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Interesting Estate Tax Case of Emanuel Trompeter
Longacre
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Below is a Tax Court case from the estate of Emanuel Trompeter (which was published in 1998). I find the case to be interesting for the following reasons: (1) it refers to one of the finest collections ever assembled, (2) it details how certain experts valued the coins in question for estate tax purposes (the methods and assumptions provide a nice insight on how the markets might "work"), (3) the tax court dismisses the experts' opinions and uses its own method to value the coins (which is quite comical), (4) look at section III and note the disparity of grades between PCGS and NGC. The opinion is edited to omit the non-coin parts, but the full opinion is publically disclosed on www.ustaxcourt.gov (then go to "opinions search" and type "Trompeter" in the case name keyword section). Note that there is subsequent history to the case, which deals with some valuation issues of certain coins and substantiation, and mostly with valuations of other assets of the estate, such as jewels, art, rare artifacts, etc.
Sorry for the length of this post. Who said tax law is not interesting?
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United States Tax Court.
Estate of Emanuel TROMPETER, Deceased, Robin Carol Trompeter Gonzalez and Janet
Ilene Trompeter Polachek, Co-executors, Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
No. 11170-95.
Jan. 27, 1998.
D died on Mar. 18, 1992, and his Federal estate tax return reported the value of his estate (E) on the alternate valuation date. R determined higher values for many of the reported assets, assigned values for unreported assets, and disallowed certain deductions. R also determined that E was liable for the fraud penalty under sec. 6663(a), I.R.C. Held: Taxable estate redetermined, including redeterminations of fair market value. Held, further, E is liable for the fraud penalty.
Robert A. Levinson, Avram Salkin, Bruce I. Hochman, Charles P. Rettig, and Frederic J. Adam, for petitioner.
Irene Carroll, Anne E. Dauqharty, Linette Angelastro, and Donald E. Osteen, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
LARO, Judge:
This case is before the Court pursuant to a petition filed on behalf of the Estate of Emanuel Trompeter (the estate) to redetermine respondent's determination of a $22,833,693 deficiency in Federal estate tax and a $14,875,909 fraud penalty under section 6663(a). Respondent determined, as an alternative to the fraud penalty, that the estate is liable for an accuracy-related penalty for negligence and gross valuation misstatement under section 6662.
Following concessions, the primary issue that the Court must decide is the September 18, 1992, fair market value of the following assets which the parties agree are included in the gross estate of Emanuel Trompeter (the decedent)
1. 1,533.482 shares of Sterling Holding Co. (Sterling) series A exchangeable preferred stock (Sterling preferred stock). We hold that the applicable value (including accrued dividends) is $1,974,845.
2. Two hundred twenty seven rare gold coins. We hold that the applicable value is $8,129,523.
The Court also must decide the following secondary issues:
1. Whether the decedent's gross estate includes $14 million of diamonds, jewels, gems, art, and artifacts that were not reported on his Federal estate tax return. We hold that his gross estate includes $4.5 million of these assets.
2. Whether certain other items determined by respondent to be included in the decedent's gross estate are so included. We hold they are to the extent and in the amounts stated herein.
3. Whether Sylvia Trompeter (Ms. Trompeter) had a bona fide claim against the estate because the decedent, her former husband, failed to disclose the value and extent of his coin holdings during their divorce proceeding. We hold she did not.
4. Whether the estate is liable for the fraud penalty determined by respondent under section 6663(a). We hold it is. [FN1]
Unless otherwise stated, all section references are to the applicable provisions of the Internal Revenue Code, and all Rule references are to the Tax Court Rules of Practice and Procedure. Dollar amounts are rounded to the nearest dollar. The term "co-executors" refers collectively to the estate's coexecutors, Robin Carol Trompeter Gonzalez (Ms. Gonzalez) and Janet Ilene Trompeter Polachek (Ms. Polachek).
FINDINGS OF FACT
I. Overview
Some of the facts have been stipulated and are so found. The stipulations and the exhibits submitted therewith are incorporated herein by this reference. The decedent was born in New York on February 22, 1919, and he resided in Thousand Oaks, California, when he died on March 18, 1992. At the time of the filing of the petition, Ms. Gonzalez resided in Florida, and Ms. Polachek resided in California.
The coexecutors are the decedent's sole beneficiaries and his only surviving children. Their mother is Ms. Trompeter. Each coexecutor is college educated, has extensive work experience, and knows about her obligation to file valid Federal tax returns. The coexecutors enjoy a close and friendly relationship with Ms. Trompeter.
The coexecutors are cotrustees of the Emanuel Trompeter Trust (the Trust), a trust that holds most of the decedent's assets. The Trust was revocable during the decedent's life, and the decedent was its sole trustee until Ms. Gonzalez became cotrustee with him in September 1991. Ms. Polachek became a cotrustee with Ms. Gonzalez following the decedent's death.
II. The Decedent's Sale of Trompeter Electronics, Inc. (TEI)
[Edited to remove section about preferred stock shares and valuation]
III. The Decedent's Coin Collection and Other Assets
The decedent learned that he had terminal cancer sometime in the early part of 1991. Attempting to place his affairs in order, the decedent initiated the sale of his most valuable asset, a proof gold coin collection. [FN4] The decedent had collected gold coins for at least 20 years and, before his death, he was a nationally known coin collector who owned many rare gold coins and some silver coins. The "Trompeter Collection", as it was known in the coin world, was the decedent's premier gold coin collection, consisting of 400 gold coins from the 19th and early 20th century. One hundred and ninety one of these coins (the 191 coins) consisted of the following:
1. $5 Liberty Head gold pieces (Half Eagles) from 1858-1907;
2. $5 Indian Head gold pieces (Half Eagles) from 1908-1915;
3. $10 Liberty Head gold pieces (Eagles) from 1858-1907;
4. $10 Indian Head gold pieces (Eagles) from 1907-1915;
5. $20 Liberty Head gold pieces (Double Eagles) from 1850-1907;
6. $20 Saint Gaudens gold pieces (Double Eagles) from 1907-1915;
7. The Amazonian Set, consisting of six coins; and
8. Various [FN5] of $5, $10, and $20 gold pieces.
The remaining coins in the Trompeter Collection were primarily $1, $2-1/2, $3, and certain pattern gold coins.
The decedent had diligently obtained each coin in the Trompeter Collection, often piece by piece, and his collection was one of a kind. The collection included a coin in every denomination and in every year that a proof gold coin had been minted by the U.S. Mint, with the exception of one coin, and almost every proof coin in the Trompeter Collection was one of a limited number of proof coins that had been minted for that year and one of a minuscule number of proof gold coins that still were in existence. The decedent divided the Trompeter Collection into two parts and consigned both parts to an auction house named Superior Stamp & Coin Co. (Superior) with instructions to sell the coins at auction in return for his paying it a commission of 7.5 percent of the gross proceeds. The decedent dealt mainly with Ira M. Goldberg (Mr. Goldberg), who was a part owner of Superior and its primary manager.
In order to determine a coin's market value, the coin generally must be graded on a scale from 1 to 70. Uncirculated coins are graded at between 60 and 70, and grade differences of one point for uncirculated coins may account for percentage differences in value of 50 percent or substantially more. Every increase in grade above a 62 increases the value of the coin dramatically, and the difference in value between a coin that is graded a 62 and a coin that is graded a 63 is material. An escalation in value is most apparent when the grade increases above 63.
Beginning in April 1991, the decedent began grading each coin in the Trompeter Collection in preparation for the auction, and he began assigning each coin a value and reserve price; the reserve price is the lowest amount at which a coin may sell at auction. The decedent was assisted in this process by Mr. Goldberg. Both Mr. Goldberg and the decedent were experienced in grading and pricing gold coins. The decedent, in particular, had been grading gold coins for at least 20 years. Of the 400 coins in the Trompeter Collection, the decedent graded 174 according to the 70 point grade scale mentioned above, and he graded each of the remaining 226 coins as either "proof", "general proof", "choice proof", or "general to choice proof". The decedent did not assign a number grade to any of the remaining 226 coins. The following chart shows the number of coins that received each grade from the decedent:
Grade Number of Coins
60 13
63 38
64 73
65 50
Proof 1
General proof 132
Choice proof 56
General to choice proof 37
---------------
Total 400
Superior proposed to sell the Trompeter Collection in two auctions, the first of which it held on February 25, 1992. Superior auctioned 209 of the 400 coins in the Trompeter Collection for sale at the first auction, and there was a high demand in response thereto. [FN6] Two hundred and one of the 209 coins auctioned for sale sold for the total amount of $3,850,622. Approximately $2,628,730 of the gross proceeds was attributable to the decedent's proof coins which he had valued at $2,598,000.
Shortly after the first auction concluded, Superior began preparing a catalog of the 191 coins for sale at the second auction which was scheduled for October 13, 1992. The decedent had graded many of these coins as either general proof, choice proof, or general to choice proof, and he had calculated that the total value of these coins was $7,635,000 as of July/August 1991.
The decedent died on March 18, 1992. Shortly thereafter, Mr. Goldberg asked two independent grading services, Professional Coin Grading Service (PCGS) and Numismatic Grading Co. (NGC), to grade the 191 coins. Contrary to the decedent's expressed views, Mr. Goldberg believed that the 191 coins would realize more at auction if they were graded by an independent grading service. In March 1992, PCGS graded all 191 coins, but for the 6-piece Amazonian set and three other coins which PCGS refused to grade, and PCGS encapsulated the graded coins into a tamper-proof plastic container. One month later, all 191 coins, but for the 6-piece Amazonian set, were graded by NGC after NGC had removed the coins from their containers. The following chart shows the number of coins that received each grade from PCGS and NGC:
Grade Number of Coins--PCGS Number of Coins--NGC
60 0 1
61 3 0
62 17 12
63 69 21
64 78 71
65 12 51
66 1 22
67 1 5
68 0 1
69 1 1
------- --------------------- --------------------
Total 182 185
On May 4, 1992, Superior communicated the results of the PCGS grading to Robert A. Levinson (Mr. Levinson), the estate's attorney, and Mr. Levinson communicated these results to the coexecutors. The coexecutors believed that PCGS' grades were lower than expected and would lead to lower sale prices at the second auction because the rare coin market was in a "recession". On June 29, 1992, Mr. Levinson asked Mr. Goldberg to postpone the second auction. When Mr. Goldberg refused, the coexecutors, as cotrustees of the Trust, sued Superior to enjoin the second auction. Ms. Gonzalez represented to the court in seeking the injunction that the 191 coins were worth more than $12 million. On September 24, 1992, the Superior Court of the State of California for the County of Los Angeles (the superior court) issued an order enjoining the second auction. This was the beginning of protracted litigation between Superior and the estate. This litigation was settled 2 years later with the superior court rescinding the contract with Superior under which Superior was entitled to auction the 191 coins in return for a 7.5 percent seller's commission, and with Superior's returning the 191 coins to the estate.
The estate acquired numerous appraisals of the 191 coins immediately prior to and during the litigation with Superior. On July 2, 1992, Julian M. Leidman (Mr. Leidman) valued the 191 coins at $8.5 million, based on the assumption that the coins would be sold individually over an extended period of time in other than a declining market. The estate used this appraisal in the litigation to enjoin the second auction. Approximately 4 months later, Mr. Leidman appraised the 191 coins at $3.451 million. The estate used this appraisal to value the coins at $3,192,175 on the estate tax return; the reported value equals the $3.451 million appraisal less an estimated 7.5 percent seller's commission of $258,825 which would be payable to Superior assuming that all 191 coins sold at the second auction. Mr. Leidman also valued the 191 coins at $4.5 million as of the date of the decedent's death, and $3.78 million as of the alternate valuation date.
