                              149 T.C. No. 11



                     UNITED STATES TAX COURT



ESTATE OF MINNIE LYNN SOWER, DECEASED, FRANK W. SOWER, JR.
        AND JOHN R. SOWER, CO-EXECUTORS, Petitioner v.
       COMMISSIONER OF INTERNAL REVENUE, Respondent



   Docket No. 32361-15.                          Filed September 11, 2017.



          H died in 2012, and H’s estate reported a deceased spousal
   unused exclusion (DSUE) and elected portability of the DSUE. In
   2013 R sent H’s estate a letter reporting that the return had been
   accepted as filed. W died in 2013. W’s estate claimed the DSUE
   reported by H’s estate. As a part of an examination of the estate tax
   return filed by W’s estate, R also examined the estate tax return filed
   by H’s estate. R reduced the amount of the DSUE by the amount of
   taxable gifts given by H but did not determine or assess a deficiency
   against H’s estate. But R determined an estate tax deficiency against
   W’s estate. W’s estate filed a petition in which it made several
   arguments regarding why R should not be allowed to examine the
   estate tax return filed by H’s estate to determine the proper DSUE
   amount allowable to W’s estate.

         Held: R acted within the authority granted by I.R.C. sec.
   2010(c)(5)(B) when he examined the estate tax return of a
   predeceased spouse to determine the correct DSUE amount.
                                   -2-

      Held, further, a letter stating that the estate tax return of a
predeceased spouse has been accepted as filed is not a closing
agreement under I.R.C. sec. 7121.

      Held, further, a letter stating that the estate tax return of a
predeceased spouse has been accepted as filed does not estop R from
examining the return of the predeceased spouse.

      Held, further, an examination of the estate tax return of a
predeceased spouse in which R reviews the records in his possession
and asserts no additional tax is not a second examination within the
meaning of I.R.C. sec. 7605(b).

      Held, further, the estate of a later deceased spouse cannot
challenge whether an examination of the estate tax return of a
predeceased spouse is an improper second examination within the
meaning of I.R.C. sec. 7605(b) because only the examined party can
seek protection from a second examination under I.R.C. sec. 7605(b).

       Held, further, the applicable regulations relating to I.R.C. sec.
2010 do not prohibit R from examining the predeceased spouse’s
return.

       Held, further, the effective date of I.R.C. sec. 2010(c)(5)(B)
does not preclude R from adjusting the DSUE amount by gifts given
before Dec. 31, 2010, when the DSUE amount affects an estate tax
return for a decedent dying after Dec. 31, 2010.

       Held, further, R’s application of I.R.C. sec. 2010(c)(5)(B) did
not frustrate congressional intent with respect to portability.

       Held, further, the period of limitations on assessment of tax for
the estate of the predeceased spouse is not implicated if R does not
determine an estate tax deficiency for the estate of the predeceased
spouse.
                                          -3-

      Phyllis A. Sower, for petitioner.

      John S. Hitt and Denise A. Diloreto, for respondent.



                                       OPINION


      BUCH, Judge: This is an estate tax deficiency case involving the Estate of

Minnie Lynn Sower. Minnie was the surviving spouse of her late husband Frank

W. Sower.1 When Frank’s estate filed its estate tax return, the estate did not use

all of the basic exclusion amount allowed under section 2010(c)(3).2 The

Commissioner sent a letter to Frank’s estate informing it that its return had been

accepted as filed. After Minnie passed away, her estate sought to use the deceased

spousal unused exclusion (DSUE) as allowed by section 2010(c)(2)(B). As part of

examining the return for Minnie’s estate, the Commissioner reviewed Frank’s

estate’s tax return and reduced the amount of the DSUE. Minnie’s estate raises

various arguments as to why the Commissioner should be prohibited from



      1
          For convenience and clarity, we will refer to the Sowers by their given
names.
      2
        Unless otherwise indicated, all section references are to the Internal
Revenue Code in effect for the date of decedent’s death, and all Rule references
are to the Tax Court Rules of Practice and Procedure. All monetary amounts are
rounded to the nearest dollar.
                                          -4-

considering the estate tax return of the predeceased spouse for the limited purpose

of adjusting the amount of the DSUE allowable to the estate of the surviving

spouse. In determining the correct amount of the DSUE allowable to the estate of

a surviving spouse, the Commissioner may consider the estate tax return of a

predeceased spouse. The period of limitations on assessment for the estate of the

predeceased spouse is not implicated because no tax is being assessed against the

estate of the predeceased spouse. And a letter informing an estate that its return

has been accepted as filed is not a closing agreement and does not otherwise

preclude the Commissioner from considering the amount of the DSUE left from

that estate to a surviving spouse’s estate.

