Estate Tax Nightmare: Three Weddings, Two Funerals, And A Mexican Divorce

My column in Tax Notes often defends the actions of the IRS. Being tasked with administration of the IRC is no small chore, particularly when Congress leaves the agency deprived of adequate funding.

That being said, this week’s topic offers a critical observation on the IRS’s litigation position on the applicability of foreign and religious law for federal estate tax purposes. After reading the recent U.S. Tax Court memorandum opinion in Estate of Grossman, one reckons this is a case the government should not have brought.

For that same reason, one hopes the government chooses not to pursue what should be a fruitless appeal.

Only in America

Every estate tax case begins with a death. Here, our decedent is Semone Grossman, a U.S. citizen and resident of New York who passed away in 2014.

Grossman was born in Germany in 1930 to a Jewish family. That fact alone informs us the early years of his life were not pleasant. Both his parents died in the Holocaust, and Grossman was interned in multiple concentration camps as a child. He survived that experience and emigrated to the United States as a teenager following the war. He settled in New York and soon became involved in the operation of parking garages.

As it turned out, owning parking garages in New York City was a good business. At the time of his death, Grossman’s testamentary estate was valued at $87 million. The arc of his life reveals an impressive rags-to-riches story.

Following Grossman’s death, the executor of his estate filed the federal estate tax return, IRS Form 706. The estate claimed the marital deduction permitted under section 2056(a) for those assets left to a surviving spouse. Most of the estate, around $79 million, was left to his wife, Ziona Grossman.

In 2018 the IRS sent the estate a notice of deficiency for unpaid taxes of $35 million, plus an accuracy-related penalty under section 6662 for $7 million. The basis for the deficiency was that Ziona was technically not Grossman’s wife under New York state law, meaning the claimed marital deduction was not available.

The outcome of the case, and roughly $42 million in combined federal taxes and penalties, would hinge on the Tax Court’s determination of what constitutes a valid marriage — and as a related matter, what constitutes a valid divorce. 

Ziona was either Grossman’s second or third wife, depending on how you look at it — except that the IRS refuses to consider her his wife at all. Both sides filed motions for partial summary judgment.

What is a valid marriage? How should a secular judicial forum go about adjudicating a party’s adherence to what is fundamentally a religious ceremony?

The wedding at issue occurred in Israel and was performed according to rabbinical law. One of the divorces at issue occurred in Mexico, where none of the parties resided.

This is where things get interesting with respect to the backstory of Grossman’s life, a possible conflict between state and federal legal authority, and the Tax Court’s procedural rules for considering foreign and religious law.

In the cross-border context, the case is about whether U.S. courts will recognize the legitimacy of a Mexican divorce and an Israeli marriage. In terms of conflicts-of-law analysis, the case is about whether the crucial determinations are made through the lens of state law (administration of the decedent’s estate falls under the jurisdiction of New York) or federal law (the matter before the Tax Court is an alleged deficiency in federal estate tax liability).

The Tax Court decision, written by Judge Emin Toro, correctly resolves the competing motions in the most direct way possible.

A Mexican Quickie

Grossman arrived in New York in or around 1949. He married his first wife, Hilda, in 1955. Hilda was also Jewish, and their wedding was conducted according to traditional Jewish customs. They had two children.

By the mid-1960s the relationship between Grossman and Hilda had broken down, and the couple was no longer living together. In 1965 they entered into a separation agreement that settled the respective property rights. Under the terms of the agreement, Grossman was required to make regular payments to Hilda.

While the agreement settled their civil property rights, neither Grossman nor Hilda viewed the instrument as formally terminating their marriage. They were not divorced, at least not yet. Under Orthodox Jewish custom, the dissolution of a marriage requires something known as gett, which is the loose equivalent to an annulment in Catholicism.

Gett is typically presented by the husband and consented to by the wife. The concept is to release the wife from the bonds of matrimony so that she might be free to marry other men without concern for adultery. Of course, the practical effect is to also release the husband to pursue other options.

The tradition can be traced back to the Old Testament (Deuteronomy 24). The process of obtaining a gett is controlled by rabbinical law, although secular courts implicitly recognize the practice when they validate the resulting divorce of a Jewish couple. Some states do not recognize religious divorce on the basis of public policy. New York, where Grossman lived, is among those states.

After separating from Hilda, Grossman began a relationship with another woman, Katia Equale. By 1967 he became interested in marrying Katia, which required the termination of his first marriage. It’s unclear whether Grossman requested a conventional divorce from Hilda and was turned down, but he did travel to Mexico for the purpose of obtaining an expedited divorce.