During the litigation between Superior and the estate, the estate recovered 36 additional coins which were owned by the decedent, and which Mr. Goldberg had not disclosed to the estate beforehand. The decedent had consigned most of these coins to Superior to sell at auctions other than the two scheduled in 1992. It was not until Mr. Goldberg was questioned about additional coins during the discovery process in the superior court proceeding that he admitted that some of the decedent's other coins were in his possession. In or around March 1993, Superior informed the estate that the decedent had consigned numerous coins to Superior in 1991, and that 24 of these coins had not yet been sold. One month later, Superior returned these 24 coins to the estate along with two other coins. The remaining 10 coins (out of the 36 additional coins recovered by the estate) consisted of the 8 coins which went unsold at the February 1992 auction and two other coins for which the record does not disclose the history. The 36 additional coins were described on the estate tax return as "Additional group of gold coins" and 35 of these coins were valued on the return at $275,400. No value was placed on the 36th coin.
In February 1992, the decedent instructed his personal accountant, Henry Schiffer (Mr. Schiffer), to prepare a list of the decedent's assets and each asset's estimated value. The document was entitled "Ed Trompeter asset list (not including coins) as of February 21, 1992". The document was based on conversations between Mr. Schiffer and the decedent, records maintained in Mr. Schiffer's office, and his contacts with people who maintained other records for the decedent. Included on Mr. Schiffer's one-page list was, among other things, a gun collection valued at $10,000, a music collection valued at $50,000, and diamonds and other gems totaling $500,000. None of these items were included on the decedent's estate tax return.
IV. Pertinent Claims Against the Estate
The decedent and Ms. Trompeter separated on August 8, 1984, and 2 years later they were in the midst of a divorce proceeding. During the pendency of this proceeding, Barry Stuppler (Mr. Stuppler), president of a coin and appraisal store named Gold & Silver Emporium, prepared two disclosure statements identifying the decedent's community property coins and each coin's appraised value. The appraisal on the first statement totaled $5,200,673. The appraisal on the second statement totaled $1,684,444.
Shortly after the decedent's death, Ken Lodgen (Mr. Lodgen), the estate's accountant, informed the coexecutors that the decedent may not have disclosed his entire gold coin collection to Ms. Trompeter during the divorce proceeding, and that Ms. Trompeter may have a claim against the estate with respect thereto. On June 16, 1992, Mr. Lodgen, using only Mr. Stuppler's first disclosure statement, supplied Mr. Levinson with a list allegedly identifying community property coins that were not disclosed to Ms. Trompeter during the divorce proceeding. Many of the undisclosed coins set forth on Mr. Lodgen's list were included in Mr. Stuppler's second disclosure statement, which Mr. Lodgen did not know about when he compiled his list.
Based on the information provided by Mr. Lodgen, Ms. Trompeter claimed that she was not told about the existence of some of the decedent's gold coins acquired during their marriage, and that these coins were community assets. On August 13, 1992, she filed a creditor's claim against the estate in probate court. This claim was denied. On or about September 24, 1992, she sued the estate in the superior court, alleging, among other things, that the decedent had fraudulently concealed coins valued in excess of $10 million. Ten months later, the parties to that proceeding purportedly settled the case for $1,370,734; i.e., $1,486,000 less an offset of $115,266 in connection with the estate's payment of the shortage. Under the terms of the "settlement", the estate was required to pay Ms. Trompeter the amount stated therein by the earlier of (1) June 15, 1996, or (2) 90 days after the estate recovered possession of the 191 gold coins from Superior. On or around December 4, 1996, the superior court entered judgment against the estate for $1,370,734 plus interest from August 1, 1993, at a rate of 3.6 percent compounded semiannually through and including December 1, 1996. To date, the estate has not paid any of the judgment. The estate deducted $1,486,000 on the decedent's Federal estate tax return for Ms. Trompeter's claim.
A second claim against the estate was filed by Vivian Ballard Wong (Ms. Wong). She had a personal relationship with the decedent, and they had planned to marry. Ms. Wong filed a creditor's claim against the estate based on the decedent's alleged promise to transfer one-third of his estate to her. The claim was settled for $70,000.
A third claim against the estate was filed by Joe Pasko (Mr. Pasko), the son of a female former acquaintance of the decedent. Mr. Pasko filed a creditor's claim against the estate on January 14, 1993, alleging that the decedent had agreed to allow him to sell the decedent's diamonds, jade and ivory collections, ancient Chinese artifacts, and handmade unique wool rug. He alleged that these goods were worth at least $14 million, and that he was due a $1.4 million commission. Mr. Pasko's claim was denied. On June 15, 1993, Mr. Pasko filed suit against the estate in the superior court. The suit was successfully opposed by the estate on demurrer.
V. Preparation and Filing of Estate Tax Return
Right before the decedent died, he discussed his holdings with Ms. Gonzalez in depth, and he introduced her to his attorneys, accountants, financial advisers, bankers, and acquaintances in the coin world. Following the decedent's death, the coexecutors fired the decedent's long-time counsel and retained Mr. Levinson to deal with estate tax matters. The coexecutors also fired the decedent's long-time accountant, Mr. Schiffer, and retained the accounting firm of Frankel, Lodgen, Lacher, Golditch & Sardie (Frankel Lodgen) to serve as the estate's accountants. Ms. Gonzalez instructed Mr. Schiffer to forward the decedent's records to Frankel Lodgen.
Patricia L. Bates (Ms. Bates) of Frankel Lodgen prepared the estate and 1991 gift tax returns based primarily on files received from Mr. Schiffer. Ms. Bates arbitrarily chose in May 1993 to report the total value of the decedent's Sterling preferred stock at $15,335. She and the coexecutors were both aware that prior valuations of his stock had been much greater than $15,335, and that at least one recent appraisal had listed the value of his stock in excess of $3 million. Ms. Bates had also valued the decedent's stock 1 month earlier at $462,000, a value which included a 70-percent discount that she believed applied primarily to take into account the decedent's minority interest and the fact that the stock was not paying dividends. Ms. Bates brought her $462,000 valuation to the attention of Ms. Gonzalez in or about April 1993. Ms. Bates reported the value of the decedent's 191 coins at $3,192,175 based on Mr. Leidman's corresponding appraisal. Ms. Gonzalez did not inform Ms. Bates that Mr. Leidman had valued these coins at $8.5 million on another occasion. Ms. Bates asked Ms. Gonzalez whether the decedent owned any jewelry or diamonds at the time of his death. Ms. Gonzalez answered "no", and Ms. Bates did not report any jewelry or diamonds as assets of the decedent's estate.
On or before June 10, 1993, Frankel Lodgen presented Ms. Gonzalez with the decedent's estate tax return. She reviewed this return at length with Ms. Bates, and both Ms. Bates and Ms. Gonzalez signed the return on that day. Ms. Polachek signed the return 1 day later, and 5 days after that, the coexecutors filed the decedent's estate tax return with respondent. The coexecutors, on behalf of the estate, elected to value the estate on the alternate valuation date of September 18, 1992. The gross estate was returned at $26,422,781. The taxable estate was returned at $12,002,201.
VI. Reward Agreement
Various sources alerted respondent that the estate may have underpaid its estate tax. Among other things, several individuals supplied respondent with information regarding the decedent's holdings and estimated values. One of the primary catalysts for respondent's audit of the decedent's estate tax return was an informant's claim filed by Mr. Goldberg and his cousin Larry Goldberg (collectively the Goldbergs). Following numerous discussions, respondent and the Goldbergs entered into a reward agreement, under which the Goldbergs agreed to provide respondent with certain information on the decedent and his estate in exchange for a reward not to exceed $1 million. Under the agreement, the Goldbergs were required, if necessary, to testify before any court, grand jury, or any other forum investigating the decedent or his estate. Payment of the reward was contingent on respondent's conclusion that respondent received valuable information from the Goldbergs which was not previously known and which directly resulted in the collection of taxes, additions to tax, fines, and/or penalties from the estate. Under the reward agreement, the Goldbergs were not entitled to a reward if the evidence furnished was of no value.
VII. Respondent's Jeopardy Assessment
On February 24, 1995, respondent, pursuant to a jeopardy assessment, seized assets located in two safe deposit boxes that were registered in the name of the Trust. The boxes were located respectively at First Interstate Bank and Union Bank in Encino, California. The safe deposit box at First Interstate Bank contained gold coins which belonged to the Trust and which, with one exception, were the 36 additional coins reported on the decedent's estate tax return. The safe deposit box at Union Bank contained assets that were not reported on the decedent's return. These unreported assets included gold and silver coins and a portion of the jewelry and gems in issue. The coexecutors reported on the decedent's estate tax return that he neither owned nor had access to a safe deposit box at the time of his death. In addition to the two safe deposit boxes at the banks, the decedent had a safe in his house. The coexecutors knew of the existence and location of the safe and safe deposit boxes, and they knew that the decedent had access to all three "safes".
OPINION [FN7]
Congress has imposed a graduated estate tax on wealth passing from one generation to another. The decedent was a man of considerable wealth, and his transfer of this wealth to the objects of his bounty was subject to this tax to a significant degree. To the extent that his wealth could be excluded from his taxable estate, his estate tax burden would be reduced and a greater portion of his wealth would pass on to the coexecutors, who were his daughters and only beneficiaries. From the point of view of the coexecutors, they would benefit directly by the removal of any value from the decedent's taxable estate.
Taxpayers may remove value from an estate, and otherwise minimize their taxes, by employing any legitimate means. In the case at hand, the question is whether the means employed by the estate were legitimate. Respondent argues they were not.
[Edited to remove discussion of preferred stock]
2. Two Hundred Twenty-Seven Gold Coins
a. The 191 Coins
Respondent determined that the applicable value of the 191 coins was $8.5 million. Respondent called an expert, Steven Conturi (Mr. Conturi), to support this determination, and the Court received his report into evidence. See Rule 143(f). Mr. Conturi has been in the retail and/or wholesale rare coin business since 1975. He ascertained that the value of the 191 coins was $9,081,000, by referencing the price at which the coins last traded on the open market as listed in certain numismatics newsletters. Mr. Conturi acknowledged that overall sale prices in the coin market were lower toward the later part of 1992, but concluded that this "recession" had little if any effect on premium coin collections like the Trompeter Collection. Mr. Conturi did not factor in any type of discount to arrive at his conclusion of fair market value.
