Estate of McLendon v. Commissioner of Internal Revenue

135 F.3d 1017 (1998)

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Estate of McLendon v. Commissioner of Internal Revenue

United States Court of Appeals for the Fifth Circuit
135 F.3d 1017 (1998)

  • Written by Heather Whittemore, JD

Facts

Gordon M. McLendon owned a media empire and was very wealthy. In 1985 McLendon was diagnosed with esophageal cancer. In 1986, after undergoing treatment for the cancer, McLendon was told by his doctor that the cancer was gone and that he should start planning for his future. McLendon, however, only had a 10 percent chance of living for another year. McLendon made a deal with his son and the McLendon Family Trust (the trust) in which McLendon transferred remainder interests in his various partnerships to his son and the trust in exchange for $250,000 and a lifetime annuity. McLendon valued the lifetime annuity by relying on actuarial tables created by the Commissioner of Internal Revenue (the Commissioner) (defendant) and published in a treasury regulation. For estate-tax purposes, the cash gift and annuity were meant to equal the value of the remainder interests. If the cash gift and annuity were worth less than the remainder interests, the transfer of the remainder interests would have been considered a taxable gift. McLendon died soon after the exchange. The Commissioner disagreed with McLendon’s use of the actuarial tables. Revenue Ruling 80­-80 (the revenue ruling) explains that the Commissioner’s actuarial tables could be used in most situations unless the person whose life expectancy was being calculated was facing imminent death. The Commissioner argued that the revenue ruling did not apply, despite the ruling generally being interpreted as applying unless a person had a less than 5 percent chance of living for another year. McLendon’s Estate (the Estate) (plaintiff) appealed, and the United States Tax Court upheld the Commissioner after holding that revenue rulings are not afforded deference. The Estate appealed.

Rule of Law

Issue

Holding and Reasoning (Jolly, J.)

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