                                     Background

      This case was submitted under Rule 122.

      At the time of Frank’s death, Frank and Minnie were married. During their

lifetimes, Frank and Minnie gave $997,920 and $997,921 in taxable gifts,

respectively. All of the gifts were given between 2003 and 2005. The Sowers

filed a Form 709, United States Gift (and Generation-Skipping Transfer) Tax

Return, for each year in which they gave taxable gifts.

      Frank died on February 23, 2012. His estate filed a timely return reporting

that it had no estate tax liability. The estate also reported zero in taxable gifts but
                                         -5-

included $945,420 in taxable gifts on the worksheet provided to calculate taxable

gifts to be reported on the return. Frank’s estate reported a DSUE of $1,256,033

and elected portability of the DSUE to allow the surviving spouse to use it.3

      On November 1, 2013, the Commissioner issued an initial Letter 627, Estate

Tax Closing Document, to Frank’s estate. The Letter 627 showed no estate tax

liability for Frank’s estate. The Letter 627 also stated that the return had been

accepted as filed and further stated:

      [The Commissioner] will not reopen or examine this return unless
      * * * [notified] of changes to the return or there is: (1) evidence of
      fraud, malfeasance, collusion, concealment or misrepresentation of a
      material fact; (2) a clearly defined substantial error based upon
      established Internal Revenue Service position; or (3) a serious
      administrative error.

      Minnie died on August 7, 2013. Her estate filed a timely return claiming a

DSUE of $1,256,033 from Frank’s estate. Initially, her estate reported and paid an

overall estate tax liability of $369,036. Three months later the estate paid an

additional $386,424 in tax and interest to correct a mathematical error on the

original return. Like Frank’s estate, Minnie’s estate did not include the lifetime




      3
        Per the Form 706, United States Estate (and Generation-Skipping Transfer)
Tax Return, “A decedent with a surviving spouse elects portability of the deceased
spousal unused exclusion (DSUE) amount, if any, by completing and timely-filing
this return.” An affirmative election is not required.
                                          -6-

taxable gifts on the return, though rather than reporting zero in gifts as on Frank’s

estate tax return, it left the entry blank on Minnie’s estate’s tax return.

      In February 2015 the Commissioner began an examination of the return

filed by Minnie’s estate. In connection with that examination, the Commissioner

also opened an examination of the return filed by Frank’s estate to determine the

proper DSUE amount available to Minnie’s estate. On March 25, 2015, an

attorney assigned to examine the return filed by Frank’s estate sent the executors a

letter and a draft revised report showing an adjustment to the amount of Frank’s

lifetime taxable gifts. On July 20, 2015, the Commissioner issued a second Estate

Tax Closing Document to Frank’s estate. The body of the second letter is

identical to that of the first Estate Tax Closing Document. Nothing in the record

suggests that the Commissioner requested any additional information from or

determined any additional liability for Frank’s estate.

      As a result of the examination of the return filed by Frank’s estate, the

Commissioner reduced the DSUE available to Minnie’s estate from $1,256,033 to

$282,690. The Commissioner also adjusted Minnie’s taxable estate by the amount

of her lifetime taxable gifts. Finally, the Commissioner reduced Minnie’s taxable

estate by $850 to account for funeral costs. Together these adjustments increased

the estate tax liability for Minnie’s estate by $788,165. On December 2, 2015, the
                                        -7-

Commissioner sent Minnie’s estate a notice of deficiency determining a $788,165

estate tax deficiency.

      Minnie’s estate filed a timely petition for redetermination of that deficiency.

The estate disputes the full $788,165 in additional estate tax. At the time of

Minnie’s death she was a resident of Kentucky, and at the time of the petition the

executors were residents of Kentucky.

