United States of America v. Parks et al
Filing
24
OPINION AND ORDER granting in part and denying in part 13 Motion for Summary Judgment; denying 14 Motion for Partial Summary Judgment. Signed by District Judge Paul D. Borman. (DTof)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION
UNITED STATES OF AMERICA,
Plaintiff,
v.
Case No. 21-cv-12676
Paul D. Borman
United States District Judge
RONALD G. PARKS, individually;
RONALD G. PARKS, as Successor
Personal Representative of the ESTATE
OF MERLE L. PARKS; RONALD G.
PARKS, as Trustee for the RONALD G.
PARKS REVOCABLE LIVING TRUST
DATED APRIL 13, 2006; and
MADELINE M. PARKS,
Defendants.
_________________________________/
OPINION AND ORDER
(1) GRANTING IN PART AND DENYING IN PART DEFENDANTS’
MOTION FOR SUMMARY JUDGMENT (ECF NO. 13), AND
(2) DENYING PLAINTIFF’S MOTION FOR PARTIAL SUMMARY
JUDGMENT ON TIMELINESS OF § 2032A ELECTION (ECF NO. 14)
This is a civil action relating to a dispute over alleged unpaid federal estate
tax liabilities of the Estate of Merle L. Parks. Now before the Court are Defendants’
Motion for Summary Judgment (ECF No. 13) and Plaintiff’s Motion for Partial
Summary Judgment on Timeliness of § 2032A Election (ECF No. 14). Both motions
address the issue of the timeliness of an election for special use valuation under 26
U.S.C. § 2032A of the Internal Revenue Code made on the estate tax return of the
Estate of Merle L. Parks.1 Both motions have been fully briefed, and the Court held
a hearing on the motions on Thursday, November 10, 2022, at which time the Court
took the two motions under advisement.
For the reasons that follow, the Court DENIES Plaintiff’s motion for partial
summary judgment and GRANTS IN PART and DENIES IN PART Defendants’
motion for summary judgment.
I. FACTUAL AND PROCEDURAL BACKGROUND
A.
Factual Background
On July 24, 2003, Merle L. Parks executed his Last Will and Testament, which
named his brother, Elmer R. Parks, as personal representative, and his nephew,
Defendant Ronald G. Parks, as successor personal representative. (ECF No. 1,
Compl. ¶ 8.)2 Merle’s Will, aside from two specific devisements to his brother and
to a church that are not at issue here, devised all “personal effects and equipment”
and “all the residue and remainder” of Merle’s estate to Ronald. (Id.) The Will
further “direct[ed] that all estate taxes … that may be assessed or become payable
1
The Civil Case Management and Scheduling Order in this case provides for this
early dispositive motion practice “on timeliness of § 2032A election.” (ECF No. 12.)
2
For convenience and clarity, the Court will refer to the various members of the
Parks family by their first names.
2
because of [Merle’s] death shall be paid out of the residuary estate passing under
this will.” (Id. ¶ 9.)
On August 8, 2003, six weeks before Merle’s death, Merle and Ronald
established the Parks Family Limited Liability Company, LLC (“Parks Farm LLC”),
with Merle owning a 98% membership interest in the LLC and Ronald owning a 2%
membership interest. (Compl. ¶ 10 (explaining that the name of the “Parks Family
Limited Liability Company, LLC” was later changed to “Parks Farm Company,
LLC” in 2004).) That same day, Merle executed a quitclaim deed transferring three
parcels of working farmland situated in the Township of Berlin, St. Clair County,
Michigan, (“The Parks Farm Property”) to the Parks Farm LLC for consideration of
less than $100. (Id. ¶¶ 6, 11.)
Merle died on September 19, 2003. (Compl. ¶¶ 12-13.) Under the terms of
Merle’s Will, Ronald inherited the three parcels of working farmland (the Parks
Farm Property), as well as the residuary estate cash, savings instruments, retirement
accounts, stocks, and bonds. (Id. ¶¶ 25, 37-38.) According to the Complaint,
Defendant Ronald, in concert with his wife, Defendant Madeline M. Parks,
subsequently caused transfers to the Parks Farm Property, through a series of
quitclaim deeds, to himself, his wife, entities that he controlled, and ultimately to the
Defendant Trust, for which Ronald acts as Trustee. (Id. ¶¶ 15-18.)
3
Pursuant to 26 U.S.C. § 6075(a), the Estate of Merle Parks’s (the “Estate”)
Form 706 tax return was due on May 19, 2004 (nine months after Merle’s death).
The Estate requested and received one six-month extension to file the tax return
(pursuant to 26 U.S.C. § 6081(a)), by December 19, 2004. (Compl. ¶ 22.) On June
22, 2004, the Estate made an estate tax prepayment of $333,959.00 to the United
States, but it did not file a tax return with that prepayment. (Id. ¶ 23.) Moreover, the
Estate did not file its Form 706 tax return by the extended due date for the return of
December 19, 2004, (id. ¶ 22), and it did not seek any further extension of time to
file a return.
Instead, in February 2010, over five years after the Estate’s tax return deadline
(as extended), the Estate filed its tax return on Form 706. (Compl. ¶ 23) (ECF No.
14-1, Form 706 Return, PageID.199-234.) The return reported a total gross estate in
the amount of $1,703,173.00, and taxable estate of $1,664,059.00. (Compl. ¶ 24)
(Form 706 Return, PageID.199.) The Estate’s tax return included an election under
Internal Revenue Code Section 2032A, 26 U.S.C. § 2032A, which in certain
circumstances allows the value of qualified farm property to be adjusted downward
through a special use valuation. (Compl. ¶¶ 26-28) (Form 706 Return, PageID.204.)
The Estate’s return adjusted the value of the farm property under § 2032A down
4
from the assigned fair market value of the property.3 The Estate’s Form 706 Return
then claimed an overpayment of taxes (based on its prior June 2004 tax prepayment)
in the amount of $87,838.00. (Compl. ¶ 24.)
Following the filing of the Estate’s tax return, the Internal Revenue Service
selected the return for examination. On October 23, 2012, the IRS sent a Notice of
Deficiency to the Estate, identifying additional taxes owed in the amount of
$199,111.00. (Compl. ¶ 31.) The Notice of Deficiency stated that “the [special use
valuation] election under Internal Revenue Code section 2032A is not allowed
because it was untimely filed,” and the Notice increased the taxable estate by the
amount the property had been adjusted down by the special use valuation. (ECF No.
14-2, Notice of Deficiency, PageID.239.) The Notice also asserted an additional tax
of $27,818.25 in a late-filing penalty. (Id.)
3
The Estate’s Form 706 Return adjusted the value of the farm property under §
2032A by $359,151.00, as compared to a fair market value it assigned as
$1,131,200.00. (Form 706 Return, PageID.204.) The United States asserts that the
Estate’s Form 706 Return contains computational errors, and that the return actually
adjusted the value of the farm property under § 2032A by $433,773.00, as compared
to its assigned fair market value. (ECF No. 14, Pl.’s Mot. Partial S.J. at p. 3, fn.2,
PageID.182.) The correctness of these figures is not material to the issue currently
before the Court.
5
These tax penalties remain unpaid, and Plaintiff alleges that the balance due,
as of October 15, 2021 (one month prior to the filing of the Complaint in this action),
is $433,654.66. (Compl. ¶ 32.)
B.