The estate argues that the applicable value of the 191 coins was between $4.5 million and $4.8 million. The estate relies on two experts. The first expert, Maurice Rosen (Mr. Rosen), is the president of Numismatic Counseling, Inc., a rare coin company that specializes in assembling and managing investment portfolios. He has been the editor of the Rosen Numismatic Advisory (a provider of coin analysis and market commentary) since 1976, and he was a part-time grader at NGC from 1987 through 1990. He valued the 191 coins according to the following methodology. First, he assigned an unadjusted value to each coin, based on raw price data and relevant grading factors. In so doing, he graded 61 percent of the coins the same as PCGS, 26 percent of the coins lower than PCGS, and 13 percent of the coins higher than PCGS. In the case of one set of coins (the 6-piece Amazonian Set), he did not grade the set but relied solely on his opinion as to its fair market value. Second, he aggregated each coin's unadjusted value to arrive at an unadjusted value for all coins. Third, he adjusted his aggregated unadjusted value to reflect four discounts and one premium. The first discount, he testified, was a tainted status discount that takes into account the market's awareness that the second grading by NGC was on the high side and that the initial grading by PCGS was arguably the more reliable of the two gradings. The second discount, he testified, was a blockage discount that takes into account his belief that the market will react negatively to a sale of a large collection of coins at one time. The third discount, he testified, was a market factor discount that takes into account his belief that the rare coin market was in a poor state on the applicable valuation date and that dealers were reluctant to buy gold coins except at bargain basement prices. The fourth discount, he testified, was a contracts/low bids discount that takes into account his belief that Superior's contractual right to sell the coins at auction would have a depressing effect on their values. Mr. Rosen testified that the Superior contract and the sale of all coins at one time would potentially foster a prearranged bidding scheme whereby buyers would deliberately bid low.
Mr. Rosen established a range for each discount: 10 to 20 percent for the tainted status discount; 10 to 25 percent for the blockage discount; 10 to 15 percent for the market factor discount; and zero to 15 percent for the contracts/low bids discount. Acknowledging that his discounts overlapped somewhat, he concluded that it was inappropriate to take the aggregated 75- percent maximum discount. He took the aggregated 30-percent minimum discount and reduced the aggregated unadjusted value of the coins by this percent. He then increased the resulting value by a small premium, which he concluded ranged from zero to 10 percent, to reflect the recognition of the decedent's name and its connection to the collection. Mr. Rosen then reduced the new amount by 7.5 percent to reflect Superior's auction fee. His unadjusted total valuation for the 191 coins was $6,202,850. After applying the aforementioned discounts, premium, and the 7.5-percent auction fee, Mr. Rosen concluded that the fair market value of the 191 coins on the applicable valuation date was $4,217,163.
The estate's second expert, Julian M. Leidman (Mr. Leidman), has dealt in rare coins full-time for over 30 years. He is a member of the American Numismatic Association and the Professional Numismatists Guild. He was retained by the estate to prepare five different appraisals of the subject coins. Four of these appraisals, all of which are mentioned above in our findings of fact, were for the 191 coins. For purposes of this proceeding, Mr. Leidman valued the 191 coins at $3.78 million. In so doing, he considered the decedent's contract to sell the coins through Superior, a declining coin market, the large number of pieces contained in the collection, the impact of flooding the market, and the period of time in which the coins were to be sold. He also assumed that the coins would be sold as a collection and not individually. He contended that a 20-percent blockage discount was warranted, but did not ascertain such a discount separately because he inherently factored this discount into his analysis.
Although we find the experts helpful to our understanding of the world of numismatics, we find none of them helpful to our determination of the fair market value of the 191 coins. Mr. Conturi ascertained the fair market value of the 191 coins based on the grades assigned by NGC, and he gave no consideration to PCGS' grades, which were the lower of the two gradings. Mr. Rosen failed to consider market factors in reaching his conclusion of the coins' unadjusted value, and he took into account novel discounts which are not recognized for Federal tax purposes. His tainted status discount, for example, rests on assumptions that we do not find to be valid on the facts herein. This is also true for his market factor and contracts/low bid discounts. With respect to the contract/low bid discount, in particular, auctions are an appropriate and often used means of presenting and selling rare coins. We do not see how an auction sale would have a depressing effect on the sale prices of the decedent's coins. As to the blockage discount, a blockage discount typically reflects the depressing effect of placing a large block of stock on the open market for sale at one time. See sec. 20.2031- 2(e), Estate Tax Regs.; see also Estate of Sullivan v. Commissioner, T.C. Memo.1983-185. Even if we were to assume that such a discount applied to the rare coin market, which we do not find to be a valid assumption under the facts herein, the discount would be inapplicable here because the Trompeter Collection was an impressive collection with many unique coins. The market would have been able to handle all 191 coins, as evidenced by the fact that 96.2 percent of the decedent's 209 coins auctioned at the first auction sold there for an aggregate price that approximated the aggregate value calculated by the decedent.
Nor do we find Mr. Leidman helpful to our determination of the coins' fair market value. He valued the 191 coins at $3.78 million based on the assumption that the coins would be liquidated because they had to be sold. In making such an assumption, Mr. Leidman admittedly disregarded the mandate of section 20.2031-1(b), Estate Tax Regs., that "fair market value * * * is not to be determined by a forced sale price". [FN10] He also assumed inappropriately that the coins would be sold as a group and not individually.
Finding none of the experts helpful to our determination of the coins' fair market value, we proceed to value the coins based on the record at hand. We are guided by the decedent's valuation of the subject coins. The decedent was a noted collector, with at least 20 years' experience in collecting and grading coins. The record shows that he did an excellent job in ascertaining the value of coins. He ascertained that the 201 coins sold at the February 1992 auction were worth $2,598,000, and these coins sold for approximately $2,628,730. The actual sales price differed by less than 2 percent from the decedent's valuation of these coins.
The decedent valued the 191 coins at $7,635,000. Although the estate presented some evidence of a "buyer's market", we find that the economic downturn would not have materially affected the sale of the 191 coins because they were part of a premier collection. We also do not believe under the facts herein that a reduction for an estimated seller's commission is warranted. Under section 20.2053-1(b)(3), Estate Tax Regs., an item may be deducted on an estate tax return though its exact amount is not then known, provided it is ascertainable with reasonable certainty and will be paid. The superior court rescinded the contract with Superior under which Superior would receive a 7.5-percent seller's commission, and the 191 gold coins were returned to the estate. We find no certainty that the estate will sell the coins in the future under a commission arrangement, and, even if we did, we are unable to ascertain the amount of any future seller's commission with reasonable certainty. We hold that the applicable value of the 191 coins is $7,635,000.
b. Thirty-Six Additional Coins
Respondent determined that the applicable value of the 36 additional coins was $816,300. Respondent's expert, Mr. Conturi, valued these coins using the same methodology that he employed to value the 191 coins. Mr. Conturi concluded that the fair market value of the 36 coins was $609,770 on the alternate valuation date. Respondent concedes that the value of these 36 coins is no higher than Mr. Conturi's valuation.
The estate asserts that the fair market value of the 36 coins was $274,650. Mr. Leidman valued 35 of these coins, and his analysis generally parallels his analysis for the 191 coins. He testified that 35 of the 36 coins had a fair market value of $274,650 on the alternate valuation date; neither he nor the estate addressed the value of the 36th coin at trial.
We have the same inherent problems with the experts' valuations of the 36 additional coins, as we did with their valuations of the 191 coins. We reject both of their opinions. We are uncomfortable, however, with the value ascribed to these coins by respondent. Accordingly, we proceed to value the coins based on the record at hand. Although the decedent did not value the 36 additional coins, he did value the 191 coins mentioned above, and the 36 coins were sufficiently similar to the 191 coins to allow us to rely on the decedent's valuation of the 191 coins for purposes of valuing the 36 additional coins. The decedent valued the 191 coins at $7,635,000, a figure that is 18.9 percent lower than the $9,081,000 value ascertained by Mr. Conturi. Based on our analysis of the 191 coins, we find that Mr. Conturi overvalued the 36 coins by 18.9 percent. We conclude that the fair market value of the 36 additional coins on the applicable valuation date was $494,523 (i.e., $609,770 less 18.9 percent).
3. Fair Market Value of Unreported Items
[Edited to remove analysis of unreported jewels, art, etc. on the tax return]
c. The $258,825 Claim Against Superior
Respondent determined that the estate had a $258,825 claim against Superior, and that this claim was miscellaneous property of the estate. The estate valued this claim at zero on the estate tax return, identifying it as a claim against Superior for the release of coins assigned to Superior. The return noted that the probability and amount of any collection of this claim was unknown.
We hold for the estate on this issue. The value of this claim was zero on the applicable valuation date, as evidenced by the fact that the estate received only its coins back in settlement of its dispute with Superior. The value of the returned coins was included in the gross estate, as discussed above.
5. Ms. Trompeter's Claim
[Edited to remove claim by Ms. Trompeter against estate]
6. Fraud Penalty
Respondent determined that the estate is liable for the fraud penalty under section 6663(a). Respondent determined that the fraud penalty applies to the underpayment of tax attributable to the omission of assets, the undervaluation of assets, and the deduction for Ms. Trompeter's claim.
Section 6663(a) imposes a 75-percent penalty on an underpayment that is attributable to fraud….
a. Undervaluation of Assets
Respondent argues that the estate intentionally undervalued the decedent's gold coins and Sterling preferred stock, and that this undervaluation evidences fraud. We agree. When we view the record as a whole, we conclude, clearly and convincingly, that the estate intentionally undervalued the decedent's taxable estate, and that the estate did so with the specific intent of evading tax.
Numerous facts evidence that the estate filed the decedent's Federal estate tax return intending to evade Federal estate tax by undervaluing assets and overvaluing deductions. First, the estate's undervaluation of decedent's Sterling preferred stock was significant. The estate reported that the applicable value was $15,335, and we have determined that the applicable value was approximately $2,708,536. The difference between these two values is $2,693,201, or, in other words, the reported value was less than 1 percent of our determined value. Although the estate attempts to place the blame for the undervalued Sterling preferred stock on Ms. Bates, the fact of the matter is that Ms. Gonzalez obviously knew that Ms. Bates' valuation of $15,335 was wrong and reported Ms. Bates' $15,335 value aiming solely to evade tax. Ms. Gonzalez knew of a prior valuation of the Sterling preferred stock in excess of $3 million, and she knew that Ms. Bates arbitrarily chose the $15,335 figure reported on the estate tax return as the stock's value. Ms. Gonzalez also knew that Ms. Bates had valued the stock at $462,000 1 month before she valued it at $15,335. Given Ms. Gonzalez's education and business acumen, as well as her knowledge that the preferred stock was entitled to certain preferences, that the preferred stock was accruing dividends daily at a substantial rate, that the preferred stock was soon going to be subject to a mandatory redemption, and that a redemption of the preferred stock would result in the holder(s) thereof receiving millions of dollars in proceeds, we are hard pressed to conclude, as requested by the estate, that Ms. Gonzalez was ignorant of the approximate value of the decedent's Sterling preferred stock, or that she thought that the stock was worth only $15,335. We conclude the contrary.
Second, the estate undervalued decedent's gold coins by a significant amount. The estate reported that the applicable value of the 191 coins was $3,192,175, and that the applicable value of the additional coins was $275,400. We have determined that the applicable values were $7,635,000 and $494,523, respectively. The total value that we have determined for the coins is $4,661,948 more than the total value reported by the estate, or, in other words, the reported total value was approximately 42.7 percent of the determined total value. Ms. Gonzalez knew that the 191 coins had been appraised at a significantly higher amount than the value reported on the return, and she secreted Mr. Leidman's $8.5 million appraisal from Ms. Bates. Given the additional fact that Ms. Gonzalez and the decedent had discussed his coin holdings at a time close to his death, and that she had represented to the court in the Superior litigation that the 191 coins were worth more than $12 million, we find that Ms. Gonzalez was well aware that the $3,467,575 total value reported on the return was wrong.
