Trust Primer
(3) The trust is a disqualified person to the foundation under IRC 4946.
The exception is not available because of the below market rate sale.
4. Rockefeller v. U.S., constitutionality confirmed
The possibility of self-dealing and the estate administration exception was pivotal in
Rockefeller v. United States, 718 F.2d 290 (8
th
Cir. 1983), cert. den. 466 U.S. 962 (1984),
in which the court considered a case where the Service imposed a self-dealing penalty on
an executor. On February 22, 1973, Winthrop Rockefeller died. Pursuant to the terms of
his Last Will and Testament, dated November 14, 1972, he left the residue of his estate to
a charitable trust created under his Will. The Will contemplated that property known as
Winrock Farms would constitute a substantial part of the residue and would compose a
substantial part of the trust.
On September 30, 1975, plaintiff, the son of Winthrop Rockefeller, and the executor
of the estate of Winthrop Rockefeller, executed an agreement with the executor of
Winthrop Rockefeller’s estate to purchase all the stock of Winrock Farms. The plaintiff
and the estate obtained an independent appraisal of the fair market value of the Winrock
Farms' stock, and petitioned the Probate Court of Conway County, Arkansas, the probate
court with jurisdiction over the estate for approval of the sale. The Probate Court entered
an order approving the sale at the appraised fair market value, and plaintiff purchased the
stock at that value on December 19, 1975.
After auditing the estate's 1975 tax return, the Internal Revenue Service issued a
report proposing certain adjustments in the estate's tax return. The proposed adjustments
were based on certain findings of fact, one of which was that the sale of the stock to the
plaintiff was not at fair market value. The Commissioner relied on the definition of self
dealing in § 4941(d)(1), which includes indirect sales between a disqualified person and a
private foundation, and failure to meet the requirements of Reg. § 53.4941(d)-1(b)(3).
The plaintiff argued that IRC 4941 was unconstitutional and that even if the statute was
constitutional, the regulation is unconstitutional. The Court upheld the Service, holding
both the Code section and the estate administration regulation constitutional.
5. Estate of Reis, gives a broad reading to 4941
Estate of Bernard J. Reis v. Commissioner, 87 T.C. 1016 (1986) was an important
win for the Service. Mark Rothko was a well-known American abstract expressionist
painter who died in 1970. Bernard J. Reis, was one of the executors of his estate. Reis
also was one of the directors of the Mark Rothko Foundation. In his will, after making
certain specific bequests to family members, Mark Rothko bequeathed all his remaining
property to the foundation.