Procedural History
On November 15, 2021, Plaintiff, the United States of America, at the
direction and request of a delegate of the Attorney General of the United States and
with the authorization of a delegate of the Secretary of the Treasury, brought this
civil action against Defendants Ronald G. Parks, individually, as Successor Personal
Representative of the Estate of Merle L. Parks, and as Trustee for the Ronald G.
Parks Revocable Living Trust Dated April 13, 2006, and Ronald’s wife, Madeline
M. Parks, to collect the asserted unpaid tax liabilities of the Estate of Merle L. Parks,
and to enforce the resulting tax liens through a judicial sale of the Parks Farm
Property. (ECF No. 1, Compl.)
Defendants filed their Answer to the Complaint on March 15, 2022. (ECF No.
9, Answer.) In their Answer, Defendants admit that the Estate’s tax return was filed
over five years late, but assert that the § 2032A election for special use valuation
was timely made pursuant to 26 C.F.R. § 22.0(b) because the election was made on
the Estate’s first-filed Form 706 return, and that Defendants therefore owe no taxes,
penalties, or interest to the Plaintiff or the Internal Revenue Service.
6
The April 13, 2022, Civil Case Management and Scheduling Order in this case
provides for early dispositive motions, limited to the issue of the “timeliness of [a]
§ 2032A election.” (ECF No. 12, Order, PageID.80.)
As permitted by that Case Management Order, Defendants filed a motion for
summary judgment on June 16, 2022, arguing that the Estate’s special use valuation
election under 26 U.S.C. §2032A was valid when Defendants attached it to their
first-filed Form 706 tax return, even though the return was filed late. (ECF No. 13,
Defs.’ Mot.) On July 7, 2022, Plaintiff filed a Response in opposition to Defendants’
motion (ECF No. 15, Pl.’s Resp.), and Defendants filed a reply brief on July 14,
2022 (ECF No. 17, Defs.’ Reply).
On June 17, 2022, Plaintiff filed a motion for partial summary judgment on
the timeliness of the Estate’s § 2032A election, arguing that the special use valuation
election on the Estate’s Form 706 tax return filed over five years late is not a timely
or valid election. (ECF No. 14, Pl.’s Mot.) On July 8, 2022, Defendants filed a
response in opposition to Plaintiff’s motion (ECF No. 16, Defs.’ Resp.), and Plaintiff
filed a reply brief on July 22, 2022. (ECF No. 18, Pl.’s Reply).
II. LEGAL STANDARD
Summary judgment is appropriate where the moving party demonstrates that
there is no genuine dispute as to any material fact. Celotex Corp. v. Catrett, 477 U.S.
7
317, 322 (1986); Fed. R. Civ. P. 56(a). “A fact is ‘material’ for purposes of a motion
for summary judgment where proof of that fact ‘would have [the] effect of
establishing or refuting one of the essential elements of a cause of action or defense
asserted by the parties.’” Dekarske v. Fed. Exp. Corp., 294 F.R.D. 68, 77 (E.D. Mich.
2013) (quoting Kendall v. Hoover Co., 751 F.2d 171, 174 (6th Cir. 1984)). A dispute
is genuine “if the evidence is such that a reasonable jury could return a verdict for
the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48
(1986).
“In deciding a motion for summary judgment, the court must draw all
reasonable inferences in favor of the nonmoving party.” Perry v. Jaguar of Troy,
353 F.3d 510, 513 (6th Cir. 2003) (citing Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 587 (1986)). At the same time, the non-movant must produce
enough evidence to allow a reasonable jury to find in his or her favor by a
preponderance of the evidence, Anderson, 477 U.S. at 252, and “[t]he ‘mere
possibility’ of a factual dispute does not suffice to create a triable case.” Combs v.
Int’l Ins. Co., 354 F.3d 568, 576 (6th Cir. 2004) (quoting Gregg v. Allen–Bradley
Co., 801 F.2d 859, 863 (6th Cir. 1986)). Instead, “the non-moving party must be able
to show sufficient probative evidence [that] would permit a finding in [his] favor on
more than mere speculation, conjecture, or fantasy.” Arendale v. City of Memphis,
8
519 F.3d 587, 601 (6th Cir. 2008) (quoting Lewis v. Philip Morris Inc., 355 F.3d
515, 533 (6th Cir. 2004)). “The test is whether the party bearing the burden of proof
has presented a jury question as to each element in the case. The plaintiff must
present more than a mere scintilla of the evidence. To support his or her position, he
or she must present evidence on which the trier of fact could find for the plaintiff.”
Davis v. McCourt, 226 F.3d 506, 511 (6th Cir. 2000) (internal quotation marks and
citations omitted).
“The standards … for summary judgment do not change when, as here, ‘both
parties seek to resolve [the] case through the vehicle of cross-motions for summary
judgment.’” Craig v. Bridges Bros. Trucking LLC, 823 F.3d 382, 387 (6th Cir. 2016)
(quoting Taft Broad. Co. v. United States, 929 F.2d 240, 248 (6th Cir. 1991)). “‘The
central issue is whether the evidence presents a sufficient disagreement to require
submission to a jury or whether it is so one-sided that one party must prevail as a
matter of law.’” Binay v. Bettendorf, 601 F.3d 640, 646 (6th Cir. 2010) (quoting In
re Calumet Farm, Inc., 398 F.3d 555, 558 (6th Cir. 2005)). That evidence must be
capable of presentation in a form that would be admissible at trial. See Alexander v.
CareSource, 576 F.3d 551, 558–59 (6th Cir. 2009).
9
III. ANALYSIS
The parties agree that the sole issue to be decided by the Court, under both
Plaintiff’s motion for partial summary judgment and Defendants’ motion for
summary judgment, is whether an election for special use valuation under § 2032A
of the Internal Revenue Code, made for the first time on an estate tax return filed
over five years late, is timely and valid.
Plaintiff argues that the Estate’s § 2032A election, made on an estate tax return
filed over five years after the due date for the return (as extended), was untimely and
the Estate was not entitled to special use valuation, thereby establishing the amount
of tax liability. (ECF No. 14, Pl.’s Mot.)
Defendants argue that the Estate’s § 2032A special use valuation election,
attached to the late-filed Form 706 tax return, is valid because the election was made
in accordance with Temporary Treasury Regulation Section 22.0(b), which provides
that elections under Section 2032A(d)(1) are valid even if the estate tax return is not
timely filed, so long as the election is made on the first filed tax return.
A.
Overview of Relevant Statutory and Regulatory Provisions
Estate tax is generally based on the fair market value of the taxable property,
which is valued at the property’s highest and best use. 26 U.S.C. § 2001; Estate of
McCoy v. C.I.R., 809 F.2d 333, 333 (6th Cir. 1987); LeFever v. C.I.R., 100 F.3d 778,
10
782 (10th Cir. 1996). Section 2032A of the Internal Revenue Code, 26 U.S.C. §
2032A, allows for special valuation of certain estate property used for farming or a
trade or business that is inherited by certain family relations, to be valued on the
basis of the property’s actual use at the time of the decedent’s death, rather than on
the basis of its highest and best (or fair market value) use, for federal estate tax
purposes, resulting in lower estate taxes. With Section 2032A, Congress intended to
protect the heirs of family farms and small family businesses from being forced to
sell the farms or businesses to pay federal estate taxes. LeFever, 100 F.3d at 782
(citing Whalen v. United States, 826 F.2d 668, 669 (7th Cir. 1987)). As counsel for
Defendants stated at the hearing, § 2032A is a tax decreasing statute to benefit
owners of family farms and family businesses, not a revenue generating statute. To
maintain the benefits of the special use valuation election, qualified heirs must, for
10 years following the date of death, continue to put the property to the same
qualifying use to which it was put at the date of the decedent’s death. 26 U.S.C. §
2032A(c)(1)(B).
