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United States v. Johnson

United States District Court, D. Utah, Central Division

December 1, 2016

UNITED STATES OF AMERICA, Plaintiffs.
v.
MARY CAROL S. JOHNSON; JAMES W. SMITH; MARIAN S. BARNWELL; BILLIE ANN S. DEVINE; and EVE H. SMITH Defendants.

          MEMORANDUM DECISION AND ORDER

          Clark Waddoups United States District Judge.

         This is a tax case filed by the United States to collect unpaid federal estate taxes owed by the Estate of Hazel Anna S. Smith (“Estate”). This matter is before the court on the plaintiff's Second Motion for Summary Judgment (Dkt. No. 117), defendants' Motion for Reconsideration of the court's prior order granting partial summary judgment in favor of the government (Dkt. No. 119), and defendants' Motion for Summary Judgment (Dkt. No. 122).

         FACTUAL BACKGROUND

         The defendants in this action include the four children of Anna S. Smith (the “Decedent”), namely Mary Carol S. Johnson, James W. Smith, Marian S. Barnwell, and Billie Ann S. Devine. During the course of this litigation, Marian S. Barnwell and Billie Ann S. Devine passed away, and their estates have not been substituted as defendants. Eve H. Smith, who was named as a fifth defendant, is the wife of James W. Smith. In its prior order in this case, the court dismissed Mrs. Smith as a party to the litigation. (Am. Mem. Decision and Order, Dkt. No. 75.)

         During her lifetime, Decedent and two of her children, defendants Mary Carol S. Johnson (“Johnson”) and James W. Smith (“Smith”), executed a trust agreement dated February 8, 1982 for the creation of The Anna Smith Family Trust (the “Trust”), in which Decedent, Johnson and Smith were named as co-trustees. The Trust was funded on February 9, 1982 by 11, 466 shares of stock in State Line Hotel, Inc. (“Hotel”). The Hotel was the holder of a Nevada gaming license. Nearly one year later, on February 1, 1990, Decedent, Johnson and Smith executed an amended trust agreement, which removed Smith and Johnson as co-trustees and left Decedent as the sole trustee of Trust.

         On May 1, 1990, Decedent executed the Second Amended Trust Agreement (“Trust Agreement”) as both grantor and sole trustee, which was the agreement in effect at the time of Decedent's death on September 2, 1991. It is undisputed that the Decedent had an unlimited power to modify, alter, amend, revoke, or terminate the trust at any time during her life. It is also undisputed that the Decedent, as grantor, had the right to withdraw principal and income from the Trust as she directed during her lifetime, and that no Trust beneficiaries had an enforceable right to any distributions from the Trust during Decedent's life. The Trust Agreement named Johnson and Smith as successor trustees. Johnson and Smith were also named in the Decedent's will as personal representatives of Decedent's Estate. Neither Decedent's Estate nor the Trust have been named as defendants in this lawsuit.

         Upon Decedent's death, her will directed the personal representatives to ensure that the Decedent's “debts, last illness, and funeral and burial expenses be paid as soon after [her] death as reasonably convenient.” (Will ¶ II; Dkt. No. 32, Ex. A.) It further directed the personal representatives that “claims against [the] estate” may be settled and discharged in the “absolute discretion of [the] Personal Representatives, ” although it did not expressly direct the personal representatives to pay any federal estate tax levied against the Estate. (Id.) The “rest and residue” of the Estate was to be delivered to the successor trustees and added by them to the principal of the Trust to be administered as directed by the trustees. (Id. at ¶ IV.)

         The Trust Agreement provided for the successor trustees to make specific distributions, as soon as possible after the Decedent's death, from the principal of the Trust to individuals who are not parties to this suit. (Trust Agreement, 2; Dkt. No. 32, Ex. B.) The successor trustees were then directed to

pay any and all debts and obligations of the GRANTOR, the last illness, funeral, and burial expenses of the GRANTOR and any State and Federal income, inheritance and estate taxes which may then be owing or which may become due and owing as a result of the GRANTOR's death.

