ESTATE OF MAXWELL V. COMMISSIONER 3 F.3d 591 (1993) CASE BRIEF

ESTATE OF MAXWELL V. COMMISSIONER

3 F.3d 591 (1993)

NATURE OF THE CASE: This was an action challenging assessment of estate tax. Appealed. Estate and executors (P) appealed from a decision affirming the assessment of tax deficiencies on grounds that the conveyance of decedent's personal residence during her life constituted a transfer with retained life estate within the meaning of 26 U.S.C.S. 2036.

FACTS: About two years before her death, decedent transferred ownership of her house to her son and his wife. Along with the transfer, the parties agreed that decedent would continue to live in the house, but would pay rent to her son. The son agreed to pay certain expenses associated with the property. Decedent's son paid $270,000 for the property, executing a mortgage note in decedent's favor. Evidence indicates that decedent did not make regular rental payments to her son, and that the son did not make regular payments on the mortgage. Further, there was evidence that neither party intended for the mortgage to be paid. The decedent reported the sale of the house on her income tax return, but did not pay tax on it. After decedent's death, her son sold the house for $550,000. On decedent's estate tax return, the estate (P) reported only the amount outstanding on the mortgage note. The IRS found that the transaction constituted a transfer with a retained life estate, not a bona fide sale, and assessed a deficiency against the estate to adjust for the difference between the fair market value of the house and the amount of the mortgage note. P appealed to Tax Court, which affirmed the IRS. P appeals again.

ISSUE:

RULE OF LAW:

HOLDING AND DECISION:

LEGAL ANALYSIS:

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