                                     Discussion

      In its briefs Minnie’s estate advances several arguments. It argues that the

first Estate Tax Closing Document should be treated as a closing agreement under

section 7121 and that the Commissioner should be estopped from reopening the

estate by the text of the document. Minnie’s estate also argues that the

examination that took place after the Commissioner had sent the first Estate Tax

Closing Document was an improper second examination. The estate further

argues that the effective date of section 2010(c)(5)(B) and the text of the

regulations preclude the Commissioner from adjusting the DSUE amount of the

predeceased spouse for gifts made before 2010. Finally, the estate argues that

section 2010(c)(5)(B) as applied by the Commissioner in this case is contrary to

the congressional intent to permit portability and is “unconstitutional for lack of
                                         -8-

due process” because it overrides the statute of limitations on assessment

established in section 6501.

      In its reply brief Minnie’s estate argues that the taxable gifts given by

Minnie should not be included in the taxable estate for the purpose of determining

the estate tax liability. This argument was not properly raised in the petition or the

amended petition, and so it has been conceded.4 See Rule 34(b)(4); see also Swain

v. Commissioner, 118 T.C. 358, 362 (2002); Kay v. Commissioner, T.C. Memo.

2011-159, 102 T.C.M. (CCH) 19, 22 (2011). Even if it had been properly raised,

under section 2001(b)(1) the taxable gifts given by Minnie are included in the

value of the taxable estate for the purpose of determining the estate tax due.

I.    The Estate Tax, the DSUE, and Applicable Regulations

      Section 2001 imposes a tax on the transfer of the taxable estates of U.S.

citizens and residents. The tax is based on the sum of the taxable value of the




      4
        Minnie’s estate contests the full amount of the deficiency but does not
discuss how the Commissioner erred in adjusting the size of the taxable estate to
include the taxable gifts given by Minnie during her lifetime. The estate claims in
its reply brief that it had argued in its amended opening brief that the taxable gifts
should not be included in the estate. The Court does not agree. At no point in the
amended petition, the amended opening brief, or the reply brief does Minnie’s
estate explain why the taxable gifts given by Minnie during her lifetime should be
excluded from the value of the taxable estate.
                                         -9-

estate and the amount of taxable gifts made by the decedent after 1976. Sec.

2001(b)(1).

      Section 2010 provides a “unified credit against estate tax.” This credit

effectively reduces the value of the estate for the purpose of calculating the tax.

Id. It includes both the basic exclusion amount and “in the case of a surviving

spouse, the deceased spousal unused exclusion amount.” Sec. 2010(c)(2). At the

time of Minnie’s death the basic exclusion was $5,250,000. Sec. 2010(c)(3); Rev.

Proc. 2013-15, sec 2.13, 2013-05 I.R.B. 444, 448.

      The DSUE is the lesser of the basic exclusion amount or “the excess of (i)

the applicable exclusion amount of the last such deceased spouse of such

surviving spouse, over (ii) the amount with respect to which the tentative tax is

determined under section 2001(b)(1) on the estate of such deceased spouse.” Sec.

2010(c)(4). If the estate of the predeceased spouse elects portability, the later-

deceased spouse’s estate can effectively reduce its taxable estate by the amount by

which the basic exclusion exceeds the sum of the predeceased spouse’s taxable

estate and adjusted taxable gifts. Secs. 2010(c)(5)(A), 2001(b)(1).

      Section 2010(c)(5)(B) gives the Commissioner the power to examine the

estate tax return of the predeceased spouse to determine the DSUE amount,
                                       - 10 -

regardless of whether the period of limitations on assessment has expired for the

predeceased spouse’s estate.

      At the times of both Frank’s and Minnie’s deaths, temporary regulations

governed the administration of the DSUE. See secs. 20.2010-1T, 20.2010-2T, and

20.2010-3T, Temporary Estate Tax Regs., 77 Fed. Reg. 36157-36160 (June 18,

2012). These temporary regulations reinforce and restate the Commissioner’s

power to examine the return of the predeceased spouse to determine the proper

DSUE amount. Sec. 20.2010-2T(d), Temporary Estate Tax Regs., 77 Fed. Reg.

36159 (June 18, 2012); sec. 20.2010-3T(d),Temporary Estate Tax Regs., 77 Fed.

Reg. 36161 (June 18, 2012).

