Estate of Anne Milner Fields, Deceased, Bryan K. Milner, Executor v. Commissioner of Internal Revenue, No. 25-60403 (5th Cir. June 8, 2026).

The United States Court of Appeals for the Fifth Circuit recently issued a significant ruling regarding the boundaries of the bona fide sale exception under I.R.C. § 2036(a). In Estate of Anne Milner Fields v. Commissioner, the court addressed whether assets transferred into a limited partnership shortly before a decedent’s death could be excluded from the gross estate when the transfers appear motivated primarily by tax reduction. This decision serves as a stern warning to practitioners regarding the scrutiny applied to "post hoc" justifications for estate planning structures created during periods of terminal illness.

Factual Background of the Estate Transfers

The litigation arose following the death of Anne Milner Fields, a successful businesswoman whose health declined significantly due to Alzheimer’s disease. During her decline, her agent and great-nephew, Bryan Milner, orchestrated the transfer of approximately $17 million in assets into a newly formed limited partnership, AM Fields, LP. The timeline of these transfers was remarkably compressed; the partnership was formed in late May 2016, the bulk of the assets were transferred by mid-June, and Ms. Fields passed away on June 23, 2016.

Upon Ms. Fields’s death, the Estate filed an estate tax return valuing her interest in the partnership at approximately $11 million, rather than the $17 million value of the underlying assets. The Internal Revenue Service (IRS) audited the return and issued a notice of deficiency, contending that under I.R.C. § 2036(a), the full value of the transferred assets should be included in the gross estate. Consequently, the IRS assessed a 20% accuracy-related penalty.

The Taxpayer's Assertion of Non-Tax Motivations

The Estate sought relief from both the deficiency and the penalty by asserting that the creation of AM Fields, LP was driven by legitimate, non-tax business purposes. Specifically, the Estate advanced three primary justifications:

To remedy limitations in the existing power of attorney regarding succession and management;
To consolidate and streamline the management of Ms. Fields’s diverse and complex asset holdings; and
To provide a safeguard against potential fraud and elder abuse.

Furthermore, regarding the accuracy-related penalty under I.R.C. § 6662, the Estate argued that it acted with reasonable cause and in good faith, relying on the professional expertise of tax and legal advisors to determine the appropriate valuation for the estate tax return.

Judicial Interpretation of Section 2036(a)

The court’s analysis focused on the statutory requirements of I.R.C. § 2036(a), which mandates that the gross estate include the value of property where the decedent retained an interest in the enjoyment or income of said property, "except in case of a bona fide sale for an adequate and full consideration in money or money’s worth."

In evaluating whether the transfers met this exception, the court emphasized that the inquiry is purely objective. To qualify, the taxpayer must demonstrate that the transfer served a "substantial business [or] other non-tax" purpose. The court reiterated that "the objective evidence must indicate that the nontax reason was a significant factor that motivated the partnership’s creation. . . . A significant purpose must be an actual motivation, not a theoretical justification."

Application of Law to the Testamentary Transfer Timeline

The Fifth Circuit declined to overturn the Tax Court's finding that the Estate failed to prove any substantial non-tax purpose. The court systematically rejected each of the Estate’s arguments:

Regarding succession and management, the court noted that the existing power of attorney was functional and that the new partnership structure offered no actual improvement in succession, as management changes still required unanimous consent. Regarding the streamlining of assets, the court found that the assets were "of a constituent character" and "promised no obvious synergies with each other."

The most damning evidence against the taxpayer was the temporal proximity of the transfers to Ms. Fields's death. The court highlighted several "troublesome" facts, including the fact that the attorney’s email specifically sought advice on "obtaining a deeper discount," and that the asset transfers "proceeded rapidly" just days before the decedent entered hospice. Ultimately, the court concluded that the non-tax justifications were merely "a post hoc 'theoretical justification'" rather than actual motivations.

Analysis of Accuracy-Related Penalties and the Good Faith Defense

The court then addressed the application of the 20% penalty under I.R.C. § 6662. The legal standard for negligence is established when a taxpayer fails to verify an exclusion or deduction that "would seem to a reasonable person to be 'too good to be true.'"

The Estate's defense of reasonable cause and good faith reliance on professionals was also rejected. While the court acknowledged that engaging professionals is a factor, it noted that "the validity of this reliance turns on ‘the quality and objectivity of the professional advice which they obtained.’" The court found that the $6 million discrepancy—a massive reduction in reportable assets—was such an extraordinary opportunity to avoid tax obligations that Milner should have recognized it was "too good to be true." Furthermore, the Estate failed to provide evidence that the accountant actually advised the specific valuation method used; rather, the evidence suggested only that the attorney had discussed the general tax benefits of the partnership.

Final Adjudication

The Fifth Circuit affirmed the Tax Court’s decision in its entirety, upholding both the deficiency assessment and the accuracy-related penalty. The ruling reinforces the principle that taxpayers cannot rely on retrospective business justifications to shield tax-motivated transfers from inclusion in a gross estate under I.R.C. § 2036(a).

Prepared with assistance from LM Studio google/gemma-4-26b-a4b.