Third, the estate failed to report any value for the assets in the safe deposit box at Union Bank, and, in an attempt to conceal the existence of this box, the coexecutors stated on the estate tax return that decedent did not own or have access to a safe deposit box at the time of his death. In a further attempt to conceal the existence of the safe deposit box at Union Bank, the coexecutors failed to report the existence of the safe deposit box at First Interstate Bank, choosing only to report a value for 35 of the coins which were found therein. [FN14] In yet another attempt to conceal the contents of the safe deposit box at Union Bank, Ms. Gonzalez falsely answered in the negative when Ms. Bates asked her whether the decedent owned any jewelry or diamonds when he died. The decedent did own jewelry and diamonds at that time, and these assets were kept in the safe deposit box at Union Bank.
Fourth, the estate chose to report no value for the $4.5 million of assets which we have determined were includable in the decedent's gross estate. The coexecutors knew about these assets, as evidenced by the fact that the decedent informed Ms. Gonzalez of his holdings at about the time of his death. The decedent also introduced Ms. Gonzalez to the persons who would know most about his holdings, and he had Mr. Schiffer schedule a list of the decedent's assets as of February 21, 1992. Mr. Schiffer's list included the decedent's gun collection, music collection, and various diamonds and other gems, none of which were included in the decedent's gross estate.
Fifth, the coexecutors fabricated (and deducted on the estate tax return) a $1,486,000 "claim" by Ms. Trompeter. As mentioned above, we find that the coexecutors devised this claim attempting to transfer some of the decedent's property to their mother at the expense of the tax collector. In fact, the estate has conceded in this proceeding that it overstated its deduction for the "claim" by $803,975.
We conclude that this factor evidences fraud.
f. Conclusion
After our detailed review of the facts and circumstances of this case, in conjunction with our analysis of the factors mentioned above, we conclude that respondent has clearly and convincingly proven that the coexecutors filed the decedent's estate tax return intending to conceal, mislead, or otherwise prevent the collection of tax. We also conclude that section 6664(c) does not insulate the estate from this penalty; we find no reasonable cause for the underpayment, nor that the estate acted in good faith with respect to the underpayment. We sustain respondent's determination of fraud.
We have considered all arguments made by the parties, and, to the extent not addressed above, find them to be irrelevant or without merit.
To reflect the foregoing,
Decision will be entered under Rule 155.
FN1. On account of this holding, we do not decide the alternative determinations under sec. 6662.
FN2. The number of shares to be redeemed from each holder of Sterling preferred stock would equal the product of the total number of shares of Sterling preferred stock redeemed on that number of shares of Sterling preferred stock redeemed on that date multiplied by a fraction. The fraction's numerator equaled the total number of shares of Sterling preferred stock then held the total number of shares of Sterling preferred stock then held by that holder. The fraction's denominator equaled the total number of shares of Sterling preferred stock then outstanding.
FN3. We recognize that $1,538,550 minus $1,423,772 equals $114,778,
and that there is a $488 discrepancy. The parties have not explained this discrepancy. Because the parties refer to the shortage as $115,266, we do likewise.
FN4. The term "proof" describes the special minting process for certain coins designed to be issued as gifts to dignitaries or sold at a premium to collectors.
FN5. Patterns are pieces that are minted not for general circulation, but to determine if the coin, as made, would be acceptable for general usage.
FN6. The 209 coins auctioned for sale at the first auction did not include any of the 191 coins mentioned above.
FN7. During the trial, respondent elicited testimony from witnesses who included Kathleen Goldberg, Ira M. Goldberg, and Larry Goldberg. We find little of this testimony to be credible. Much of their testimony was vague, elusive, uncorroborated, inconsistent, and self-serving. Mr. Goldberg, in particular, is a person of questionable veracity. He did not reveal assets held by Superior which rightly belonged to the estate, he is
a paid informant who is biased, and he was involved in litigation with the estate which fostered ill will between him and the estate's representatives. Under the circumstances, we are not required to, and we do not, rely on the testimony of these witnesses to support respondent's positions herein. See Combs v. Plantation Patterns, 106 F.3d 1519, 1538 (11th Cir.1997); Henson v. Commissioner, 887 F.2d 1520, 1526 (11th Cir.1989), affg. T.C. Memo.1988-275; Ruark v. Commissioner, 449 F.2d 311, 312 (9th Cir.1971), affg. per curiam T.C. Memo.1969-48; Clark v. Commissioner, 266 F.2d 698, 708-709 (9th Cir.1959), affg. in part and remanding in part T.C. Memo.1957-129; Tokarski v. Commissioner, 87 T.C. 74, 77, 1986 WL 22155 (1986).
FN8. A "C" rated security is a nonpaying issue. A "D" rated security is a nonpaying issue of an issuer that is in default on its debt.
FN9. We find these amounts by using well-established present value formulae. For purposes of our computation, we assume that the Sterling preferred stock was issued on Mar. 15, 1989. Although the record discloses that Sterling issued the Sterling preferred stock in Mar. 1989, the record does not reference a specific date.
FN10. Mr. Leidman acknowledged on cross-examination that the 191 coins would be worth $8.5 million if the compulsion aspect was removed.
FN11. Nor do we find that the subject amounts were paid to Vivian Ballard Wong as compensation for services rendered.
FN12. Ken Lodgen included all coins purchased before June 22, 1987, as coins that possibly were undisclosed by the decedent. Under Cal. Civ.Code sec. 5118 (1983), which was in effect at the time, "The earnings and accumulations of a spouse * * * while living separate and apart from the other spouse, are the separate property of the spouse". When we exclude the coins that were acquired after the decedent and Sylvia Trompeter separated on Aug. 8, 1984, and the coins without a proven purchase date, we are unpersuaded that any of the decedent's coins in which Ms. Trompeter had a community property interest were excluded from Barry Stuppler's combined appraisal statements.
FN13. Our disallowance of Ms. Trompeter's claim also generates an underpayment.
FN14. The estate would have reported the existence of the safe
deposit box at First Interstate Bank by stating on the decedent's estate tax return that he had access to a safe deposit box when he died. Such a statement would most likely have led respondent to investigate further the circumstances of the box, which could have led respondent to discover the safe deposit box at Union Bank.
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Sorry for the length of this post. Who said tax law is not interesting?
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United States Tax Court.
Estate of Emanuel TROMPETER, Deceased, Robin Carol Trompeter Gonzalez and Janet
Ilene Trompeter Polachek, Co-executors, Petitioner
v.
COMMISSIONER OF INTERNAL REVENUE, Respondent.
No. 11170-95.
Jan. 27, 1998.
D died on Mar. 18, 1992, and his Federal estate tax return reported the value of his estate (E) on the alternate valuation date. R determined higher values for many of the reported assets, assigned values for unreported assets, and disallowed certain deductions. R also determined that E was liable for the fraud penalty under sec. 6663(a), I.R.C. Held: Taxable estate redetermined, including redeterminations of fair market value. Held, further, E is liable for the fraud penalty.
Robert A. Levinson, Avram Salkin, Bruce I. Hochman, Charles P. Rettig, and Frederic J. Adam, for petitioner.
Irene Carroll, Anne E. Dauqharty, Linette Angelastro, and Donald E. Osteen, for respondent.
MEMORANDUM FINDINGS OF FACT AND OPINION
LARO, Judge:
This case is before the Court pursuant to a petition filed on behalf of the Estate of Emanuel Trompeter (the estate) to redetermine respondent's determination of a $22,833,693 deficiency in Federal estate tax and a $14,875,909 fraud penalty under section 6663(a). Respondent determined, as an alternative to the fraud penalty, that the estate is liable for an accuracy-related penalty for negligence and gross valuation misstatement under section 6662.
Following concessions, the primary issue that the Court must decide is the September 18, 1992, fair market value of the following assets which the parties agree are included in the gross estate of Emanuel Trompeter (the decedent)
1. 1,533.482 shares of Sterling Holding Co. (Sterling) series A exchangeable preferred stock (Sterling preferred stock). We hold that the applicable value (including accrued dividends) is $1,974,845.
2. Two hundred twenty seven rare gold coins. We hold that the applicable value is $8,129,523.
The Court also must decide the following secondary issues:
1. Whether the decedent's gross estate includes $14 million of diamonds, jewels, gems, art, and artifacts that were not reported on his Federal estate tax return. We hold that his gross estate includes $4.5 million of these assets.
2. Whether certain other items determined by respondent to be included in the decedent's gross estate are so included. We hold they are to the extent and in the amounts stated herein.
3. Whether Sylvia Trompeter (Ms. Trompeter) had a bona fide claim against the estate because the decedent, her former husband, failed to disclose the value and extent of his coin holdings during their divorce proceeding. We hold she did not.
4. Whether the estate is liable for the fraud penalty determined by respondent under section 6663(a). We hold it is. [FN1]
Unless otherwise stated, all section references are to the applicable provisions of the Internal Revenue Code, and all Rule references are to the Tax Court Rules of Practice and Procedure. Dollar amounts are rounded to the nearest dollar. The term "co-executors" refers collectively to the estate's coexecutors, Robin Carol Trompeter Gonzalez (Ms. Gonzalez) and Janet Ilene Trompeter Polachek (Ms. Polachek).
FINDINGS OF FACT
I. Overview
Some of the facts have been stipulated and are so found. The stipulations and the exhibits submitted therewith are incorporated herein by this reference. The decedent was born in New York on February 22, 1919, and he resided in Thousand Oaks, California, when he died on March 18, 1992. At the time of the filing of the petition, Ms. Gonzalez resided in Florida, and Ms. Polachek resided in California.
The coexecutors are the decedent's sole beneficiaries and his only surviving children. Their mother is Ms. Trompeter. Each coexecutor is college educated, has extensive work experience, and knows about her obligation to file valid Federal tax returns. The coexecutors enjoy a close and friendly relationship with Ms. Trompeter.
The coexecutors are cotrustees of the Emanuel Trompeter Trust (the Trust), a trust that holds most of the decedent's assets. The Trust was revocable during the decedent's life, and the decedent was its sole trustee until Ms. Gonzalez became cotrustee with him in September 1991. Ms. Polachek became a cotrustee with Ms. Gonzalez following the decedent's death.
II. The Decedent's Sale of Trompeter Electronics, Inc. (TEI)
[Edited to remove section about preferred stock shares and valuation]
III. The Decedent's Coin Collection and Other Assets
The decedent learned that he had terminal cancer sometime in the early part of 1991. Attempting to place his affairs in order, the decedent initiated the sale of his most valuable asset, a proof gold coin collection. [FN4] The decedent had collected gold coins for at least 20 years and, before his death, he was a nationally known coin collector who owned many rare gold coins and some silver coins. The "Trompeter Collection", as it was known in the coin world, was the decedent's premier gold coin collection, consisting of 400 gold coins from the 19th and early 20th century. One hundred and ninety one of these coins (the 191 coins) consisted of the following:
1. $5 Liberty Head gold pieces (Half Eagles) from 1858-1907;
2. $5 Indian Head gold pieces (Half Eagles) from 1908-1915;
3. $10 Liberty Head gold pieces (Eagles) from 1858-1907;
4. $10 Indian Head gold pieces (Eagles) from 1907-1915;
5. $20 Liberty Head gold pieces (Double Eagles) from 1850-1907;
6. $20 Saint Gaudens gold pieces (Double Eagles) from 1907-1915;
7. The Amazonian Set, consisting of six coins; and
8. Various [FN5] of $5, $10, and $20 gold pieces.
The remaining coins in the Trompeter Collection were primarily $1, $2-1/2, $3, and certain pattern gold coins.
