ESTATE OF AGNES R. SKEBA v. UNITED STATES OF AMERICA
Filing
21
MEMORANDUM filed. Signed by Judge Peter G. Sheridan on 10/03/2019. (jdb)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
ESTATE OF AGNES R. SKEBA,
Civil Action No. 17-cv-10231
Plaintiff,
V.
MEMORANDUM
UNITED STATES OF AMERICA,
Defendant.
This matter is before the Court on a motion for summary judgment brought by Plaintiff,
the Estate of Agnes R. Skeba (“Estate” or “Plaintiff’) (ECF No. 12), and on a motion for
summary judgment brought by Defendant, the United States of America. (ECF No. 13).
Plaintiff seeks to set aside $450,959 in penalties assessed by the Internal Revenue Service
(“IRS”) for the alleged late filing of an Estate Tax Return.
On June 10, 2013, Agnes R. Skeba (“Decedent”) died. (ECF No. 12-2,
J
1).
Per the IRS
Code, the initial date for the Estate to file a federal estate tax return was nine months after the
death (March 10, 2014). (ECF No. 12-2,
¶ 2).
On or about March 6, 2014, Plaintiff, through its counsel, George White, Esq., filed an
IRS form entitled Application for Extension of Time to File a Return and/or Pay U.S. Estate...
Taxes (IRS Form 4768) with a partial payment of the estate tax in the amount of $725,000 along
with a cover letter explaining the reasons for the application. (ECF No. 12-2,
¶ 3).
White’s letter to the IRS stated that he was paying all of the liquid assets
($ 1.475
million)
of the Estate to the State of New Jersey, Commonwealth of Pennsylvania, and the United States
for payment of state and federal estate taxes.
White furthered that the Estate was negotiating a
mortgage on a commercial property to satisfy the remainder the estate tax it owed to the federal
government; but this would require additional time. More specifically, White’s letter states:
1
Our office is representing Stanley L. Skeba, Jr. as the Executor of
the Estate of Agnes Skeba. Enclosed herewith is a completed
“Form 4768 Application for Extension of Time to File a Return
and/or Pay U.S. Estate Taxes” along with estimated payment in the
amount of $725,000 made payable to “The United States Treasury”
for the above referenced Estate Tax.
—
Additionally, we are requesting a six (6) month extension of time
to make full payment of the amount due. Despite the best efforts
of this office and the Executor, the Estate had limited liquid assets
at the time of the decedent’s death. Accordingly, we have been
working to secure a mortgage on a substantial commercial property
owned by the Estate in order to make timely payment of the
balance of the Estate Tax anticipated to be due.
Currently, we have liquid assets in the amount of $1 .475 million
and the estimated value of the total estate is $14.7 million.
Accordingly, we have submitted payments in the amount of
$575,000 to the State of New Jersey, Division of Revenue, for
State estate taxes payable and in the amount of $250,000 to the
Pennsylvania Department of Revenue for State inheritance taxes
payable. We are hereby submitting the balance of available funds
to you, in the amount of $725,000, as partial payment of the
expected U.S. Estate Taxes for the Estate.
We are in the process of securing a mortgage, which was supposed
to close prior to the taxes being due, in the amount of $3.5 million
that would have permitted us to make full payment of the taxes
timely. Due to circumstances previously unknown and
unavoidable by the Executor, the lender has not been able to
comply with the closing deadline of March 7, 2014. It is
anticipated that the lender will be clear to close within fourteen
(14) days and then we will remit the balance of the estimated U.S.
Estate Taxes payable.
Additionally, there has been delays in securing all of the necessary
valuations and appraisals due to administrative delays caused by
contested estate litigation currently pending in Middlesex County,
New Jersey.
(ECF No. 12-2, Ex. C).
At the time, the Estate was valued at approximately $13.1 million of which $10.2 million
consisted of real estate (much of it was farmland) and farming machinery. (ECF No. 12-2,
¶ 6).
As a result, there were delays in securing all of the necessary valuations and appraisals; and there
2
was ongoing contested estate litigation pending in Middlesex County, New Jersey. (id.
¶.
7).
As anticipated within the letter, the Plaintiff refinanced its real estate, and made a second
payment to the IRS in the amount of $2,745,000 around March 18, 2014, only eight days
after the àriginal due date for payment.
(Id.
¶
11). This amount plus the prior payment
($725,000) totaled $3,470,000 in estate taxes having been paid to the IRS.
On or about June 25, 2014, D. Owens of the IRS approved Plaintiff’s application to
extend the time to file the estate tax return from March 10, 2014 until September 10, 2014 (Id.
Ex. E). The Owens letter noted that any extension of time was subject to the caveat that the
extension was “granted on a year by year basis only.” The letter reads:
Any extension will be granted on a year by year basis only. In
granting an extension of time to pay the estate tax or an installment
for a previously approved extension, the Internal Revenue can
require a performance bond, under Section 6161(d) and 6165 of
the Internal Revenue Code with a face value of up to double the
amount being deferred.
