Estate of Sower v. Commissioner

Frank Sower died in 2012. His estate filed an estate-tax return that indicated no estate-tax liability. It also reported no taxable gifts but included $945,420 in taxable gifts on the worksheet used to figure reportable taxable gifts. His estate reported a deceased spousal unused exclusion (DSUE) of $1,256,033 and elected portability of that exclusion for his surviving wife, Minnie Sower, to use it. Minnie died in 2013. Her estate (plaintiff) filed an estate-tax return, which reported a tax liability of $369,036 and claimed the DSUE from Frank of $1,256,033. Frank and Minnie each gave nearly $1 million in taxable gifts during their lives. During the examination of the return filed by Minnie’s estate, the Commissioner of Internal Revenue (the commissioner) (defendant) opened an examination of the return filed by Frank’s estate. Ultimately, the commissioner found that the DSUE available to Minnie from Frank’s estate was just $282,690 rather than $1,256,033. The commissioner also recalculated Minnie’s taxable estate after including the value of her lifetime taxable gifts and sent a notice of deficiency indicating a $788,165 tax deficiency. Minnie’s estate then filed a petition for redetermination, arguing that the commissioner could not properly examine the return filed by Frank’s estate (despite the fact that IRS regulations allow such an examination), that the commissioner’s ruling was contrary to legislative intent of portability, and that the commissioner’s ruling ran contrary to due process because it overrode the three-year statute of limitations on assessment of taxes.