(Id.) (Emphasis added.) After these expenses were paid by the successor trustees, one third of the remaining Trust corpus (not to exceed $1, 000, 000) was to be divided into four equal parts to be distributed to one of the four family limited partnerships that had been established for each of the heirs. (Id. at 4.) Finally, the remaining principal and undistributed income of the Trust was to be distributed equally between the heirs by the successor trustees. (Id. at 4-5.) The heirs also received benefits valued at $369, 878 from several life insurance policies belonging to the Decedent. (Dkt. No. 86-3, p. 8.)

         As directed by the Trust Agreement, the successor trustees filed a federal estate tax return with the Internal Revenue Service (“IRS”) on June 1, 1992. The Decedent's gross estate was valued on the return at $15, 958, 765, resulting in a federal estate tax liability of $6, 631, 448, of which $4, 000, 000 was paid at the time of filing. (See United States Estate Tax Return, Dkt. No. 86-3.) The majority of the Decedent's gross estate consisted of 9, 994 shares of stock in the Hotel, valued by a valuation expert on the return at $11, 508, 400. Because the Hotel was a closely held business and its value constituted more than thirty-five percent of the Decedent's adjusted gross estate, the successor trustees validly elected to defer payment of the remainder of the federal estate tax liability pursuant to 26 U.S.C. § 6166(a). Consistent with Section 6166, the election provided that the remaining balance of the tax liability would be deferred for five years, at which time the successor trustees would pay it in ten annual installments beginning on June 2, 1997 and ending on June 2, 2006. (See Election, Dkt. No. 32-5.) After receiving the estate tax return, the IRS properly assessed the Estate for unpaid estate taxes on July 13, 1992.

         It is undisputed that Nevada gambling law limited the ability of a Trust to own stock in a casino. The Trust and the successor trustees had received special permission for ownership in the Hotel that was set to expire in January 1993. (Ltr. from Nevada Gaming Ctrl. Bd. dated July 23, 1992; Dkt. No. 139, p. 220.) The parties do not dispute that because the application process to gain permanent approval for such ownership was extensive, expensive, and ultimately uncertain, the successor trustees decided to distribute the Hotel stock from the Trust to the beneficiaries. Accordingly, on December 31, 1992, the successor trustees and the heirs executed an agreement (the “Distribution Agreement”) distributing the remaining Trust assets to the heirs. (See Agreement; Dkt. No. 32, Ex. G.) The Distribution Agreement indicated the following regarding the outstanding estate tax liability:

6. Liability for Taxes. Each of the BENEFICIARIES acknowledges that the assets distributed to him or her will accomplish a complete distribution of the assets of the Trust. A portion of the total federal estate tax upon the Estate of Anna Smith is being deferred and is the equal obligation of the BENEFICIARIES to pay as the same becomes due. Likewise, if, upon audit, additional federal estate taxes or Utah inheritance taxes are found to be owing, the responsibility for any such additional taxes, interest or penalties will be borne equally by the BENEFICIARIES.

(Id.) On December 28, 1992, a few days prior to signing this agreement, the Estate paid the IRS an additional $1, 000, 000 on the deferred tax owed. Defendants assert, and the government has provided no contrary evidence, that at the time the Distribution Agreement was signed, their combined net worth was approximately $21.1 million, whereas the estate tax liability at that time was approximately $1.46 million. From the date the Distribution Agreement was signed until 2001, it is undisputed that additional payments on the deferred tax totaling $1, 399, 221.87 were made to the IRS by the Hotel on behalf of the defendants, who held the majority of the ownership of the Hotel from 1992 to 2001.

         On May 30, 1995, approximately two years prior to the start date of the Section 6166(a) deferred tax installment payments, the IRS issued a Notice of Deficiency against the Estate. The IRS claimed that the 9, 994 shares of Hotel stock were worth $15, 500, 000 rather than $11, 508, 400 at the time of Decedent's death. (See Notice of Deficiency; Dkt. No. 32, Ex. E.) According to the IRS, this adjusted valuation resulted in an alleged additional estate tax of $2, 444, 367. The Estate contested the Notice of Deficiency, and a settlement was ultimately reached where the Estate agreed to pay additional federal estate taxes in the amount of $240, 381. The IRS assessed the Estate for the second time pursuant to that settlement on December 30, 1996.

