Grossman v. Commissioner
T.C. Memo. 2021-65

On May 27, 2021, the Tax Court issued a Memorandum Opinion in the case of Grossman v. Commissioner (T.C. Memo. 2021-65). The primary issue presented in Grossman v. Commissioner was whether state law determines a taxpayer’s marital status at death for purposes of the marital deduction under IRC § 2056(a).

The Saga of Semone in Grossman v. Commissioner

Mawwiage GrossmanAll Semone Grossman wanted was to find a nice Jewish girl to settle down with. He had survived internment in a series of concentration camps during World War II and immigrated to New York in 1949, where he got into the business of owning and operating parking garages. Semone married Hilda in 1955, and they had two children together.  They separated in 1965, never to reconcile or cohabitate again. Semone and Hilda entered into a separation agreement, though they never officially divorced New York.

Exhibit A: A Shiksa
Exhibit A: A Shiksa

In 1967, Simone began cavorting with a shiksa named Katia. Semone obtained a “divorce” from Hilda in Chihuahua, Mexico in 1967. Semone and Katia’s romance was short lived, and in 1974, the fire on the menorah of love had burnt out. In the same year Hilda filed suit in New York seeking a declaratory judgment that the Mexican divorce was null and void. The New York Court ultimately found that Semone and Hilda were still lawfully married.

Rabbi GrossmanFinally, in 1986, Semone married his nice Jewish girl, Ziona. Before his marriage to Ziona, Semone asked Hilda to cooperate with him in the giving of a get, which is a religious divorce under rabbinical law. In November 1986, Semone and Hilda appeared before an orthodox rabbinical court in New York and Semone got his get. A rabbi in Israel allowed the marriage the two were married in Tel Aviv. The certificate of marriage noted that, before entering the marriage, Ziona was single and Semone was divorce.

Mazel Tov GrossmanAfter their marriage ceremony in Israel, Semone and Ziona returned to New York and continued to live there until Semone’s death in 2014. During those 27 years, Semone and Ziona lived together as husband and wife. They had two children and shared a home and finances. They filed as “married filing jointly.” Semone and Ziona also purchased a burial plot in Israel, where Semone is now buried alongside Ziona’s parents. In Semone’s Last Will and Testament dated August 7, 2013, Semone directed that “any reference to ‘my wife’ shall mean and refer to Ziona Grossman and only to Ziona Grossman.”

Hilda continued to live in New York until her own death in 2014. She saw Semone and Ziona socially from time to time. Hilda filed her returns as “single.” When Semone died in New York in 2014 (with an estate of $87 million), Hilda made no statutory claim against his estate as a surviving spouse. The bulk of the estate (valued at approximately $79 million) was bequeathed to Ziona.

The Notice of Deficiency

Nanny GrossmanOn the return, the Estate claimed a marital deduction under IRC § 2056(a) with respect to the $76 million bequeathed to Ziona. In March 2018, the IRS mailed a notice of deficiency to the Estate that determined an estate tax deficiency of $35,497,032. The notice also determined an accuracy-related penalty under IRC § 6662 of $7,099,406. Most of the adjustments in the notice were attributable to the IRS’s determination that Semone and Ziona were not married to each other for Federal estate tax purposes and thus that Ziona did not qualify as Semone’s surviving spouse within the meaning of IRC § 2056(a).

Who is a Surviving Spouse (under IRC § 2056)?

Under IRC § 2056(a), the value of the taxable estate does not include the value of any interest in property which passes from the decedent to his surviving spouse. Put differently, if an interest in property passes to the decedent’s “surviving spouse,” the decedent’s estate generally avoids paying tax with respect to the value of that interest. See Estate of Morgens v. Commissioner, 133 T.C. 402, 409-410 (2009).

Although the identification of a decedent’s surviving spouse is a Federal issue, it is determined by applying State law—typically, the law of the State where the decedent’s estate is administered. See Estate of Goldwater v. Commissioner, 64 T.C. 540, 550 (1975), aff’d, 539 F.2d 878 (2d Cir. 1976); see also Estate of Steffke v. Commissioner, 64 T.C. 530, 534 (1975), aff’d, 538 F.2d 730 (7th Cir. 1976). If the courts of the relevant State have ruled on the validity of the marriage at issue, the Tax Court generally will follow those rulings. See Estate of Steffke, 64 T.C. at 538; Estate of Goldwater, 539 F.2d at 880.

Residency or Place of Celebration

The IRS argued that because Semone, Ziona, and Hilda were all New York residents at the time of Semone’s death and during all other relevant times, the Tax Court must look to New York law “properly applied” to identify Semone’s surviving spouse. Conversely, the estate argued that a “place of celebration” test should be used to assess the validity of a marriage for Federal tax purposes. Nevertheless, the estate argued that it would prevail even under New York law.

The IRS focuses its analysis on Semone and Hilda’s divorce, arguing that Hilda is the surviving spouse because she and Semone never validly divorced under New York law. Accordingly, the IRS insists that no subsequent marriage, including Semone’s marriage to Ziona, would be respected in New York. The Estate, on the other hand, looks first to Semone and Ziona’s marriage. It maintains that Ziona is Semone’s surviving spouse because New York applies a place of celebration rule and there is no dispute that the marriage was valid in Israel, the place of celebration.

In the Estate’s view, the place of celebration rule encompasses the determination of whether prospective spouses are eligible to be married. The Estate therefore concludes that New York would accept Israel’s determination regarding the sufficiency of Semone and Hilda’s divorce for purposes of Semone’s later marriage to Ziona. The Tax Court agreed that the analysis should focus on Semone and Ziona’s marriage and that the place of celebration rule controls the outcome of this case.

Babs GrossmanSince at least 1881, the New York Court of Appeals, the highest court in New York, has recognized the “general rule of law that a contract entered into in another State or country, if valid according to the law of that place, is valid everywhere.” Van Voorhis v. Brintnall, 86 N.Y. 18, 24 (1881). As applied to marriages, “the rule recognizes as valid a marriage considered valid in the place where celebrated.” Id. at 25. There was no genuine dispute that Semone and Ziona celebrated their marriage in Israel in 1987 and that Israel considered Semone and Ziona validly married.

As a consequence, Ziona was Semone’s surviving spouse, and she was entitled to the marital deduction under IRC § 2056(a).

(T.C. Memo. 2021-65) Grossman v. Commissioner

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