The following is a brief overview of the relevant statutory and regulatory
provisions at issue in this case.
11
1.
The original 26 U.S.C. § 2032A (1976)
Congress first added Section 2032A to the Internal Revenue Code in the Tax
Reform Act of 1976, which required, at that time, that an election “shall be made not
later than the time prescribed by section 6075 for filing the return of tax imposed by
section 2001 (including extensions thereof)….” 26 U.S.C. § 2032A(d)(1) (1976).
Section 6075(a) provided that the return was to be filed within nine months of the
decedent’s death. 26 U.S.C. § 6075(a). Thus, under this original, 1976 version of the
statute, a taxpayer was required to make a Section 2032A election on a tax return
filed within nine months after the date of the decedent’s death (including extensions
thereof). See Estate of McCoy v. Comm’r, T.C. Memo. 1985-509, aff’d, 809 F.2d
333 (6th Cir. 1987).
2.
Treasury Regulation § 20.2032A-8 (July 31, 1980)
Pursuant to the 1976 Tax Reform Act, on July 31, 1980, the Treasury
Secretary issued Treasury Regulation § 20.2032A-8, which provides, in relevant
part:
An election under this section is made by attaching to a timely filed
estate tax return the agreement…. If neither an election nor a protective
election is timely made, special use valuation is not available to the
estate. See sections 2032A(d)(1), 6075(a), and 6081(a).
26 C.F.R. § 20.2032A-8(a)(3) (emphasis added). This Regulation has not changed
and remains the same today.
12
3.
26 U.S.C. § 2032A is amended in 1981
Congress amended Section 2032A in the Economic Recovery Tax Act of 1981
(ERTA), Pub. L. No. 97-34 (1981), to expressly remove the requirement in §
2032A(d)(1) that an election be made “not later than the time prescribed … for filing
the return,” and to instead require that:
The election under this section shall be made on the return of the tax
imposed by section 2001. Such election shall be made in such manner
as the Secretary shall by regulations prescribe. Such an election, once
made, shall be irrevocable.
26 U.S.C. § 2032A(d)(1) (emphases added) (1981).
As noted in Plaintiff’s motion for partial summary judgment, “[t]he House
Ways and Means Committee’s report on the bill explained, ‘[t]he committee believes
that qualified heirs should not be deprived of the benefits of the current use valuation
solely because the decedent’s estate tax return is filed after the date on which it is
due.’” (ECF No. 14, Pl.’s Mot., PageID.186, citing ECF No. 14-4, H.R. Rep. No.
97-201, at 171 (July 24, 1981), PageID.284.) The Committee further stated that:
[E]lections to specially value property must be made on the decedent’s
estate tax return rather than by the due date of the return as under [then]
present law. Therefore, the election is permitted to be made on a late
return, if that return is the first estate tax return filed by the estate….
(H.R. Rep. No. 97-201, at 171 (July 24, 1981), PageID.284 (emphases added).)
13
This amended version of Section 2032A was in effect on the date of decedent
Merle Parks’s death in 2003, and continues to be in effect today.
4.
Temporary Treasury Regulation § 22.0 (1981)
As stated above, Section 2032A(d)(1), as amended in 1981 pursuant to the
Economic Recovery Tax Act, directs the Secretary to prescribe regulations to
establish the manner in which the special use valuation election is to be made.
Shortly after the 1981 Economic Recovery Tax Act was passed, the Secretary
did just that and promulgated “Temporary Estate Tax Regulations” which “applie[d]
to the election of special use valuation for qualified real property under section
2032A(d)(1),” and provided that “[t]his election shall be made in the manner
prescribed in § 20.2032A-8(a)(3) except that the election shall be valid even if the
estate tax return is not timely filed.” 26 C.F.R. § 22.0(b) (emphasis added).
Thus, this temporary regulation expressly amends or modifies Treas. Reg. §
20.2032A-8(a)(3)’s requirement of a making a special use valuation election on a
“timely filed estate tax return,” by keeping the requirement that the special election
be made “on the decedent’s tax return,” but removing the requirement that the return
be filed timely. However, § 22.0(b) does not otherwise provide an expiration date
by which a return with an election must be filed. Temporary Treasury Regulation §
22.0 is effective “with respect to estates of decedents dying after 1981.” Id. § 22.0(d).
14
5.
Treasury Regulation § 301.9100-2 (1997)
On December 31, 1997, sixteen years after Temp. Treas. Reg. § 22.0 was
prescribed, the Secretary promulgated Treasury Regulation § 301.9100-2, providing
“automatic extensions” to make certain regulatory elections, including elections
under § 2032A. 26 C.F.R. § 301.9100-2. This regulation provides, in relevant part:
An automatic extension of 12 months from the due date for making a
regulatory election is granted to make elections described in paragraph
(a)(2) of this section provided the taxpayer takes corrective action as
defined in paragraph (c) of this section within that 12-month
extension period. For purposes of this paragraph, the due date for
making a regulatory election is the extended due date of the return if
the due date of the election is the due date of the return or the due date
of the return including extensions and the taxpayer has obtained an
extension of time to file the return. This extension is available
regardless of whether the taxpayer timely filed its return for the year
the election should have been made.
26 C.F.R. § 301.9100-2(a)(1) (emphases added).
Temporary Treas. Reg. § 22.0(b) and Treas. Reg. § 301.9100-2 are at the heart
of the parties’ dispute in this case.
B.
The Parties’ Arguments Regarding the Applicability of Temporary
Treasury Regulation § 22.0(b) in This Case
The parties agree that 26 U.S.C. § 2032A(d)(1) provides that special use
valuation elections “shall be made in such manner as the Secretary shall by
regulations prescribe,” and that Treasury Regulation 26 C.F.R. § 20.2032A-8(a)(3),
enacted in 1980 (under the prior version of § 2032A that contained the statutory
15
deadline), set forth the requirements for making a Section 2032A election, stating
“[a]n election under this section is made by attaching to a timely filed estate tax return
the agreement … and a notice of election.” (emphasis added). Temporary Treasury
Regulation § 22.0(b), enacted in 1981, after the passage of the Economic Recovery
Tax Act of 1981, expressly modifies § 20.2032A-8(a)(3) and provides that an
“election shall be valid even if the estate tax return is not timely filed.” 26 C.F.R. §
22.0(b).
The parties also agree that Defendants filed the Estate’s Form 706 Tax Return
five years late, and thus Defendants did not file a “timely” estate tax return. The
parties disagree, however, as to whether Defendants may claim a special use
valuation election made for the first time on that late-filed tax return, pursuant to
Temp. Treas. Reg. § 22.0(b).
Plaintiff argues that the Estate cannot make an election for the first time on a
tax return filed over five years late, and that Defendants therefore are not entitled to
special use valuation under § 2032A. Plaintiff asserts that Temp. Treas. Reg. §
22.0(b) was not intended to be permanent, and that it was in fact superseded first by
Revenue Procedure 92-85, which provided standards for granting extensions of time
to make elections – “to provide relief to taxpayers who reasonably and in good faith
fail to make a timely election when granting relief will not prejudice the interests of
16
the government” (ECF No. 14-4, Rev. Proc. 92-85, PageID.294-301). The Court
notes that Revenue Procedure 92-85 does not mention Temp. Treas. Reg. § 22.0(b),
much less state that it supersedes that Temporary Regulation.