         On May 27, 1997, about a week prior to the due date of the first estate tax installment payment, Colleen Girard, an agent from the IRS, sent a letter to Johnson in her capacity as executor of the Estate, informing her “of an alternative to your continued personal liability for the unpaid estate tax . . . deferred under 26 U.S.C. Section 6166.” One of the alternatives offered was for Johnson “to furnish a Special Lien for Estate Tax Deferred Under Section 6166, as described in 26 U.S.C. Section 6324A.” (Ltr. from Colleen Girard dated May 27, 1997; Dkt. No. 122-2, pp. 3-4.) Accordingly, on August 4, 1997, after obtaining additional information from the IRS about the information required to submit the Section 6324A special lien, Johnson and Smith, through counsel, provided the IRS with an executed Agreement to Special Lien Under Section 6324A signed by all four children of the Decedent, an agreement restricting the sale of the Hotel stock while the lien on the stock was in effect, and the additional information about the Hotel stock requested by the IRS. (Ltr. from David Salisbury dated Aug. 4, 1997; Dkt. No. 122-2, p. 7.) It is undisputed that at no point during this exchange of information did Ms. Girard mention or attach a “notice of election” or other application form required to furnish the IRS with a special lien.

         Although unknown to the defendants at the time, Ms. Girard then sought guidance from IRS District Counsel regarding the use of stock in a closely held corporation as security for a special lien under Section 6324A. (Aug. 21, 1997 IRS Memo.; Dkt. No. 122-2, p. 13.) Ms. Girard informed District Counsel that the Estate had consented to the lien and offered 4, 768 shares of stock which, based on the 1996 Tax Court settlement, had a value of $1, 273 per share, or a total value of $6, 092, 578. Given that the unpaid balance of the tax assessment was $1, 899, 970 and the amount of security needed was $2, 192, 365.20, Ms. Girard stated that “I have analyzed the security and feel a lien under IRC 6324A against the stock will adequately secure the liability for the remainder of the IRC 6166 election.” (Id.)

         Notwithstanding the foregoing, in a letter dated November 6, 1997, Ms. Girard subsequently notified Smith and Johnson that District Counsel had “advised our office that closely held stock should not be accepted as collateral by the Internal Revenue Service because the IRS cannot sell stock at a public auction as it violates securities regulations.” (Ltr. from Colleen Girard dated Nov. 6, 1997; Dkt. No. 122-2, p. 15.) Through counsel, Smith and Johnson responded that if there were securities law problems with the stock held by the IRS in its Section 6324A Special Lien, “it would appear that they belong to the IRS, not to the taxpayer, ” and that it was their position that “if an election is made under Section 6324A and the identified property can be expected to survive the period of deferral, the requirements of the statute have been met and the application of the special lien is mandatory.” (Ltr. from David Salisbury dated Jan. 13, 1998; Dkt. No. 122-2, pp. 17-18.) In any event, Ms. Girard, Smith, and Johnson all agreed to wait two years to revisit the matter in 2000. (Ltr. from Ms. Girard dated Jan. 20, 1998; Dkt. No. 122-2, pp. 19-20.) It is undisputed that neither Ms. Girard, nor anyone else at the IRS, ever contacted Smith, Johnson, or their attorneys again with respect to the Section 6324A special lien.

         In January 2002, the Hotel filed for Chapter 11 bankruptcy in the state of Nevada. It is undisputed that as a result of the bankruptcy proceedings, the beneficiaries were instructed to stop making any more distributions to pay the estate tax. The defendants did apply for an extension of time to pay the next installment due under Section 6166 and notified the IRS that the Hotel was in bankruptcy proceedings. (Dkt. No. 139, pp. 164-166.) By May 2002, the bankruptcy court approved the sale of all Hotel assets free of liens, claims, and encumbrances. As shareholders, the heirs received no value for their Hotel ownership interests in the bankruptcy.

