Estate of Ernest D. Skaggs, Deceased, Carolyn C. Fike, and Carolyn C. Fike, Formerly Carolyn C. Skaggs v. Commissioner of Internal Revenue

Petitioners appeal the Tax Court’s decision that absent a timely election under I.R.C. § 754, the bases of the partnership assets could not be adjusted on the death of a partner under I.R.C. § 1014(a) and (b)(6) until the partnership was terminated. The petitioners contest the Tax Court’s ruling that the death of a partner does not, in and of itself, serve to terminate the partnership for tax purposes.

I. FACTS

Ernest Skaggs, decedent, and Carolyn C. Skaggs, his widow, conducted a farming business as equal partners in a two-member partnership known as the Santa Rita Ranch Company. They owned their respective capital interests in the partnership as community property. The partnership agreement provided that the partnership would terminate upon the death of either partner. The agreement also provided that, in such a case, the estate of the deceased partner could determine whether the partnership should elect to adjust the bases of the partnership assets under section 754 of the I.R.C.

The husband died on December 31, 1973, the last day of the partnership’s 1973 tax year. Community property, including their respective partnership interests, became subject to probate…