      Finally, section 7602 gives the Commissioner broad discretion to examine a

range of materials to “ascertain[] the correctness of any return”. Under section

7602(a)(1) Congress gave the Commissioner specific authority “[t]o examine any

books, papers, records, or other data which may be relevant or material”. Section

7851(a)(6) provides that subtitle F, which includes section 7602, is “applicable

with respect to any tax imposed by * * * title [26]”. The Internal Revenue Code

does not contain any provision exempting estate tax returns from section 7602. As

a result, the Commissioner has the power to examine any relevant “books, papers,
                                       - 11 -

records or * * * data” to determine the correctness of an estate tax return. Sec.

7602(a)(1).

      Here, the Commissioner properly exercised the power conferred by sections

2010(c)(5)(B) and 7602(a)(1). He examined the return filed by the estate of the

predeceased spouse. The Commissioner found that the DSUE had been

overstated. He adjusted the amount of the DSUE as authorized by section

2010(c)(5)(B) and the regulations, but he did not determine that there was an

estate tax deficiency for the predeceased spouse’s estate.

II.   The “Estate Tax Closing Document”

      Minnie’s estate advances two arguments regarding why the initial Estate

Tax Closing Document should bar the Commissioner’s examination of the return

of Frank’s estate to determine the DSUE available to Minnie’s estate. Minnie’s

estate asserts that the Court and the Commissioner should treat the Estate Tax

Closing Document as a closing agreement under section 7121. The estate also

argues that the Commissioner is estopped from examining the return of Frank’s

estate by the text of the Estate Tax Closing Document.

      A.      Closing Agreement Under Section 7121

      Under section 7121(a) the Commissioner is explicitly authorized to enter

into written agreements “with any person relating to the liability of such person”.
                                        - 12 -

Agreements under section 7121 are final. Sec. 7121(b). The Commissioner

cannot reopen a matter for which a closing agreement has been executed unless

there is a “showing of fraud or malfeasance, or misrepresentation of a material

fact”. Id. The Commissioner has strict rules governing closing agreements.

Under the applicable regulations only the prescribed forms, Form 866, Agreement

as to Final Determination of Tax Liability, and Form 906, Closing Agreement on

Final Determination Covering Specific Matters, qualify as closing agreements.

Sec. 601.202(b), Statement of Procedural Rules; sec. 301.7212-1(d)(1), Proced. &

Admin. Regs.

      In extraordinarily rare cases, courts have bound the Commissioner to an

agreement in the absence of a properly executed Form 866 or Form 906. In Treaty

Pines Invs. P’ship v. Commissioner, 967 F.2d 206, 211 (5th Cir. 1992), the Court

of Appeals for the Fifth Circuit held that “a tax settlement agreement is binding

even if it consists only of letters of offer and acceptance; no formal stipulation of

settlement, filed decision document, or closing agreement is necessary.” In that

case there had been a period of negotiation between the parties and a clear

exchange of offer and acceptance. Here, no such negotiation took place. The

Commissioner sent the initial Estate Tax Closing Document, and neither party
                                        - 13 -

alleges any facts that suggest that the estate and the Commissioner engaged in any

further communication until after the audit of the return filed by Minnie’s estate.

      There simply was no agreement between Frank’s estate and the

Commissioner. There is no evidence of a closing agreement. And the estate tax

closing document does not bear the hallmarks of any other kind of agreement, i.e.,

negotiation followed by offer and acceptance.

      B.     Estoppel

      This Court and others have held that the doctrine of equitable estoppel can

be asserted against the Commissioner but that it “should be applied against him

with utmost caution and restraint.” Estate of Emerson v. Commissioner, 67 T.C.

612, 617 (1977). To prevail on a claim of equitable estoppel against the

Commissioner, a taxpayer must show four essential elements:

      (1) There must be a false representation or wrongful misleading
      silence; (2) the error must be in a statement of fact and not in an
      opinion or a statement of law; (3) the person claiming the benefits of
      estoppel must be ignorant of the true facts; and (4) he must be
      adversely affected by the acts or statements of the person against
      whom an estoppel is claimed. * * *

Id. at 617-618 (citation omitted). Minnie’s estate has established none of these

elements. The estate did not establish a “false representation or wrongful

misleading silence” on the part of the Commissioner. The issues in this case are
                                       - 14 -

questions of law and not fact, and both parties were aware of the relevant facts in

this case at the relevant times. Finally, Minnie’s estate has not shown that it was

adversely affected in a manner that justifies estopping the Commissioner.