         Over a year after the conclusion of the Hotel bankruptcy, the IRS sent Smith and Johnson delinquent billing notices for the outstanding estate taxes dated August 28 and December 2, 2003. The latter notice stated that if the payment due was not received by the IRS by December 15, 2003, the “installment agreement will be in danger of defaulting. If this occurs, the whole balance due on the account will be due immediately and turned over for collection.” (2nd Delinquent Installment Billing-2003, Dkt. No. 139, p. 163.) The installment payment was not made in 2003. In 2005, the Estate, through counsel, communicated with Byron Broda at the IRS about the inability of the Estate to pay its outstanding estate taxes. Counsel sent Mr. Broda an explanation of the Estate's distribution of assets in 1992, the financial difficulties of the Hotel and the bankruptcy, as well as a copy of the Distribution Agreement. (Dkt. No. 139, pp. 168-183.) The parties agree that the IRS then sent Smith and Johnson notices of their intent to levy unspecified assets in approximately July 2005. (Gov. Opp. Mem. to Second Mot. Summ. J.; Dkt. No. 138, p. 14.) On July 8, 2005, the IRS sent the Estate a Notice of Federal Tax Lien, and indicated it had been filed with the County Recorder of Salt Lake and Tooele counties in Utah. The notice included a statement that said:

IMPORTANT RELEASE INFORMATION: For each assessment listed below, unless notice of the lien is refiled by the date given in column (e), this notice shall, on the day following such date, operate as a certificate of release as defined in IRC 6325(a).

         The last refiling date listed in column (e) of this notice listed “N/A” with respect to the 1992 estate tax assessment, and January 29, 2007 with respect to the 1996 estate tax assessment. (2005 Notice of Federal Tax Lien; Dkt. No. 139, pp. 197-199.) The assessment was for a total of $1, 569, 9671.67 which appeared to be attributable in full to the 1996 tax assessment. (Id.)

         On or about September 12, 2005, the IRS sent a Notice of Levy to each of the individual defendant children, Smith, Johnson, Bille Ann S. Devine, and Marian S. Barnwell. The notices stated, “This levy attaches assets includible in the gross estate of Hazel Anna S. Smith, which were distributed or transferred to you, including but not limited to cash and life insurance proceeds.” (Notices of Levy; Dkt. No. 139, pp. 206-209.) Thereafter, on November 15, 2005, Mr. Broda recommended that the government pursue a civil suit against the Estate, Johnson, and Smith for transferee liability for the estate tax. This lawsuit was not filed until January 21, 2011.

         On or about January 9, 2007, the IRS sent the Estate a corrected Notice of Federal Tax Lien, which was also filed in Salt Lake and Tooele counties. This notice claimed it was “filed to correct the amount due on the original lien, ” but that otherwise the “information on the original notice filed is correct and that instrument remains in full force and effect.” (2007 Notice of Federal Tax Lien; Dkt. No. 139, pp. 200-202.) This notice apportioned the tax owed between the 1992 assessment ($1, 164, 490.94) and the 1996 assessment ($405, 220.73). (Id.) The IRS did not re-file their Notice of Federal Tax Lien by January 29, 2007, the deadline identified on the original and corrected notices. Rather, the IRS issued Certificates of Release for both the 2005 and 2007 liens on February 18, 2007, which stated that “the lien provided by Code section 6321 for these taxes and additions has been released.” (Certificate of Release of Federal Tax Lien; Dkt. No. 139, pp. 210-213.) These certificates were filed in both Salt Lake and Tooele counties. (Id.)

         Several months later on March 27, 2007, the IRS mailed the Estate a Revocation of Certificate of Release of Federal Tax Lien with respect to both the 1992 and 1996 assessments filed in both Salt Lake and Tooele counties, stating that “we mistakenly allowed Notices of Federal Tax Lien filed against Hazel Anna S. Smith Estate to be released” and that the releases “are revoked and the liens are reinstated, as provided under Internal Revenue Code, Section 6325(f)(2).” (Revocations, Dkt. No. 139, pp. 214-217.) The IRS admits that the revocation notice was not filed with the Salt Lake county recorder's office as required by statute. (Decl. of Jennifer Graham ¶ 3, Dkt. No. 148.) Similarly, the IRS admits that on October 12, 2012 it again filed Certificates of Release of Federal Tax Lien with respect to both the 1992 and 1996 assessments in Salt Lake county. (Id. at ¶ 4.) However, on May 15, 2015, the IRS finally filed its Revocation of those releases with the Salt Lake county recorder's office, along with a new Notice of Federal Tax Lien against the Estate, stating that the government now has until August 12, 2025 to refile its lien for the 1992 assessment and until December 30, 2025 to refile its lien for the 1996 assessment. (Id. at Ex. 8, Dkt. No. 148-2.)

