ANTHONY v. U.S.
520 F.3d 374 (2008)
Tincy ANTHONY, Administratrix of the Succession of James Louis Bankston, Sr., on behalf of James Louis Bankston, Sr., Plaintiff-Appellant,
v.
UNITED STATES of America, Defendant-Appellee.
No. 07-30089.
United States Court of Appeals, Fifth Circuit.
March 4, 2008.
Walter C. Antin, Jr. (argued), John Gerhardt Toerner, Antin Law Firm, Hammond, LA, for Plaintiff-Appellant.
Francesca Ugolini Tamami, Jonathan S. Cohen (argued), U.S. Dept. of Justice, Tax Div. Appellate Section, Washington, DC, James L. Nelson, Asst. U.S. Atty., Baton Rouge, LA, for Defendant-Appellee.
Before BARKSDALE, DENNIS and SOUTHWICK, Circuit Judges.
SOUTHWICK, Circuit Judge:
A decedent's administratrix seeks our reversal of the district court's conclusion that a non-transferable private annuity must be valued, for estate tax purposes, in accordance with certain tables set out in the Internal Revenue Code. Because we conclude that this case presents no applicable exception to valuation of the relevant annuities by use of the tables, we affirm.
I. FACTS AND PROCEEDINGSJames Louis Bankston, Sr., sustained serious injuries in an automobile accident in 1990. He filed suit seeking damages from various defendants. In May 1991, Bankston agreed to a structured settlement of his claims and thereby became the beneficiary of three annuities. The annuities were owned by three separate insurance companies. Each annuity guaranteed monthly or annual payments for a period of at least fifteen years.1 The payments due under two of the annuities could not be "anticipated, sold, assigned or encumbered." The third annuity provided that payments were "non-assignable." The prohibitions on assignment form the foundation for the arguments made by the taxpayer. Bankston died on July 30, 1996. At the time of his death, Bankston was scheduled to receive ten additional annual payments from one annuity and monthly payments until July 2006 from the other two. Bankston's estate ("the Estate") initially estimated the present value of Bankston's right to the guaranteed payments to be $2,371,409, using the tables prescribed by 26 U.S.C. § 7520 and the accompanying regulations (the "annuity tables" or "Section 7520 tables"). In April 1997, the Estate reported a tax liability on the annuities in the amount of $468,078. An audit by the Internal Revenue Service resulted in an additional tax of $142,605. The Estate paid its total tax liability ($610,683) plus interest in monthly installments between May 1997 and March 2001.
In September 2001, the Estate claimed that it had overvalued the annuities in its initial filing and was due a refund of estate taxes in the amount of $427,620 plus interest.2
According to the Estate, the annuities should have been assigned their "fair market value" without regard to the annuity tables because the non-transferability clauses rendered the annuities subject to a restriction under 26 C.F.R. § 20.7520-3(b)(1)(ii). The IRS denied the claim. The Estate filed suit against the United States in March 2002. Both parties moved for partial summary judgment on the issue of the proper method of valuation for the annuities. The district court ruled in favor of the government, finding that the prohibitions on assignment of the annuities did not justify a departure from the tables. The district court also found that the result produced by the annuity tables was not unreasonable or unrealistic. Therefore, the district court found that the annuities were properly valued under the tables and no tax refund was due. The Estate appealed.
1. The Transamerica annuity (owned by Transamerica Occidental Life Insurance Company) guaranteed Bankston fifteen annual lump sum payments, ranging from $25,000 in 1992 to $150,000 in 2006. The MetLife annuity (owned by MetLife Security Insurance Company) guaranteed Bankston monthly payments for fifteen years and life thereafter, beginning with $9,350 in July 1991 and increasing three percent annually. The Jamestown annuity (owned by Jamestown Life Insurance Company) guaranteed Bankston monthly payments for fifteen years and life thereafter, beginning with $7,000 in July 1991 and increasing 3 percent annually.
2. The Estate estimated that the fair market value of the annuities at the time of Bankston's death was $1,198,900, not the $2,371,409 figure provided under the annuity tables.
3. The regulations note that a "special" Section 7520 annuity factor may be used to value a restricted beneficial interest in some circumstances. Treas. Reg. § 20.7520-3(b)(ii). Under those circumstances, a party may request a special annuity factor from the IRS. Id. The "special" annuity factor is not an issue in this case.
4. The Estate suggests that Cook is distinguishable from the present case because the Cook annuitant was also the owner of the annuity. Cook, 349 F.3d at 851-52. In the present case, other entities owned the Bankston annuities. We do not find this to be a significant distinction. The interest to be valued is the right to receive payments from an annuity, regardless of who owns the annuity. See Treas. Reg. § 20.2039-1. Both here and in Cook, the interest rendered non-transferable by agreement (be it a true ownership interest or merely a contractual right to receive payments) would otherwise be transferable. See 29 SAMUEL WILLISTON & RICHARD A. LORD, A TREATISE ON THE LAW OF CONTRACTS § 74.10 (4th ed.2000) ("Generally, all contract rights may be assigned in the absence of clear language expressly prohibiting the assignment. . . . ").
5. A "contingency" is defined as "[a]n event that may or may not occur; a possibility" or "[t]he condition of being dependent on chance; uncertainty." BLACK'S LAW DICTIONARY 338 (8th ed.2004). A "power" is defined as "[t]he legal right or authorization to act or not act; a person's or organization's ability to alter, by an act of will, the rights, duties, liabilities, or other legal relations either of that person or of another." BLACK'S LAW DICTIONARY 1207 (8th ed.2004).
6. The Estate argues it was error for the district court to cite two Technical Advice Memorandums ("TAMs") issued by the IRS; the lower court stated, though, that the TAMs had no precedential value. See 26 U.S.C. § 6110(k)(3). We do not rely on these TAMs.
7. The Second Circuit's reversal of the Tax Court came as the result of that Circuit's expansion of the law under the "unrealistic and unreasonable" standard. Gribauskas, 342 F.3d at 88. The Second Circuit did not interpret Section 20.7520-3(b) and did not criticize the Tax Court's interpretation of that regulation. Id. We find the Tax Court's interpretation of Section 20.7520-3(b) persuasive.
8. The $1,198,900 alternative valuation figure appears to be derived solely from a "fair market value analysis" offered as an exhibit to the Estate's original refund request. This analysis applies a twenty-five percent discount factor when valuing the annuity interest. It is unclear from the record who prepared the analysis or how the preparer arrived at the discount factor. Neither party offered an expert valuation during proceedings before the district court.