Estate of Saunders v. CIR

Summarized by:

  • Court: 9th Circuit Court of Appeals Archives
  • Area(s) of Law: Tax Law
  • Date Filed: 03-12-2014
  • Case #: 12-70323
  • Judge(s)/Court Below: Circuit Court Judge M. Smith for the Court; Circuit Court Judge Callahan and Senior District Judge Hellerstein
  • Full Text Opinion

A claim can be deducted from an estate tax return if the estimated value is reasonably ascertainable and not if it is vague or uncertain. Post-death events are allowed for calculation purposes of a deduction when the claim is “disputed or contingent.”

William Saunders Sr., passed away in 2003, and his wife, Gertrude, died over a year later. The estate of Harry Stonehill made a claim against the estate of Williams Saunders for malpractice, this claim sought damages of $90 million. When the estate tax return was filed after Gertrude Saunders’ death, there was a deduction for the Stonehill claim. The deduction was the approximate date-of-death value, which was estimated at $30 million. The Commissioner said that this deduction was improper and issued a Notice of Deficiency. The tax court agreed with the Commissioner that the deduction should not be allowed. The tax court said that actual amount paid for the Stonehill claim could be deducted from the estate. To determine whether post-death events may be taken into a consideration by a court for the purposes of evaluation a deduction from an estate, depends upon the classification of the claim. Ninth Circuit classified estate claims “as either ‘certain and enforceable,’ on the one hand, or ‘disputed or contingent,’ on the other.” Post-death events are allowed to be used when determining the deduction for “disputed or contingent” claims but not for “certain and enforceable” claims. The Ninth Circuit said that because the Stonehill Claim was asserted it was not “contingent” but it was disputed. Also, the Ninth Circuit rejected the argument that Shapiro “renders post-death events irrelevant in computing the deduction for disputed claims pending against an estate at the time of death.” The panel said the evaluation of the date-of-death value of the Stonehill claim was “not ascertainable with reasonable certainty” because the expert valuations varied broadly. The Ninth Circuit affirmed the tax court’s decision by saying that after the Stonehill claim was settled the amount became certain and it could be deducted from the estate. AFFIRMED.

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