         PROCEDURAL BACKGROUND

         The government filed this action on January 21, 2011 in an effort to collect the estate's outstanding tax liability, asserting a cause of action against all defendants for trustee, transferee, and beneficiary liability under 26 U.S.C. § 6324(a)(2), and against the personal representatives under 31 U.S.C. § 3713. (Compl., Dkt. No. 2.) Defendants filed a motion to dismiss the complaint. (Dkt. No. 31.) Following a hearing on that motion, the court determined that the government had adequately stated a claim that the trustees of the Trust may be personally liable for the unpaid estate tax to the extent of the value of the property in the Trust at the time of Decedent's death pursuant to 26 U.S.C. § 6324(a)(2). (See Am. Mem. and Decision, Dkt. No. 75.) The court dismissed the government's claim, on the other hand, that each heir should be individually liable for the unpaid estate taxes as a transferee of Trust assets pursuant to that statute. (Id.) Similarly, the court determined that the government's claim regarding each heir's potential individual liability for the estate's taxes as a beneficiary of Trust assets under Section 6324(a)(2) should be limited to the extent of the distributions they received from the Decedent's life insurance policies. (Id.) Finally, the court determined that the government had adequately stated a claim that the personal representatives may have individual fiduciary liability for the estate taxes under 31 U.S.C. § 3713, although it revised its reasoning as to why after resolving defendants' first motion to reconsider. (Id.)

         After the court ruled on defendants' motion to dismiss, the defendants answered the government's Amended Complaint, which was filed on July 31, 2013 and included for the first time causes of action related to the Distribution Agreement. (Dkt. No. 79.) Subsequently, the parties filed cross motions for partial summary judgment on the government's first cause of action, namely whether Johnson and Smith, as successor trustees of the Trust, were personally liable for unpaid estate taxes under 26 U.S.C. § 6324(a)(2) because that section only makes trustees liable up to the value of assets included in decedent's gross estate under 26 U.S.C. §§ 2034 to 2042, inclusive.[1] Oral argument was heard on these motions on October 1, 2014, after which the court ruled on the record in favor of the government that the successor trustees were personally liable for the estate tax because the Trust assets were included in the Decedent's gross estate under a relevant section, namely 26 U.S.C. § 2036(a). Defendants have challenged this ruling in a Motion to Reconsider, which is now before the court. (Dkt. No. 119.)

         At the October 1 hearing, the court also granted defendants' motion for leave to amend their answer to include the affirmative defense that the government's claims against Smith and Johnson as personal representatives and fiduciaries are barred because they were effectively discharged from personal liability in August 1997 as a result of their tender of a special lien under 26 U.S.C. § 6324A. Shortly before the deadline for dispositive motions, defendants moved for an extension of time to submit an expert report from Jeffrey S. Pickett to support that the value of the Hotel stock pledged as collateral at or near the time of their § 6324A election was more than sufficient to pay the remaining amount of the federal estate tax that had been deferred under 26 U.S.C. § 6166. Their motion was granted and defendants filed their second motion for partial summary judgment on the grounds that Smith and Johnson were discharged from personal liability pursuant to their furnishing of the § 6324A special lien. This motion is before the court. (Dkt. No. 122.)

         For its part, on March 17, 2015, the government timely filed its second motion for summary judgment on the remaining counts of its amended complaint, and part of this motion is now before the court. (Dkt. No. 117.) On July 21, 2015, the court held a hearing on the parties' second motions for summary judgment, defendants' motion for reconsideration, and defendants' motion for extension of time to submit expert reports. The court granted defendants' motion for an extension of time to submit expert reports. The court granted the government's second motion for summary judgment as to the defendants' personal liability for estate tax attributable to the life insurance proceeds received from the decedent. The court took the claims regarding the successor trustees' personal liability under submission. Defendants' motion for reconsideration and second motion for partial summary judgment were also taken under submission.

