- Estate of Turner v. Commissioner, 138 T.C. 14 (March 29, 2012)
- May 3, 2012
- Law Firm: Proskauer Rose LLP - New York Office
This Tax Court case, referred to as "Turner II," is a follow-up to "Turner I," a 2011 Tax Court case, Estate of Turner v. Commissioner, T.C. Memo. 2011-209, which held that property underlying certain family limited partnership interests that were gifted by a decedent to family members during his lifetime were includible in the decedent's estate. In Turner I, the Tax Court found that there was no legitimate nontax purpose of the partnership, which consisted entirely of cash and marketable securities.
In Turner II, the estate argued that, under the decedent's Will, his surviving spouse's right to a pecuniary marital bequest (coupled with the residual bypass trust) effectively reduced the estate tax to zero. The IRS contended that, even though the partnership interests were included in the decedent's estate, neither the partnership interests nor the underlying property actually passed to the surviving spouse and, therefore, it could not qualify for the marital deduction.
The court noted that the Treasury Regulations for Section 2056 provide that a "property interest is considered as passing to the surviving spouse only if it passes to the spouse as beneficial owner." Here, neither the partnership interest nor the underlying property passed or could pass to the surviving spouse as beneficial owner.
The court also noted that, if a decedent's estate claims a marital deduction, the marital deduction presupposes that the surviving spouse will include the value of the assets in his or her gross estate (provided that the surviving spouse does not consume the assets during his or her lifetime). Here, no Internal Revenue Code provision would require the surviving spouse's estate to include the partnership interests or the underlying property. Therefore, the court reasoned that allowing a marital deduction would allow the assets to leave the marital unit without being taxed. Accordingly, the court found that the estate was not entitled to a marital deduction.