The decedent had diligently obtained each coin in the Trompeter Collection, often piece by piece, and his collection was one of a kind. The collection included a coin in every denomination and in every year that a proof gold coin had been minted by the U.S. Mint, with the exception of one coin, and almost every proof coin in the Trompeter Collection was one of a limited number of proof coins that had been minted for that year and one of a minuscule number of proof gold coins that still were in existence. The decedent divided the Trompeter Collection into two parts and consigned both parts to an auction house named Superior Stamp & Coin Co. (Superior) with instructions to sell the coins at auction in return for his paying it a commission of 7.5 percent of the gross proceeds. The decedent dealt mainly with Ira M. Goldberg (Mr. Goldberg), who was a part owner of Superior and its primary manager.
In order to determine a coin's market value, the coin generally must be graded on a scale from 1 to 70. Uncirculated coins are graded at between 60 and 70, and grade differences of one point for uncirculated coins may account for percentage differences in value of 50 percent or substantially more. Every increase in grade above a 62 increases the value of the coin dramatically, and the difference in value between a coin that is graded a 62 and a coin that is graded a 63 is material. An escalation in value is most apparent when the grade increases above 63.
Beginning in April 1991, the decedent began grading each coin in the Trompeter Collection in preparation for the auction, and he began assigning each coin a value and reserve price; the reserve price is the lowest amount at which a coin may sell at auction. The decedent was assisted in this process by Mr. Goldberg. Both Mr. Goldberg and the decedent were experienced in grading and pricing gold coins. The decedent, in particular, had been grading gold coins for at least 20 years. Of the 400 coins in the Trompeter Collection, the decedent graded 174 according to the 70 point grade scale mentioned above, and he graded each of the remaining 226 coins as either "proof", "general proof", "choice proof", or "general to choice proof". The decedent did not assign a number grade to any of the remaining 226 coins. The following chart shows the number of coins that received each grade from the decedent:
Grade Number of Coins
60 13
63 38
64 73
65 50
Proof 1
General proof 132
Choice proof 56
General to choice proof 37
---------------
Total 400
Superior proposed to sell the Trompeter Collection in two auctions, the first of which it held on February 25, 1992. Superior auctioned 209 of the 400 coins in the Trompeter Collection for sale at the first auction, and there was a high demand in response thereto. [FN6] Two hundred and one of the 209 coins auctioned for sale sold for the total amount of $3,850,622. Approximately $2,628,730 of the gross proceeds was attributable to the decedent's proof coins which he had valued at $2,598,000.
Shortly after the first auction concluded, Superior began preparing a catalog of the 191 coins for sale at the second auction which was scheduled for October 13, 1992. The decedent had graded many of these coins as either general proof, choice proof, or general to choice proof, and he had calculated that the total value of these coins was $7,635,000 as of July/August 1991.
The decedent died on March 18, 1992. Shortly thereafter, Mr. Goldberg asked two independent grading services, Professional Coin Grading Service (PCGS) and Numismatic Grading Co. (NGC), to grade the 191 coins. Contrary to the decedent's expressed views, Mr. Goldberg believed that the 191 coins would realize more at auction if they were graded by an independent grading service. In March 1992, PCGS graded all 191 coins, but for the 6-piece Amazonian set and three other coins which PCGS refused to grade, and PCGS encapsulated the graded coins into a tamper-proof plastic container. One month later, all 191 coins, but for the 6-piece Amazonian set, were graded by NGC after NGC had removed the coins from their containers. The following chart shows the number of coins that received each grade from PCGS and NGC:
Grade Number of Coins--PCGS Number of Coins--NGC
60 0 1
61 3 0
62 17 12
63 69 21
64 78 71
65 12 51
66 1 22
67 1 5
68 0 1
69 1 1
------- --------------------- --------------------
Total 182 185
On May 4, 1992, Superior communicated the results of the PCGS grading to Robert A. Levinson (Mr. Levinson), the estate's attorney, and Mr. Levinson communicated these results to the coexecutors. The coexecutors believed that PCGS' grades were lower than expected and would lead to lower sale prices at the second auction because the rare coin market was in a "recession". On June 29, 1992, Mr. Levinson asked Mr. Goldberg to postpone the second auction. When Mr. Goldberg refused, the coexecutors, as cotrustees of the Trust, sued Superior to enjoin the second auction. Ms. Gonzalez represented to the court in seeking the injunction that the 191 coins were worth more than $12 million. On September 24, 1992, the Superior Court of the State of California for the County of Los Angeles (the superior court) issued an order enjoining the second auction. This was the beginning of protracted litigation between Superior and the estate. This litigation was settled 2 years later with the superior court rescinding the contract with Superior under which Superior was entitled to auction the 191 coins in return for a 7.5 percent seller's commission, and with Superior's returning the 191 coins to the estate.
The estate acquired numerous appraisals of the 191 coins immediately prior to and during the litigation with Superior. On July 2, 1992, Julian M. Leidman (Mr. Leidman) valued the 191 coins at $8.5 million, based on the assumption that the coins would be sold individually over an extended period of time in other than a declining market. The estate used this appraisal in the litigation to enjoin the second auction. Approximately 4 months later, Mr. Leidman appraised the 191 coins at $3.451 million. The estate used this appraisal to value the coins at $3,192,175 on the estate tax return; the reported value equals the $3.451 million appraisal less an estimated 7.5 percent seller's commission of $258,825 which would be payable to Superior assuming that all 191 coins sold at the second auction. Mr. Leidman also valued the 191 coins at $4.5 million as of the date of the decedent's death, and $3.78 million as of the alternate valuation date.
During the litigation between Superior and the estate, the estate recovered 36 additional coins which were owned by the decedent, and which Mr. Goldberg had not disclosed to the estate beforehand. The decedent had consigned most of these coins to Superior to sell at auctions other than the two scheduled in 1992. It was not until Mr. Goldberg was questioned about additional coins during the discovery process in the superior court proceeding that he admitted that some of the decedent's other coins were in his possession. In or around March 1993, Superior informed the estate that the decedent had consigned numerous coins to Superior in 1991, and that 24 of these coins had not yet been sold. One month later, Superior returned these 24 coins to the estate along with two other coins. The remaining 10 coins (out of the 36 additional coins recovered by the estate) consisted of the 8 coins which went unsold at the February 1992 auction and two other coins for which the record does not disclose the history. The 36 additional coins were described on the estate tax return as "Additional group of gold coins" and 35 of these coins were valued on the return at $275,400. No value was placed on the 36th coin.
In February 1992, the decedent instructed his personal accountant, Henry Schiffer (Mr. Schiffer), to prepare a list of the decedent's assets and each asset's estimated value. The document was entitled "Ed Trompeter asset list (not including coins) as of February 21, 1992". The document was based on conversations between Mr. Schiffer and the decedent, records maintained in Mr. Schiffer's office, and his contacts with people who maintained other records for the decedent. Included on Mr. Schiffer's one-page list was, among other things, a gun collection valued at $10,000, a music collection valued at $50,000, and diamonds and other gems totaling $500,000. None of these items were included on the decedent's estate tax return.
IV. Pertinent Claims Against the Estate
The decedent and Ms. Trompeter separated on August 8, 1984, and 2 years later they were in the midst of a divorce proceeding. During the pendency of this proceeding, Barry Stuppler (Mr. Stuppler), president of a coin and appraisal store named Gold & Silver Emporium, prepared two disclosure statements identifying the decedent's community property coins and each coin's appraised value. The appraisal on the first statement totaled $5,200,673. The appraisal on the second statement totaled $1,684,444.
Shortly after the decedent's death, Ken Lodgen (Mr. Lodgen), the estate's accountant, informed the coexecutors that the decedent may not have disclosed his entire gold coin collection to Ms. Trompeter during the divorce proceeding, and that Ms. Trompeter may have a claim against the estate with respect thereto. On June 16, 1992, Mr. Lodgen, using only Mr. Stuppler's first disclosure statement, supplied Mr. Levinson with a list allegedly identifying community property coins that were not disclosed to Ms. Trompeter during the divorce proceeding. Many of the undisclosed coins set forth on Mr. Lodgen's list were included in Mr. Stuppler's second disclosure statement, which Mr. Lodgen did not know about when he compiled his list.
Based on the information provided by Mr. Lodgen, Ms. Trompeter claimed that she was not told about the existence of some of the decedent's gold coins acquired during their marriage, and that these coins were community assets. On August 13, 1992, she filed a creditor's claim against the estate in probate court. This claim was denied. On or about September 24, 1992, she sued the estate in the superior court, alleging, among other things, that the decedent had fraudulently concealed coins valued in excess of $10 million. Ten months later, the parties to that proceeding purportedly settled the case for $1,370,734; i.e., $1,486,000 less an offset of $115,266 in connection with the estate's payment of the shortage. Under the terms of the "settlement", the estate was required to pay Ms. Trompeter the amount stated therein by the earlier of (1) June 15, 1996, or (2) 90 days after the estate recovered possession of the 191 gold coins from Superior. On or around December 4, 1996, the superior court entered judgment against the estate for $1,370,734 plus interest from August 1, 1993, at a rate of 3.6 percent compounded semiannually through and including December 1, 1996. To date, the estate has not paid any of the judgment. The estate deducted $1,486,000 on the decedent's Federal estate tax return for Ms. Trompeter's claim.
A second claim against the estate was filed by Vivian Ballard Wong (Ms. Wong). She had a personal relationship with the decedent, and they had planned to marry. Ms. Wong filed a creditor's claim against the estate based on the decedent's alleged promise to transfer one-third of his estate to her. The claim was settled for $70,000.
A third claim against the estate was filed by Joe Pasko (Mr. Pasko), the son of a female former acquaintance of the decedent. Mr. Pasko filed a creditor's claim against the estate on January 14, 1993, alleging that the decedent had agreed to allow him to sell the decedent's diamonds, jade and ivory collections, ancient Chinese artifacts, and handmade unique wool rug. He alleged that these goods were worth at least $14 million, and that he was due a $1.4 million commission. Mr. Pasko's claim was denied. On June 15, 1993, Mr. Pasko filed suit against the estate in the superior court. The suit was successfully opposed by the estate on demurrer.
V. Preparation and Filing of Estate Tax Return
Right before the decedent died, he discussed his holdings with Ms. Gonzalez in depth, and he introduced her to his attorneys, accountants, financial advisers, bankers, and acquaintances in the coin world. Following the decedent's death, the coexecutors fired the decedent's long-time counsel and retained Mr. Levinson to deal with estate tax matters. The coexecutors also fired the decedent's long-time accountant, Mr. Schiffer, and retained the accounting firm of Frankel, Lodgen, Lacher, Golditch & Sardie (Frankel Lodgen) to serve as the estate's accountants. Ms. Gonzalez instructed Mr. Schiffer to forward the decedent's records to Frankel Lodgen.