         After both parties submitted expert reports and supplemental briefing regarding the expert reports and defendants' claims that Smith and Johnson should be discharged from personal liability as a result of satisfying the requirements for a special lien pursuant to § 6324A and thus obtaining a discharge pursuant to § 2204 such that they are not personally liable pursuant to § 3713, the court held a final hearing on the briefing on June 23, 2016. After consideration of the parties' extensive briefing, the relevant law, and the oral arguments by the parties, the court now rules on the following motions: United States' Second Motion for Summary Judgment (Dkt. No. 117), Defendants' Motion to Reconsider (Dkt. No. 119), and defendant's Motion for Partial Summary Judgment (Dkt. No. 122).

         ANALYSIS

         1. Failure to Substitute Estates as Defendants Requires the Court to Dismiss Defendants Marian S. Barnwell and Billie Ann S. Devine

         As a preliminary matter, the court begins by addressing the government's claims against the two deceased defendants. Notice of the September 1, 2015 death of defendant Billie Ann S. Devine was filed on September 21, 2015. (Dkt. No. 172.) Notice of the April 17, 2016 death of Defendant Marian S. Barnwell was filed on May 16, 2016. (Dkt. No. 190.) Rule 25(a)(1) of the Federal Rules of Civil Procedure governs the substitution of a party for claims that are not extinguished by a party's death. In this case, the government's claims against these two deceased heirs as the beneficiaries of Trust assets under Section 6324(a)(2) to the extent of the distributions they received from the Decedent's life insurance policies is not necessarily extinguished by their deaths and could potentially have survived against their estates. Rule 25, however, requires a motion for substitution of a party to be “made within 90 days after service of a statement noting the death.” Fed.R.Civ.P. 25(a)(1). For Devine, that time expired in December 2015. For Barnwell, that time expired in August 2016. When a party-here the government-has failed to make a timely motion for substitution of a party, “the action by or against the decedent must be dismissed.” Id. There has been no motion for substitution of either defendant here; accordingly, the court dismisses all of the government's claims against defendants Devine and Barnwell.

         2. Motion to Reconsider Whether Trust Assets Were Included in Decedent's Gross Estate Under 26 U.S.C. § 2033

         The court now turns to defendants' motion to reconsider its decision to grant partial summary judgment to the government on the question of whether Smith and Johnson as successor trustees are personally liable for the unpaid estate tax to the extent of the value of the property in the Trust under section 6324.

         As successor trustees of the Trust, Johnson and Smith can be personally liable for unpaid estate taxes up to the value of the Trust assets under 26 U.S.C. § 6324(a)(2) only if the Trust assets were included in decedent's gross estate under 26 U.S.C. §§ 2034 to 2042, inclusive.[2] In their motion for partial summary judgment, defendants argued that Decedent's assets were included in her Estate under 26 U.S.C. § 2033, [3] rather than under 26 U.S.C. § 2036 or 26 U.S.C. § 2038, because the Decedent retained full beneficial ownership of all Trust assets during her lifetime and there was no transfer to any other Trust beneficiary until the time of her death. (Def.'s Mot. for Summ. J. 7, Dkt. No. 86.) By contrast, the government's motion for summary judgment on this claim argued that decedent's assets were either included in her estate under 26 U.S.C. § 2036(a) because they were transfers with a retained life estate, [4] or under 26 U.S.C. § 2038 because the Decedent retained the power to alter, amend, revoke, or terminate the Trust.[5](Gov. Mot. for Summ. J. 13-19, Dkt. No. 88.) After oral argument on October 1, 2014, the court denied defendants' motion and granted summary judgment to the government on the claim that Smith and Johnson were personally liable for the unpaid estate tax as successor trustees of the Trust. (Dkt. No. 108.) The court concluded that the assets in the Trust, a fully revocable grantor trust, were included in Decedent's gross estate under 26 U.S.C. § 2036(a)(2) because as a result of the creation of the Trust and the designation of the beneficiaries therein, “at the instant of death the beneficiaries in this property had a legally enforceable interest.” (Hr'g Tr. dated Oct. 1, 2014 49; Dkt. No. 113.)