Plaintiff states next that the Secretary implemented Treasury Regulation §
301.9100-2 in 1997, which Plaintiff asserts supersedes Revenue Procedure 92-85
and Temp. Treas. Reg. § 22.0(b). Section 301.9100-2 grants “[a]n automatic
extension of 12 months from the date for making a regulatory election,” specifically
including § 2032A elections, among others, and states that “[t]his extension is
available regardless of whether the taxpayer timely filed its return for the year the
election should have been made.” 26 C.F.R. § 301.9100-2(a)(1) and (2).
Plaintiff thus contends that, pursuant to Treas. Regs. §§ 20.2032A-8(a)(3) and
301.9100-2, Defendants were required to file an estate tax return seeking the special
use valuation election no later than 12 months after the due date for the return –
which Plaintiff contends is the extended due date provided by § 301.9100-2 for such
an election.
Plaintiff further argues that, even if Temp. Treas. Reg. § 22.0(b) was not
“completely superseded” by § 301.9100-2, the Temporary Regulation cannot be
interpreted to permit a § 2032A election “to be made literally forever.”
17
Defendants argue that Temp. Treas. Reg. § 22.0(b) has not been superseded
but remains in force today, and that the Estate’s special use valuation election on its
late-filed Form 706 tax return was proper under § 2032A and § 22.0(b) because the
special use valuation election was included with Defendants’ first-filed tax return,
even though that tax return was filed late. Defendants contend that Temp. Treas.
Reg. § 22.0(b) expressly provides that an election “shall be valid even if the estate
tax return is not timely filed,” and further that the Instructions to the Form 706 estate
tax return state “You may make the election on a late filed return so long as it is the
first return filed.” Defendants disagree that Treas. Reg. § 301.9100-2 governs in this
case and includes a deadline schedule of 12 months from the original due date for
the return, with extensions, for all late-filed Form 706 tax returns that include an
election under § 2032A.
C.
Treasury Regulation § 301.9100-2 Does Not Supersede Temporary
Treasury Regulation § 22.0(b)
Plaintiff first presents a rather cursory, one-paragraph argument in its motion
for partial summary judgment that Temp. Treas. Reg. § 22.0(b) has been superseded
and is no longer in force, even though the Treasury Department has not formally
removed § 22.0(b) from the Code of Federal Regulations. (ECF No. 14, Pl.’s Mot.,
PageID.192.) Plaintiff contends that the 1981 temporary regulation implementing §
22.0(b) stated: “The temporary regulations provided by this document will remain
18
in effect until superseded by later temporary or final regulations relating to these
elections.” 46 Fed. Reg. 54,538.4 Plaintiff also asserts that Treas. Reg. § 301.91002 was promulgated in 1997, and that it “relates” to § 2032A elections, specifically
referring to and extending “the due date for making a regulatory election” under §
2032A. Plaintiff argues that Treas. Reg. § 301.9100-2 thus supersedes Temp. Treas.
Reg. § 22.0(b).
Defendants argue that Temp. Treas. Reg. § 22.0(b) has never been superseded,
even by § 301.9100-2, and that Plaintiff “cites zero support (authoritative or
otherwise)” for its assertion that it has. Defendants state that § 22.0 is still in
existence and contained in the most recent Code of Federal Regulations. Defendants
contend that while § 22.0(b) and § 301.9100-2 both discuss elections under § 2032A,
those regulations are not mutually exclusive. According to Defendants, § 301.91002 comes into play only when an estate tax return has been filed but the taxpayer
failed to make the election under § 2032A, and that the regulation provides the
taxpayer with the ability to still make the election within a 12-month period from the
4
The Court notes that 46 Fed. Reg. 54,538 addressed not just Temp. Treas. Reg. §
22.0 and special use valuation under § 2032A, but also a number of other temporary
regulations relating to certain other elections under various sections of the Internal
Revenue Code of 1954 and the Economic Recovery Tax Act of 1980, at Part 5c.
(ECF No. 14-4, PageID.286-89.)
19
due date of the tax return, so long as the IRS has not yet begun an examination of
the filed return. (ECF No. 16, Defs.’ Resp., PageID.391, 393-94.)
Defendants argue that, § 22.0(b), on the other hand, comes into play when the
Form 706 tax return has not yet been filed, and permits the special use valuation
election to be made on the first filed return, even if it is filed late. Defendants cite to
excerpts from several secondary sources in support (various tax reporters and
publications), all generally stating that a special use valuation election “may be made
on a late filed return, so long as it is made on the first estate tax return filed by the
estate,” and citing § 22.0(b) as support. (See ECF Nos. 16-5 through 16-8.) Two of
those sources go on to note further that the time for filing the election can be
automatically extended for a 12-month period under certain circumstances, citing §
301.9100-2. (ECF Nos. 16-5 and 16-8.) Defendants argue, therefore, that Treas. Reg.
§ 301.9100-2 does not supersede Temp. Treas. Reg. § 22.0, and that § 301.9100-2 is
inapplicable under the facts of this case.
The Sixth Circuit Court of Appeals recently summarized the framework by
which to engage in regulatory interpretation:
[C]ourts “begin [their] interpretation of the regulation with its text.”
Green v. Brennan, 578 U.S. 547, 136 S. Ct. 1769, 1776, 195 L.Ed.2d
44 (2016). “[A] fundamental canon of statutory construction is that
‘when interpreting statutes, the language of the statute is the starting
point for interpretation, and it should also be the ending point if the
plain meaning of that language is clear.’” Thompson v. Greenwood, 507
20
F.3d 416, 419 (6th Cir. 2007) (quoting United States v. Boucha, 236
F.3d 768, 774 (6th Cir. 2001)). The same logic applies to interpretation
of regulatory language. See Kisor v. Wilkie, ––– U.S. ––––, 139 S. Ct.
2400, 2414, 204 L.Ed.2d 841 (2019). We therefore deploy the standard
tools of interpretation. See, e.g., Nat’l Ass’n of Home Builders v. Defs.
of Wildlife, 551 U.S. 644, 688-69, 127 S.Ct. 2518, 168 L.Ed.2d 467
(2007) (invoking the canon against surplusage in the interpretation of
regulatory language); Long Island Care Home, Ltd. v. Coke, 551 U.S.
158, 170, 127 S.Ct. 2339, 168 L.Ed.2d 54 (2007) (using the canon that
the specific controls the general in construing regulatory language). If
a regulation’s meaning is plain, the court must give the “it effect, as the
court would any law,” Kisor, 139 S. Ct. at 2415, and the court’s inquiry
into the regulatory meaning is over, In re Laurain, 113 F.3d 595, 597
(6th Cir. 1997); cf. Bostock v. Clayton Cnty., ––– U.S. ––––, 140 S. Ct.
1731, 1749, 207 L.Ed.2d 218 (2020). We may look to agency guidance
if the language is ambiguous, but typically, “before concluding that a
rule is genuinely ambiguous, a court must exhaust all the ‘traditional
tools’ of construction.” Kisor, 139 S. Ct. at 2415 (citing Chevron U.S.A.
Inc. v. Nat. Res. Def. Council, Inc., 467 U.S. 837, 843 n.9, 104 S.Ct.
2778, 81 L.Ed.2d 694 (1984)).
