Estate Disputes IRS Valuation of Assets

The estate argues that the IRS should have allowed it to amend the reported value of the common stock because information which involved the proper valuation was not made available to the estate at the time it filed its original return. The estate also contends that $144,400 in gifts were made under a valid power of attorney and should have been allowed.

Date of Death and Amount at Issue: June 1, 1996 -- $601,000

Code Sections: 2032, 2031, 2035

PETITION

The petitioner hereby petitions for a re-determination of the deficiency set forth by the Commissioner of Internal Revenue, in his notice of deficiency NE: CTRI:AP:JFP:SM, dated November 15, 1999 and as a basis of his suit alleges as follows:

1. The petitioner, Paul Gaynor, residing at 75 North Benham Road, Seymour, Connecticut 06483 is administrator of the Estate of Mary Catherine Ix Gaynor, deceased on 6-1-96. The estate tax return Form 706 for the decedent was filed with the District Director of Internal Revenue Service, Andover, Massachusetts on or about March 25, 1997.

2. The notice of deficiency (a copy of which, including so much of this statement and schedules accompanying the notice as is material, is attached and marked Exhibit A) was mailed to the petitioner on November 15, 1999.

3. The deficiencies as determined by the Commissioner are in estate taxes in the amount of $600,513 of which $600,513 is in dispute.

4. The determination of tax set forth in the said notice of deficiency is based in part upon the error of not allowing the petitioner's amendment to the reported value of common stock of Frank Ix and Sons Inc (Ix) and Oakview Securities Corporation (Oakview) owned by the decedent at the time of death, directly or in trust.

5. The facts upon which the petitioner relies, as the basis of this part of its case, are as follows:

(a) The decedent owned directly 25.9356 shares of voting common stock in Frank Ix and Sons, Inc., Form 706, Schedule B, Item 31 and 1762.68 shares of non-voting common stock of the said corporation, Form 706, Schedule B, Item 32.

(b) The decedent owned directly 14.4487 shares of voting common stock in Oakview Securities Corporation, Form 706, Schedule B, Item 33, and 35.6731 shares of non-voting common stock in Oakview Securities Corporation, Form 706, Schedule B, Item 34.

(c) Additionally, the decedent owned a beneficial interest in the May Hill Ix Trust, Form 706, Schedule F, Item 3, which owned 2,383.892 shares of non-voting stock of Frank Ix & Sons, Inc., and 144.4870 shares of non-voting common stock of Oakview Securities Corporation.

(d) The decedent's Last Will and Testament named Giles Payne as executor under the Will. The executor is a lawyer and a member of a law firm that acted as attorneys for the estate.

(e) The executor employed the services of Empire Valuation Consultants (Empire) to determine the value of both corporations for estate tax returns purposes.

(f) Empire prepared its report of the Fair Market Value (FMV) of the decedent's interest in both corporations for the date of death (DOD) and the alternate valuation date of December 1, 1996 (AVD) as follows:

                                                 FMV         FMV

(h) Sometime prior to March of 1997, Mr. Paul Gaynor, and the other beneficiaries under the Will of the decedent, became dissatisfied with the performance of the executor and took steps to have him removed and Mr. Paul Gaynor was named administrator of the estate. Mr. Gaynor also replaced the attorneys representing the estate.

(i) The administrator learned that the former executor and management of both Ix and Oakview were aware of certain information that was never made available to Empire during its evaluation of the companies and requested Empire to reconsider its prior evaluation of Frank Ix & Sons, Inc. which they did with the results as shown below:

 Shares   Corporation  Schedule   Item      AVD     Revised Report

(k) The administrator provided this newly acquired information to Mr. Michael S. Jelormine, CPA, CVA and requested him to prepare a valuation of the corporations. His results are as follows:

  Shares      Corpora-    Schedule   Item   Revised    Jelormine's

7. The facts, upon which the petitioner relies as the basis of this part of its case, are as follows:

(a) On October 7, 1986 the decedent gave her son, Gerald Gaynor, and S. Giles Payne, a power of attorney pursuant to the Connecticut Statutory Short Form Power of Attorney act.

(b) The terms of the act are such as to require the grantor of the power to limit the powers of the agent by striking out various authorizations lettered (A) to (L), and the decedent chose not to limit any of these powers.

(c) Under the terms of the statute at section 1-52(14) . . . "the language conferring general authority with respect to personal relationships is defined to mean, to do any other act or acts, which the principal can do through an agent . . . for the preservation and maintenance of the other personal relationships of the principal to parents, relatives, friends and organizations."

(d) Under the terms of the statute at section 1-55 . . . "the language conferring general authority with respect to all other matters shall be construed to mean that the principal authorizes the agent to act as an alter ego of the principal with respect to any matters and affairs not enumerated in ection 1-44 to 1-54a, inclusive, and which the principal can do through an agent."

Wherefore, petitioner prays that this court determine that there is no deficiency in estate tax due for the estate and for such other and further relief to petitioner as the court determines to be appropriate.

Dated February 8, 2000

[Editor's Note: The attachment has been omitted. However, this document in its entirety can be obtained through our Tax Analysts' Access Service as Doc 2000-5483 (15 pages).]