Appeal from Common Pleas Court, Philadelphia County; Honorable Judith J. Jamison, Honorable Edmund S. Pawelec, Judge.
John R. Latourette, Jr., with him, Peter J. Picotte, II, James F. Monteith, Dilworth, Paxson, Kalish & Kauffman, Philadelphia, for appellants.
Robin A. Gower, Deputy Atty. Gen., with her, Ernest D. Preate, Jr., Atty. Gen., Philadelphia, for appellee.
Crumlish, Jr., President Judge, McGinley, J., and Narick, Senior Judge.
[ 127 Pa. Commw. Page 395]
Executors of William A. Banks' (Banks') estate protested the Department of Revenue's disallowance of interest deductions claimed on the estate's original and supplemental Pennsylvania inheritance tax returns. The Board of Appeals (Board) affirmed the disallowance and Executors filed an appeal with the Orphans' Court Division of the Court of Common Pleas of Philadelphia County. The court directed the Secretary of the Department of Revenue to show cause why Executors' appeal should not be sustained. The Board filed its answer and on February 22, 1985, an evidentiary hearing was held. The court issued a decree which sustained Executors' appeal and remanded the record for further determinations, consistent with the decree. The Board then filed exceptions to the decree. The Orphans' Court,
[ 127 Pa. Commw. Page 396]
now sitting en banc, sustained the Board's exceptions to the decree and this appeal by the Executors followed.
The facts of this case may be summarized as follows. On September 6, 1979, Banks died. Banks' will listed various specific bequests with the balance of the estate passing under the residuary clause. Approximately 79 percent of Banks' estate consisted of common stocks in several closely held corporations, including, inter alia, stock in Independence Broadcasting Company (IBC). The beneficiaries of Banks' majority holding of IBC were the minor shareholders of IBC. At the time of his death, Banks' IBC stock was valued by the Department of Revenue at $2,325,000.00.
From the incipiency of the administration of the estate, it was apparent to the Executors that there was insufficient cash or liquid assets to meet the estate's tax obligations. For this reason, Executors elected to defer a portion of the federal estate tax attributable to the IBC stock, pursuant to Section 6166 of the Internal Revenue Code, 26 U.S.C. § 6166 (1954).*fn1
During the administration of the estate, Executors made diligent efforts to sell the radio station, but they were unsuccessful.*fn2 As of December 31, 1984, the unpaid Pennsylvania inheritance tax and interest totaled $239,682.10.
In order to meet at least part of this tax obligation, Executors borrowed funds from Banks Realty and Banks Broadcasting Company, which were wholly-owned subsidiaries of IBC. The annual rate of interest was 13 percent. Executors, in preparing the estate's tax return, deducted as an administrative expense, the ...