108 T.C. No. 4
UNITED STATES TAX COURT
ESTATE OF MARY K. WETHERINGTON, DECEASED, MARY LOUISE RIPPLE, PERSONAL REPRESENTATIVE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 19235-94. Filed February 10, 1997.
R extended the time for P to pay estate tax under sec. 6161(a), I.R.C. P filed a request for further extension of time to pay tax under sec. 6161(a), I.R.C., which is now pending with the Commissioner. P moved to delay entry of decision until an extension of time to pay tax under sec. 6161(a), I.R.C., no longer applies.
Held, under the rationale of Estate of Bailly v. Commissioner, 81 T.C. 949 (1983), we will delay entry of decision until P's extension of time to pay tax under sec. 6161, I.R.C., is no longer in effect.
Debra K. Smietanski, for petitioner.
James F. Kearney, for respondent. - 2 -
OPINION
COLVIN, Judge: This matter is before the Court on
petitioner's Motion to Stay Proceedings. In the motion,
petitioner asks the Court to postpone entry of decision until
either (1) An extension of time to pay petitioner's Federal
estate tax under section 6161(a) is no longer in effect and any
appeal of respondent's denial of an extension is final, or (2)
petitioner fully pays its outstanding Federal tax liability and
related interest, whichever happens first. The parties agree
that, if we grant the motion, petitioner may deduct interest that
it would not be allowed to deduct if we had entered a decision.
Sec. 6512(a).
We conclude that it is appropriate to delay entry of
decision until an extension of time for the payment of
petitioner's estate tax under section 6161 is no longer in effect
and any administrative appeal of respondent's denial of such an
extension is final, or until petitioner fully pays its Federal
tax liability and related interest, whichever occurs first.
This is a case of first impression. However, in a related
context, we delayed entry of decision where the taxpayer elected
to defer payment of estate tax for 10 years under section 6166.
Estate of Bailly v. Commissioner, 81 T.C. 949 (1983). - 3 -
Section references are to the Internal Revenue Code as
amended. Rule references are to the Tax Court Rules of Practice
and Procedure.
Background
Mary K. Wetherington (decedent) died on April 8, 1990. Her
estate consisted almost exclusively of agricultural real property
in Hillsborough County, Florida. Petitioner filed decedent's
estate tax return on September 9, 1991. Petitioner paid Federal
estate tax of $61,000 on April 2, 1991, and $97,793.77 on August
18, 1992.
On March 3, 1995, petitioner sold part of decedent's real
property. Petitioner paid estate taxes of $498,321.93 on March
6, 1995.
Under section 6161(a)(1), the Secretary may extend the time
in which a taxpayer must pay estate tax for up to 12 months.
Under section 6161(a)(2), the Secretary may grant an extension,
for reasonable cause, up to 10 years from the due date of the
return.
Respondent extended the time for petitioner to pay estate
tax under section 6161(a) for 1 year, and possibly for a second
year, because petitioner's assets were not liquid, and petitioner
could not pay the balance due. Petitioner applied for a further
extension under section 6161(a), which is pending as of December
18, 1996. - 4 -
Respondent determined a deficiency in estate tax.
Petitioner filed a petition to contest that determination. The
parties have settled all issues in this case (except those in the
motion before us). Petitioner had no deficiency or overpayment.
Petitioner owed $98,707.93 of the tax shown on the return plus
interest of $292,878.72 when petitioner filed this motion.
Discussion
A. Background
1. Sections 6161 and 6166
A taxpayer generally may deduct interest on unpaid Federal
and State estate taxes from the gross estate as an expense of
administration. Sec. 2053(a). Interest may accrue on unpaid
estate taxes because the estate has an extension of time to pay
tax under section 6166 or section 6161(a). An executor may elect
to pay estate tax in 10 equal installments, starting at the end
of a 5-year period during which only interest is payable, if a
closely held business constitutes more than 35 percent of the
adjusted gross estate. Sec. 6166(a)(1). Petitioner did not make
an election under section 6166. The Secretary may extend the
time in which a taxpayer is required to pay estate tax (up to 12
months) if there is reasonable cause under section 6161(a)(1) and
the accompanying regulations.1 Under section 6161(a)(2), the
1 Sec. 6161(a) provides:
(continued...) - 5 -
Secretary may grant an extension, for reasonable cause, up to 10
years from the due date of the return. Interest which arises
because the Secretary permitted a deferred payment of Federal
estate tax under section 6161(a) is deductible from the gross
estate as an administrative expense under section 2053(a)(2).
