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GETTYSBURG NATL. BANK v. UNITED STATES

November 19, 1992

GETTYSBURG NATIONAL BANK, Plaintiff
v.
UNITED STATES OF AMERICA, Defendant



The opinion of the court was delivered by: SYLVIA H. RAMBO

 Before the court is Plaintiff's request for a determination of the validity of its partial § 2032A election for special use valuation. The issue has been fully briefed and the matter is now ripe for disposition.

 Background1

 Upon their father's death, John Lott ("John") and M. Sheila Lott Gantz ("Sheila") were bequeathed all of Bear Mountain Orchards, and one half of three other farms -- Piney Mountain Orchards, Flicker Hill Orchards, and Emory Tuckey Tract. The other half interest of these three farms was left to their siblings, Robert C. Lott ("Robert, Jr.") and Elizabeth Anne Stafford ("Anne").

 An estate is usually valued, for tax purposes, at its highest and best use. See Estate of Cowser v. Commissioner, 736 F.2d 1168, 1170 (7th Cir. 1984). However, pursuant to 26 U.S.C. § 2032A, certain qualified property which is used in a family business or farm may be valued at a lower rate for estate tax purposes to encourage continued operation of the family endeavor. Id. Certain requirements *fn2" for this special valuation must be met including securing the signatures of certain individuals. Plaintiff did not obtain signatures from all four siblings, but only from John and Sheila. Subsequently, Plaintiff sought to elect special use valuation of the property in which the two had an interest.

 On July 17, 1992, this court granted additional time for Plaintiff to obtain the signatures of the other two siblings and perfect its special use election. A Joint Status Report of the parties, submitted October 21, 1992, informed this court that this perfection had not occurred within the requisite time period since only the additional signature of Anne had been obtained.

 The question currently before the court is whether signatures of the three children are sufficient to invoke partial election of the special use valuation.

 Discussion

 I. Required Signatures

 To ensure that beneficiaries of the special use valuation do not receive a windfall by immediately selling the elected property for non-qualified purposes, § 2032A permits the Internal Revenue Service ("IRS") to recapture the benefit received from the favorable tax treatment if qualified use ends within ten years of the election. To protect parties from this potential liability, the statute further provides that certain parties consent in writing to this recapture scheme.

 To elect special use valuation, § 2032A(a)(1)(B), in conjunction with § 2032A (d)(2), requires the estate's executor to file a written agreement signed by each person who has an interest in the designated property. One case has concluded that "'property designated in such agreement' means the interest that the decedent owned which is subject to the estate tax and the special use valuation." Pullin v. Commissioner, 84 T.C. 789, 793-794 (1985) (emphasis added).

 This interpretation comports with the legislative history of § 2032A. The Joint Committee on Taxation explained:

 One of the requirements for making a valid election is the filing with the estate tax return a written agreement signed by each person in being who has an interest (whether or not in possession) in any qualified real property with respect to which the use valuation is elected. This agreement must evidence the consent of each of these parties to the application of the recapture tax provisions to the property.

 Pullin, 84 T.C. at 797 (citing Tax Reform Act of 1976, Pub. L. 94-455, 90 Stat. 1520; Staff of the Joint Committee on Taxation, General Explanation of the Tax Reform Act of 1976, 1976-3 C.B. 554-555 (Vol. 2)). Thus, case law and legislative history suggest that only those who have an interest in that property to which ...


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