Estate of Frazier v. Commissioner

MEMORANDUM *

The Commissioner of Internal Revenue *503 issued a notice of deficiency against the estate of James G. Frazier, alleging that certain improvements made by a commercial tenant upon property owned by Frazier had become the property of Frazier himself by the time of his death. The improvements at issue were made by Frazier Nut Farms, Inc. (“FNF”), a company Frazier had incorporated in 1981 and of which he was part owner at the time of his death. Shortly after incorporating FNF, Frazier granted the company a ten-year lease for five acres of land that he owned in Waterford, California. During the term of the lease, FNF installed buildings and other improvements upon the property at its expense. When the initial term of the lease expired, FNF remained on the land with the implied consent of Frazier and his family. Frazier died three months later.

Frazier’s executor filed the estate’s tax return based on the assumption that it owned the Waterford real property but not the improvements that FNF had made to it. The IRS disagreed, believing that the value of the estate included the value of the improvements. After its review, the Tax Court sided with the Commissioner and…