Estate of Bahr v. Commissioner, 68 T.C. 74, 83 (1977) (Court
reviewed).
1 (...continued) Sec. 6161. EXTENSION OF TIME FOR PAYING TAX.
(a) Amount Determined by Taxpayer on Return.
(1) General rule. The Secretary, except as otherwise provided in this title, may extend the time for payment of the amount of the tax shown or required to be shown, on any return or declaration required under authority of this title (or any installment thereof), for a reasonable period not to exceed 6 months (12 months in the case of estate tax) from the date fixed for payment thereof. Such extension may exceed 6 months in the case of a taxpayer who is abroad.
(2) Estate tax. The Secretary may, for reasonable cause, extend the time for payment of--
(A) any part of the amount determined by the executor as the tax imposed by chapter 11, or
(B) any part of any installment under section 6166 (including any part of a deficiency prorated to any installment under such section),
for a reasonable period not in excess of 10 years from the date prescribed by section 6151(a) for payment of the tax (or, in the case of an amount referred to in subparagraph (B), if later, not beyond the date which is 12 months after the due date for the last installment). - 6 -
2. Deduction of Interest Paid on Estate Taxes Deferred Under Section 6166
A taxpayer may not deduct interest paid or incurred after
entry of a decision, sec. 6512(a), Estate of Bailly v.
Commissioner, 81 T.C. at 954, unless section 7481(d) (discussed
below) applies. The taxpayer in Estate of Bailly v.
Commissioner, supra, elected to pay estate tax in 10 annual
installments under section 6166. We delayed entry of decision in
that case to allow the taxpayer to deduct interest on the tax.
Id. at 958. Section 6512(a) would have prevented the taxpayer
from deducting interest it paid after our decision became final.
In Estate of Bailly v. Commissioner, supra, we said that we were
troubled by the harshness of section 6512(a) with respect to
estate tax cases. We agreed, in the interest of fairness and
justice, to postpone entry of decision until the final
installment of the estate tax liability is due, or paid,
whichever is earlier.
Section 7481(d) was enacted in 1988 in response to Estate of
Bailly v. Commissioner, supra.
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108 T.C. No. 4
UNITED STATES TAX COURT
ESTATE OF MARY K. WETHERINGTON, DECEASED, MARY LOUISE RIPPLE, PERSONAL REPRESENTATIVE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
Docket No. 19235-94. Filed February 10, 1997.
R extended the time for P to pay estate tax under sec. 6161(a), I.R.C. P filed a request for further extension of time to pay tax under sec. 6161(a), I.R.C., which is now pending with the Commissioner. P moved to delay entry of decision until an extension of time to pay tax under sec. 6161(a), I.R.C., no longer applies.
Held, under the rationale of Estate of Bailly v. Commissioner, 81 T.C. 949 (1983), we will delay entry of decision until P's extension of time to pay tax under sec. 6161, I.R.C., is no longer in effect.
Debra K. Smietanski, for petitioner.
James F. Kearney, for respondent. - 2 -
OPINION
COLVIN, Judge: This matter is before the Court on
petitioner's Motion to Stay Proceedings. In the motion,
petitioner asks the Court to postpone entry of decision until
either (1) An extension of time to pay petitioner's Federal
estate tax under section 6161(a) is no longer in effect and any
appeal of respondent's denial of an extension is final, or (2)
petitioner fully pays its outstanding Federal tax liability and
related interest, whichever happens first. The parties agree
that, if we grant the motion, petitioner may deduct interest that
it would not be allowed to deduct if we had entered a decision.
Sec. 6512(a).
We conclude that it is appropriate to delay entry of
decision until an extension of time for the payment of
petitioner's estate tax under section 6161 is no longer in effect
and any administrative appeal of respondent's denial of such an
extension is final, or until petitioner fully pays its Federal
tax liability and related interest, whichever occurs first.
This is a case of first impression. However, in a related
context, we delayed entry of decision where the taxpayer elected
to defer payment of estate tax for 10 years under section 6166.