Saginaw Chippewa Indian Tribe of Michigan v. Blue Cross Blue Shield of Michigan,
32 F.4th 548, 557-58 (6th Cir. 2022).
The Court finds, applying these rules of regulatory interpretation, that Plaintiff
has failed to demonstrate that Temp. Treas. Reg. § 22.0(b) has been superseded by
Treas. Reg. § 301.9100-2. Plaintiff has failed to cite any authority or support for its
argument that § 22.0(b) has been superseded by § 301.9100-2, and the Court has not
found any authority that §22.0(b) has been superseded or that the temporary
regulation otherwise is not still in force. Indeed, Temp. Treas. Reg. § 22.0 continues
to be included in the current Code of Federal Regulations.
21
According to the Internal Revenue Manual, “Temporary regulations are
issued to provide immediate guidance to the public and IRS and Counsel employees
prior to publishing final regulations,” and “are effective when published by the
Office of the Federal Register.” (Internal Revenue Manual 32.1.1.2.3 (2018),
https://www.irs.gov/irm/part32/irm_32-001-001#idm140524209775152.)5
Courts
have held that temporary regulations have binding effect and are entitled to the same
weight as final regulations. See Freightliner of Grand Rapids. Inc. v. United States,
351 F. Supp. 2d 718, 721 (W.D. Mich. 2004) (citing Hospital Corp. of Am. v. C.I.R.,
348 F.3d 136, 140-41 (6th Cir. 2003) and E. Norman Peterson Marital Trust v.
Comm’r, 78 F.3d 795, 798 (2d Cir. 1996)); see also Greenberg v. C.I.R., 10 F.4th
1136, 1157 (10th Cir. 2021) (recognizing that temporary regulations are entitled to
the same weight accorded to final regulations) (citing Peterson Marital Trust v.
Comm’r, 102 T.C. 790, 797 (1994), aff’d, 78 F.3d 795 (2d. Cir. 1996); UnionBanCal
5
Section 7805 of the Internal Revenue Code currently provides that “[a]ny
temporary regulation shall expire within 3 years after the date of issuance of such
regulation.” 26 U.S.C. § 7805(e)(2). However, § 7805(e)(2) applies only to
regulations issued after November 20, 1988. See Hewlett-Packard Co. & Consol.
Subsidiaries v. C.I.R., 139 T.C. 255, 265 n.15 (2012) (citing Technical and
Miscellaneous Revenue Act of 1988, Pub. L. 100–647, § 6232(a), 102 Stat. 3734),
aff’d, 875 F.3d 494 (2017). Temp. Treas. Reg. § 22.0 was issued in 1981, well before
the effective date of § 7805(e)(2).
22
Corp. v. C.I.R., 305 F.3d 976, 985 n.52 (9th Cir. 2002) (collecting cases); Truck &
Equip. Corp. v. Comm’r, 98 T.C. 141, 149 (1992)).
In addition, the final regulation for § 301.9100-2, Extensions of Time to Make
Elections, following notice and comment procedures, 62 Fed. Reg. 68,167 (Dec. 31,
1997) (codified at 26 C.F.R. § 301.9100-0 et seq.), does not mention Temp. Treas.
Reg. § 22.0(b), much less supersede it. That final regulation does, however, discuss
temporary regulations §§ 301.9100-1T, 301.9100-2T, and 301.9100-3T, and
expressly state that those temporary regulations “are removed.” (ECF No. 14-4, 62
Fed. Reg. 68,167, PageID.303-09.) In addition, those three temporary regulations
provided that they “adopt and revise the standards for relief provided in Rev. Proc.
92-85,” and discuss the temporary regulations’ “effect on other documents,” listing
additional revenue procedures, but, like the final regulation, those temporary
regulations did not mention, much less supersede, Temp. Treas. Reg. § 22.0. See 61
Fed. Reg. 33365-01.
Further, as Defendants correctly point out, in 2019, the Department of the
Treasury expressly eliminated “296 regulations that are no longer necessary because
they do not have any current or future applicability under the Internal Revenue Code
and amend 79 regulations to reflect the removal of the 296 regulations,” and Temp.
Treas. Reg. § 22.0 was not included on that list. (ECF No. 16, Defs.’ Resp., fn. 1,
23
PageID.395, citing 84 Fed. Reg. 9231-01, 2019 WL 1168298 (Mar. 14, 2019).) In
fact, Defendants point out that Temp. Treas. Reg. § 22.0 is cited in Treas. Reg.
301.9100-21 as an existing and effective Temporary Treasury Regulation “regarding
elections under various other tax acts[.]” (ECF No. 17, Defs.’ Reply PageID.442)
(26 C.F.R. § 301.9100-21, References to other temporary elections under various tax
acts.)
Accordingly, the Court finds that Temp. Treas. Reg. § 22.0 has not been
superseded by Treas. Reg. § 301.9100-2, but rather remains in force. In addition, as
discussed next, Temp. Treas. Reg. § 22.0(b) and Treas. Reg. § 301.9100-2 are not
necessarily mutually exclusive – such that the implementation of § 301.9100-2
would necessarily cancel or replace § 22.0 – but rather, the two regulations can be
read in harmony with each other.
D.
Because Temp. Treas. Reg. § 22.0 is not Superseded, How Do §
22.0(b) and § 301.9100-2 Apply?
Plaintiff argues that, even if Temp. Treas. Reg. § 22.0(b) is not superseded by
Treas. Reg. § 301.9100-2, then the Court must interpret all of the regulations in
“harmony” such that a taxpayer is not permitted an unlimited time to make an
election, but instead must make that election either with a timely filed estate tax
return (under Treas. Reg. § 20.2032A-8-(a)(3)), or pursuant to the automatic 12month extension of that time period, so long as the IRS has not started an
24
examination (under § Treas. Reg. § 301.9100-2), but no longer. (ECF No. 14, Pl.’s
Mot., PageID.193 (stating that “a timely election can be on an untimely return (or
after a filed return as long as it is done within 12 months following the extended due
date for a return and provided the IRS has not started an examination…”).) Plaintiff
states that Defendants in this case did not meet either deadline. The Court observes
that under this interpretation of the regulations, Plaintiff simply ignores Temp. Treas.
Reg. § 22.0(b) and its express amendment of the election deadline in § 20.2032A8(a)(3).
Plaintiff argues that Temp. Treas. Reg. § 22.0(b) states only that “the election
shall be valid even if the estate tax return is not timely filed,” and that an
interpretation of Temp. Treas. Reg. § 22.0(b) as wholly eliminating the § 2032A
election deadline would render the deadline schedule set out by the other regulations
meaningless and lead to an “absurd result” (the filing of an election “many years or
decades – even centuries – late”). (ECF No. 14, Pl.’s Mot., PageID.194.) Plaintiff
continues that § 22.0(b) does not affirmatively state that there is no deadline for an
election under § 2032A, and then argues that § 301.9100-2 now provides that
deadline – 12 months after the due date for the return, as extended.
Plaintiff contends that Treas. Reg. § 301.9100-2 “explicitly reaffirmed” the
existence of the “due date” for an election (as prescribed by Treas. Reg. § 20.2032A25
8), and clarifies that the “due date for making a regulatory election” is the “extended
due date of the return,” and that the election deadline is then further extended by 12
months. (Id. PageID.195.) According to Plaintiff, “[r]ather than permanently
eliminat[ing] the regulatory due date for a § 2032A election, Temp. Treas. Reg. §
22.0(b) just distinguished the timeliness of the election from the timeliness of the
return until a more permanent and balanced election-timeliness provision could be
designed,” which Plaintiff asserts the Secretary did, sixteen years later, in Treas.
