Finfrock v. United States

Under the Tax Code, land was generally included in a decedent’s estate without regard to how the decedent had been using the land when she died. Rather, the land was valued as if the decedent had been using it for its highest and best use. Congress believed that this rule disincentivized continued operation of family farms because the land on which those farms were operated often could have been put to a more profitable use. To get rid of this disincentive, Congress included § 2032A in the Tax Reform Act of 1976. Section 2032A allowed a decedent to include some land in her estate at a value reflecting the land’s present use rather than its most profitable use if at least 25 percent of the value of the estate was attributable to real property used in the operation of a family farm. The land that could be valued reflecting its present use was limited to the land on which the estate and its designees agreed to continue that use. The United States Treasury Department promulgated Treasury Regulation § 20.2032A-8(a)(2), which added the requirement that at least 25 percent of the value of the estate be attributable to the land designated for continuation of its present use. Doris Finfrock-Ware died while holding the majority of the shares in a family-farm corporation. More than 25 percent of the value of Finfrock-Ware’s estate was attributable to the land on which the family farm was operated. The estate also designated a portion of that land to continue operating as a family farm. The designated portion of the land composed approximately 15 percent of the value of Finfrock-Ware’s gross estate. The executor of the estate (plaintiff) valued the designated land at its use as a farm rather than at its most profitable use. The Internal Revenue Service (IRS) (defendant) determined that, pursuant to § 20.2032A-8(a)(2), the estate was not entitled to value the designated land at its present use. The executor challenged the validity of § 20.2032A-8(a)(2) in district court.