In the parlance of the times, this was known as a quickie divorce. In exchange for a fee, some foreign tribunals would grant a married nonresident adult (note the ring fencing) an ex parte divorce based on minimal evidence of marital dissatisfaction.

Mexico wasn’t the only venue that offered these divorces. They were seen as a way for struggling seaside resorts to boost tourism. The idea was that a gentleman could fly down to the Caribbean, unhappily married, and return home a few days later blissfully single.

Although neither Grossman nor Hilda lived in Mexico at any time during their marriage, a civil tribunal in the Bravos district of the state of Chihuahua saw fit to grant him a divorce decree in August 1967. The decree resulted from an ex parte proceeding. Hilda never traveled to Mexico and was not represented before the tribunal in any capacity. If you’re skeptical as to the Chihuahua tribunal’s jurisdictional competency to issue such a decree, you’re not alone.

With the Mexican divorce papers in hand, Grossman returned to the United States and soon married Katia in New Jersey. As Katia was not Jewish, the couple opted for a civil ceremony. They lived together for several years and had two children.

Sometime around 1974 the relationship between Grossman and Katia went sour. This raised an interesting question about how to end the marriage. 

Grossman could have sought a divorce in the usual manner, which would have involved yet another property settlement agreement and alimony payments. Instead, Grossman’s first wife reentered the picture to challenge the validity of his second marriage. Hilda filed a lawsuit in New York to obtain a declaratory judgment that Grossman’s 1967 Mexican divorce was a sham and should be disregarded.

The possible grounds for invalidating the quickie divorce were threefold. First, as an ex parte proceeding, Hilda was completely left out of the process, which improperly denied her the opportunity to be heard. Second, as neither Grossman nor Hilda were Mexican residents, the Chihuahua court lacked jurisdiction over the spouses and their marriage. Third, as a couple married in accordance with Jewish religious tradition, their union could only be terminated through rabbinical law. That is, with a gett.

Although Hilda’s lawsuit named Grossman as a defendant, along with Katia, it’s unclear whether Grossman opposed the legal maneuver. Normally a person would not welcome such an action brought by an ex-spouse, but under these circumstances, Grossman was already thinking in terms of unwinding the marriage (or purported marriage) to Katia. Any determination by a U.S. court that invalidated the Mexican divorce could prove useful to him. If the second marriage were declared a nullity, that could relieve him of any further property settlement and alimony burdens.

The adequacy of the Mexican divorce was litigated in a 1976 trial before the Supreme Court of New York, resulting in a judgment favorable to Hilda — and by implication, also favorable to Grossman regarding his status with Katia. The court found that:

• the 1955 marriage between Grossman and Hilda was not legally dissolved by a court of competent jurisdiction;
• the purported 1967 marriage between Grossman and Katia was therefore declared null and void; and
• the defendant, Grossman, remained legally married to the plaintiff, Hilda.

You might feel a twinge of sympathy for Katia, as well as the two children she had with Grossman during their time together. Those are the breaks when you rely on a quickie Mexican divorce. That’s two wives down, and one still to go.

The Giving of Gett

Fast forward to 1986. Grossman, now age 56, finds himself engaged for a third time. His fiancée, Ziona, was born and raised in Israel and holds dual U.S.-Israeli citizenship. Although Grossman and Ziona were both residents of New York, they chose to get married in Israel.

This time around — unlike the situation with Katia — Grossman requests Hilda’s consent in obtaining a gett. Recall that Hilda remained Grossman’s wife at the time, according to both New York state and rabbinical law. That’s despite the fact they never reconciled following their separation two decades earlier.

The process by which Grossman and Hilda obtained a gett is detailed in the Tax Court’s memorandum opinion. It involved their appearance before an Orthodox religious court, known as a beth din, and a series of certification letters approved by an attending rabbi. 

Grossman and Ziona later traveled to Israel with these letters, presenting them to the Tel Aviv Beth Din and eventually being issued a ketubah, a sort of marriage contract permitting the couple to get married in Israel. The ketubah confirmed that Ziona was single, and that Grossman was divorced and eligible to remarry.

They married in Tel Aviv in January 1987, receiving a marriage certificate from Israel’s Ministry of Religious Services.

Following their wedding, the couple returned to New York, where they lived together for 27 years until Grossman’s death in 2014. They had two children. During that time, the couple occasionally saw Hilda on a social basis.

They filed federal income taxes with the status “married filing jointly,” while Hilda filed her federal income tax returns with filing status “single.”

Scrutinizing the recital of facts contained in the Tax Court’s memorandum opinion, there’s nothing to indicate Hilda didn’t recognize the validity of Grossman’s marriage to Ziona. Quite the opposite, in fact.