Reg. § 301.9100-2. (ECF No. 18, Pl.’s Reply, PageID.453).)
Plaintiff relies on the language in Treas. Reg. § 301.9100-2 that the “due date
for making a regulatory election” is the “extended due date of the return,” which
Plaintiff asserts is further extended by 12 months. (ECF No. 14, Pl.’s Mot.,
PageID.195) However, a fair reading of the “due date” language in § 301.9100-2(a)
that Plaintiff relies on reveals that it is limited to the “due date” for granting an
“automatic extension” under the regulation, “provided the taxpayer takes corrective
action,” not the due date to make any election:
… For purposes of this paragraph (a) [granting an automatic
extension of 12 months from the due date for making a regulatory
election], the due date for making a regulatory election is the extended
due date of the return, if the due date of the election is the due date of
the return or the due date of the return including extension, and the
taxpayer has obtained an extension of time to file the return.
26 C.F.R. § 301.9100-2(a) (emphases added).
26
Defendants argue that each Treasury Regulation is distinctly different and
results in different outcomes for taxpayers, and that the regulations work “hand-inhand” together to provide additional relief or benefits for taxpayers seeking to make
an election under § 2032A. Defendants contend that the regulations, read together,
provide that the deadline for making a special use valuation election is either:
(1) with a timely filed Form 706 tax return (pursuant to Treas. Reg. §
20.2032A-8(a)(3));
(2) within 12 months of a filed Form 706 tax return, if the tax return is
not under audit (pursuant to Treas. Reg. § 301.9100-2(a)(2)(vii)); OR
(3) with the first filed Form 706 tax return, if the tax return is being
filed late (pursuant to Temp. Treas. Reg. § 22.0(b) and the Instructions
to the Form 706).
(ECF No. 16, Defs.’ Resp., PageID.395.) Defendants contend that their
interpretation of Treas. Reg. § 301.9100-2 – as applying when a taxpayer files a tax
return but initially fails to include the special use valuation election – is supported
by the two examples contained in § 301.9100-2 that the Secretary included in the
regulation to “illustrate the provisions of this section.” The Court agrees. In both
examples provided by the Secretary in the regulation, the taxpayer failed to make an
election when filing his tax return on the due date for the return. In each example,
the taxpayer was permitted to “make the regulatory election by taking the corrective
action of filing an amended return” with the appropriate election form within either
27
12 or 6 months from the due date of the return. See 26 C.F.R. § 301.9100-2(e),
Examples.6
According to Defendants, Treas. Reg. § 301.9100-2 does not apply in this case
because the late-filed Estate Form 706 tax return filed by Defendants included the
election under § 2032A, resulting in no “corrective action” being required. The Court
further notes that § 301.9100-2 provides that the extension “is available regardless
of whether the taxpayer timely filed its return,” not “whether the taxpayer timely
files its return,” lending support to Defendants’ argument that § 301.9100-2 only
applies when a taxpayer has “timely filed” a tax return but initially fails to include
the special use valuation election with the return.
In Defendants’ reply brief in support of their motion for summary judgment,
Defendants provide the following examples to illustrate how Treas. Reg. §
301.9100-2 and Temp. Treas. Reg § 22.0(b) serve different purposes:
1. Taxpayer files its Form 706 timely and makes an election under
Code § 2032A – this should result in a valid election under Treas. Reg.
§ 20.2032A-8(a)(3). [The Court notes that both parties agree with this];
6
Defendants further point to three Private letter Rulings (PLRs) – PLRs 201224019,
200528019, and 201230023 – where relief was sought after the taxpayers filed their
Form 706 Returns. (ECF No. 13, Defs.’ Mot. PageID.107, citing Exs. 9, 10, 11,
PageID.159-62, 164-66, 168-70.) However, as Plaintiff correctly points out, (and as
discussed more fully infra), PLRs may not be used or cited to as precedent, and the
three PLRs Defendants rely on are inapposite because they reflect actions on
requests for relief under § 301.9100-3 when the requirements for § 301.9100-2 were
not met. (ECF No. 15, Pl.’s Resp., PageID.336-37.)
28
2. Taxpayer files its Form 706 timely and fails to make an election
under Code § 2032A, but amends its tax return (which is not under
examination by the IRS) within twelve-months of the tax return
deadline (including extensions) to include the election under Code §
2032A – this should result in a valid election under Treas. Reg. §
301.9100-2(a)(1);
3. Same facts as #2 except Taxpayer’s original tax return is under
examination by the IRS – this should result in an invalid, rejected
election under the Treas. Reg. § 301.9100-2(a)(2)(vii);
4. Taxpayer files its Form 706 one month late and fails to make an
election under Code § 2032A but amends its late tax return within
twelve-months of the original tax return (including extensions) deadline
to include the election under Code § 2032A – this should result in a
valid election under the last sentence of Treas. Reg. § 301.9100-2(a)(1);
5. Taxpayer files its Form 706 five years late and makes an election
under Code § 2032A (on the first filed late tax return) – this should
result in a valid election under Temp. Treas. Reg. § 22.0(b) – [The
Court notes that this example is analogous to the present case];
6. Taxpayer files its Form 706 four years late and fails to make an
election under Code § 2032A with the late tax return but immediately
attempts to amend the late filed tax return to make the election – this
should result in an invalid, rejected election because the election was
not made with the first filed late tax return under Temp. Treas. Reg. §
22.0(b) and the twelve-month extension from the original due date of
the tax return has expired under Treas. Reg. § 301.9100-2.
(ECF No. 17, Defs.’ Reply, fn.3, PageID.444-45.) The Court finds that these
examples are persuasive.
Defendants further contend that not permitting them to make a special use
valuation election on a late filed tax return is unjust and inconsistent with Congress’
29
and the IRS’s intent, and Defendants point out that taxpayers are already penalized
(monetarily) under the tax code for filing late tax returns and paying late taxes,7 but
that they are not precluded from taking deductions on those late-filed returns, and
should likewise not be precluded from making special use valuation elections. (ECF
No. 16, Defs.’ Resp., PageID.396.)
The Court finds that Defendants’ argument that the regulations are not
mutually exclusive is more persuasive. Rather, applying the rules of regulatory
construction set forth by the Sixth Circuit Court of Appeals in Saginaw Chippewa
Indian Tribe of Michigan, supra, the Court offers that a fair reading of the
regulations is as follows:
Section 20.2032A-8(a)(3) first set the time, or “due date,” for making an
election under § 2032A, stating that the election “is made by attaching [the
election] to a timely filed estate tax return” – which is nine months after
decedent’s death (or with a six-month extension). The parties agree on this.
Section 22.0(b) next expressly modified § 20.2043A-8(a)(3) and amended that
“due date” by stating that “the election shall be valid even if the estate tax
return is not timely filed,” thereby extending the “due date” for the election to
the date the estate tax return is first filed, “even if” it is filed late.
7
Under Section 6651(a)(1), for every month that a federal estate tax return is late,
the IRS must impose a penalty of 5 percent of the tax due, up to a maximum of 25
percent for returns more than four months delinquent, unless it's shown that the
failure to timely file is “due to reasonable cause and not due to willful neglect.” 26
U.S.C. § 6651(a)(1).
30
So, in effect, § 20.2032A-8(a)(3), as expressly modified by § 22.0(b), can be
read as:
(3) Time and manner of making election. An election under
this section is made by attaching to a [] filed estate tax return[,
even if the estate tax return is not timely filed,] the agreement
described in paragraph (c)(1) of this section and a notice of
election with contains the following information: ….
