(CN) - The heirs of a deceased Nevada millionaire may be eligible for a $5 million estate tax refund based on a former girlfriend's claim that she cooked, cleaned and ran his household for 22 years before he picked up with another woman, the 9th circuit ruled Tuesday.
The federal appeals panel in San Francisco reversed a lower court's ruling that Bernard Shapiro's estate was not entitled to the refund because Cora Chenchark's 22 years of providing "love, support, and homemaking services did not, as a matter of law, provide sufficient consideration to support a contractual agreement," according to the appeals ruling published Tuesday.
The three-judge panel said that the District Court, in granting summary judgment to the federal government on the estate's tax refund claim, had misconstrued Nevada laws governing cohabitation.
Chenchark lived with Shapiro from 1978 until 1999, when she discovered that he was seeing another woman. The couple never married, but Chenchark cooked, cleaned and managed Shapiro's household in exchange for living expenses and an allowance.
After the two split up, Chenchark filed a palimony action in Nevada state court, but Shapiro died in early 2000 while the suit was pending. His estate eventually paid more than $10 million in taxes. Meanwhile, a jury ruled in favor of Shapiro in the palimony suit, finding that the couple had not entered into a valid contract. While an appeal was pending, Chenchark settled with Shapiro's estate for about $1 million.
The estate filed an amended tax return in 2003, seeking to deduct $8 million in value based on Chenchark's claim. The Internal Revenue Service balked at the attempt, so the estate demanded nearly a refund of nearly $5 million in a federal lawsuit against the government.
U.S. District Judge Robert Jones sided with the government, finding that since Chenchark's homemaking services were not enough to create a cohabitation contract, the estate was not entitled to a tax refund for the value of her palimony claim.
On appeal, the three-judge panel ruled 2-1 to reverse, finding that case law and rulings in other western states on cohabitation issues supported the estate's view that the couple had entered into a contract.
"Although the Nevada Supreme Court has not addressed the sufficiency of homemaking services as consideration for a contract to share property, California cases have held that a promise to perform homemaking services is adequate to support such a contract," Judge Barry Silverman wrote for the majority. "And under Arizona law, which, like Nevada and California, recognizes the right of unmarried cohabitants to contract to share property, homemaking services may constitute adequate consideration for such a contract."
Given these facts, "it is likely that Nevada would join those California and Arizona courts in holding that homemaking services can be adequate consideration for a property-sharing agreement between cohabitants," Silverman added.
The panel reversed the District Court's grant of summary judgment and remanded the case back for another round.
Writing in partial dissent, Judge A. Wallace Tashima argued that the case had nothing to do with state contract law, but instead turned on federal tax law.
"The estate has raised no genuine issue of material fact as to whether it has met the requirement of the relevant estate tax provision, i.e., that the claim underlying its deduction be supported by full consideration in money's worth," he wrote.
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