Patricia L. Bates (Ms. Bates) of Frankel Lodgen prepared the estate and 1991 gift tax returns based primarily on files received from Mr. Schiffer. Ms. Bates arbitrarily chose in May 1993 to report the total value of the decedent's Sterling preferred stock at $15,335. She and the coexecutors were both aware that prior valuations of his stock had been much greater than $15,335, and that at least one recent appraisal had listed the value of his stock in excess of $3 million. Ms. Bates had also valued the decedent's stock 1 month earlier at $462,000, a value which included a 70-percent discount that she believed applied primarily to take into account the decedent's minority interest and the fact that the stock was not paying dividends. Ms. Bates brought her $462,000 valuation to the attention of Ms. Gonzalez in or about April 1993. Ms. Bates reported the value of the decedent's 191 coins at $3,192,175 based on Mr. Leidman's corresponding appraisal. Ms. Gonzalez did not inform Ms. Bates that Mr. Leidman had valued these coins at $8.5 million on another occasion. Ms. Bates asked Ms. Gonzalez whether the decedent owned any jewelry or diamonds at the time of his death. Ms. Gonzalez answered "no", and Ms. Bates did not report any jewelry or diamonds as assets of the decedent's estate.
On or before June 10, 1993, Frankel Lodgen presented Ms. Gonzalez with the decedent's estate tax return. She reviewed this return at length with Ms. Bates, and both Ms. Bates and Ms. Gonzalez signed the return on that day. Ms. Polachek signed the return 1 day later, and 5 days after that, the coexecutors filed the decedent's estate tax return with respondent. The coexecutors, on behalf of the estate, elected to value the estate on the alternate valuation date of September 18, 1992. The gross estate was returned at $26,422,781. The taxable estate was returned at $12,002,201.
VI. Reward Agreement
Various sources alerted respondent that the estate may have underpaid its estate tax. Among other things, several individuals supplied respondent with information regarding the decedent's holdings and estimated values. One of the primary catalysts for respondent's audit of the decedent's estate tax return was an informant's claim filed by Mr. Goldberg and his cousin Larry Goldberg (collectively the Goldbergs). Following numerous discussions, respondent and the Goldbergs entered into a reward agreement, under which the Goldbergs agreed to provide respondent with certain information on the decedent and his estate in exchange for a reward not to exceed $1 million. Under the agreement, the Goldbergs were required, if necessary, to testify before any court, grand jury, or any other forum investigating the decedent or his estate. Payment of the reward was contingent on respondent's conclusion that respondent received valuable information from the Goldbergs which was not previously known and which directly resulted in the collection of taxes, additions to tax, fines, and/or penalties from the estate. Under the reward agreement, the Goldbergs were not entitled to a reward if the evidence furnished was of no value.
VII. Respondent's Jeopardy Assessment
On February 24, 1995, respondent, pursuant to a jeopardy assessment, seized assets located in two safe deposit boxes that were registered in the name of the Trust. The boxes were located respectively at First Interstate Bank and Union Bank in Encino, California. The safe deposit box at First Interstate Bank contained gold coins which belonged to the Trust and which, with one exception, were the 36 additional coins reported on the decedent's estate tax return. The safe deposit box at Union Bank contained assets that were not reported on the decedent's return. These unreported assets included gold and silver coins and a portion of the jewelry and gems in issue. The coexecutors reported on the decedent's estate tax return that he neither owned nor had access to a safe deposit box at the time of his death. In addition to the two safe deposit boxes at the banks, the decedent had a safe in his house. The coexecutors knew of the existence and location of the safe and safe deposit boxes, and they knew that the decedent had access to all three "safes".
OPINION [FN7]
Congress has imposed a graduated estate tax on wealth passing from one generation to another. The decedent was a man of considerable wealth, and his transfer of this wealth to the objects of his bounty was subject to this tax to a significant degree. To the extent that his wealth could be excluded from his taxable estate, his estate tax burden would be reduced and a greater portion of his wealth would pass on to the coexecutors, who were his daughters and only beneficiaries. From the point of view of the coexecutors, they would benefit directly by the removal of any value from the decedent's taxable estate.
Taxpayers may remove value from an estate, and otherwise minimize their taxes, by employing any legitimate means. In the case at hand, the question is whether the means employed by the estate were legitimate. Respondent argues they were not.
[Edited to remove discussion of preferred stock]
2. Two Hundred Twenty-Seven Gold Coins
a. The 191 Coins
Respondent determined that the applicable value of the 191 coins was $8.5 million. Respondent called an expert, Steven Conturi (Mr. Conturi), to support this determination, and the Court received his report into evidence. See Rule 143(f). Mr. Conturi has been in the retail and/or wholesale rare coin business since 1975. He ascertained that the value of the 191 coins was $9,081,000, by referencing the price at which the coins last traded on the open market as listed in certain numismatics newsletters. Mr. Conturi acknowledged that overall sale prices in the coin market were lower toward the later part of 1992, but concluded that this "recession" had little if any effect on premium coin collections like the Trompeter Collection. Mr. Conturi did not factor in any type of discount to arrive at his conclusion of fair market value.
The estate argues that the applicable value of the 191 coins was between $4.5 million and $4.8 million. The estate relies on two experts. The first expert, Maurice Rosen (Mr. Rosen), is the president of Numismatic Counseling, Inc., a rare coin company that specializes in assembling and managing investment portfolios. He has been the editor of the Rosen Numismatic Advisory (a provider of coin analysis and market commentary) since 1976, and he was a part-time grader at NGC from 1987 through 1990. He valued the 191 coins according to the following methodology. First, he assigned an unadjusted value to each coin, based on raw price data and relevant grading factors. In so doing, he graded 61 percent of the coins the same as PCGS, 26 percent of the coins lower than PCGS, and 13 percent of the coins higher than PCGS. In the case of one set of coins (the 6-piece Amazonian Set), he did not grade the set but relied solely on his opinion as to its fair market value. Second, he aggregated each coin's unadjusted value to arrive at an unadjusted value for all coins. Third, he adjusted his aggregated unadjusted value to reflect four discounts and one premium. The first discount, he testified, was a tainted status discount that takes into account the market's awareness that the second grading by NGC was on the high side and that the initial grading by PCGS was arguably the more reliable of the two gradings. The second discount, he testified, was a blockage discount that takes into account his belief that the market will react negatively to a sale of a large collection of coins at one time. The third discount, he testified, was a market factor discount that takes into account his belief that the rare coin market was in a poor state on the applicable valuation date and that dealers were reluctant to buy gold coins except at bargain basement prices. The fourth discount, he testified, was a contracts/low bids discount that takes into account his belief that Superior's contractual right to sell the coins at auction would have a depressing effect on their values. Mr. Rosen testified that the Superior contract and the sale of all coins at one time would potentially foster a prearranged bidding scheme whereby buyers would deliberately bid low.
Mr. Rosen established a range for each discount: 10 to 20 percent for the tainted status discount; 10 to 25 percent for the blockage discount; 10 to 15 percent for the market factor discount; and zero to 15 percent for the contracts/low bids discount. Acknowledging that his discounts overlapped somewhat, he concluded that it was inappropriate to take the aggregated 75- percent maximum discount. He took the aggregated 30-percent minimum discount and reduced the aggregated unadjusted value of the coins by this percent. He then increased the resulting value by a small premium, which he concluded ranged from zero to 10 percent, to reflect the recognition of the decedent's name and its connection to the collection. Mr. Rosen then reduced the new amount by 7.5 percent to reflect Superior's auction fee. His unadjusted total valuation for the 191 coins was $6,202,850. After applying the aforementioned discounts, premium, and the 7.5-percent auction fee, Mr. Rosen concluded that the fair market value of the 191 coins on the applicable valuation date was $4,217,163.
The estate's second expert, Julian M. Leidman (Mr. Leidman), has dealt in rare coins full-time for over 30 years. He is a member of the American Numismatic Association and the Professional Numismatists Guild. He was retained by the estate to prepare five different appraisals of the subject coins. Four of these appraisals, all of which are mentioned above in our findings of fact, were for the 191 coins. For purposes of this proceeding, Mr. Leidman valued the 191 coins at $3.78 million. In so doing, he considered the decedent's contract to sell the coins through Superior, a declining coin market, the large number of pieces contained in the collection, the impact of flooding the market, and the period of time in which the coins were to be sold. He also assumed that the coins would be sold as a collection and not individually. He contended that a 20-percent blockage discount was warranted, but did not ascertain such a discount separately because he inherently factored this discount into his analysis.
Although we find the experts helpful to our understanding of the world of numismatics, we find none of them helpful to our determination of the fair market value of the 191 coins. Mr. Conturi ascertained the fair market value of the 191 coins based on the grades assigned by NGC, and he gave no consideration to PCGS' grades, which were the lower of the two gradings. Mr. Rosen failed to consider market factors in reaching his conclusion of the coins' unadjusted value, and he took into account novel discounts which are not recognized for Federal tax purposes. His tainted status discount, for example, rests on assumptions that we do not find to be valid on the facts herein. This is also true for his market factor and contracts/low bid discounts. With respect to the contract/low bid discount, in particular, auctions are an appropriate and often used means of presenting and selling rare coins. We do not see how an auction sale would have a depressing effect on the sale prices of the decedent's coins. As to the blockage discount, a blockage discount typically reflects the depressing effect of placing a large block of stock on the open market for sale at one time. See sec. 20.2031- 2(e), Estate Tax Regs.; see also Estate of Sullivan v. Commissioner, T.C. Memo.1983-185. Even if we were to assume that such a discount applied to the rare coin market, which we do not find to be a valid assumption under the facts herein, the discount would be inapplicable here because the Trompeter Collection was an impressive collection with many unique coins. The market would have been able to handle all 191 coins, as evidenced by the fact that 96.2 percent of the decedent's 209 coins auctioned at the first auction sold there for an aggregate price that approximated the aggregate value calculated by the decedent.
Nor do we find Mr. Leidman helpful to our determination of the coins' fair market value. He valued the 191 coins at $3.78 million based on the assumption that the coins would be liquidated because they had to be sold. In making such an assumption, Mr. Leidman admittedly disregarded the mandate of section 20.2031-1(b), Estate Tax Regs., that "fair market value * * * is not to be determined by a forced sale price". [FN10] He also assumed inappropriately that the coins would be sold as a group and not individually.
Finding none of the experts helpful to our determination of the coins' fair market value, we proceed to value the coins based on the record at hand. We are guided by the decedent's valuation of the subject coins. The decedent was a noted collector, with at least 20 years' experience in collecting and grading coins. The record shows that he did an excellent job in ascertaining the value of coins. He ascertained that the 201 coins sold at the February 1992 auction were worth $2,598,000, and these coins sold for approximately $2,628,730. The actual sales price differed by less than 2 percent from the decedent's valuation of these coins.
