Estate of Pattie Welder Edwards - Page 7

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          submitted with the estate’s Form 706 concluded that the                     
          unencumbered fair market value of decedent’s interest in the                
          Cotulla Ranch on decedent’s date of death was $1,380,000 and that           
          the fair market value of the Cotulla Ranch encumbered by the                
          postdeath lease was $1,070,000.  In the notice of deficiency,               
          respondent determined that the fair market value of the Cotulla             
          Ranch on the date of decedent’s death was $1,380,000.                       
               In addition to respondent’s determination of the fair market           
          value of the ranch properties at decedent’s date of death,                  
          respondent determined in the notice of deficiency:                          
               It is also determined that section 2703 of the Internal                
               Revenue Code applies to any lease or lease options                     
               which the decedent may have had with her children on                   
               the ranches * * *.  Accordingly, the values of Schedule                
               A * * * should be determined without regard to such                    
               leases or lease options, if any.  Furthermore, the                     
               leases and/or lease options were not valid under state                 
               law.  Similarly, they were not bona fide business                      
               transactions but devices intended to avoid federal                     
               transfer taxes.  In effect the alleged leases and/or                   
               options to lease were shams.  Accordingly, the reported                
               value of the gross estate is increased $1,110,000.00                   
               * * *.                                                                 
               The issue presented is whether the ranch properties that               
          were owned by decedent at her date of death were encumbered by              
          oral options that extended the existing leases on the ranch                 
          properties and, if so, whether the oral options or the existing             
          leases were a restriction on the sale or use of the ranch                   

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Last modified: May 25, 2011