On Appeal from the United States Tax Court, T.C. No. 9338-82.
BEFORE: SLOVITER, BECKER and GARTH, Circuit Judges.
The executrix of the estate of Edward Bender (the Estate) has appealed, and the Commissioner of Internal Revenue (the IRS) has cross-appealed, from the July 2, 1986 decision of the United States Tax Court which assessed a deficiency in estate tax in the amount of $163,500.40. The deficiency results from the manner in which certain income tax liabilities and income tax "overpayments" were treated by the Tax Court.
The Tax Court made two holdings which led to its calculation of the estate tax deficiency. It first held that the Estate was obliged to offset gross income tax liabilities against gross income tax overpayments for the same year. This holding forms the basis for the Estate's appeal. Second, the Tax Court held that the Estate was not obliged to offset net income tax liabilities against net income tax overpayments for different years. This holding forms the basis for the IRS's appeal.
We reject the Estate's position and accept the IRS's position. By doing so, we hold that the Tax Court erred in one of its two underlying holdings. This requires that we vacate the Tax Court's order of July 2, 1986 and remand for a recomputation of the estate tax deficiency which was predicated on both of these holdings.
This court has jurisdiction to review the final order of the Tax Court pursuant to 26 U.S.C. § 7482(a)(1). Venue is proper pursuant to 26 U.S.C. § 7482(b)(1)(A).
The essential facts in this case were stipulated before the Tax Court. App. at 14 et seq. On May 13, 1978, Mr. Bender died testate as a domiciliary of Carrolltown, Pennsylvania, and his will was admitted to probate on May 17, 1978. The Testator was survived by a wife and three children. The relevant portions of The Testator's will stated:
1. I direct that my just debts and funeral expenses be paid promptly after my decease.
2. All the rest, residue and remainder of my property, real, personal and mixed, I give, devise and bequeath to my beloved wife, Martha, if she survives me. . . .
On January 31, 1979, Mrs. Bender, the sole legatee and devisee under her husband's will, filed a qualified disclaimer in which she disclaimed an interest in three items from the Testator's estate: (1) a 75 percent interest in all the assets and liabilities of the E.P. Bender Coal Company; (2) 100 percent of a $125,000 note due to Mr. Bender's estate from his son John Bender; and (3) 100 percent of a $125,000 note due to Mr. Bender's estate from his son Edward Bender, Jr. App. at 71. Mrs. Bender's disclaimer was a qualified disclaimer under 26 U.S.C. § 2518.
The E.P. Bender Coal Company was a coal stripping business that was operated as a sole proprietorship by the Testator from 1972 until his death. In each of these years, the Testator filed a joint income tax return with Mrs. Bender, who earned no taxable income in her own right.
On the date of his death, the Testator had outstanding tax liabilities for 1972 and 1974-1978. After the Testator's death, a separate, short-year return for 1978, showing a net operating loss of $814,472, was filed on his behalf. Amended Tax Returns and Applications for Tentative Refunds for the years 1972 through 1978 were filed. The Amended Tax Returns for 1972-1977 carried back the Testator's 1978 operating loss of $814,472. These and other adjustments to the Testator's income tax returns ...