         Defendants have asked the court to reconsider this decision, arguing that the critical question for their claim that the Trust assets were included in the gross estate under 26 U.S.C. § 2033 is not whether the beneficiaries obtained a legally enforceable interest at the moment of Decedent's death, but rather what interest the Decedent held at the moment of her death. (Dft.'s Mot. to Reconsider 3, Dkt. No. 119.) Defendants argue that the court's analysis of 26 U.S.C. § 2036 was in error because it incorrectly focused on the interests held by the beneficiaries immediately after the moment of death, rather than on the interests held by the Decedent during her life. (Id. at 7.) From a temporal standpoint, in other words, the transfer envisioned by the fully revocable grantor trust executed by the Decedent during her lifetime only occurred as a result of Decedent's death, and thus the assets remained beneficially owned by her during her lifetime and were includable in the Estate pursuant to 26 U.S.C. § 2033 rather than § 2036 or § 2038. They further argue that this temporal analysis was not originally briefed as to section 2036, id. at 3, although the court notes that the parties did present arguments on temporal considerations as to section 2038. The government argues that the court should not reconsider defendants' motion because it merely restates the position defendants took in their initial motion. (Gov.'s Opp'n Mem., Dkt. No. 143.) Thus, the court first evaluates the legal standard required to grant a motion to reconsider.

         A. Legal Standard on a Motion to Reconsider

         Rule 54(b) of the Federal Rules of Civil Procedure provides, in relevant part:

[A]ny order or other decision, however designated, that adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties does not end the action as to any of the claims or parties and may be revised at any time before the entry of a judgment adjudicating all the claims and all the parties' rights and liabilities.

Fed. R. Civ. P. 54(b).

         The government argues that although Rule 54(b) allows a court to revisit any order that rules on less than all of the claims in a case, a motion to reconsider is not appropriate when it merely restates the party's position taken in the initial motion. See Servants of the Paraclete v. Does, 204 F.3d 1005, 1012 (10th Cir. 2000) (A motion for reconsideration is an “inappropriate vehicle[] to reargue an issue previously addressed by the court when the motion merely advances new arguments, or supporting facts which were available at the time of the original motion.”). While defendants agree that “[a] motion to reconsider is not a second chance for the losing party to make its strongest case or to dress up arguments that previously failed, ” United States v. Huff, 782 F.3d 1221, 1224 (10th Cir. 2015), they note and the court agrees that the Tenth Circuit encourages a court to reconsider an interlocutory ruling “where error is apparent.” Warren v. Am. Bankers Ins., 507 F.3d 1239, 1243 (10th Cir. 2007). Furthermore, “[a] district court always has the inherent power to reconsider its interlocutory rulings.” Id.

         The court agrees with the defendants that the key language of section 2033 requires the court to focus its analysis on what was “beneficially owned by the decedent at the time of his death, ” 26 C.F.R. 20.2033-1, rather than on the interests owned by the beneficiaries immediately after decedent's death, which it did at the October 1, 2014 hearing. Accordingly, based on the foregoing standard and to prevent clear error, the court proceeds to reconsider whether the Trust assets were included in Decedent's gross estate under 26 U.S.C. § 2033.

         B. Decedent Had Full Beneficial Ownership of All Trust Property During Her Lifetime; Thus Trust Assets Were Included in Her Gross Estate Under 26 U.S.C. § 2033

         The court's focus during the October 1, 2014 oral argument for summary judgment on this issue was on how it should interpret the meaning of the term “transfer” for purposes of these estate tax statutes. (Hr'g Tr. dated Oct. 1, 2014 4; Dkt. No. 113.) While the court's analysis still revolves around the meaning of that term, the court erred by not also keeping in mind the overall estate tax statutory scheme. Upon reconsideration, the court finds that an evaluation of estate tax liability first requires the inclusion in the gross estate, under section 2033, of “the value of all property, whether real or personal, tangible or intangible, and wherever situated, beneficially owned by the decedent at the time of his death.” 26 C.F.R. 20.2033-1. Other sections then apply to include in the gross estate certain gifts and/or transferred assets purportedly given away during ...


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