## Facts

- Ellen Augusta Brown died in 1968; her will placed her property in a trust with her husband as trustee for the benefit of their son, Earl A. Brown, Jr., with broad rights for Earl Jr. to use all income personally and to sell and reinvest property.
- Earl A. Brown, Sr. died in 1969; probate estates were opened for both decedents in Texas, with Earl Jr. serving as executor and principal beneficiary.
- By 1982, neither estate had been formally closed despite probate approvals and completion of ordinary administrative steps (identifying assets; paying taxes, debts, claims, and expenses).
- For tax years 1977–1982, the IRS determined that income attributed to the estates and testamentary arrangement should have been reported on Earl Jr.’s individual federal income-tax returns, and issued notices of deficiency assessing additional taxes, interest, and penalties against Earl Jr. and his wife.
- After payment, Earl Jr. and his wife filed consolidated federal refund suits; the district court granted summary judgment for the United States.
- On appeal, the taxpayers argued the estates remained open for tax purposes under state probate authority and that the government was barred from changing its position because a prior audit did not require similar adjustments.

## Issues

1. Whether, under federal tax law, the estates’ period of administration had been unduly prolonged such that the estates were treated as terminated (or the property treated as effectively distributed), making the income for 1977–1982 taxable to Earl Jr. individually.
2. Whether the government was estopped from asserting deficiencies because the IRS did not require comparable adjustments in a prior audit.

## Decision

- The Fifth Circuit affirmed summary judgment for the United States.
- The court held that the estates’ administration had been unduly prolonged for federal tax purposes, so the income at issue was properly taxable to Earl Jr. as the person enjoying beneficial ownership.
- The court rejected estoppel based on prior IRS inaction; failure to adjust in an earlier audit did not bar the government from asserting the correct tax in later years.
- The court concluded there was no genuine dispute of material fact and the government was entitled to judgment as a matter of law.

## Legal Principles

- An estate is a separate taxable entity only for the period actually required for administration; that period cannot be unduly prolonged, and once it is, the estate is treated as terminated for federal income-tax purposes.
- Federal tax consequences turn on federal law and the substance of beneficial ownership, not on state probate labels or an executor’s decision to keep an estate open.
- IRS deficiency determinations carry a presumption of correctness; the taxpayer bears the burden to produce competent evidence to overcome the determination and show entitlement to different tax treatment.
- Equitable estoppel against the federal government in tax matters is disfavored; an earlier audit’s failure to require changes, without more, does not prevent the government from correcting an error in later years.

## Conclusion

The Fifth Circuit held that the estates’ administration had extended beyond the time actually needed, so the estates were treated as terminated and the disputed income was taxable to Earl Brown Jr. individually; the court also held that the IRS’s earlier failure to adjust the taxpayers’ returns did not estop the government from asserting deficiencies for later years.


Brown v. United States, 890 F.2d 1329 (5th Cir. 1989)