[1]     

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term, 1995

, [5]     

Decided: June 11, 1996

, [6]      ESTATE OF HERBERT R. HERRMANN, DECEASED, EDWARD I. HERRMANN AND LAWRENCE A. HERRMANN, CO-EXECUTORS, PETITIONERS v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. " />

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Estate of Herrmann, 85 F.3D 1032 (2d Cir. 06/11/1996)

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT August Term, 1995

No. 1090

Docket No. 95-4113

85 F.3d 1032, 1996.C02.0000291 <http://www.versuslaw.com>

Decided: June 11, 1996

ESTATE OF HERBERT R. HERRMANN, DECEASED, EDWARD I. HERRMANN AND LAWRENCE A. HERRMANN, CO-EXECUTORS, PETITIONERS
v.
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.

Before: MAHONEY, WALKER, and CALABRESI, Circuit Judges.

[8]    

Argued: February 12, 1996

[9]    

Appeal from an order of the United States Tax Court (James S. Halpern, Judge), sustaining the Commissioner's determination that a widow's life interest in her deceased husband's apartment was not a deductible claim against his estate. The court held that the widow, who had signed a prenuptial agreement waiving her statutory rights to obtain a share of her husband's property upon divorce and to elect against his will, had not given "adequate and full consideration in money or money's worth" for the life interest, as required by I.R.C. Section(s) 2053(c)(1)(A).

Affirmed.

Frank H. Connelly, Jr., (Margaret M. Fitzpatrick, McGovern, Connelly & Davidson, New Rochelle, N.Y.), for Petitioners.

Tamara Schottenstein, United States Department of Justice, Washington, D.C. (Loretta C. Argrett, Assistant Attorney General, Gary R. Allen, Richard Farber, on the brief), for Respondent.

CALABRESI, Circuit Judge:

In a prenuptial agreement, Herbert Herrmann agreed to give his fianc‚e a life interest in his apartment upon his death, provided that they were still married when he died. In return, the fianc‚e gave up her rights to any of her future husband's property upon his death or their divorce. They married, and several years later the husband died. The question is whether the widow's life interest in his apartment is a claim supported by "adequate and full consideration in money or money's worth." I.R.C. Section(s) 2053(c)(1)(A). If so, then it is deductible from the husband's taxable estate. If not, it is subject to taxation.

We could quickly dispose of this case by citing several of our opinions dating from 1940, all of which hold that a transfer of property to a spouse in return for a relinquishment of any marital right (for example, support rights, or an elective share in the deceased spouse's estate) is not supported by adequate consideration, and, as such, cannot be deducted. The taxpayer in this case suggests, however, that our decisions have been undercut by several developments since 1940. It contends that post-1940 IRS Revenue Rulings and opinions of the Tax Court and other circuits (which expressly reject our earlier holdings) require us to abandon those precedents.

We do not, however, need to consider the current validity of those precedents to decide this case. For, without relying on them, we still conclude that the property before us should be taxed.

I. Background

In 1984, Herbert Herrmann (then in his 60's) married Harriet Boris (then in her 50's) in New York. Before the marriage, they signed a prenuptial agreement that provided:

* Separate property of each spouse would remain separate.

* Both waived any claims for alimony, support, and maintenance.

* Both agreed to pool their incomes after marriage, to be held jointly with right of survivorship.

* In case of divorce, Herbert agreed to pay Harriet $5,000 per year for ten years.

* Both waived any claim for any property distribution of any kind (e.g., equitable distribution of their property upon divorce), except that, if they were still married when Herbert died, Herbert would give Harriet a life interest in his apartment.

* Both waived any right against the "property or estate of the other" including any statutory allowance, personal right of election against a will, or other rights in case of intestacy.

At the time of the agreement, Herbert had about $1,600,000 in assets and $100,000 in annual income; Harriet had $250,000 in assets and an annual income of $25,000.

Herbert died in 1988, and, as the prenuptial agreement had provided, Harriet received the life use of his New York apartment. When Herbert's executors filed the estate tax return, they subtracted the value of Harriet's interest ($264,965) from the assessed value of the apartment ($340,000) as a "claim against the estate," and listed only the estate's reversionary right to the property ($75,035) in his gross estate. The Commissioner of Internal Revenue disallowed the deduction and included the entire value of the apartment in Herbert's gross estate.

The estate filed a petition in the Tax Court challenging the Commissioner's determination. That court, after trying the case on a stipulated set of facts, concluded that Harriet's life interest was not deductible as a claim against the estate because, in the prenuptial agreement, she had not given Herbert "adequate and full consideration in money or money's worth" for the life interest as required by I.R.C. Section(s) 2053(c). The court reasoned that Harriet had principally given up her right of statutory election against Herbert's will; that this was a waiver "of dower or curtesy, or of a statutory estate created in lieu of dower or curtesy, or of other marital rights in the decedent's property or estate"; and that foregoing such an interest can never serve as adequate consideration under I.R.C. Section(s) 2043(b). *fn1 The court further found that even if Harriet had given up other rights that were unlike dower - rights that might provide acceptable consideration - the estate had failed to prove the value of such rights. Since the taxpayer had not met its burden of showing how much of Harriet's life estate was deductible, all of it had to be included. The Tax Court therefore sustained the Commissioner's determination and required the estate to pay about $70,000 in extra taxes.

The taxpayer now asks us to review the Tax Court's decision.

II. Discussion

We have jurisdiction to re-examine a final decision of the Tax Court pursuant to I.R.C. Section(s) 7482. As always, we exercise plenary review over the Tax Court's legal conclusions but disturb its factual findings only for clear error. Bliss v. Commissioner


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