Opinion
1285-20
02-17-2022
ESTATE OF ANNE MILNER FIELDS, DECEASED, BRYAN K. MILNER, EXECUTOR, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent
ORDER
Elizabeth A. Copeland Judge.
On December 9, 2021, Petitioner's counsel filed with the Court: Petitioner's Motion for Summary Judgment (Docket Index No. 38), Declaration of Bryan Milner in Support of Motion for Summary Judgment (Docket Index No. 39) ("Milner Declaration"), and Exhibit(s) 71 in Support of Motion for Summary Judgment (Docket Index No. 40) ("Exhibit 71"). On January 18, 2022, Respondent's counsel filed with the Court: Respondent's Response to Motion for Summary Judgment (Docket Index No. 57) and Memorandum in Support of Response to Motion for Summary Judgment (Docket Index No. 58). On January 28, 2022, Petitioner's counsel filed with the Court: Petitioner's Reply to Response to Motion for Summary Judgment (Docket Index No. 60) and Declaration of Alfredo Garcia, M.D. in Support of Reply to Response to Motion for Summary Judgment (Docket Index No. 61).
Although filed as a "Motion for Summary Judgment," the motion itself is titled "Motion for Partial Summary Judgment on IRC § 2036" and it only requests a ruling on that aspect of this case, not a complete disposition of this case.
In a notice of deficiency dated October 31, 2019, the Internal Revenue Service ("IRS") determined that the decedent, Anne Milner Fields, made a number of inter vivos transfers that must be included in her estate under I.R.C. § 2036. Petitioner, the Estate of Anne Milner Fields ("Estate"), has moved for partial summary judgment under Rule 121, contending that the transfers fall within the bona fide sale exception to I.R.C. § 2036, and therefore, I.R.C. § 2036 does not apply to the transfers. Respondent disagrees and contends that there are genuine disputes of material fact for trial. We agree with Respondent and, for the reasons discussed below, deny the Estate's motion for partial summary judgment.
The IRS also determined that I.R.C. § 2601-the generation-skipping transfer tax-applies and that an accuracy-related penalty under I.R.C. § 6662 applies as well. We will not address those two determinations because they are not relevant to the motion before the Court.
Unless otherwise indicated, all statutory references are to the Internal Revenue Code ("I.R.C." or "Code"), Title 26 U.S.C., in effect at all relevant times, all regulation references are to the Code of Federal Regulations, Title 26 ("Treas. Reg."), in effect at all relevant times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
Background
The following background is derived from the stipulations of facts and the parties' motion papers, including the supporting declarations filed therewith. They are stated solely for purposes of deciding the Estate's motion for partial summary judgment and not as findings of facts in this case. Sundstrand Corp. v. Commissioner, 98 T.C. 518, 520 (1992), aff'd, 17 F.3d 965 (7th Cir. 1994).
In supporting its motion for partial summary judgment, the Estate relies on the stipulations of facts in the record, the expert reports of Joseph Shaun Murphy, M.D. and Kalita Blessing, the Milner Declaration, and Exhibit 71. Respondent objects to the Estate's use of its two expert reports and the Milner Declaration. He filed motions in limine with respect to the two expert reports, which motions are addressed in a separate order being filed alongside this Order. Notwithstanding his motions in limine, there are genuine disputes of material fact which necessitate that we deny the Estate's motion for partial summary judgment.
Ms. Milner Fields passed away on June 23, 2016. Bryan Milner, her great nephew and the executor of her estate, cared for her prior to her death. On January 29, 2010, she executed a statutory durable power of attorney appointing Mr. Milner to act as her agent and attorney-in-fact upon her disability or incapacity.
On or about May 22, 2015, AMF Capital, LLC ("AMF Capital") was formed. Ms. Milner Fields was the sole member of AMF Capital and Mr. Milner was its sole manager. Mr. Milner signed the company agreement both for himself and for Ms. Milner Fields as her attorney-in-fact.
On or about May 20, 2016, Mr. Milner formed two entities. First, he executed a company agreement for AM Fields Management, LLC ("AM Fields Management"), which listed Mr. Milner as the company's sole member and manager. Second, he executed a limited partnership agreement for AM Fields, LP ("AM Fields") forming a partnership between AM Fields Management and Ms. Milner Fields: AM Fields was the general partner and Ms. Milner Fields was the limited partner. Mr. Milner signed the partnership agreement both for himself and for Ms. Milner Fields as her attorney-in-fact.
After the formation of AM Fields Management and AM Fields and in the weeks leading up to Ms. Milner Fields' death, Mr. Milner used his authority as Ms. Milner Fields' attorney-in-fact to transfer to AM Fields five assets worth $16,972,409 in total; Ms. Milner Fields personally owned those assets. In exchange for the contribution, Ms. Milner Fields received a 99.9941% interest in AM Fields. Mr. Milner also caused AM Fields Management to make a $1,000 contribution to AM Fields in exchange for a 0.0059% interest in AM Fields.
The partnership agreement states that AM Fields Management holds a 0.0069% interest, but that percentage is likely a scrivener's error as 99.9941% + 0.0069% = 100.001%. In total, the amount contributed to AM Fields was $16,973,409, and each partner received an interest proportionate to their contribution to the partnership. Therefore, AM Fields Management likely holds a 0.0059% interest as a $1,000 contribution amounts to that percentage.
