IRS Opposes Summary Judgment on Estate Charitable Deduction Issue

ESTATE OF LOIS HORVITZ, DECEASED, MICHAEL HORVITZ, EXECUTOR,
Petitioner,
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent.

UNITED STATES TAX COURT

OPPOSITION TO PETITIONER'S MOTION FOR PARTIAL SUMMARY

JUDGMENT

RESPONDENT, as directed by this Court's Order served December 13, 2021, opposes petitioner's motion for partial summary judgment (the “Motion”). Respondent files contemporaneously herewith a Motion to Compel Production of Documents (the “Motion to Compel”). If the facts presented in this Opposition are not sufficient to establish reasonable doubt as to the facts at issue, then respondent requests an opportunity to supplement the Opposition. The supplement will establish that petitioner is not entitled to summary judgment as a matter or law.

Standard for Summary Judgment

The Court may grant summary judgment when there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law. Rule 121(b); Sundstrand Corp, v. Commissioner, 98 T.C. 518, 520 (1992), affd, 17 F.3d 965 (7th Cir. 1994).

Petitioner (the moving party) bears the burden of showing that no genuine issue of material fact exists, and the Court will view any factual material and inferences in the light most favorable to respondent (the nonmoving party). Dahlstrom v. Commissioner, 85 T.C. 812, 821 (1985).

In deciding whether to grant summary judgment, the Court affords the nonmoving party the benefit of all reasonable doubt. Sundstrand, 98 T.C. at 520.

A motion for summary judgment must be denied if there exists any reasonable doubt as to the facts at issue. Id.; Hoeme v. Commissioner, 63 T.C. 18, 20 (1974).

Background

Lois U. Horvitz (“Lois”) died July 23, 2015. Lois was the surviving spouse of Harry R. Horvitz ("Harry"). Upon the death of Harry, the Harry R. Horvitz Revocable Trust Agreement dated September 27,1971, as amended (the “1971 Agreement”), established two qualified terminable interest property trusts (the "1971 QTIP Trusts") for the benefit of Lois during her lifetime.

The sole executor of Lois' estate is Michael Horvitz (“Michael”). The trustees of the 1971 QTIP Trusts were Lois, Michael, Pam Schneider (“Pam”), and Peter Horvitz (“Peter”) (together, the “Original Trustees”). The Original Trustees and the adult beneficiaries, on or about February 2, 2013, modified the 1971 QTIP Trusts to add trustee exculpation, trustee indemnification, and fiduciary insurance provisions. The Original Trustees, on or about February 8, 2013, appointed Jeffrey M. Biggar to serve as an additional trustee of the 1971 QTIP Trusts (together, the “Trustees”) and delegated to him sole authority to distribute the principal of the 1971 QTIP Trusts in further trust pursuant to Ohio Revised Code § 5808.18(A).

On May 7, 2013, Mr. Biggar, as a Trustee and nominal grantor, and the Original Trustees, as Trustees, established the HRH QTIP Trust Agreement dated May 7, 2013 (the “2013 Agreement”). On May 7, 2013, Mr. Biggar, as a Trustee of the 1971 QTIP Trusts distributed all of the principal of the 1971 QTIP Trusts to trusts held under the 2013 Agreement (the “2013 QTIP Trusts”). This distribution to the 2013 QTIP Trusts is referred to herein as the “Modification and Distribution”. On May 13, 2013, Lois executed a testamentary limited power of appointment under the 2013 QTIP Trusts in favor of three private foundations established by Michael, Pam, and Peter.

There Exists Reasonable Doubt as to the Facts at Issue

The Motion is accompanied by Petitioner's Statement of Undisputed Material Facts. Paragraph 17 of that statement avers, “In 2013 Lois updated her estate plan. Lois desired to leave additional assets to charity.” Plainly petitioner believes Lois' purported charitable intent to be material to the issue presented in the Motion.

Whether the Modification and Distribution was undertaken to facilitate Lois' purported desire to leave additional assets to charity is a material fact which remains in dispute. Indeed, Michael's January 29, 2013, email¹ to his children suggests that Lois never intended to appoint the trust assets to charity:

Under the terms of the [1971 QTIP Trusts], after [Lois'] death, whatever is left would go equally to Pam, Peter and me. The problem is that there would be a large estate tax on the amount in that trust before anything went to us. This estate tax could be avoided if instead of going to Pam, Peter and me, the assets of the trusts were to go to charitable foundations controlled by us. Each of us has our own foundations in place, and Pam, Peter, [Lois] and I are all willing to have the trust go to our foundations instead of to us. This would substantially enhance our ability to make charitable contributions and will benefit the family because we would be able to use less of our own resources to make those contributions. So, the plan is to modify these two trusts so that after [Lois] is gone, the assets go to our foundations and not to us.

The implication — that the Modification and Distribution was devised to allow Lois' children to retain control over the trust assets — is contrary to the purported charitable intent avowed in Petitioner's Statement of Undisputed Material Facts. Because there exists a genuine dispute as to a material fact² in this case, the Motion is premature and should be denied.

Alternatively, Further Discovery is Necessary

Should the Court not agree that the contents of the email attached as Exhibit A create a genuine dispute as to a material fact, then respondent cannot, for the reasons stated in the accompanying affidavit, present facts essential to justify respondent's opposition to the Motion without further discovery. Respondent urges this Court to deny the Motion until the discovery disputes presented in the Motion to Compel have been settled. See Verghese v. Commissioner, T.C. Memo. 2021-70.

The Discovery Concerns Material Facts Essential to Justify Respondent's Opposition

The information sought by respondent, and why it is reasonably calculated to lead to discovery of material evidence, are explained in the Motion to Compel.

Petitioner has suggested that respondent's discovery will not yield evidence material to the Motion. Rather, petitioner insinuates that the discovery is related solely to the negligence penalty pled by respondent. This is untrue.

Michael is the party to this case. His statements, including the email attached as Exhibit A, are admissible for their truth by operation of F.R.E. 801(d)(2). The privilege log which is the subject of the Motion to Compel lists 233 emails authored by Michael. Because there exists reasonable doubt as to the facts at issue, it is premature for the Court to decide the Motion.

WHEREFORE, respondent respectfully requests:

DRITA TONUZI
Deputy Chief Counsel (Operations)
Internal Revenue Service

Date:

By: Jonathan E. Behrens
Senior Counsel
(Small Business/Self-Employed)
Tax Court Bar No. BJ2035
JW Peck Federal Building
550 Main Street
Suite 9-351
Cincinnati, OH 45202-2727
Telephone: 513-975-6838
jonathan. e.behrens@irscounsel.treas.gov

OF COUNSEL:
JOSEPH W. SPIRES
Division Counsel
(Small Business/Self-Employed)
ELKE E. FRANKLIN
Area Counsel
(Small Business/Self-Employed: Area 4)
LOUIS H. HILL
Associate Area Counsel
(Small Business/Self-Employed)