Cases and Deals

Significant Estate Tax Victory

Blank Rome secured a victory for our client in the U.S. Court of Appeals for the Second Circuit in Estate of Stewart v. Commissioner. Decedent Margot Stewart, who owned a five-story Manhattan brownstone, and her son Brandon shared the first two floors of the building and leased the upper three floors to a commercial tenant. Several months prior to her death, Margot transferred 49% of the property to her son and signed a deed that the two would be tenants in common. Upon her death, the estate filed an estate tax return, which reported the contents of the decedent’s estate as including 51% of the brownstone, to which the IRS issued a notice of deficiency stating that the decedent retained possession or enjoyment of the transferred 49% interest and therefore the entire brownstone should be classified as part of the estate. The U.S. Court of Appeals found that the U.S. Tax Court made an error when it apportioned the entire value of a Manhattan brownstone to the decedent’s estate, and therefore our client was not responsible for the nearly $400,000 estate tax deficiency.

This case represents a significant reversal for the Internal Revenue Service in the context of Section 2036, and the decision provides significant discounting and gifting opportunities for estate planners. For more information about this case, please contact Peter Valente.