When Grossman died, Hilda made no attempt to raise a statutory claim against his considerable estate on the grounds that she was a surviving spouse. Under New York law, a surviving spouse can claim up to one-third of a decedent’s net estate. In this case, that would have translated to many millions of dollars. She declined to do so.

Also, Grossman’s will, dating from 2013, includes a recital that “any reference to ‘my wife’ . . . shall refer to Ziona Grossman and only to Ziona Grossman,” leaving no doubt as to his thoughts.

We are left with a situation in which neither Grossman, Ziona, nor Hilda can be seen as holding any doubt about the identity of the surviving spouse. Hilda’s views are presumed from the fact that she consented to gett back in the 1980s and from the other circumstances mentioned above. Hilda can no longer speak for herself, as she too passed away in 2014.

Things should be straightforward, right? Not a chance. In the twisted world of federal tax law, things are rarely as simple as we wish them to be.

Along comes the IRS to challenge the estate’s application of section 2056(a), insisting that Ziona was not Grossman’s surviving spouse. The phrase repeated by the memorandum opinion is that the IRS considered Ziona to not be the surviving spouse “under state law properly applied.”

Elvis and the Rabbi

What outcome does the IRS see as reasonable? If Ziona is not Grossman’s surviving spouse under section 2056(a), then who is? The other two candidates are Hilda, now deceased, and Katia. It’s hard to see how either of those scenarios fit the known facts.

For Katia to be the surviving spouse, the IRS would need to retroactively assign full legal effect to the 1967 Mexican divorce, which ended Grossman’s marriage to Hilda. That would have made him single when he purported to marry Katia in New Jersey.

As a result, Grossman would have been technically still married to Katia when he married Ziona in 1987. Recall that Grossman and Katia never went through a formal divorce proceeding. There was no need for one, on account of their marriage being judicially declared invalid.

For Hilda to be the surviving spouse, the IRS would need to completely ignore the significance of the gett that terminated Grossman’s first marriage. In that case, he would have been technically still married to Hilda when he married Ziona.

But why would the government assign no credence to a gett properly issued by Jewish rabbinical court? If it takes approval from a rabbi to validate a Jewish wedding, why wouldn’t it require similar approval to terminate the marriage?

Perhaps the government is suggesting that Grossman wasn’t married to anybody at the time of his death. In other words, perhaps there is no surviving spouse, full stop. It would follow that there’s no marital deduction for federal estate tax purposes, which maximizes the estate’s tax liability and justifies the large deficiency and accuracy-related penalties.

If that were the case, the government would need to present a convincing argument as to why Grossman’s marriage to Ziona shouldn’t be recognized for federal estate tax purposes. But what alleged defect does it perceive? There was a ketubah and a marriage certificate issued from the Israeli government — even an apostilled version, which the Tax Court describes as being similar to a notary public’s acknowledgment.

Both Grossman and Ziona had personal connections to Israel. Ziona was born there and held dual citizenship. Grossman lost his parents in the Holocaust, survived Hitler’s concentration camps, and was buried in Israel.

What about the couple being married for 27 years and raising two kids? What about filing joint returns for income tax purposes? Does all that count for nothing?

Or is the objection raised because Grossman and Ziona were residents of New York who chose to get married overseas? Has the IRS never heard of destination weddings? If you can get hitched in Provence or Tuscany, why not in Israel?

Heck, if you’re able to take your sweetheart to Las Vegas, you can exchange nuptials at a drive-through “church” in the presence of an Elvis Presley impersonator, duly licensed to perform weddings and issue marriage certificates by the good state of Nevada.

If Elvis can issue marriage certificates in Vegas, why can’t a rabbi do so in Tel Aviv?

Rules 52 and 143

Here’s a revealing clue about how the IRS thought it could prevail on its motion for summary judgment. Note that summary judgment is available through Rule 121, necessitating there be no issue of material fact in respect to the question at hand and construing those facts most favorably to the non-moving party.

The IRS also brought an exclusionary motion under rules 52 and 143(g), urging the court to strike from the record some documentary materials filed by Grossman’s estate. As noted previously, there is no trial record here because there was no trial.

We’re using the term “record” in the looser sense of materials provided to the court for its evaluation of the motion for summary judgment.

Which materials did the IRS want stricken? Basically, every scrap of paper submitted by Grossman’s estate relating to what constitutes a valid marriage and divorce under Israeli law and Jewish religious law. That is, the IRS sought to exclude the very documents that would substantiate Grossman’s overseas marriage to Ziona.

At first glance, such an exclusion would contradict the requirement of Rule 121 that facts be construed most favorably to the non-moving party.