Section 301.9100-2 then separately provides that a taxpayer is automatically
entitled to a 12-month extension of time to make a special use election under
§ 2032A(d)(1) “from the due date for making” that election “where the
Internal Revenue Service (IRS) has not yet begun an examination of the filed
return,” which permits a taxpayer to take corrective action to make an election,
within 12 months of the due date of a return, when he initially files a tax return
without making an election.
This interpretation largely conforms to the text of the regulations themselves.
The Court concludes that Defendants therefore made a timely § 2032A special
valuation election when they included that election on their first-filed Form 706 tax
return, even though that return was filed five years late.
E.
Informal Guidance Regarding a § 2032A Election
Defendants correctly note that Plaintiff cites zero legal authority for its
arguments that Temp. Treas. Reg. § 22.0(b) has been superseded by Treas. Reg. §
301.9100-2, or that a taxpayer is prohibited from making an election on a late-filed
tax return (beyond 12 months after the due date for the return), so long as the special
use valuation election is made on the first filed return. (ECF No. 16, Defs.’ Resp.,
PageID.396.) Defendants agree that there is no case law on point addressing this
31
issue, and that no court has in fact ever evaluated or examined Temp. Treas. Reg. §
22.0(b). (ECF No. 16, Defs.’ Resp., PageID.397.) The Court similarly has not found
any case law touching on Temp. Treas. Reg. § 22.0(b).8
Defendants submit that, although there is no case law on point addressing
Temp. Treas. Reg. § 22.0(b), there are other sources that provide guidance in support
of Defendants’ argument that they properly filed the special use valuation election
on their late-filed Form 706 return. Specifically, Defendants point to a Private Letter
Ruling by the IRS and the Form 706 tax return Instructions. Defendants further point
to a number of secondary sources (various tax reporters and publications) which
8
The Court notes only that the Tax Court has issued decisions recognizing that §
2032A was amended in 1981 “to allow the election of special use valuation to be
made on the first estate tax return filed by the estate, whether or not timely filed.”
Estate of Johnson, 89 T.C. 127, 130 (1987); Estate of Rothpletz v. C.I.R., T.C.
Memo. 1987-310, 1987 WL 49207 (1987). Those decisions, however, were rendered
before Treas. Reg. § 301.9100-2 was promulgated.
In addition, the Tax Court, like the Bankruptcy Court, is an Article I court.
“[W]hile the Tax Court’s opinions ... may be illustrative, they have no precedential
value in law ....” Klein v. United States, 94 F. Supp. 2d 838, 844, 846 (E.D. Mich.
2000); see also Rhoades, McKee & Boer v. United States, 822 F. Supp. 445, 449
(W.D. Mich. 1993) (citation omitted), aff’d in part and rev’d in part on other
grounds, 43 F.3d 1071 (6th Cir. 1995) (“Decisions of the Tax Court do not bind
district courts. They are, however, entitled to considerable weight.”). The United
States Supreme Court has counseled that, “[w]hile [the Tax Court’s] decisions may
not be binding precedents for courts dealing with similar problems, uniform
administration would be promoted by conforming to them where possible.” Dobson
v. Comm’r, 320 U.S. 489, 502 (1943).
32
generally state that “[t]he election may be made on a late-filed return, so long as it
is made on the first estate tax return filed by the estate,” citing § 22.0(b), and which
then separately discuss an extension to make such an election, citing § 301.9100-2.
(ECF No. 16, Defs.’ Resp., citing ECF Nos. 16-5 to 16-8.)
1.
2010 Private Letter Ruling
Defendants contend that the IRS has interpreted Temp. Treas. Reg. § 22.0(b)
in a Private Letter Ruling (PLR) issued in 2010, PLR 201015003, 2010 WL 1511511
(Apr. 16, 2010), and that this PLR is “directly on point” and “further supports
Defendants’ position that an election under Section 2032A is valid when attached to
a first filed late tax return.” (ECF No. 13, Defs.’ Mot., PageID.105-06.)
A private letter ruling, or PLR, is a written statement issued to a taxpayer that
interprets and applies tax laws to the taxpayer’s represented set of facts. A PLR is
issued at the request of an individual taxpayer, and is binding only on the taxpayers
to whom it is issued. Estate of Smith v. U.S., 103 Fed. Cl. 533, 565 (2012) (citation
omitted); see also Amergen Energy Co. v. United States, 94 Fed. Cl. 413, 418 (2010)
(“‘Taxpayers other than those to whom such [private letter] rulings or memoranda
were issued are not entitled to rely on them.’”) (citation omitted)).
In PLR 201015003, cited by Defendants, the taxpayer’s Form 706 tax return,
with special use valuation election under § 2032A, was first filed six years after the
33
decedent’s death. 2010 WL 1511511 (I.R.S. PLR 2010). The taxpayer requested a
ruling from the IRS, in part, as to whether “[t]he estate is entitled to elect special use
valuation for the farm property under § 2032A on the Form 706 filed” six years after
the decedent’s death. Id. The IRS ruled that, pursuant to: (1) § 2032A(d)(1), which
provides that an election shall be made on the return of tax imposed by § 2001 and
in such manner as the Secretary shall by regulations prescribe; (2) § 22.0(b), which
provides that the election shall be valid even if the estate tax return is not timely
filed; and (3) the Form 706 Instructions, which provide that an election under §
2032A may be made on a late return so long as it is the first filed return, that “the
estate is entitled to elect special use valuation for the farm property under § 2032A
on the Form 706 filed” six years late. Id.
Defendants assert that this PLR is directly on point and supports their position
that their special use election is valid in this case because it was included on their
first-filed form 706 Tax Return, even though that return was filed five years late.
Plaintiff correctly asserts that PLRs are not binding authority and “may not be
used or cited to as precedent.” (ECF No. 14, Pl.’s Mot., PageID.196, citing Delek
US Holdings, Inc. v. United States, 32 F.4th 495, 502 (6th Cir. 2022); 26 U.S.C. §
6110(k)(3) (stating that unless otherwise established by regulation, an IRS “written
determination may not be used or cited as precedent.”).)
34
Defendants agree that PLRs issued by the IRS are not binding, but argue that,
in light of the absence of judicial interpretation of § 22.0(b), reviewing how the IRS
interprets that Temporary Regulation “‘reveal[s] the interpretation put upon the
statute by the agency charged with the responsibility for administering the revenue
laws.’” (ECF No. 16, Defs.’ Resp., PageID.397-98, quoting Hanover Bank v. C.I.R.,
369 U.S. 672, 686 (1962).)
Plaintiff somewhat concedes in its motion that “at best, a non-binding ruling
from [the] IRS should be followed ‘only to the extent that [it has] the “power to
persuade.”’” (ECF No. 14, Pl.’s Mot., PageID.196, quoting OfficeMax, Inc. v. United
States, 428 F.3d 583, 595 (6th Cir. 2005)). Plaintiff then argues, nonetheless, that
the Court should not “follow” this PLR because, aside from being non-binding, the
ruling is perfunctory and without analysis, and it fails to address Treas. Reg. §
301.9100-2. (ECF No. 14, Pl.’s Mot., PageID.196.)
Defendants contend that PLR 201015003 is persuasive, instructive, and a
reasonable interpretation of the IRS’s position in connection with Temp. Treas. Reg.
