Estate Taxes
NJ Estate Tax Refund
Estate of Frank J. Ehringer v. Director, Division of Taxation, 990 A.2d 678, 2010 N.J. Super. LEXIS 41 (App. Div. 2010). On appeal from the Tax Court of New Jersey. Before Judges Reisner, Yannotti and Chambers.
This matter involved an appeal of a decision by the Division of Taxation to deny a claim for refund by the estate which was made over three years after payment and beyond the statue of limitations of N.J.S.A. 54:38-3?
Factually, the Division extended the time to file the estate’s tax returns for four months. Although the estate timely paid the anticipated estate taxes, it was unable to file a return as it was involved in ongoing litigation. The taxpayer estate notified the Division of the litigation in writing of this issue.
Two years later, the estate tax return was prepared and filed. A Notice of Assessment was issued detailing a refund due the estate, which was paid. Two years later, the estate received a final closing letter from the IRS on the filing of its federal estate tax return, detailing a further reduction in the gross estate due to ongoing litigation costs incurred by the estate.
Upon receiving the IRS closing letter, the estate sought a refund from the Division of Taxation. The claim for refund was denied as it was made more than 3 years after the State of New Jersey issued its Notice of Assessment.
The taxpayer appealed and the Division’s analysis was upheld by the Tax Court, and affirmed on appeal. The Court held that although the statute of limitations for refund claims may be equitably tolled based on factors outside of the estate’s control, the within facts were not sufficient to toll the statute.
NJ Inheritance Taxes – Request for Refund
Estate of Alvina Taylor v. Director, Division of Taxation, 2010 N.J. Tax. LEXIS 2 (Tax Ct. 2010). Before the New Jersey Tax Court, Judge Narayanan.
Taxpayer appeals the decision by the Division of Taxation denying a refund claim of inheritance taxes that was made more than 3 years after payment of the tax proper.
Decedent died on 11/30/02. The NJ inheritance tax return was due on 7/31/03. On 8/7/03 a $75,000 estimated payment of inheritance taxes was made by the estate. This payment was accompanied by Form IT-EP. On 12/3/03, an additional estimated inheritance tax payment of $75,000 was made. This was also accompanied by Form IT-EP.
In 2004, the Division sent notices requesting the filing of a return. Having received none, the Division made an arbitrary assessment of $300,000 on 8/6/04. The estate did not appeal the arbitrary assessment.
The estate filed the return on 8/19/08, over 5 years after it was due, reporting a total tax due of $109,092, with a balance due of $49,873, which was paid with the return. No evidence was provided that extensions were sought to file the return beyond 7/31/03.
On 1/1/09, the Division issued a Notice of Assessment with respect to the return, accepting the return as filed and indicating a refund due of $90,411. ($199,873 (total tax paid) less (108,062) (amount reported as due)). The Division refunded an amount of $49,873 but denied refunding the balance ($40,538.10), because the application for refund involving that amount was made more than 3 years from the date the tax was paid.
The estate argued that the statute does not apply to estimated payments. The court disagreed, and upheld the Division’s denial of the refund request as an application must be made within 3 years of payment of the tax. In refusing to apply an equitable tolling of the statute, the Court noted that the estate gave no indication that any refund would be requested.
Taxation –Homestead Rebate
Estate of Olive M. Hornich v. New Jersey Division of Taxation, 2010 N.J. Super. Unpub. (Docket No. A-1350-08T1) (App. Div. 2010). On appeal from the Tax Court of New Jersey. Before Judges Wefing, Messano and LeWinn.
The Estate appealed the Division of Taxation’s denial of the Homestead Rebate. The homestead rebate is sought for 2005. Decedent died in February of 2006 owning a home in Piscataway, New Jersey.
A homestead rebate application was mailed by the Division to Decedent’s last known address. Decedent’s executor was appointed in March of 2006 and claimed to have called the Division on 3 separate occasions to file the application by phone. The Division had no record of any application having been filed, and denied the rebate for 2005. The tax court agreed; and its decision was upheld on appeal. There is no evidence that the Division did not comply with its procedures.
Estate Taxes – NJ – Request for Refund
Estate of Frank J. Ehringer v. Director, Division of Taxation, 24 N.J. Tax 599 (Tax Ct. 2009). Before Judge Patrick DeAlmeida, J.T.C.