In the event the Internal Revenue Service denies your extension
request, your payment of tax is due upon receipt of the denied
extension.
On or about July 8, 2014, the extension of time to pay the estate tax was granted by
Gloria Olsen of the IRS until September 10, 2014.
(Id., Ex. F). The Olsen approval stated
further conditions may be imposed for future extensions.
Ms. Olsen wrote in part:
The requirement to furnish a bond under IRC § 6165 is being
waived for this extension to pay request but may be a requirement
for future requests. Please note that the granting of an extension
of time for payment does not relieve the estate from liability for the
payment of interest during the period of extension. Any future
request for extension of time to pay the liability must be applied
for on or before the date of the expiration of the previous
extension.
id. Neither the Olsen letter nor the Owens letter acknowledged the estimated taxes that had
been paid on or about March 18, 2014; but both letters advise the Estate that any further
3
extension must be applied for prior to the last day of the previous extension.
On or around June 30, 2015, Plaintiff filed its federal estate tax return. It was prepared
by David Lauer (“Lauer”) and Virginia Keenan (“Keenan”), CPAs, who were engaged by the
Estate and George White, Esq. to prepare the return. The return reported the net estate tax as
$2,528,838, and the prior estimated payment of $3,470,000.
Subtracting the net estate tax from
the estimated payment showed an overpayment of $941,162. (Id., Ex. D).
On August 3, 2015, the IRS responded to Plaintiffs return.
It showed an Overpayment
on account before adjustment” of $941,162, and then it indicated there was a penalty assessed
due to the Estate’s failure to file in the amount of $450,959.50 and a net “Overpayment” of
$488,719.34, which was refunded to the Plaintiff. The IRS Notice stated that the “failure to
file” penalty was 25% of the “unpaid amount” of $1,803,838.
The IRS calculated the amount
due on March 10, 2014 was $2,528,838 minus $750,000 paid, equaling an amount due of
$1,803,838. The IRS then imposed a 25% penalty on that amount. (Id., Ex. I).
On August 17, 2015, George White, Esq., on behalf of the Plaintiff and in response to
IRS’ action, sent a letter to the IRS requesting abatement of penalties in the amount of
$450,959.50. (Id., Ex. J).
In his letter, George White, Esq. set forth various reasons for the delay in filing Plainti
ffs
federal estate tax return. This includes a reference to a conversation that White had
with
“representatives of the IRS” in which “we were informed that so long as the payment was
made
in full, then the filing of the return beyond the extension deadline was permissible and
would not
subject the estate to any penalty.” Further, White’s letter set forth additional information
as to
why the Plaintiff did not file a timely estate tax return:
Beyond September 10, 2014, the Estate continued to have delays in
filing due to the pending and anticipated completion of the
litigation over the validity of the decedent’s Will, which would
4
impact the Estate’s ability to complete the filing and the executor’s
capacity to proceed. Initially, it, was anticipated that the trial of
this matter would be heard before Judge Frank M. Ciuffani in the
Superior Court of New Jersey in Middlesex County, Chancery
Division-Probate Part in July of 2014. Due to health concerns on
behalf of the Plaintiff, Joseph M. Skeba, the Judge delayed these
proceedings multiple times through the end of 2014, each time
giving us a new anticipation of the completion of the trial to permit
the estate tax return to be filed. Upon the Plaintiffs improved
health, the Judge finally scheduled a trial for July 7, 2015, which
was expected to allow our completion in filing the return.
Accordingly, this litigation, which was causing us reason to delay
in the filing, gave rise to the estate’s inability to file the return.
Finally, in May of 2015 we were notified of the Estate’s litigation
attorney, Thomas Walsh of the law firm of Hoagland Longo
Moran Dunst & Doukas, LLP, that he was diagnosed with cancer
that would possibly cause him to delay this matter from proceeding
as scheduled. In early June, we were notified by Mr. Walsh’s
office that his prognosis had worsened and he would be prevented
from further handling the litigation of this matter, so new counsel
within his firm would be assisting in carrying this matter through
trial. Due to the change in counsel, it was deemed that the
anticipated trial was no longer predictable in scheduling, so the
Estate chose to file the return as it stood at such time.
(Id., Ex. J at 2-3).
On or around November 5, 2015, the IRS responded to White’s letter in which it stated
that the reasons within White’s letter do not “establish reasonable cause or show due diligence.”
(Id., Ex. K).
In response to this letter, on December 8, 2015, Mark R. Aumack (“Aumack”), Mr.
Skeba’s personal accountant, filed an appeal of the IRS determination. Plaintiff never received
a reply to this letter. (Id., Ex. L). Aumack’s letter of appeal reiterated the same points as
White’s August 17, 2015 letter, and it also highlighted one additional reason that was not fully
articulated in White’s letter:
I do not believe the IRS had knowledge of the extension in place at
the time the penalty was assessed, nor did they have a record of the
5
additional payment of $2,745,000. The IRS listed the unpaid tax as
$1,803,838 and charged the maximum 25% to arrive at the penalty
of $450,959.50. The estate not only paid the entire tax the estate
owed by the due date to pay but also had an overpayment. Section
6651(b) bars a penalty for late filing when estimated taxes are paid.
