ON APPEAL FROM THE DECISION OF THE UNITED STATES TAX COURT (T.C. No. 16500-79)
Before Hunter and Weis, Circuit Judges, and Fisher,*fn* District Judge.
This appeal is from an order denying intervention in a Tax Court suit contesting an estate tax deficiency. The appellant had sought intervention to challenge the valuation of stock in her deceased husband's estate. A low valuation would have a substantial adverse impact upon the appellant, but at the same time a favorable effect on the beneficiaries of a residuary trust. In challenging the Commissioner's assessment, the administrator of the estate advocated a valuation lower than appellant desired. Appellant's petition to intervene in order to protect her interests was denied by a "special trial judge" of the Tax Court. We conclude that we lack jurisdiction to consider the appeal because authority had not been given the special trial judge to issue a decision of the Tax Court.
Appellant is the widow of William Wikoff Smith, who died testate in January 1976. She was appointed executrix under the will, which provides a marital trust for her and a residuary trust for the decedent's children. Mrs. Smith elected to take against the will and, under Pennsylvania law, became entitled to receive one-third the estate's net assets. Under the terms of the will, the residuary trust is liable for all death taxes.
At the time of his death, Mr. Smith had substantial stock holdings in Kewanee Industries, Inc. In October 1976, Mrs. Smith, in her capacity as executrix, filed a federal estate tax return reporting a date of death value of approximately $13.00 per share. On August 8, 1977, some twenty months after her husband's death, these shares were sold at a price of $47.50 per share. On April 14, 1978, the executrix filed a federal income tax return on behalf of the estate, asserting that the $13.00 per share valuation was erroneous and that since the correct value should have been $47.50 per share, no gain had been realized on the sale.
The beneficiaries of the residuary trust then petitioned the Common Pleas Court of Montgomery County, where the estate was being administered, to remove Mrs. Smith as executrix because of a conflict of interest. The court found that Mrs. Smith had a "deep and personal financial interest in seeing that a high valuation be settled on this stock." If the value placed on the stock were low, a substantial capital gains tax would be paid by the estate, thereby reducing the estate's net assets and, consequently, her share. On the other hand, if the value as of the date of death were high, the resulting increased estate tax would be paid solely by the residuary trust. The Common Pleas Court accordingly relieved Mrs. Smith, as executrix, of her responsibility for determining the estate's taxes for the year 1977. For that limited purpose, George J. Hauptfuhrer, Jr. was appointed administrator pro tem.
Hauptfuhrer promptly wrote to counsel for Mrs. Smith and the residuary beneficiaries and requested information about the value of the stock. At his request, Kidder, Peabody & Company, Inc. appraised the stock and concluded that the date of death value was between $26.00 and $29.00 per share. Hauptfuhrer also arranged to have counsel for all parties join him in a conference before the Internal Revenue Service Appeals Officer.
In September 1979, the Commissioner of Internal Revenue issued a notice of estate tax deficiency of $27,360,399.40 based upon a valuation of the Kewanee stock at $44.10 per share. The administrator filed a petition in the Tax Court seeking a redetermination of the deficiency.
Six weeks later Mrs. Smith moved to intervene, arguing that every dollar of difference in valuation would affect her to the extent of $500,000.00. The difference between the Kidder appraisal of $29.00 and her figure of $47.50 would therefore mean a loss of over $9,000,000.00. She alleged inadequate representation in the Tax Court because neither the administrator pro tem nor the Commissioner had any substantial interest in advocating her cause. With respect to the Commissioner's position, she argued that what was not paid in estate tax would be exacted as income tax, and that the government would receive the same amount in either case. Mrs. Smith also asserted that the administrator had taken the position that the stock was worth $26.00 to $29.00 per share and had all but agreed to a settlement at an undisclosed figure when the petition to intervene was filed. Furthermore, she contended that the administrator could not urge her position without sacrificing the interest of the beneficiaries of the residuary trust. The administrator and the Commissioner both opposed the intervention.
In a bench opinion, a special trial judge denied intervention, finding that neither party's interest was adverse to Mrs. Smith's and that she was adequately represented. In support of this conclusion, he stated that the Commissioner would seek a high valuation in order to maximize estate tax liability, and in that way promote Mrs. Smith's interest. He added that the administrator was an independent party, interested only in performing his duty of fairly evaluating the stock. Moreover, the special trial judge felt that allowing intervention would circumvent the state court's order that the administrator fairly represent the interests of all beneficiaries. Mrs. Smith appeals.
The Commissioner and administrator contend that the order below is not a "decision" of the Tax Court under 26 U.S.C. § 7482(a) (1976). The jurisdictional issue has two facets. As originally briefed and argued, the Commissioner and administrator challenged the order as being interlocutory and not a decision within the meaning of § 7482(a) because it did not dismiss the proceeding or determine the existence or absence of a deficiency. During oral argument, we raised a second issue bearing on the powers of a special trial judge and the jurisdictional effect to be given his order. At our request, the parties later submitted comments on the question.
Under 26 U.S.C. § 7482(a), a court of appeals has "exclusive jurisdiction to review the decisions of the Tax Court ... in the same manner and to the same extent as decisions of the district courts in civil actions tried without a jury." Just what constitutes a "decision" for jurisdictional purposes is not defined by that section. However, in 26 U.S.C. § 7459(c) (1976), which addresses the "date of decision," there are references to certain orders of the Tax Court.
In Commissioner v. S. Frieder & Sons Co., 228 F.2d 478, 480 (3d Cir. 1955), we said a reading of § 7482(a) and § 7459(c) together led to the conclusion that, "normally at least," the word "decision" refers to two kinds of judicial actions by the Tax Court one, dismissing the petition before it or, two, formally determining the existence or absence of a deficiency. We found appealable in Frieder a Tax Court order declining jurisdiction over an asserted deficiency in the Commissioner's answer to a petition for redetermination of excess profits tax liability. This interpretation of the statute differed from the very restrictive approach of the Court of Appeals for the First Circuit in Commissioner v. Smith Paper, Inc., 222 F.2d 126 (1st Cir. 1955). As Judge Hastie put it, the order "had great substantive effect, limiting the proceedings to the extent of ...