Issue: Was the estate’s request for a refund of estate taxes timely in light of the fact that it was not made until after the conclusion of a Will contest and after the expiration of the three year statute of limitations governing such requests?
Holding: No. The Court upheld the Division’s ruling denying the refund request as it was made more than three years from the date that the tax was paid and no protective claim was made. N.J.A.C. 18:26-3.9(a).
Statutes of limitations in tax statutes are strictly construed in order to provide finality and predictability of revenue to state and local government, and this strict application of the limitations period applies to claims for the refund of tax.
In this matter, an estimated payment of New Jersey estate taxes was made nine months after the Decedent’s death. A refund request was made after final federal audit of the federal estate tax return, which was over three years since the payment of New Jersey estate taxes. The Estate claimed that it could not determine with certainty the amount of the expenses that would be permitted by the IRS until after the conclusion of the Will contest and final audit by the IRS. The Court refused to set aside the Division’s denial of the refund request based on these facts. Refund claims are frequently filed dependent on future events such as the result of future federal audits or the results of litigation. A protective claim should have been filed to toll the statute of limitations since the facts were still in flux. No protective claim was filed, and the three year statute of limitations had run. The Division therefore properly denied the refund request.
The refund request was made as the result of the conclusion of the federal estate tax audit on the Estate allowing additional expenses. However, it was not made within the three year statute of limitations and was therefore properly denied by the Division.
Estate Taxes – NJ – Retroactive Application
Estate of Stella Kosakowski v. Director, Division of Taxation, 2009 N.J. Super. Unpub. LEXIS 3003 (Docket No.: A-2400-08T2) (App. Div. 2009). Before Judges Parrillo and Lihotz.
Issue: Is the retroactive application of the New Jersey estate tax to Decedent’s dying during the retroactivity period manifestly unjust?
Holding: No, the Tax Court’s dismissal of Plaintiff’s Complaint was upheld and the Court found that the imposition of New Jersey estate taxes based on a decoupling from federal law to Decedent’s dying during the retroactivity period was proper.
Decedent died on 2/9/02 leaving her entire estate of approximately $1,750,000 to her husband, if then surviving, otherwise, to her daughter. Decedent’s husband died 45 days after the Decedent. The executor of Decedent’s husband’s estate disclaimed $1,000,000 of Decedent’s estate, and Decedent’s daughter, the remainder beneficiary, disclaimed $1,000,000 in the same assets, thereby passing same to her children. An estate tax was paid to New Jersey on Decedent’s Estate based on the newly enacted NJ estate tax statute which decoupled the federal exemption for measuring the taxable estate from the ever increasing federal exemption. The New Jersey decoupling statute was retroactively applied. Decedent died during the retroactivity period.
Two years later, a request for a refund was filed based on the Oberhand case. In Oberhand, which was upheld by the Supreme Court, the Tax Court found that plaintiff’s reasonable reliance on the prior law when preparing her estate plan outweighed the public’s interest in maintaining revenue from the retroactive application of amendments to the estate tax, such that application would be manifestly unjust.
In this matter, the Court upheld the retroactive application of the decoupling of the New Jersey estate tax from federal law to this estate, finding that Decedent did not engage in any estate planning that was controlled by the existing estate tax law, as was present in the Oberland case. In this matter, the executor of Decedent’s husband’s estate had the knowledge of the existence of the New Jersey estate tax and instead of disclaiming an amount that actually triggered the tax, the executor could have engaged in tax planning, which did not occur. Retroactive application was therefore upheld.
Estate Taxes – NJ – Standing
Joanne LaBarbera,, an Aggrieved Person as beneficiary of the Santo LaBarbera QTIP Trust v. Director, Division of Taxation, 24 N.J. Tax 377 (Tax Ct. 2009). Before Judge Patrick DeAlmeida, J.T.C.
Issue: Does a residuary beneficiary of a Qualified Terminable Interest Property (“QTIP) Trust have standing to maintain a challenge against the Division of Taxation’s estate tax assessment against the estate of her stepmother, the income beneficiary of the QTIP Trust, in light of the required reimbursement from the Trust to the stepmother’s estate for payment of New Jersey estate taxes?
Holding: Yes, Plaintiff, as residuary beneficiary of the QTIP Trust has a sufficient stake in the outcome of this matter as a “person…liable for the payment of” a portion of the estate tax (N.J.S.A. 54:38-10a) to maintain a challenge against the Division of Taxation’s estate tax assessment against the estate of her stepmother.