Tax Court OKs estate's marital deduction

A decedent's marriage is held valid based on the place-of-celebration rule.
By Laura Lee Mannino, CPA, J.D., LL.M.

The Tax Court examined the validity of a marriage, rather than a previous divorce, in determining which of a decedent's wives was the surviving spouse for purposes of the decedent's estate's marital deduction.

Facts: Semone Grossman married his first wife, Hilda Matrick Grossman, in New York in 1955. They had two children and separated after a decade of marriage. To marry another woman, Semone unilaterally obtained a divorce from Hilda from a court in Mexico. The second marriage ended by 1974. That year, Hilda filed suit in the Supreme Court of New York, which held that the Mexican divorce was invalid and that she and Semone were still married, although they never reconciled. In 1986, Semone became engaged to a third woman, Ziona.

Semone and Ziona, both Jewish, had strong ties to Israel and married there. The couple were first required to prove their eligibility by providing evidence that each was Jewish and unmarried. To satisfy the latter, Semone asked Hilda to cooperate in obtaining a Jewish religious divorce under rabbinical law. She agreed, and the marriage was dissolved by a rabbinical court in 1986. Semone and Ziona were married in 1987 in a traditional Orthodox Jewish ceremony in Israel. The couple returned to New York and lived as husband and wife for 27 years until Semone's death in 2014.

Semone had accumulated substantial wealth through his successful parking garage business. His will directed that the majority of his estate go to his wife Ziona; his first wife, Hilda, made no claim against his estate. The estate's timely filed Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, reflected a marital deduction relating to property that passed to Ziona. The IRS disallowed the deduction, resulting in an estate tax deficiency in excess of $35 million and an accuracy-related penalty of nearly $7.1 million.

The estate petitioned the Tax Court, where both sides moved for partial summary judgment. The IRS asked the court to declare the religious divorce invalid under New York law. The estate asked it to accept Semone's marriage to Ziona as valid under Israeli law and respected in New York under the state's place-of-celebration rule and for Ziona to be considered Semone's surviving spouse for federal estate tax purposes.

Issues: Sec. 2056 permits a deduction for estate tax purposes of the value of property that passes to a decedent's surviving spouse. The Tax Court held in Estate of Goldwater, 64 T.C. 540 (1975), aff'd, 539 F.2d 878 (2d Cir. 1976), that state law is applied to identify the surviving spouse. The IRS claimed that Semone was still married to his first wife, Hilda, at the time of his death because the religious divorce obtained in 1986 was not respected by New York law. Therefore, according to the IRS, the property left to Ziona did not qualify for deduction under Sec. 2056 because she was not his surviving spouse, but, rather, Hilda was.

Citing Van Voorhis v. Brintnall, 86 N.Y. 18 (1881), a 19th century case decided by the New York Court of Appeals, the estate argued that Semone and Ziona were legally married for federal tax purposes at the time of his death because New York recognizes marriages that are considered to be valid under the law where the marriage was celebrated. Accordingly, the estate focused on the validity of Semone's marriage to Ziona under this so-called place-of-celebration rule, rather than relying on the validity of the divorce from Hilda.

Holding: The Tax Court stated that the IRS's focus on the status of the religious divorce between Semone and Hilda was misplaced, and the proper starting point for the analysis was the marriage between Semone and Ziona. The place-of-celebration rule controlled, according to the court, as it has been applied consistently in New York for 140 years. The estate presented an Israeli marriage certificate and other documentation of the marriage, and the IRS did not submit any evidence that would call the marriage into question. Accordingly, New York should respect the marriage between Semone and Ziona.

Further, the court held that neither of the two narrow exceptions to the place-of-celebration test applied. The first exception, relating to bigamy, didn't apply because Israel acknowledged Semone's divorce from Hilda before allowing him to marry Ziona. The second exception also didn't apply because the marriage between Semone and Ziona did not violate New York's positive law relating to divorce. Finally, the Tax Court noted that its opinion was supported by the presumption in New York law favoring the validity of a second marriage despite a claim that a first marriage still exists (citing Grabois v. Jones, 89 F.3d 97 (2d Cir. 1996)). The presumption is even stronger when the party questioning the validity of the second marriage is a stranger to it, such as the IRS. Hilda did not contest the marriage to Ziona and, besides cooperating in the religious divorce, saw the new couple socially at times and filed her own income tax returns as single.

Since there was no dispute as to whether Israel considered Semone and Ziona to be married and neither of the exceptions to the place-of-celebration rule applied, the Tax Court held that Ziona was Semone's surviving spouse and allowed the estate to take the marital deduction.

  • Estate of Grossman, T.C. Memo. 2021-65

— By Laura Lee Mannino, CPA, J.D., LL.M., associate professor of taxation, St. John's University, Queens, N.Y.

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