above decedent's signature:
Under penalties of perjury, I declare that I have examined this
return, including accompanying schedules and statements, and to
the best of my knowledge and belief, it is true, correct, and
complete. Declaration of preparer other than the executor is
based on all information of which preparer has any knowledge.↩
7. This amount included amounts sought from Jessamine's and Frankie's interests, which decedent had inherited.↩
8. In a supplemental opinion, we addressed a dispute by the parties regarding the Rule 155 computation.
Estate of Smith v. Commissioner, 110 T.C. 12">110 T.C. 12↩ (1998).9. The Court of Appeals for the Fifth Circuit noted:
Although we are persuaded that, on these facts, the Commissioner is not permitted to consider -- much less rely exclusively on -- the amount of the post-death settlement of the Exxon claim when valuing Decedent's allowable estate tax deduction, we are also persuaded that the estate is not entitled to deduct the full amount that was being claimed by Exxon at Decedent's death. Rather, for the reasons that follow, we conclude that the correct analysis requires appraising the value of Exxon's claim based on the facts as they existed as of death. [
Estate of Smith v. Commissioner, 198 F.3d 515">198 F.3d 515 , 198 F.3d 515">521↩ (5th Cir. 1999).]10. The Court of Appeals provided the following example:
For example, if given the choice between being the obligor of (1) a claim known to be worth $ 1 million with a 50 percent chance of being adjudged unenforceable, or (2) a claim known to be enforceable with a value equally likely to be $ 1 million or zero, a rational person would discern no difference in choosing between the claims, as both have an expected value $ 500,000. * * * [
198 F.3d 515">Id. at 525↩ .11. Indeed, we presume that if the Court of Appeals for the Fifth Circuit believed that the amount Exxon was seeking from decedent at the date of death was the measure of the value of the claim for purposes of the estate's
sec. 2053(a)(3)↩ deduction, then the Court of Appeals would have decided the case in the estate's favor instead of remanding it to us with specific instructions for valuing the claim.12. After remand by the Court of Appeals, the only document submitted into evidence by the estate was a copy of the transcript of a Rule 155 hearing conducted after our original opinion. At trial on remand, the estate did not present any witnesses or submit any expert reports. The only evidence submitted by the estate at trial was in the form of an oral stipulation between the parties that David J. Beck was the attorney who had been retained to represent Exxon to file the complaint that was filed in the Jarvis Christian litigation, and Mr. Beck was retained to pursue Exxon's claim against the royalty owners, which he in fact did.↩
13. 944,280 <247> 2,482,719 = .3803.↩
14. At trial on remand, the estate objected, under
Fed. R. Evid. 408 , to the introduction of Exhibit 60, which was the letter containing the settlement offer from Exxon to the Allen parties. Exhibit 60 was included in the second supplemental stipulation of facts that was filed prior to the trial on remand. The second supplemental stipulation of facts states that "Any relevance objection may be made with respect to all or any part of this stipulation at or before the time of trial, but all other evidentiary objections are waived unless specifically expressed in this stipulation." In the second supplemental stipulation of facts, the estate objected to Exhibit 60 only on the grounds of relevance and hearsay. A fundamental rule of evidence is that an objection not timely made is waived.United States v. Jamerson, 549 F.2d 1263">549 F.2d 1263 , 549 F.2d 1263">1266-1267 (9th Cir. 1977);Fed. R. Evid. 103(a)(1) . In the instant case, the estate waived all evidentiary objections to Exhibit 60 except for relevance and hearsay, AND failed to make a timely objection. See, e.g.,Calcasieu Marine Nat. Bank v. Grant, 943 F.2d 1453">943 F.2d 1453 , 943 F.2d 1453">1458 (5th Cir. 1991);Fed. R. Evid. 103(a)(1) . In any event, the estate did not raise an objection based onFed. R. Evid. 408 to the admission of Exhibit 82, which was the estate tax return for Frankie Allen which decedent signed and filed in her capacity as executrix of Frankie's estate. The same settlement offer from Exxon to the Allen parties was included in the estate tax return. See54 S. Ct. 8">supra pp. 10-11, 26 . Additionally, we note that settlement evidence may be admissible where it relates to a claim other than the one being litigated.Towerridge, Inc. v. T.A.O., Inc., 111 F.3d 758">111 F.3d 758 , 111 F.3d 758">770 (10th Cir. 1997), or where it is for a purpose other than to prove liability for or invalidity of the claim or its amount.Reichenbach v. Smith, 528 F.2d 1072">528 F.2d 1072 , 528 F.2d 1072">1074 (5th Cir. 1976);Fed. R. Evid. 408↩ .15. This Court has previously noted that, where the burden of proof rests with the taxpayer, the failure to present sufficient evidence establishing fair market value generally results in the taxpayer's failure to carry his burden of proof and allows holding for the Commissioner even if the valuation of the Commissioner's expert is ultimately rejected. See
Anselmo v. Commissioner, 80 T.C. 872">80 T.C. 872 , 80 T.C. 872">884-886 (1983), affd.757 F.2d 1208">757 F.2d 1208 (11th Cir. 1985);Leibowitz v. Commissioner, T.C. Memo 1997-243">T.C. Memo 1997-243↩ .