§ 22.0(b). First, Defendants point out that the PLR was issued in 2010, long after
Reg. § 301.9100-2 was enacted in 1997, and thus they contend that the PLR would
have addressed that regulation if it was applicable to the facts in that matter.
Defendants further contend that § 301.9100-2 is not mentioned in the PLR because,
35
under Defendants’ view, § 301.9100-2 is used exclusively when a Form 706 tax
return has already been filed, which was not the case in matter at issue in the PLR,
and is not the case here. (ECF No. 17, Defs.’ Reply, PageID.439-40.)
Second, the PLR deals with an estate filing a Form 706 tax return six years
late, which Defendants assert is “identical” to the facts in this case. Defendants
contend that this PLR is evidence of administrative interpretation and reveals that
the IRS believes that Temp. Treas. Reg. § 22.0(b) is still valid and applicable for
elections attached to a late-filed Form 706 tax return (even if it is filed over six years
late). (ECF No. 16, Defs.’ Resp., PageID.398.)
The Court finds, in light of the complete absence of interpretation of Temp.
Treas. Reg. § 22.0(b) by any court, that PLR 201015003 is at least persuasive
authority supporting Defendants’ arguments in this case regarding the IRS’s
interpretation of the applicability of § 22.0(b) under facts almost identical to this
case. See Glass v. Comm’r, 471 F.3d 698, 709 (6th Cir. 2006) (acknowledging that
under Section 6110(k)(3), a Private Letter Ruling cannot be used as precedent, but
nonetheless commenting that “a recent [private letter] ruling provides persuasive
authority for refuting the Commissioner’s argument” in that case); Davis v. C.I.R.,
716 F.3d 560, 569 n.26 (11th Cir. 2013) (“Although the IRS’s private letter rulings
are not binding precedent, we are entitled to give them persuasive authority because
36
they “do reveal the interpretation put upon the statute by the agency charged with
the responsibility of administering the revenue laws.”) (internal and end citations
omitted); Thom v. United States, 283 F.3d 939, 943 n.6 (8th Cir. 2002) (“Although
private letter rulings have no precedential value and do not in any way bind this
court, 26 U.S.C. § 6110(k)(3), we believe they are an instructive tool that we have
at our disposal.”).
2.
Form 706 Instructions
Defendants also contend that the Form 706 Instructions support their
argument that the special use election on their late-filed Form 706 Return is valid.
The 2003 Form 706 Instructions (which is the tax return filed by the Estate in
this case) state in the “Elections by the Executor” section, that:
Under Section 2032A, you may elect to value certain farm and closely
held business real property at its farm or business use value rather than
its fair market value …. You may make the election [under Code §
2032A] on a late filed return as long as it is the first return filed.
(ECF No. 13, 2003 Form 706 Instructions, PageID.136 (emphasis added).) This
language in the Instruction mirrors the language contained in the House Ways and
Means Committee’s report when it amended § 2032A in 1981 to remove the
requirement that the special use valuation election be attached to a “timely filed
estate tax return” (ECF No. 14-4, H.R. Rep. No. 97-201, at 171 (July 24, 1981),
PageID.284), and the language in the Instructions has remained unchanged since
37
1988. (ECF No. 13, Exs. 4, 5, 6, 2021 Form 706 Instructions, PageID.136, 139, 142.)
(ECF No. 17, Defs.’ Reply, PageID.439, citing https://www.irs.gov/formspubs/about-form-706).)
Defendants contends that these instructions “echo” Temp. Treas. Reg. §
22.0(b) and provide further support for their position that their election in this case
is valid. (ECF No. 13, Defs.’ Mot., PageID.105.)
Plaintiff contends that the Form 706 Instructions do not mean that an election
can be late or that an election may be filed on any return no matter how late it is
filed. (ECF No. 14, Pl.’s Mot., PageID.197.) Plaintiff argues that the Instruction
instead “restates what § 301.9100-2 provides, that an election can be timely
‘regardless of whether the taxpayer timely filed its return.’” (Id. citing § 301.91002(a)(1) (emphases added).) Plaintiff further argues that, to the extent there is any
confusion between the Instructions and the regulations, the regulations control. (Id.)
Defendants respond that, contrary to Plaintiff’s assertion, the Form 706
Instructions are not meant to “restate” Treas. Reg. § 301.9100-2 because: (1) the
applicable Form 706 instruction does not reference § 301.9100-2, whereas the
instructions immediately prior on the Form 706 Instructions do specifically reference
Treas. Reg. §§ 301.9100-1 and 301.9100-3; and (2) the specific Form 706 Instruction
at issue predates Treas. Reg. § 301.9100-2, and thus it could not have been not
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written to “follow” that later-drafted regulation. (ECF No. 16, Defs.’ Mot.,
PageID.399.)
The Court finds that the Form 706 Instructions are, at a minimum, instructive
on the IRS’s position with respect to Temp. Treas. Reg. § 22.0(b) and making an
election on a late-filed estate tax return, and thus lend further support for Defendants’
position.
The Court therefore concludes, based on its analysis of the applicable
statutory and regulatory provisions, and as supported by the informal guidance
above, that Defendants made a timely special use valuation election for the Estate’s
farm property under § 2032A of the Internal Revenue Code on the Form 706 tax
return filed on February 10, 2010 – the “first estate tax return filed by the estate.”
While Plaintiff argues that there should be a deadline for filing a Form 706 tax return
with a § 2032A special use valuation election, the Court notes that such a
requirement is for the Secretary to decide and promulgate, pursuant to 26 U.S.C. §
2032A.
F.
Defendants’ Request for Final Relief is Premature
Finally, unlike Plaintiff, Defendants here did not file a motion for partial
summary judgment (as provided for in the Scheduling Order (ECF No. 12, providing
for a “partial dispositive motion”)), but rather filed a motion for summary judgment,
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arguing that the Court should find there is no genuine issue of material fact in this
case and dismiss Plaintiff’s complaint in its entirety, with prejudice. (ECF No. 13,
Defs.’ Mot., PageID.108-09.)
Plaintiff contends in its Response to Defendants’ motion for summary
judgment that it is premature to grant Defendants’ request for final relief – namely
an order dismissing all of the United States’ claims – because the Court’s scheduling
order clearly only allows for a “[p]artial dispositive motion on timeliness of § 2032A
election,” and thus leaving the other issues, including eligibility, valuation, liability,
and relief, for later dispositive motions after discovery. (ECF No. 15, Pl.’s Resp.
PageID.337-38.) Plaintiff contends that, regardless of how the Court rules on
timeliness, the Court has jurisdiction to determine other issues pertaining to the
correct amount of tax. (Id.)
The Court agrees with Plaintiff and declines to grant Defendants summary
judgment on Plaintiff’s claims and dismiss this case, because, even though the Court
agrees that the Estate made a timely special use valuation election on its late-filed
Form 706 tax return, issues regarding the properties’ valuation and relief must still
be decided.
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IV. CONCLUSION
For the reasons set forth above, the Court DENIES Plaintiff’s motion for
partial summary judgment on timeliness of § 2032A election (ECF No. 14), and
GRANTS IN PART and DENIES IN PART Defendants’ motion for summary
judgment (ECF No. 13). Defendants’ special use valuation election on the Estate’s
late-filed Form 706 tax return is timely, but the Court declines to dismiss Plaintiff’s
Complaint.
IT IS SO ORDERED.
s/Paul D. Borman
Paul D. Borman
United States District Judge
Dated: November 18, 2022
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