      In cases where courts have held that a taxpayer was adversely affected and

the Commissioner was estopped, the adversely affected parties would have been

forced to bear the cost of taxes that they would not otherwise have borne. See,

e.g., Schuster v. Commissioner, 312 F.2d 311 (9th Cir. 1962), aff’g in part, rev’g

in part 32 T.C. 1017 (1959); Estate of Emerson v. Commissioner, 67 T.C. at 612.

For example, estoppel may apply when a party would be forced to pay a tax twice.

Estate of Emerson v. Commissioner, 67 T.C. at 618; see also Vestal v.

Commissioner, 152 F.2d 132, 136 (D.C. Cir. 1945), rev’g 4 T.C. 588 (1945).

Estoppel may also apply when a party with a withholding responsibility that acted

in reliance on a previous Government position and received no benefit from failure

to pay a tax is now required to pay a tax that would normally be borne by another.

Schuster v. Commissioner, 312 F.2d at 317-318; see also Estate of Emerson v.

Commissioner, 67 T.C. at 620. Here, there is no risk of double taxation, and there

are no facts showing that either estate acted in reliance on the Estate Tax Closing

Document. In this case estoppel cannot be applied against the Commissioner.
                                        - 15 -

III.   Improper Second Examination

       Without citing section 7605(b), which protects taxpayers from an

impermissible second examination, the estate argues that there was an

impermissible second examination of the return filed by Frank’s estate. Instead

they cite Woodworth v. Kales, 26 F.2d 178 (6th Cir. 1928). The estate claims that

the principle in Woodworth has not been overruled, but in 1931 the Supreme

Court rejected the rationale adopted in Woodworth in Burnet v. Porter, 283 U.S.

230 (1931), holding that the Commissioner could reopen a case after an initial

examination. This Court explicitly adopted that position in Estate of Meyer v.

Commissioner, 58 T.C. 69, 71-72 (1972). See also Estate of Bommer v.

Commissioner, T.C. Memo. 1995-197, 69 T.C.M. (CCH) 2541, 2545 (1995).

       Many of the facts in Estate of Meyer mirror the facts in this case. After the

estate filed a return and the Commissioner conducted an initial audit, the

Commissioner issued an “Estate Tax Closing Letter” to the estate. Id. at 70. The

estate tax closing letter stated that the estate had paid the taxes that were owed and

that the liability of the estate had been discharged. Id. The Commissioner, using

information gleaned from audits of two other unrelated taxpayers, decided to

reopen the audit and determine a deficiency. Id. The Court found that the

Commissioner properly exercised his authority. Id. at 71.
                                        - 16 -

      Congress also intervened in 1921 with statutory protection against

impermissible second examinations. Revenue Act of 1921, ch.136, sec. 1309, 42

Stat. at 310 (currently codified as section 7605(b)). Section 7605(b) provides that

“[n]o taxpayer shall be subjected to unnecessary examination or investigation, and

only one inspection of a taxpayer’s books of account shall be made for each

taxable year unless the taxpayer requests otherwise or unless the Secretary, after

investigation, notifies the taxpayer in writing that an additional inspection is

necessary.”

      Here, it is clear that there was no second examination. We have held that

the Commissioner does not conduct a second examination when he does not obtain

any new information. See, e.g., Ballantine v. Commissioner, 74 T.C. 516 (1980);

Jackson v. Commissioner, T.C. Memo. 1982-556, 44 T.C.M. (CCH) 1213 (1982).

In Hough v. Commissioner, 882 F.2d 1271 (7th Cir. 1989), aff’g T.C. Memo.

1986-229, the Court of Appeals for the Seventh Circuit affirmed our conclusion

that there was no second examination when the taxpayer failed to meet his burden

to show that there was a second examination of his books of account, and the

Commissioner issued a notice from the returns already in his possession. Id. at

1276-1277. The Commissioner did not request additional information from

Frank’s estate, and consequently there was no second examination.
                                        - 17 -

      Even if the Commissioner had conducted a second examination of the return

for Frank’s estate, he would not have violated section 7605(b) as to Minnie’s

estate. The Tax Court and others have found that only the examined party is

protected from second examinations. See United States v. Krilich, 470 F.2d 341,

350 (7th Cir. 1972) (“[Section 7605] does not apply to third-party investigations,

but rather to the records of the taxpayer[.]”); Curtis v. Commissioner, 84 T.C.