Estate of Bailly v. Commissioner, 81 T.C. 949 (1983). - 3 -
Section references are to the Internal Revenue Code as
amended. Rule references are to the Tax Court Rules of Practice
and Procedure.
Background
Mary K. Wetherington (decedent) died on April 8, 1990. Her
estate consisted almost exclusively of agricultural real property
in Hillsborough County, Florida. Petitioner filed decedent's
estate tax return on September 9, 1991. Petitioner paid Federal
estate tax of $61,000 on April 2, 1991, and $97,793.77 on August
18, 1992.
On March 3, 1995, petitioner sold part of decedent's real
property. Petitioner paid estate taxes of $498,321.93 on March
6, 1995.
Under section 6161(a)(1), the Secretary may extend the time
in which a taxpayer must pay estate tax for up to 12 months.
Under section 6161(a)(2), the Secretary may grant an extension,
for reasonable cause, up to 10 years from the due date of the
return.
Respondent extended the time for petitioner to pay estate
tax under section 6161(a) for 1 year, and possibly for a second
year, because petitioner's assets were not liquid, and petitioner
could not pay the balance due. Petitioner applied for a further
extension under section 6161(a), which is pending as of December
18, 1996. - 4 -
Respondent determined a deficiency in estate tax.
Petitioner filed a petition to contest that determination. The
parties have settled all issues in this case (except those in the
motion before us). Petitioner had no deficiency or overpayment.
Petitioner owed $98,707.93 of the tax shown on the return plus
interest of $292,878.72 when petitioner filed this motion.
Discussion
A. Background
1. Sections 6161 and 6166
A taxpayer generally may deduct interest on unpaid Federal
and State estate taxes from the gross estate as an expense of
administration. Sec. 2053(a). Interest may accrue on unpaid
estate taxes because the estate has an extension of time to pay
tax under section 6166 or section 6161(a). An executor may elect
to pay estate tax in 10 equal installments, starting at the end
of a 5-year period during which only interest is payable, if a
closely held business constitutes more than 35 percent of the
adjusted gross estate. Sec. 6166(a)(1). Petitioner did not make
an election under section 6166. The Secretary may extend the
time in which a taxpayer is required to pay estate tax (up to 12
months) if there is reasonable cause under section 6161(a)(1) and
the accompanying regulations.1 Under section 6161(a)(2), the
1 Sec. 6161(a) provides:
(continued...) - 5 -
Secretary may grant an extension, for reasonable cause, up to 10
years from the due date of the return. Interest which arises
because the Secretary permitted a deferred payment of Federal
estate tax under section 6161(a) is deductible from the gross
estate as an administrative expense under section 2053(a)(2).
Estate of Bahr v. Commissioner, 68 T.C. 74, 83 (1977) (Court
reviewed).
1 (...continued) Sec. 6161. EXTENSION OF TIME FOR PAYING TAX.
(a) Amount Determined by Taxpayer on Return.
(1) General rule. The Secretary, except as otherwise provided in this title, may extend the time for payment of the amount of the tax shown or required to be shown, on any return or declaration required under authority of this title (or any installment thereof), for a reasonable period not to exceed 6 months (12 months in the case of estate tax) from the date fixed for payment thereof. Such extension may exceed 6 months in the case of a taxpayer who is abroad.
(2) Estate tax. The Secretary may, for reasonable cause, extend the time for payment of--
(A) any part of the amount determined by the executor as the tax imposed by chapter 11, or
(B) any part of any installment under section 6166 (including any part of a deficiency prorated to any installment under such section),
for a reasonable period not in excess of 10 years from the date prescribed by section 6151(a) for payment of the tax (or, in the case of an amount referred to in subparagraph (B), if later, not beyond the date which is 12 months after the due date for the last installment). - 6 -
2. Deduction of Interest Paid on Estate Taxes Deferred Under Section 6166
A taxpayer may not deduct interest paid or incurred after
entry of a decision, sec. 6512(a), Estate of Bailly v.
Commissioner, 81 T.C. at 954, unless section 7481(d) (discussed
below) applies. The taxpayer in Estate of Bailly v.
Commissioner, supra, elected to pay estate tax in 10 annual
installments under section 6166. We delayed entry of decision in
that case to allow the taxpayer to deduct interest on the tax.