An exclusionary motion under Rule 52 envisions the striking of subject matter deemed “redundant, immaterial, impertinent, frivolous, or scandalous.” How is it that a copy of Grossman’s marriage certificate has no bearing on whether he was lawfully married? The court correctly found Rule 52 to be inapplicable.

Rule 146 addresses those instances in which the Tax Court is required to consider matters of foreign law. It permits the court to consider any material or source, regardless of whether the material or source was submitted by a party to the litigation, and regardless of whether the material or source is separately admissible as evidence. In short, the Tax Court is allowed to consider anything it wants for purposes of interpreting foreign law.

Further, Rule 146 treats a determination of foreign law as a ruling on a question of law, which is distinct from a judicial finding of fact. The court correctly found Rule 143(g) to be inapplicable.

Ironically, the memorandum opinion explains in a footnote that the court did not require any of the materials provided by the estate to reach its conclusions. The court based its understanding of foreign law on its own research. The submissions by the estate were relevant — which justified rejecting the government’s motion to exclude — but they were not needed.

Nevertheless, we have found it unnecessary to rely on the materials the Estate submitted in reaching our decision, so, in a practical sense, the question of the Commissioner’s objections to those materials is moot. The exclusionary motion deserved to fail, even though it was a moot point.

Three Ways to Lose

After reading the memorandum opinion, one can spot three separate ways for the government to lose this contest, and no viable ways for them to win — which further demonstrates that this case should not have been brought.

The IRS wanted the issue decided under the precedent established in the Estate of Goldwater. This earlier Tax Court case stands for the principle that identification of a surviving spouse for federal estate tax purposes should be determined by applying relevant state law — specifically, the law of the state in which the decedent’s estate is being administered. Here, there’s no controversy that Grossman was a resident of New York and that administration of his estate rests in that jurisdiction.

Grossman’s estate provides three alternate approaches for deciding the issue. First, it argues the IRS is bound by its own pronouncements, including Rev. Rul. 2013-17, 2013-38 IRB 201, which establishes the place of celebration standard to determine the validity of marriages for federal tax purposes. 

This test provides that Grossman’s marriage to Ziona would be valid for estate tax purposes so long as it was regarded as valid in Israel, where it was celebrated. It follows that analysis of New York law relating to marriages and divorces would be irrelevant. There is no doubt the marriage was valid under Israeli law. Holding the IRS to the terms of its own revenue rulings is fair game.

Second, it raises Estate of Spaulding, which stands for the proposition that if no court from the state in which the decedent’s estate is being administered has declared the marriage in question to be invalid, then the IRS is precluded from challenging it. 

Here, no New York court has challenged Grossman’s 27-year marriage to Ziona. Both Estate of Goldwater and Estate of Spaulding were decided by the Second Circuit, which is where an appeal of this case would lie.

Third, and most conclusively, Grossman’s estate argues that Ziona is the surviving spouse if we ignore the two lines of argument above and defer to New York state law, as the IRS would have us do. That is, the estate prevails even under the government’s preferred standard of review.

That’s because New York applies the same place of celebration test that the IRS adopted in Rev. Rul. 2013-17. New York has relied on the place of celebration standard since at least 1881. 

If Grossman’s marriage was valid in Israel, it would also be valid in New York. This rule is subject to narrow public policy exceptions that apply in cases of incest or bigamy.

It’s at this point that we learn why the IRS won’t accept the validity of the Israeli marriage. The service contends that Grossman couldn’t have lawfully married Ziona in 1987 because he was still married to Hilda at the time. The IRS won’t respect the gett, and thus views the relationship between Grossman and Ziona as a bigamous affair.

The IRS argues that New York law would not recognize the gett because it generally refused to accept religious divorces. Accordingly, the couple evaded New York law by getting married in Israel, where they knew the gett would be respected by local authorities. As the IRS sees it, this undercuts New York’s policy of protecting the public against bigamous practices.

The court flatly rejects the characterization of Grossman as a bigamist. It describes him as “a serial monogamist who sought to end his marriage to Hilda before his marriage to Ziona began.” 

The court notes that the place of celebration test has been applied by New York courts in other cases in which the public policy concern was far more persuasive. In Matter of May, a New York court accepted the validity of a Rhode Island marriage between an uncle and a niece, performed by a rabbi, that would have been prohibited in New York on the grounds of incest. Over the years, New York courts consistently followed the place of celebration standard.

Call My Agent

It occurs to me that all this intrafamily drama would make for an excellent Netflix series. I’m willing to take a first shot at the screenplay if somebody out there can secure the movie rights.

The dramatic tension of each episode would center on the idea that it’s obvious to everyone that Ziona was Grossman’s surviving spouse — everyone except the IRS, which frustratingly insists on seeing bigamy where it doesn’t exist.