1349, 1353 (1985) (“It is clear that section 7605(b) does not restrict * * * [the

Commissioner] in his inspections of the books of third parties.”); United States v.

Wood, 435 F. Supp. 870, 874 (W.D. Ky. 1977) (“26 U.S.C. § 7605(b) does not

apply to a third person other than the taxpayer.”). Here, the party that is claiming

protection against the effects of a purported “second examination” (i.e., Minnie’s

estate) was not the party that underwent the examination (i.e., Frank’s estate).

IV.   Adjustments Under Section 2010(c)(5)(B) and Applicable Regulations With
      Respect to Gifts Given Before 2010

      Minnie’s estate makes two arguments based on its interpretation of the

statutory text and regulations governing the DSUE. The estate argues that the

Commissioner does not have the power to examine the return of Frank’s estate

again because the DSUE has not been applied to a taxable gift transfer and that the
                                        - 18 -

effective date of section 2010 precludes the Commissioner from adjusting the

taxable estate by the gifts made before 2010.

      A.     Application of the DSUE Regulations

      To support the claim that the regulations prohibit the Commissioner’s

action, the estate cites section 25.250[5]-2(e), Gift Tax Regs., relating to the

application of the DSUE to taxable gift transfers. This regulation, and its

predecessor temporary regulation, states that the Commissioner’s “authority to

examine returns of a deceased spouse applies with respect to each transfer by the

surviving spouse to which a DSUE amount is or has been applied.” Sec. 25.2505-

2T(e), Temporary Estate Tax Regs., 77 Fed. Reg. 36163 (June 18, 2012). The

estate argues that because the DSUE was not applied to a “taxable gift transfer”

the Commissioner is not authorized to examine the return. This is irrelevant.

      Under section 2010(c)(5)(B) the Commissioner has the power to examine

the return filed by the estate of the predeceased spouse to determine the DSUE

amount. The Commissioner’s “authority to examine returns of a deceased spouse

applies with respect to each transfer by the surviving spouse to which a DSUE

amount is or has been applied.” Sec. 20.2010-3T(d), Temporary Estate Tax Regs.,

supra. Although there was no taxable gift transfer to which the DSUE was

applied, there is a taxable transfer to which the DSUE has been applied: the
                                          - 19 -

transfer of the estate. Consequently, the Commissioner has the power under

section 2010(c)(5)(B) to examine the return filed by Frank’s estate for the purpose

of determining the DSUE available to Minnie’s estate.

      B.     The Effective Date of Section 2010

      The estate argues that because the gifts at the center of this case were given

before the effective date of section 2010(c)(5)(B), the Commissioner cannot make

adjustments to the DSUE as a result of those gifts.

      The Tax Relief, Unemployment Insurance Reauthorization, and Job

Creation Act of 2010, Pub. L. No. 111-312, sec. 303, 124 Stat. at 3304, did several

things. As is principally relevant here, subsection (a) created section

2010(c)(5)(B). Subsection (b) made amendments to section 2505, a gift tax

provision. As for effective dates, subsection (c) provided that “amendments made

by this section shall apply to estates of decedents dying and gifts made after

December 31, 2010.” The estate takes this to mean that the Commissioner cannot

adjust the DSUE on the basis of the gifts given before December 31, 2010.

      When examining a return, the Commissioner must apply the law in effect

for the return that is being examined. Effective dates can vary in their application,

sometimes applying for years beginning or ending after a particular date, or for

returns filed after a particular date. In context, it is clear that the effective date of
                                           - 20 -

section 2010(c)(5)(B), the estate tax amendment, is for decedents dying after

December 31, 2010. The effective date for the gift tax provision, which has no

relevance here, is for gifts made after December 31, 2010. Because both Frank

and Minnie died after December 31, 2010, section 2010(c)(5)(B) applies to both

their estates.