Id. at 958. Section 6512(a) would have prevented the taxpayer
from deducting interest it paid after our decision became final.
In Estate of Bailly v. Commissioner, supra, we said that we were
troubled by the harshness of section 6512(a) with respect to
estate tax cases. We agreed, in the interest of fairness and
justice, to postpone entry of decision until the final
installment of the estate tax liability is due, or paid,
whichever is earlier.
Section 7481(d) was enacted in 1988 in response to Estate of
Bailly v. Commissioner, supra. Technical and Miscellaneous
Revenue Act of 1988, Pub. L. 102-647, sec. 6247, 100 Stat. 3342,
3751-3752. Under section 7481(d), a taxpayer may move to reopen
a case to which an extension of time to pay estate tax under
section 6166 applies to ask the Court to modify the amount of the
estate's deduction for interest. See Rule 262.
B. Contentions of the Parties - 7 -
Petitioner asks the Court to postpone entry of decision
until: (1) An extension of time to pay petitioner's Federal
estate tax under section 6161(a) is no longer in effect and
appeal of respondent's denial of an extension is final, or (2)
petitioner pays estate tax and interest it owes, whichever is
earlier. Petitioner contends this situation is analogous to that
in Estate of Bailly v. Commissioner, supra.
Respondent contends: (1) This case is not like Estate of
Bailly because no extension of time to pay tax is now in effect;
(2) granting petitioner's motion would prevent respondent from
reviewing the facts and circumstances to determine whether a
hardship under section 6161 is present; and (3) Congress
considered section 6161(a) when enacting section 7481(d), but did
not provide a remedy for petitioner's situation. Respondent
points out that if we delay entry of decision, petitioner can
deduct interest, the deduction of which would otherwise be
precluded by entry of decision under section 6512(a). Neither
party questions the Court's power to postpone entry of decision
in this case.
1. Effect of the Fact That Petitioner's Request to Continue To Defer Tax Under Section 6161 Is Pending With The Commissioner
Respondent contends this situation is unlike that in Estate
of Bailly v. Commissioner, supra, because no extension of time to
pay tax under section 6161(a) is now in effect. We disagree. - 8 -
Respondent has previously granted an extension under section
6161(a). According to our record, petitioner's request for a
further extension is now pending.
Respondent contends that we should not delay entry of
decision because it would enable petitioner to deduct interest
that it could not otherwise deduct. We disagree with
respondent's view that such a result is improper. Section
6161(a), like section 6166, can result in an extension of time
for a taxpayer to pay estate tax. We believe the situation in
this case is analogous to that in Estate of Bailly v.
Commissioner, supra.
We distinguish this case from Estate of Nevelson v.
Commissioner, T.C. Memo. 1996-361, because there petitioners
asked the Court to delay entry of decision more than 5 years past
the date the parties had agreed to file a stipulated decision.
Here, the parties have not agreed to a date to file a stipulated
decision.
2. Whether Granting Petitioner's Motion Would Interfere With Respondent's Exercise of Discretion Under Section 6161
Section 6161(a) gives the Commissioner discretion to grant a
taxpayer's request for extension of time to pay taxes.
Respondent contends that granting petitioner's motion would
eliminate that discretion. We disagree. Our granting of this - 9 -
motion would not affect respondent's discretion to act on a
taxpayer's request to defer payment of tax under section 6161(a).
3. Congressional Intent
Respondent contends that we should deny petitioner's motion
because Congress considered section 6161(a) extensions when
enacting section 7481(d), but did not provide a remedy for
petitioner's situation. We disagree. There is no indication in
the conference report accompanying the enactment in 1988 of
section 7481(d) that Congress considered (much less rejected)
extending it to section 6161(a). H. Conf. Rept. 100-1104, at
232-233 (1988), 1988-3 C.B. 473, 722-723. Respondent points to
no other authority for that assertion.
C. Conclusion
We will not enter decision until an extension of time for
the payment of petitioner's estate tax under section 6161 is no
longer in effect and any administrative appeal of respondent's
denial of petitioner's request for an extension is final, see
section 20.6161-1(b), Estate Tax Regs., or until petitioner fully
pays its outstanding Federal tax liability and related interest,
whichever occurs first. The parties shall report to the Court
when those conditions are met.
An appropriate Order
will be issued.