The decedent valued the 191 coins at $7,635,000. Although the estate presented some evidence of a "buyer's market", we find that the economic downturn would not have materially affected the sale of the 191 coins because they were part of a premier collection. We also do not believe under the facts herein that a reduction for an estimated seller's commission is warranted. Under section 20.2053-1(b)(3), Estate Tax Regs., an item may be deducted on an estate tax return though its exact amount is not then known, provided it is ascertainable with reasonable certainty and will be paid. The superior court rescinded the contract with Superior under which Superior would receive a 7.5-percent seller's commission, and the 191 gold coins were returned to the estate. We find no certainty that the estate will sell the coins in the future under a commission arrangement, and, even if we did, we are unable to ascertain the amount of any future seller's commission with reasonable certainty. We hold that the applicable value of the 191 coins is $7,635,000.
b. Thirty-Six Additional Coins
Respondent determined that the applicable value of the 36 additional coins was $816,300. Respondent's expert, Mr. Conturi, valued these coins using the same methodology that he employed to value the 191 coins. Mr. Conturi concluded that the fair market value of the 36 coins was $609,770 on the alternate valuation date. Respondent concedes that the value of these 36 coins is no higher than Mr. Conturi's valuation.
The estate asserts that the fair market value of the 36 coins was $274,650. Mr. Leidman valued 35 of these coins, and his analysis generally parallels his analysis for the 191 coins. He testified that 35 of the 36 coins had a fair market value of $274,650 on the alternate valuation date; neither he nor the estate addressed the value of the 36th coin at trial.
We have the same inherent problems with the experts' valuations of the 36 additional coins, as we did with their valuations of the 191 coins. We reject both of their opinions. We are uncomfortable, however, with the value ascribed to these coins by respondent. Accordingly, we proceed to value the coins based on the record at hand. Although the decedent did not value the 36 additional coins, he did value the 191 coins mentioned above, and the 36 coins were sufficiently similar to the 191 coins to allow us to rely on the decedent's valuation of the 191 coins for purposes of valuing the 36 additional coins. The decedent valued the 191 coins at $7,635,000, a figure that is 18.9 percent lower than the $9,081,000 value ascertained by Mr. Conturi. Based on our analysis of the 191 coins, we find that Mr. Conturi overvalued the 36 coins by 18.9 percent. We conclude that the fair market value of the 36 additional coins on the applicable valuation date was $494,523 (i.e., $609,770 less 18.9 percent).
3. Fair Market Value of Unreported Items
[Edited to remove analysis of unreported jewels, art, etc. on the tax return]
c. The $258,825 Claim Against Superior
Respondent determined that the estate had a $258,825 claim against Superior, and that this claim was miscellaneous property of the estate. The estate valued this claim at zero on the estate tax return, identifying it as a claim against Superior for the release of coins assigned to Superior. The return noted that the probability and amount of any collection of this claim was unknown.
We hold for the estate on this issue. The value of this claim was zero on the applicable valuation date, as evidenced by the fact that the estate received only its coins back in settlement of its dispute with Superior. The value of the returned coins was included in the gross estate, as discussed above.
5. Ms. Trompeter's Claim
[Edited to remove claim by Ms. Trompeter against estate]
6. Fraud Penalty
Respondent determined that the estate is liable for the fraud penalty under section 6663(a). Respondent determined that the fraud penalty applies to the underpayment of tax attributable to the omission of assets, the undervaluation of assets, and the deduction for Ms. Trompeter's claim.
Section 6663(a) imposes a 75-percent penalty on an underpayment that is attributable to fraud….
a. Undervaluation of Assets
Respondent argues that the estate intentionally undervalued the decedent's gold coins and Sterling preferred stock, and that this undervaluation evidences fraud. We agree. When we view the record as a whole, we conclude, clearly and convincingly, that the estate intentionally undervalued the decedent's taxable estate, and that the estate did so with the specific intent of evading tax.
Numerous facts evidence that the estate filed the decedent's Federal estate tax return intending to evade Federal estate tax by undervaluing assets and overvaluing deductions. First, the estate's undervaluation of decedent's Sterling preferred stock was significant. The estate reported that the applicable value was $15,335, and we have determined that the applicable value was approximately $2,708,536. The difference between these two values is $2,693,201, or, in other words, the reported value was less than 1 percent of our determined value. Although the estate attempts to place the blame for the undervalued Sterling preferred stock on Ms. Bates, the fact of the matter is that Ms. Gonzalez obviously knew that Ms. Bates' valuation of $15,335 was wrong and reported Ms. Bates' $15,335 value aiming solely to evade tax. Ms. Gonzalez knew of a prior valuation of the Sterling preferred stock in excess of $3 million, and she knew that Ms. Bates arbitrarily chose the $15,335 figure reported on the estate tax return as the stock's value. Ms. Gonzalez also knew that Ms. Bates had valued the stock at $462,000 1 month before she valued it at $15,335. Given Ms. Gonzalez's education and business acumen, as well as her knowledge that the preferred stock was entitled to certain preferences, that the preferred stock was accruing dividends daily at a substantial rate, that the preferred stock was soon going to be subject to a mandatory redemption, and that a redemption of the preferred stock would result in the holder(s) thereof receiving millions of dollars in proceeds, we are hard pressed to conclude, as requested by the estate, that Ms. Gonzalez was ignorant of the approximate value of the decedent's Sterling preferred stock, or that she thought that the stock was worth only $15,335. We conclude the contrary.
Second, the estate undervalued decedent's gold coins by a significant amount. The estate reported that the applicable value of the 191 coins was $3,192,175, and that the applicable value of the additional coins was $275,400. We have determined that the applicable values were $7,635,000 and $494,523, respectively. The total value that we have determined for the coins is $4,661,948 more than the total value reported by the estate, or, in other words, the reported total value was approximately 42.7 percent of the determined total value. Ms. Gonzalez knew that the 191 coins had been appraised at a significantly higher amount than the value reported on the return, and she secreted Mr. Leidman's $8.5 million appraisal from Ms. Bates. Given the additional fact that Ms. Gonzalez and the decedent had discussed his coin holdings at a time close to his death, and that she had represented to the court in the Superior litigation that the 191 coins were worth more than $12 million, we find that Ms. Gonzalez was well aware that the $3,467,575 total value reported on the return was wrong.
Third, the estate failed to report any value for the assets in the safe deposit box at Union Bank, and, in an attempt to conceal the existence of this box, the coexecutors stated on the estate tax return that decedent did not own or have access to a safe deposit box at the time of his death. In a further attempt to conceal the existence of the safe deposit box at Union Bank, the coexecutors failed to report the existence of the safe deposit box at First Interstate Bank, choosing only to report a value for 35 of the coins which were found therein. [FN14] In yet another attempt to conceal the contents of the safe deposit box at Union Bank, Ms. Gonzalez falsely answered in the negative when Ms. Bates asked her whether the decedent owned any jewelry or diamonds when he died. The decedent did own jewelry and diamonds at that time, and these assets were kept in the safe deposit box at Union Bank.
Fourth, the estate chose to report no value for the $4.5 million of assets which we have determined were includable in the decedent's gross estate. The coexecutors knew about these assets, as evidenced by the fact that the decedent informed Ms. Gonzalez of his holdings at about the time of his death. The decedent also introduced Ms. Gonzalez to the persons who would know most about his holdings, and he had Mr. Schiffer schedule a list of the decedent's assets as of February 21, 1992. Mr. Schiffer's list included the decedent's gun collection, music collection, and various diamonds and other gems, none of which were included in the decedent's gross estate.
Fifth, the coexecutors fabricated (and deducted on the estate tax return) a $1,486,000 "claim" by Ms. Trompeter. As mentioned above, we find that the coexecutors devised this claim attempting to transfer some of the decedent's property to their mother at the expense of the tax collector. In fact, the estate has conceded in this proceeding that it overstated its deduction for the "claim" by $803,975.
We conclude that this factor evidences fraud.
f. Conclusion
After our detailed review of the facts and circumstances of this case, in conjunction with our analysis of the factors mentioned above, we conclude that respondent has clearly and convincingly proven that the coexecutors filed the decedent's estate tax return intending to conceal, mislead, or otherwise prevent the collection of tax. We also conclude that section 6664(c) does not insulate the estate from this penalty; we find no reasonable cause for the underpayment, nor that the estate acted in good faith with respect to the underpayment. We sustain respondent's determination of fraud.
We have considered all arguments made by the parties, and, to the extent not addressed above, find them to be irrelevant or without merit.
To reflect the foregoing,
Decision will be entered under Rule 155.
FN1. On account of this holding, we do not decide the alternative determinations under sec. 6662.
FN2. The number of shares to be redeemed from each holder of Sterling preferred stock would equal the product of the total number of shares of Sterling preferred stock redeemed on that number of shares of Sterling preferred stock redeemed on that date multiplied by a fraction. The fraction's numerator equaled the total number of shares of Sterling preferred stock then held the total number of shares of Sterling preferred stock then held by that holder. The fraction's denominator equaled the total number of shares of Sterling preferred stock then outstanding.
FN3. We recognize that $1,538,550 minus $1,423,772 equals $114,778,
and that there is a $488 discrepancy. The parties have not explained this discrepancy. Because the parties refer to the shortage as $115,266, we do likewise.
FN4. The term "proof" describes the special minting process for certain coins designed to be issued as gifts to dignitaries or sold at a premium to collectors.
FN5. Patterns are pieces that are minted not for general circulation, but to determine if the coin, as made, would be acceptable for general usage.
FN6. The 209 coins auctioned for sale at the first auction did not include any of the 191 coins mentioned above.
FN7. During the trial, respondent elicited testimony from witnesses who included Kathleen Goldberg, Ira M. Goldberg, and Larry Goldberg. We find little of this testimony to be credible. Much of their testimony was vague, elusive, uncorroborated, inconsistent, and self-serving. Mr. Goldberg, in particular, is a person of questionable veracity. He did not reveal assets held by Superior which rightly belonged to the estate, he is
a paid informant who is biased, and he was involved in litigation with the estate which fostered ill will between him and the estate's representatives. Under the circumstances, we are not required to, and we do not, rely on the testimony of these witnesses to support respondent's positions herein. See Combs v. Plantation Patterns, 106 F.3d 1519, 1538 (11th Cir.1997); Henson v. Commissioner, 887 F.2d 1520, 1526 (11th Cir.1989), affg. T.C. Memo.1988-275; Ruark v. Commissioner, 449 F.2d 311, 312 (9th Cir.1971), affg. per curiam T.C. Memo.1969-48; Clark v. Commissioner, 266 F.2d 698, 708-709 (9th Cir.1959), affg. in part and remanding in part T.C. Memo.1957-129; Tokarski v. Commissioner, 87 T.C. 74, 77, 1986 WL 22155 (1986).
FN8. A "C" rated security is a nonpaying issue. A "D" rated security is a nonpaying issue of an issuer that is in default on its debt.
FN9. We find these amounts by using well-established present value formulae. For purposes of our computation, we assume that the Sterling preferred stock was issued on Mar. 15, 1989. Although the record discloses that Sterling issued the Sterling preferred stock in Mar. 1989, the record does not reference a specific date.
FN10. Mr. Leidman acknowledged on cross-examination that the 191 coins would be worth $8.5 million if the compulsion aspect was removed.
FN11. Nor do we find that the subject amounts were paid to Vivian Ballard Wong as compensation for services rendered.
FN12. Ken Lodgen included all coins purchased before June 22, 1987, as coins that possibly were undisclosed by the decedent. Under Cal. Civ.Code sec. 5118 (1983), which was in effect at the time, "The earnings and accumulations of a spouse * * * while living separate and apart from the other spouse, are the separate property of the spouse". When we exclude the coins that were acquired after the decedent and Sylvia Trompeter separated on Aug. 8, 1984, and the coins without a proven purchase date, we are unpersuaded that any of the decedent's coins in which Ms. Trompeter had a community property interest were excluded from Barry Stuppler's combined appraisal statements.
