## Facts

- Victoria E. Dieringer owned a controlling interest in Dieringer Properties, Inc. (DPI), a closely held corporation holding real estate and other business assets.
- Her estate plan directed specific charitable gifts and left the residuary estate to a family private foundation exempt under § 501(c)(3).
- Eugene Dieringer served as executor of the estate and as trustee of the foundation; he was also an heir and a DPI officer.
- The estate obtained an appraisal valuing DPI at about $17.78 million as of the date of death, with Victoria’s shares valued at about $14.18 million.
- On its Form 706, the estate claimed an estate tax charitable deduction of about $18.8 million, based on the date-of-death valuation of assets said to pass to charity.
- After death, DPI redeemed the estate’s shares and, under family-directed terms, applied a minority discount despite the estate’s controlling position at death.
- As administered, the value of what the foundation actually received was about $6.4 million, far less than the amount used to compute the deduction.
- The IRS issued a notice of deficiency reducing the charitable deduction and imposed an accuracy-related penalty under I.R.C. § 6662; the Tax Court sustained both.

## Issues

1. Whether the estate’s I.R.C. § 2055 charitable deduction could be based on the date-of-death value of the DPI stock when post-death transactions controlled by fiduciaries reduced the value of property actually transferred to the charity.
2. Whether the accuracy-related penalty under I.R.C. § 6662 was properly sustained based on the overstated charitable deduction and the estate’s failure to establish reasonable cause and good faith.

## Decision

- The Ninth Circuit affirmed the Tax Court in full.
- The court held the § 2055 deduction was limited to the value of property actually received by the charitable foundation, not the higher date-of-death value claimed by the estate.
- The court upheld the Tax Court’s finding that post-death, family-directed transactions, rather than general market conditions, caused the reduction in value transferred to charity.
- The court affirmed the § 6662 accuracy-related penalty because the estate substantially understated tax and did not show reasonable cause or good faith.

## Legal Principles

- Under I.R.C. § 2055, an estate tax charitable deduction is allowed only for the value that actually passes to and is received by the charitable beneficiary.
- When fiduciaries control post-death administration and execute discretionary transactions that reduce the value delivered to charity, the deduction must reflect the reduced value actually transferred.
- A taxpayer cannot obtain an estate tax benefit based on an asserted charitable transfer where estate-controlled steps divert or diminish economic value before the charity receives it.
- An I.R.C. § 6662 accuracy-related penalty applies to substantial understatements of tax unless the taxpayer proves reasonable cause and good faith.

## Conclusion

The court limited the estate’s charitable deduction to the value the foundation actually received after the estate’s post-death stock redemption and discounting reduced that value, and it sustained an accuracy-related penalty for the resulting understatement of estate tax.


Estate of Dieringer v. Commissioner, 917 F.3d 1135 (9th Cir. 2019)