Billhartz v. Comm’r of Internal Revenue

Billhartz left more than $20 million to his four children when he died. His estate tax return claimed a deduction for more than $14 million because the amounts paid to the children through a trust were paid pursuant to Billhartz’s contractual obligation under a marital settlement agreement with his first wife. The IRS disallowed the deduction in full and issued a notice of deficiency. The Estate filed suit. Before trial the Estate and the IRS settled; the IRS conceded 52.5% of the claimed deduction. Soon after the settlement, Billhartz’s children sued the Estate in state court, claiming that they were entitled to a larger portion of their father’s fortune and that their prior acceptance of a lesser amount had been obtained fraudulently. The Estate asked the Tax Court to vacate the settlement on the basis that, were the children to prevail, the settlement would bar the Estate from claiming an estate tax refund for any additional amount paid to the children. The Tax Court rejected the Estate’s arguments, and entered a decision reflecting the terms of the settlement agreement. The Seventh Circuit affirmed. The Tax Court did not abuse its discretion by refusing to set aside the settlement. View "Billhartz v. Comm'r of Internal Revenue" on Justia Law