Individual Signing Estate Tax Return is Statutory Executor
Estate of Gudie, 137 TC 165 .
In Estate of Gudie, 1 the Tax Court held that a beneficiary of a revocable trust that signed the decedent's estate tax return qualified as the statutory executor of the estate for estate tax purposes.
Jane H. Gudie had no children but was survived by two nieces, Mary Helen Norberg and Patricia Ann Lane. Gudie's will did not nominate either niece as her executrix. Gudie established a revocable trust. Gudie and Norberg were co-trustees of Gudie's revocable trust during her lifetime, and following her death, Gudie's two nieces were successor co-trustees. After the death of Gudie, a federal estate tax return was filed for her estate. Gudie's two nieces were equal remainder beneficiaries of Gudie's revocable trust. At the time the estate tax return was filed, no individual was formally appointed, qualified, or acting as executor or administrator of Gudie's estate. Norberg signed Gudie's estate tax return as executor but refused to be formally appointed executrix of Gudie's estate.
The IRS audited Gudie's estate tax return and issued a notice of deficiency to the “Estate of Jane H. Gudie, c/o Mary Helen Norberg, Executor.” A petition was filed in Tax Court by the estate. The estate later filed a motion to dismiss arguing that the notice of deficiency was issued and mailed to the wrong taxpayer, because Norberg was not a fiduciary within the meaning of Section 6212(b)(3). Norberg contended that she was never appointed by a probate court as executrix of Gudie's estate. According to Norberg, the notice of deficiency should have been addressed to “Jane Henger Gudie Living Trust dated July 17, 1991, Mary Helen Norberg and Patricia Ann Lane successor co-trustees, or to Norberg as a transferee.” The IRS argued that Norberg was in actual or constructive receipt of Gudie's property, and thus she was the proper person to whom to issue the notice of deficiency pursuant to Section 6212(b)(3).
The court noted that the jurisdiction of the Tax Court is limited and that its jurisdiction to redetermine a deficiency depends on the issuance of a valid notice of deficiency and a timely filed petition. Section 6212(a) expressly authorizes the IRS, after determining a deficiency, to send a notice of deficiency to the taxpayer. In the case of an estate tax deficiency, once the IRS is notified of the existence of a fiduciary relationship, the fiduciary steps into the shoes of the taxpayer for tax purposes, and the notice of deficiency is to be sent to the fiduciary. 2 Generally, the taxpayer (or fiduciary), in turn, has 90 days from the date the notice of deficiency is mailed to file a petition in the Tax Court for a redetermination of the deficiency. 3
Section 2203 defines the term “executor” for purposes of the federal estate tax as the executor or administrator of the decedent, or, if there is no executor or administrator appointed, qualified, and acting within the U.S., then any person in actual or constructive possession of any property of the decedent. Norberg argued that she was never in possession of any assets of Gudie's probate estate. The court stated that the fact that the property Norberg received did not pass through probate was immaterial. The court also stated that it had previously held in similar cases that the fact that property interests passed directly rather than as part of a decedent's probate estate was immaterial because to hold otherwise would permit taxpayers to distinguish between probate and non-probate property and thereby defeat the estate tax. 4 Based on the facts presented, the court found that Norberg was in actual or constructive possession of decedent's property at the time the estate tax return was filed. In addition, at the time the estate tax return was filed, no one was appointed, qualified, or acting as executor or administrator of Gudie's estate. Therefore, the court held that Norberg qualified as the statutory executor of Gudie's estate for purposes of the federal estate tax.
Section 6903(a) provides, in part, that on notice that any person is acting for another person in a fiduciary capacity, such fiduciary assumes the powers, rights, duties, and privileges of such other person until notice is given that the fiduciary capacity has terminated. Reg. 20.6036-2 provides, in relevant part, that the requirement for notification of qualification as executor of an estate is satisfied by the filing of the estate tax return. The court stated that Norberg's filing of Gudie's estate tax return gave the IRS notice that she was to be treated as the executor and fiduciary of Gudie's estate and that Norberg never gave the IRS notice of termination. Therefore, the court held that she was never relieved of her powers, rights, duties, and privileges as a fiduciary of Gudie's estate for federal estate tax purposes. She was the proper individual to receive the notice of deficiency and had the capacity to contest the notice of deficiency on which this case is based.
While the holding of this case is not a surprise and does not present new law, it is an important reminder to practitioners of the obligations and consequences of preparing and signing an estate tax return. Someone is not going to avoid his or her responsibilities by not being formally appointed as executor. Most likely, the motion to dismiss was filed by the estate in the hopes of avoiding a trial on the merits regarding a “bad facts” inter vivos gift transaction on which the notice of deficiency was based.
1 137 TC 165 .
2 Section 6212(b)(3).
3 Section 6213(a).
4 See Estate of Guida, 69 TC 811 (1978); Estate of Wilson, 2 TC 1059 (1943).