FN13. Our disallowance of Ms. Trompeter's claim also generates an underpayment.
FN14. The estate would have reported the existence of the safe
deposit box at First Interstate Bank by stating on the decedent's estate tax return that he had access to a safe deposit box when he died. Such a statement would most likely have led respondent to investigate further the circumstances of the box, which could have led respondent to discover the safe deposit box at Union Bank.
Text
Always took candy from strangers
Didn't wanna get me no trade
Never want to be like papa
Working for the boss every night and day
--"Happy", by the Rolling Stones (1972)
Didn't wanna get me no trade
Never want to be like papa
Working for the boss every night and day
--"Happy", by the Rolling Stones (1972)
0
Comments
Tom
I like that..."the compulsion aspect" !!!
Good factor to weigh in on...
IOW, if you are a buyer, you want to minimize your compulsion ratio!!! LOL
John
siliconvalleycoins.com
a paid informant who is biased, and he was involved in litigation with the estate which fostered ill will between him and the estate's representatives. Under the circumstances, we are not required to, and we do not, rely on the testimony of these witnesses to support respondent's positions herein
Ouch!
I think this contains one of the best PCGS vs NGC comparison tests ever made!
My posts viewed
since 8/1/6
<< <i>The decedent divided the Trompeter Collection into two parts and consigned both parts to an auction house named Superior Stamp & Coin Co. (Superior) with instructions to sell the coins at auction in return for his paying it a commission of 7.5 percent of the gross proceeds. >>
Interesting.
<< <i>Under the reward agreement, the Goldbergs were not entitled to a reward if the evidence furnished was of no value. >>
*********
Combined with FN 7, it is unlikely the rats here got any cheeze at the end of the day.
My thoughts exactly.....
Come on over ... to The Dark Side!
Great Post!
I found this interesting:
It was not until Mr. Goldberg was questioned about additional coins during the discovery process in the superior court proceeding that he admitted that some of the decedent's other coins were in his possession
What the he11? Why didn't the auctoneer return these coins along with the ones in the initial court order? Sounds a bit shady.
<< <i>FN7. During the trial, respondent elicited testimony from witnesses who included Kathleen Goldberg, Ira M. Goldberg, and Larry Goldberg. We find little of this testimony to be credible. Much of their testimony was vague, elusive, uncorroborated, inconsistent, and self-serving. Mr. Goldberg, in particular, is a person of questionable veracity. He did not reveal assets held by Superior which rightly belonged to the estate, he is a paid informant who is biased, and he was involved in litigation with the estate which fostered ill will between him and the estate's representatives. Under the circumstances, we are not required to, and we do not, rely on the testimony of these witnesses to support respondent's positions herein{/q]
Very troubling comment!
Come on over ... to The Dark Side!
New collectors, please educate yourself before spending money on coins; there are people who believe that using numismatic knowledge to rip the naïve is what this hobby is all about.
michael
WNC Coins, LLC
1987-C Hendersonville Road
Asheville, NC 28803
wnccoins.com
All I can say is all these people deserve each other!
How incredibly stupid of the decedent to include the coins in his will in the first place. If I were close to death, I'd give the key to my deposit box or the combination to my safe to my heirs and tell them to clean me out and either sell or hide everything before the taxman cometh.
How incredibly stupid to post something like that on a coin message board. Not only does it make you look like a tax cheat, it draws a red flag to the rest of us collectors. If you are going to play loose with the IRS, it is best not to broadcast your intentions publicly. And finally, do not assume that the rest of us are cheaters.
<< <i>If I were close to death, I'd give the key to my deposit box or the combination to my safe to my heirs and tell them to clean me out and either sell or hide everything before the taxman cometh. >>
Spoken like a true American.
<< <i>I think what sliderider was trying to say was that Mr. Trompeter should have used legal tax planning techniques to reduce his estate before death. ie using annual gift exclusion, using his unified credit. >>
You're being charitable.
He said: "If I were close to death..." and then "..sell OR HIDE anything..." (my emphasis added). When you're close to death, it's hard to plan your estate like this except to give ONE gift just below the exclusion amount in the year you are dying.
He didn't say: "This shows the need for proper tax planning as you grow older. He should have given some coins to his heirs to be just below the annual exclusion amount each year to reduce the taxable size of his estate."
The latter is tax *avoidance* within the law and is legal.
The former is tax *evasion* and is criminal.
Sliderider , what people are saying is don’t advise people what to do, if they want to give all the rest of the money they made in their lives to the government rather than their families let them!
“FN7. During the trial, respondent elicited testimony from witnesses who included Kathleen Goldberg, Ira M. Goldberg, and Larry Goldberg. We find little of this testimony to be credible. Much of their testimony was vague, elusive, uncorroborated, inconsistent, and self-serving. Mr. Goldberg, in particular, is a person of questionable veracity. He did not reveal assets held by Superior which rightly belonged to the estate, he is
a paid informant who is biased, and he was involved in litigation with the estate which fostered ill will between him and the estate's representatives.”
So are these the very same Goldberg’s that are currently still running national auctions? I thought I would ask this before I tell me own story about the Gentlemen running the current Goldberg auctions.
<< <i>So are these the very same Goldberg’s that are currently still running national auctions? I thought I would ask this before I tell me own story about the ***** running the current Goldberg auctions. >>
Be very careful with this one. But yes, the Goldberg's now have their own auction company by the same name.
Michael
Didn't wanna get me no trade
Never want to be like papa
Working for the boss every night and day
--"Happy", by the Rolling Stones (1972)
Thanks Frattlaw,
I am sorry, but under the advice of forum council I refuse to post any additional information on this subject !
<< <i>I refuse to post any additional information on this subject >>
Probably a good idea.
Michael
Second is the huge grading discrepancy between PCGS and NGC. NGC graded the coins an average of 2 points higher! That's huge.
New collectors, please educate yourself before spending money on coins; there are people who believe that using numismatic knowledge to rip the naïve is what this hobby is all about.
Go BIG or GO HOME. ©Bill
paid to whom and when etc.
Jim
Had he invested the money that went into coins into California real estate [especially around where he lived TO, WLV, Calabassas, etc.] real estate he would have made 100s% more and paid less taxes.
'Investing' in coins is a risky low profit proposition and the tax negatives of when you die are a bad deal for beneficiaries.
Interesting read.
Doggedly collecting coins of the Central American Republic.
Visit the Society of US Pattern Collectors at USPatterns.com.
<< <i>Can someone with more patience than I, please boil this thing down a bit? >>
GREED, GrEeD, gReEd, GrEEd, gREed don't pay.
GUMMINT 1, TROMPETER ESTATE 0
"Everything is on its way to somewhere. Everything." - George Malley, Phenomenon
http://www.americanlegacycoins.com
<< <i>
<< <i>Can someone with more patience than I, please boil this thing down a bit? >>
GREED, GrEeD, gReEd, GrEEd, gREed don't pay.
GUMMINT 1, TROMPETER ESTATE 0 >>
Sure--there was this big pile of proof gold collected by a guy who died. Pcgs graded the coins technically right, NGC pumped the grades cause they were extra nice and so the auctioneers would look good to the sellers-- and get more in fees. The estate hired some experts to say the coins were worth 4-6 million, the dead guy said 8, and the court said the estate hired liers, they;re worth 8. Turned out the dead guy was smarter than everyone put together--Heritage bought them all for 16 million. But the dead guys heirs screwed up, cause they weren't as smart as the dead guy--and the " extra" 8 mill went to the GOV in fines, not their pockets.
<< <i>Side note of interest. I knew Ed for many years but we didn't know we were related until my grandfather saw Ed's name on the Superior auction catalog. Turns out Ed and my grandfather were first cousins. They met for the first time on the night of the auction. They both passed away a year or two later. Strange, small world. >>
Man. As if this case wasn't already wierd enough
https://www.pcgs.com/SetRegistry/collectors-showcase/world-coins/one-coin-per-year-1600-2017/2422
Didn't wanna get me no trade
Never want to be like papa
Working for the boss every night and day
--"Happy", by the Rolling Stones (1972)
Too bad the vultures had to come after his estate.
Why? Is he exempt from the law, or just nice enough that he doesn't owe taxes?
It is merely a real life example of human nature in less than its finest hour (wealth, money and greed, played out on stage with multiple parties including relatives of the deceased, paramours of the deceased, business associates of the deceased, legal professionals, accounting professionals, coin professionals, tax authorites and a judge all posturing, preening, etc, in an attempt to retain or take a bigger piece of the pie or help those who seek to retain or take same).
The decedent probably could have made more money buying and holding So.Cal. real estate in TO, WLV and Calabasas. The competing valuations for the 191 coins and the 36 coins is laughable. The methodologies of the multiple experts in arriving at the valuation is interesting and probably none of the methodologies can be proven as accurate. The valuations are so widely dispararte that I suspect they could be characterized as MIA ("Made As Instructed"). Funny how the court disregarded the experts' valuations and came up with his own conclusions (essentially "the decedent's opinion of value of the first group of coins came close to the auction proceeds realized; so he must know what the value is; accordingly I will use his valuation of the second group of coins with minor adjustments, particularly since by doing so, I will ensure that the scummy, money grubbing heirs and estate reps will have to watch as the estate is gooned with additional estate taxes and penaltys as punishment for their perfidy).
This story shows how slimey, risky and immoral things can be in the "hobby of kings".
Check out my current listings: https://ebay.com/sch/khunt/m.html?_ipg=200&_sop=12&_rdc=1
also pulled out my old vhs " the Ed Trompeter Collection - United States Proof Gold Coin Highlights"
does anyone know anything about the Amazonian patterns? are they cleaned or varnished?
both NGC and PCGS would not slab them
it seems most came from the King Farouk collection
<< <i>Sure--there was this big pile of proof gold collected by a guy who died. Pcgs graded the coins technically right, NGC pumped the grades cause they were extra nice and so the auctioneers would look good to the sellers-- and get more in fees. The estate hired some experts to say the coins were worth 4-6 million, the dead guy said 8, and the court said the estate hired liers, they;re worth 8. Turned out the dead guy was smarter than everyone put together--Heritage bought them all for 16 million. But the dead guys heirs screwed up, cause they weren't as smart as the dead guy--and the " extra" 8 mill went to the GOV in fines, not their pockets. >>
Small comment. Since the coins eventually sold for twice the "established" value, is it possible that NGC's higher grades were the accurate ones and PCGS's were too low?
However, they are all unique, and it doesn't matter if they were encapsulated or not; they are still worth the same.
As to the methodologies involved in the appraisals, all I can tell you is that I thought thru the entire process and the the availability of suitable buyers at that time.
The appraisals that I did clearly illustrated my perception of a forced sale or a patient marketing of the coins. I still stand behind everything that I did and feel that I can justify each and everyone of my appraisals.
I am sure that you all know what it feels like to have to sell a coin and not being able to get a fair price.
Being forced to sell something at a time that is less than normal will certainly wake you up.
Being patient can certainly pay off, especially when you are dealing with rare and extremely rare coins.
I firmly believe in numismatics as the world's greatest hobby, but recognize that this is a luxury and without collectors, we can all spend/melt our collections/inventories.
eBaystore