Estate Seeks Redetermination of Estate Tax, GSTT Deficiency

ESTATE OF BARBARA B. ROSENTHAL DECEASED
CITIBANK, N.A., KEITH W ROSENTHAL and ANDREW R. ROSENTHAL, EXECUTORS
Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE,
Respondent.

UNITED STATES TAX COURT

PETITION

PETITIONER HEREBY PETITIONS, for a redetermination of the deficiency set forth by the Commissioner of Internal Revenue in the Commissioner's Notice of Deficiency dated March 16, 2023 (a copy of which is attached hereto as "Exhibit A"), relating to the Petitioner's date of death of April 4, 2019 (the "Notice"), and as the basis for Petitioners' case, allege as follows:

1. Petitioner was an individual who passed away on April 4, 2019.

2. Petitioners filed an Estate (and Generation-Skipping Transfer) Tax Return, Form 706, on July 1, 2020 with Respondent's Service Center in Kansas City, Missouri.

3. The Statutory Notice of Deficiency ("Notice") (a copy of which, including so much of the statement and schedules accompanying the Notice as is material, is attached and marked as Exhibit A) was mailed to Petitioner on March 16, 2023, and was issued by the Appeals Office, Internal Revenue Service, New York, New York.

4. The Notice was issued with respect to Petitioners' Federal Estate Tax Return.

5. The deficiency as determined by the Respondent is in estate tax and generation skipping tax in the amount of $1,594,684.00, not all of which is in dispute. Below is a schedule to identify both the disputed adjustments and the agreed to adjustments.

Disputed Adjustments	Amount in Dispute
Schedule F — Other Miscellaneous Expenses
New F1 Litigation receivable from brother's estate	$11,707,649.00
F1 Fine art	$1,280,900.001
Schedule J — Funeral and Administrative Expenses
JB2 Attorney Fees	(TBD)2
JB7 Fees for storage of tangible property prior to distribution	$35,140.85
JB8 Fees for packing, insuring and delivering personal property	$15,000.00
JB9 Sotheby's reimbursement of cost of insurance	$(4,834.38)3
JB10 Charles L. Crane-insurance on Decedent's Jewelry	$(1,412.00)
JB10 Charles L. Crane-insurance for items in storage	$(815.00)
JB11 Miscellaneous attorney disbursements	$(5,584.65)
New JB12 Marsh USA-insurance for art in storage at Cozier	$(7,448.37)
Scheduler R — Generation Skipping Tax
Corrected GST Tax	$1,057,242.15

Agreed Adjustments	Agreed Adjustment
Adjusted Taxable Gifts	$93,921.50
Aggregate Gift Tax Payable	$30,857.19
Schedule F — Other Miscellaneous Expenses
New F2 Social Security check	$2,127.60
Schedule J — Funeral and Administrative Expenses
JB4-4 Expenses related to maintenance of Decedent's Real Property	$(25,608.04)
JB4-5 Expenses related to sale of Decedent's condo 24G	$(2,500.00)
JB4-6 Expenses related to sale of Decedent's condo PH2	$77,141.64
New JB Guardian Ad Litem Fee	$(9,900.00)
Schedule K — Debts of Decedent
New K1 — Home health aide payment	$(360.00)
New K2 — Belaire condo fee	$(7,710.62)
New K3 — Housekeeper	$(692.00)
New K4 — Action Locks	$(707.69)
K17 — American Express	$(1,974.02)
K18 — United States Treasury, estimated 2019 personal income taxes	$(4,054.00)
K19 — New York State, estimated personal income taxes	$(493.00)

6. The determinations set forth in said Notice of Deficiency are based upon the Commissioner's following errors:

a. The Commissioner's determination that the amount of $11,707,649.00, which the Petitioner could potentially receive as a beneficiary of her brother's estate, Michael Bakwin, is an includable asset in the Petitioner's estate.

b. The Commissioner's determination that the value of the artwork is $4,505,000.00.

c. The Commissioner's determination that the amount of the Attorney Fees incurred is $471,342.15.

d. The Commissioner's determination that the fees for storage of tangible property in the amount of $52,000.00, is disallowed.

e. The Commissioner's determination that the fees for packing, insuring and delivering personal property in the amount of $15,000.00, is disallowed.

f. The Commissioner's determination that there is a corrected Generation Skipping Tax due in the amount of $2,195,113.06.

g. The Notice fails to take into account a significant deduction that would be taken on Form 706 for increased New York State estate tax that would be due and payable if the gross estate was increased due to the changes included in the Notice.

h. The Estate tax return as filed for the Estate reflected an overpayment of $708,390.94. The Estate has never received a refund and the Notice fails to take into account the overpayment on the alleged additional tax due.