V.     Congressional Intent and Due Process Concerns

       Finally, the estate argues that section 2010(c)(5)(B) as applied by the

Commissioner in this case is contrary to the congressional intent of portability and

“unconstitutional for lack of due process” because it overrides the statute of

limitations on assessment established in section 6501.

       A.        Congressional Intent as to Portability

       Minnie’s estate claims that the Commissioner’s application of section

2010(c)(5)(B) in this case is “unfair” and “defeats Congressional intent as to

portability.” The Supreme Court has held that the statutory text is the most

persuasive evidence of congressional intent. United States v. Am. Trucking

Ass’ns, Inc., 310 U.S. 534, 542-543 (1940). Congress adopted a statute that

explicitly gave the Commissioner the power to examine the returns of the

predeceased spouse and adjust the amount of the DSUE outside of the period of

limitations under section 6501. See sec. 2010(c)(5)(B). This is a clear indication
                                          - 21 -

that the Commissioner’s exercise of this power is not in violation of congressional

intent.

          B.    Statute of Limitations and Due Process Considerations of Section
                2010(c)(5)(B)

          Minnie’s estate argues that section 2010(c)(5)(B) is “unconstitutional for

want of due process of law in that there is no statute of limitations.” The statute of

limitations on assessment under section 6501 is not subverted by section

2010(c)(5)(B). Under section 2010(c)(5)(B) the Commissioner can examine the

return of a predeceased spouse and adjust the DSUE without regard to the statute

of limitations in section 6501. Section 2010(c)(5)(B) does not give the

Commissioner the power to assess any tax against the estate of the predeceased

spouse outside of the period of limitations. Both the temporary and final

regulations implicitly make this point, providing that the IRS “may examine

returns of each of the surviving spouse’s deceased spouses whose DSUE amount

is claimed to be included in the surviving spouse’s applicable exclusion amount,

regardless of whether the period of limitations on assessment has expired for any

such return.” Sec 20.2010-2(d), Estate Tax Regs.; sec. 20.2010-2T(d), Temporary

Estate Tax Regs., 77 Fed. Reg. 36159-36160 (June 18, 2012). And they both go

on to provide more explicitly:
                                        - 22 -

      The IRS’s authority to examine returns of a deceased spouse applies
      with respect to each transfer by the surviving spouse to which a
      DSUE amount is or has been applied. Upon examination, the IRS
      may adjust or eliminate the DSUE amount reported on such a return
      [of a deceased spouse]; however, the IRS may assess additional tax
      on that return only if that tax is assessed within the period of
      limitations on assessment under section 6501 applicable to the tax
      shown on that return.

Sec. 20.2010-3(d), Estate Tax Regs.; sec. 20.2010-3T, Temporary Estate Tax

Regs., supra (with the bracketed text added to the final regulation). And finally,

both the temporary and final regulations cite section 7602 “for the IRS’s authority,

when ascertaining the correctness of any return, to examine any returns that may

be relevant or material to such inquiry.”

      Section 6501 is a statute of limitations on assessment. It provides that

“except as otherwise provided * * * the amount of any tax imposed by this title

shall be assessed within 3 years after the return was filed”. Sec. 6501(a). Here,

the Commissioner did not assess and is not assessing any tax against Frank’s

estate. Both Estate Tax Closing Documents show “$0” in “Net Estate Tax” for

Frank’s estate. The Commissioner did not issue a notice of deficiency to Frank’s

estate. An adjustment of the DSUE of the predeceased spouse, though it may

affect the liability for a subsequent estate claiming the exclusion, is not an

assessment of tax against the estate of the predeceased spouse. Accordingly, the
                                        - 23 -

statute of limitations on assessment under section 6501 is not implicated for the

predeceased spouse.5

                                     Conclusion

      The Commissioner acted within his legal authority when he examined the

return filed by Frank’s estate and adjusted the DSUE eligible to be claimed by

Minnie’s estate. And Minnie’s estate must include the lifetime taxable gifts in the

estate for the purposes of determining the amount of estate tax due under section

2001(b)(1).

      To reflect the foregoing,


                                                 Decision will be entered for

                                        respondent.




      5
        Conceptually, this is the same as section 6214(b), which permits this Court
to look to years not at issue and to facts related to other years in order to determine
the correct amount of the tax for the year before it. This provision does not violate
the statute of limitations on assessment under section 6501 any more than section
2010(c)(5)(B).
