Tax Court Rejects Executor's Attempt to Reduce Value of Estate

(Parker Tax Publishing January 2026)

The Tax Court held that the executor of his mother's estate undervalued closely-held stock owned by his mother at the time of her death and was required include in the gross estate the value of property his mother transferred to him before death under Code Sec. 2036(a)(1) because it was an inter vivos transfer for less than adequate and full consideration. The court also found that the executor was personally liable under Code Sec. 6901 as a transferee because he transferred the residuary estate to himself, rendering the estate insolvent. Estate of Spenlinhauer v. Comm'r, T.C. Memo. 2025-134.

Background

On February 4, 2005, Robert Spenlinhauer's mother, Georgia Spenlinhauer, died at the age of 95. In her will she appointed Robert to serve as the executor and bequeathed to him the residue of the estate. After distributing specific bequests and paying expenses, Robert transferred the remaining assets to himself as the residual beneficiary under the will.

One of the assets Robert transferred to himself was $377,000 in cash from the conversion of Georgia's 1 percent interest in Spencer Press, her family's closely held company. In December 2004 a competitor of Spencer Press made an offer to purchase the company which would have resulted in Robert's receiving an estimated $350,000 as his pro rata share of the purchase price through the estate. Robert, acting as executor for the estate, informed the other shareholders, his two brothers, that he would not accept the amount and demanded $3 million for Georgia's interest. Robert also rejected their subsequent offers of $500,000 and $750,000 to purchase Georgia's interest. The other shareholders decided to move forward with the sale through a cash-out merger and informed Robert that the estate's share would be $375,000. Robert responded by initiating litigation against the other shareholders disputing the sale of Spencer Press. A state court appraised Georgia's interest as a percentage of the net sale price in proportion to her interest, or $361,540.

Georgia purchased property in Milton, Massachusetts (the Milton Property) in 1988 to use as her personal residence. In 1998, she conveyed the property (via a quitclaim deed) to Robert in exchange for a 30-year promissory note with a stated principal amount of $460,000 and an interest rate of 7 percent. Georgia and Robert understood the purpose of the transaction was in furtherance of Georgia's objective to dispose of all of her assets before her death. After the conveyance, Georgia continued to use the property as her personal residence until her death. In 2004, Georgia (who was 95 years old at the time) and Robert amended the note to add a so-called self-canceling provision, which provided that upon Georgia's death the outstanding balance would be canceled. Robert asserted that he made regular payments on the note but could not recall the amounts paid or the exact balance of the note at the time of Georgia's death.

In 2017, after being contacted by the IRS, Robert, acting as executor for the estate, filed Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. On the estate tax return Robert reported the value of Georgia's 1 percent interest in Spencer Press on the date of her death as $150,000. He also excluded grom the gross estate the value of the Milton Property. In a 2018 notice of deficiency, the IRS, among other things, increased the value for the 1 percent interest in Spencer Press to $377,000, and included in the gross estate the value of the Milton Property. Robert took the estate's case to the Tax Court.

Under Code Sec. 2036(a)(1), the value of transferred property is included in the gross estate if the decedent makes an inter vivos transfer for less than adequate and full consideration and retains an interest or right in the property. Property is included in the decedent's gross estate if she retained actual possession or enjoyment of it even if she may not have had any enforceable right to do so. The decedent retains possession and enjoyment of the property when there is an express or implied understanding to that effect among the parties at the time of transfer, which may be inferred when intrafamily arrangements are involved.

Robert argued that the 1 percent interest in Spencer Press had little or no value on the date of Georgia's death. He also argued that the Milton Property should be excluded from the gross estate because it was transferred to him in a bona fide sale in which he provided a promissory note in exchange for the property.

Analysis

The Tax Court sustained the IRS's adjustment to the value of Georgia's 1 percent interest in Spencer Press. The court also held that the Milton Property had to be included in the gross estate because it was transferred for less than adequate and full consideration. In addition, the court held Robert personally liable for the unpaid estate tax as a transferee under Code Sec. 6901.

The court noted that in December 2004, before Georgia's death, Spencer Press received an offer to purchase its shares, which would have resulted in an estimated payment of $350,000 for Georgia's interest. At the time Robert believed this offer was too low, and he instead countered with a demand of $3 million. He also rejected offers from the other shareholders of $500,000 and $750,000. When the other shareholders decided to move forward with the sale through a cash-out merger and Robert was informed that the estate's share would be $375,000, he sued the other shareholders, allegedly spending over $500,000 in legal fees in the process. In the court's view, Robert's actions unmistakably showed that even he did not believe at the time that the shares were worth as little as he now contended. After Spencer Press was sold, Robert received $377,000 for Georgia's interest. The court found that Robert failed to present any evidence that the shares were worth less than what they ultimately sold for.

Regarding the Milton Property, the court said there was no dispute that Georgia made an inter vivos transfer of the property to Robert and continued to retain possession and enjoyment of the property for the remainder of her life. The issue was whether Robert paid adequate and full consideration for the property. The court found that Robert presented no evidence other than his own testimony to demonstrate any payment was made on the promissory note. The court also found that Robert was paying far less than what was required by the terms of the note. In addition, the court took note of Robert's testimony that the purpose of the sale was to make sure Georgia did not hold any property in her name when she died. These facts suggested to the court that Georgia and Robert did not intend to form a debtor-creditor relationship. The addition of the self-canceling provision to the note was, in the court's view, further support for this conclusion. The court explained that self-canceling installment notes made between family members are presumed to be gifts and not bona fide debt. Furthermore, the parties could not have reasonably expected the debt would ever be paid in full, in the court's view, given that Georgia would have needed to live to the age of 125 for that to happen.

Under Code Sec. 6901 the IRS may assess and collect unpaid estate tax from the transferee of a decedent's property. Code Sec. 6901 does not independently impose tax liability but provides the procedure through which the IRS may collect from a transferee if a basis exists under applicable state law or equity principles for holding the transferee liable for the transferor's debts. Under Massachusetts law, creditors may seek to recover a debt from a transferee of a debtor in cases where there is actual or constructive fraud. A transfer is fraudulent under this provision if the debtor made the transfer without receiving a reasonably equivalent value in exchange for the transfer and the debtor was insolvent at that time or became insolvent as a result of the transfer.

After distributing specific bequests and paying expenses, Robert, acting as executor for the estate, transferred the remaining assets to himself in accordance with Georgia's will. In the court's view, the estate made the transfer without receiving equivalent value and held no assets after the transfer. The court determined that the transfer of the estate's remaining assets rendered the estate insolvent, and was therefore fraudulent under Massachusetts law. Accordingly, the court held that the IRS could recover the estate's tax liability from Robert.

For a discussion of inclusion in a gross estate of transfers with a retained life interest, see Parker Tax ¶225,510. For a discussion of transferee liability, see Parker Tax ¶262,530.

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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