7. The facts on which Petitioner relies as the bases of her case are as follows:

a. Michael Bakwin, the brother of the Petitioner, died on December 3, 2018 and was a resident of Virginia.

b. The administration of the Estate is pending before the Circuit Court for the City of Suffolk, Virginia.

c. Certain beneficiaries of the Bakwin estate filed a Motion to Disqualify and remove the appointed Trustee and his wife and law partner from serving as a Trustee of certain trusts contained in Mr. Bawkin's Will.

d. In response to the above action, the Executor of the Will, who was also named as the principal Testamentary Trustee, filed a Motion to Dismiss for violation of the Wills No Contest Clause in opposition to the removal request.

e. The Court denied the request to disqualify the principally named Trustee and his wife serving as Trustees of the Trusts.

f. The Court further granted the Trustee's Motion to Dismiss finding that the request to remove and replace the named Trustees violated the Will's No Contest Clause and held the beneficiaries violated Article Nineteen of the Will, which in pertinent part stated as follows: "In the event that any beneficiary, legatee and/or devisee under this my Last Will and Testament, commences . . . any proceeding or action in any court . . . wherein such beneficiary, legatee and/or devisee . . . (1) seeks to void, nullify or set aside all or part of this my Last Will and Testament . . ." that may be treated as if they had died without a surviving issue.

g. The Court limited its finding by holding that the beneficiaries had no standing to bring the removal action because of the Court's position that they have violated the No Contest Clause.

h. Following the Court's determination, the Executor of the Bakwin Estate filed a Complaint Seeking Advice and Guidance before the Court on the issues related to the No Contest Clause and included as interested parties all of the Beneficiaries of the Bakwin Will, as well as the children of Mr. Bakwin's two predeceased siblings, as well as the Executors of the Estate of Barbara B. Rosenthal (Petitioner).

i. The Complaint Seeking Advice and Guidance from the Court referenced Article Seven of the Bakwin Will, which provided that if the denominated beneficiaries of the Bakwin Will did not survive the testator, that the Bakwin assets be distributed "to such persons and in such proportions as the same would be distributed under laws of the Commonwealth of Virginia then in force as if I had then died the Owner of such property intestate and a resident of said Commonwealth".

j. The issues before the Court are scheduled to be tried by the Circuit Court of the City of Suffolk, Virginia on June 29 and June 30, 2023.

k. If the Court upholds the validity of the No Contest Clause and applies the provisions of Article Seven of Mr. Bawkin's Will, finding that the Mr. Bakwin died intestate, the Petitioner would be entitled to one-third of Mr. Bakwin's estate, however if the Court finds that the No Contest Clause was not violated, the Petitioner would receive nothing.

l. Petitioner's Estate Tax Return included art work entitled Fleurs Dans un Vase by Marc Chagall, with a fair market value of $725,000. The fair market value for this piece was supported by an appraisal, dated June 8, 2020, performed by Sotheby's.

m. The IRS increased the fair market value of the Chagall piece to $1,500,000, based on a review by the IRS Art Panel.

n. Upon receipt of the IRS Art Panel's finding, the Petitioner's Estate engaged Sotheby's to prepare a rebuttal report, which was provided to the IRS Appeals Officer. As part of Sotheby's rebuttal analysis it increased the value of the Chagall piece to $1,000,000.

o. Petitioner's Estate Tax Return also included art work entitled Portrait de Femme by Henri Matisse, with a fair market value of $1,350,000. The fair market value for this piece was supported by an appraisal, dated June 8, 2020, performed by Sotheby's.

p. The IRS increased the fair market value of the Matisse piece to $2,000,000, based on a review by the IRS Art Panel.

q. Upon receipt of the IRS Art Panel's finding, the Petitioner's Estate engaged Sotheby's to prepare a rebuttal report, which was provided to the IRS Appeals Officer. As part of Sotheby's rebuttal analysis it decreased the value of the Matisse piece to $1,000,000.

r. Petitioner's Estate has substantiation to establish the additional attorney fees incurred subsequent to the filing of the Estate Tax Return.

s. Petitioner's Estate has substantiation to support fees for storage of tangible property in the amount of $35,140.85.

t. Petitioner's Estate has substantiation to support fees for packing, insuring and delivering personal property in the amount of $15,000. This was an estimate, we have not received actual cost information.

u. Petitioner's Estate has substantiation to support the reimbursement amount paid to Sotheby's for the cost of insurance in the amount of $4,834.38.

v. Petitioner's Estate has substantiation to support the insurance paid for decedent's jewelry in the amount of $1,412.

w. Petitioner's Estate has substantiation to support the insurance paid for items in storage in the amount of $815.

x. Petitioner's Estate has substantiation to support the insurance paid for art in storage in the amount of $7,443.37.

WHEREFORE, Petitioners pray that this Court may:

(i) Determine that the adjustment disputed by Petitioners is in error, and

(ii) Grant such other and further relief as the Court may deem fit and proper.

Respectfully submitted,

Jeffry J. Emey, Esq.
T.C. Baro. EJ0351
Dentons US LLP
1900 K Street, NW
Washington, D.C. 20006
(202) 496-7511 (t)
(202) 496-7756 (f)
jeffry.emey@dentons.com

Robert W. Cockren, Esq.
T.C. Bar No.CR0320
Dentons US LLP
1221 A venue of the Americas
New York, New York, 10020-1089
(212) 398-8326 (t)
(212) 768-6800 (f)
robert.cockren@dentons.com