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Administration Trust (along with all other owners of shares in
Mueller Co.) sold all its shares for $2,150 per share.8
On April 15, 1987, the Administration Trust filed its
fiduciary income tax return (Form 1041) for the taxable year 1986
reporting $4,572,500 of capital gain on the sale of all 6,650
shares owned by it, and paid $912,378 in Federal income tax on
the gain. The Administration Trust computed its capital gain
using a date-of-death fair market value basis of $1,462 per share
under section 1014(a)(1).
On November 16, 1987, 11 months after petitioner had filed
its Federal estate tax return reporting the fair market value of
the shares at $1,505 per share, the Administration Trust filed an
amended fiduciary income tax return recomputing the gain, using a
basis of $1,500 per share, rather than $1,462. The “amended
return”, as it was labeled, stated: “Taxpayer erroneously used
the wrong basis for the shares of Mueller Company which were sold
7(...continued)
Life Insurance Trust. The apportionment of Federal estate tax to
the sons, as set forth in note 5 supra, is attributable primarily
to their receipt of shares pursuant to decedent's exercise of the
power of appointment in their favor.
8The actual sale of the 1,500 shares acquired by the
Administration Trust upon decedent’s death was in fact carried
out by the Comerica Bank as Trustee of the Ebert B. Mueller
Marital Trust, but it was on behalf of the new owner, the
Administration Trust. The gain realized upon the sale of the
1,500 shares was treated as distributable net income of the
Administration Trust, and the Administration Trust included the
gain realized on the sale of the 1,500 shares in its taxable
income for 1986.
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