Discussion
I. Summary Judgment Standard
Summary judgment is intended to expedite litigation and avoid unnecessary and expensive trials. FPL Grp., Inc. & Subs. v. Commissioner, 116 T.C. 73, 74 (2001). Generally, we may grant summary judgment when there is no genuine dispute as to any material fact and a decision may be rendered as a matter of law. Rule 121(b); see also Sundstrand Corp., 98 T.C. at 520. Thus, to defeat a motion for summary judgment, the nonmoving party (Respondent in this case) need only raise at least one genuine dispute of a material fact. In deciding whether to grant summary judgment, we view the factual materials and inferences drawn from them in the light most favorable to the nonmoving party. Sundstrand Corp., 98 T.C. at 520 (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)). However, a nonmoving party may not rest upon the mere allegations or denials in its pleadings but must set forth specific facts showing that there is a genuine dispute for trial. Rule 121(d); see also Sundstrand Corp., 98 T.C. at 520.
II. Genuine Disputes of Material Fact
In determining whether a fact is material for purposes of summary judgment, we look to the substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986) ("As to materiality, the substantive law will identify which facts are material. Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment."); Nat'l. Starch & Chem. Corp. v. Commissioner, T.C. Memo. 1986-512, 52 T.C.M. (CCH) 804, 812 (1986).
The Federal estate tax is imposed on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States. See I.R.C. § 2001(a). The taxable estate consists of the value of the gross estate after applicable deductions. I.R.C. § 2051. The value of a decedent's gross estate generally includes the fair market value of the property that the decedent owned on the date of death or that was included in the decedent's gross estate under the Code. See I.R.C. §§ 2031, 2033, 2036, 2038; Treas. Reg. § 20.2031-1(b).
The purpose of I.R.C. § 2036 is to include in a deceased taxpayer's gross estate inter vivos transfers that were testamentary in nature. Estate of Bongard v. Commissioner, 124 T.C. 95, 112 (2005) (citing United States v. Estate of Grace, 395 U.S. 316 (1969)). I.R.C. § 2036(a) is applicable when three conditions are met: (1) the decedent made an inter vivos transfer of property; (2) the decedent's transfer was not a bona fide sale for adequate and full consideration; and (3) the decedent retained an interest or right enumerated in I.R.C. §§ 2036(a)(1) or (2) or (b) in the transferred property which she did not relinquish before her death. Id.
In their motion papers, the parties focus their arguments on the second element of I.R.C. § 2036: whether the decedent's transfer was not a bona fide sale for adequate and full consideration (i.e., the bona fide sale exception). The Estate contends that I.R.C. § 2036 is not applicable because the bona fide sale exception applies. Respondent contends that the bona fide sale exception does not apply. Since the parties focus their arguments on the bona fide sale exception, we will focus our analysis on that exception as well.
We have interpreted the bona fide sale exception to consist of two separate prongs: (1) whether there was a legitimate and significant nontax purpose for the transfer (i.e., whether there was a bona fide transfer); and (2) whether the decedent received adequate and full consideration. Estate of Powell v. Commissioner, 148 T.C. 392, 411 (2017); Estate of Morrissette v. Commissioner, T.C. Memo. 2021-60, at *70-71; see also Kimbell v. United States, 371 F.3d 257, 261-65 (5th Cir. 2004).
The Estate argues that it has four legitimate and significant nontax purposes for the transfers: (1) the transfers provided Ms. Milner Fields with "necessary asset protection and protection from elder abuse;" (2) the transfers allowed for the appointment of successor managers with the necessary skill and expertise needed to manage Ms. Milner Fields' assets; (3) the transfers resolved Mr. Milner's concerns with third-party financial institutions accepting his power of attorney; and (4) the transfers provided for a consolidated and streamlined way of managing Ms. Milner Fields' assets.
Respondent countermands the Estate's four purposes by pointing out that: (1) the largest asset transferred to AM Fields were publicly traded securities "that were professionally managed by Wells Fargo before and after" the transfer to AM Fields; (2) limited evidence exists as to the monetary loss suffered by Ms. Milner Fields due to alleged elder abuse; (3) Mr. Milner managed Ms. Milner Fields' assets under the power of attorney for many years before transferring Ms. Milner Fields' assets to AM Fields; and (4) Mr. Milner could have protected Ms. Milner Fields' assets by transferring them to AMF Capital, which transfer would have accomplished his asset protection goals without "any estate tax benefits to Mr. Milner as the primary beneficiary under the terms of" Ms. Milner Fields' will.
We find that Respondent has brought forth "specific facts showing that there is a genuine dispute for trial." Rule 121(d); see also Sundstrand Corp., 98 T.C. at 520. Many unanswered questions arise when we attempt to synthesize the Estate's arguments with the record. For instance:
(1) If the transfers were necessary to protect Ms. Milner Fields' assets, then why form new entities as opposed to transferring the assets to AMF Capital?
(2) If Mr. Milner had issues with financial institutions accepting his power of attorney, then how did he transfer securities managed by Wells Fargo and shares of North Dallas Bank & Trust Co. to AM Fields so quickly?
(3) Why did Mr. Milner do the transfers so close to Ms. Milner Fields' death?
(4) How did the limited instances of elder abuse support the formation of AM Fields given the substantial assets remaining in the Estate outside the partnership?
Mr. Milner's ability to use his power of attorney to direct financial institutions to transfer millions of dollars in assets to a newly-formed partnership potentially contravenes his assertion that he has had issues with financial institutions accepting his power of attorney.
Because such questions of material fact remain, summary judgment is inappropriate with respect to whether I.R.C. § 2036 applies. See, e.g., Estate of Cahill v. Commissioner, T.C. Memo. 2018-84, at *17-18.
After reviewing the record and considering each party's arguments, we find that multiple genuine disputes of material fact exist for trial and have identified a number of them above. As a result, it is
ORDERED that Petitioner's Motion for Summary Judgment, filed on December 9, 2021 (Docket Index No. 38), is denied.