(Id., Ex. L).
Mr. Aumack sent another letter to the same address on January 12, 2016 because there
was no reply to his first letter. To date, IRS Appeals has never responded to either letter. (Id.,
Ex. M).
Further, White testified that he had a conversation with a person at the IRS about his
concerns with the Plaintiffs estate litigation, and asked an IRS representative about the
implication of waiting until after the litigation was concluded to file the federal estate tax return.
The IRS representative with whom he spoke reaffirmed his understanding that because full
payment had been made before the date prescribed for payment, there would be no implication
for filing late.
(Id., Ex. N, at 29:6-30:19).
Upon receipt of the August 3rd letter White called the contact person on that letter at that
point and was advised that there was an “error, and that the assessment was incorrect.” (Id., Ex.
N, at 82:5-83:5).
At her deposition, Keenan stated that she had a conversation with a representative of the
IRS similar to the one White had.
She called the IRS at various times to discuss third
party valuations and what happens if there is a late filing, and IRS representatives advised if
“you’re paid in, you’re fine.” (Id., Ex. 0 at 19:3-13).
Further, Keenan explained that she
understood that as long as the estate tax was paid into the taxing authorities, a late penalty for
failure to timely based on a reasonable cause would not be assessed. (Id., Ex. 0, at 21:6-9).
During discovery, the IRS developed some information about the seemingly lackadaisical
approach taken by Plaintiff to file the return. Mr. Skeba, as executor, had little knowledge of
6
the extended deadline date (Def. Statement of Undisputed Facts, ECF No. 13-3,
J
Skeba never questioned White as to when the estate tax return would be filed. (Id.,
14) and Mr.
¶
15).
Moreover, White had hired another accounting firm to prepare the estate tax, return but Mr.
Skeba never communicated with that firm, and Mr. White failed to provide pertinent information
requested by that firm which prevented the accounting firm from filing the return on a more
timely basis. (Id.,
¶J
17-20).
II.
Summary judgment is appropriate under Fed. R. Civ. P. 5 6(c) when the moving party
demonstrates that there is no genuine issue of material fact and the evidence establishes the
moving party’s entitlement to judgment as a matter of law.
Celotex Corp. V. Catreti, 477 U.S.
317, 322-23 (1986). A factual dispute is genuine if a reasonable jury could return a verdict for
the non-movant, and it is material if, under the substantive law, it would affect the outcome of
the suit. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
In considering a motion
for summary judgment, a district court may not make credibility determinations or engage in any
weighing of the evidence; instead, the non-moving party’s evidence “is to be believed and all
justifiable inferences are to be drawn in his favor.” Marino v. Indus. Crating Co., 358 F.3d 241,
247 (3d Cir. 2004) (quoting Anderson, 477 U.S. at 255).
Once the moving party has satisfied its initial burden, the party opposing the motion must
establish that a genuine issue as to a material fact exists. Jersey Cent. Power & Light Co. v.
Lacey Twp., 772 F.2d 1103, 1109 (3d Cir. 1985). The party opposing the motion for summary
judgment cannot rest on mere allegations and instead must present actual evidence that creates a
genuine issue as to a material fact for trial. Anderson, 477 U.S. at 248; Siegel Transfer, Inc. v.
Carrier Express, Inc., 54 F.3d 1125, 1130-3 1 (3d Cir. 1995). “[U]nsupported allegations.
and pleadings are insufficient to repel summary judgment.” Schoch v. First Fid. Bancorp., 912
7
F.2d 654, 657 (3d Cir. 1990); see also Fed. R. Civ. P. 5 6(e) (requiring nonmoving party to “set
forth specific facts showing that there is a genuine issue for trial”).
Moreover, only disputes over facts that might affect the outcome of the lawsuit under
governing law will preclude the entry of summary judgment. Anderson, 477 U.s. at 247-48. If a
court determines, “after drawing all inferences in favor of [the non-moving party], and making
all credibility determinations in his favor.
.
.
that no reasonable jury could find for him,
summary judgment is appropriate.” Alevras v. Tacopina, 226 F. App’x 222, 227 (3d Cir. 2007).
III.
The long-established principle in interpreting tax statutes is that they are narrowly
construed. Gould v. Gould, 245 U.s. 151, 153 (1917). Gould reasons: “[lit is the established
rule not to extend their [tax] provisions, by implication, beyond the clear import of the language
used, or to enlarge their operations so as to embrace matters not specifically pointed out.” In the
event of ambiguity, the Court’s interpretation should be “construed most strongly against the
government, and in favor of the citizen.” Id.
In addition, when interpreting tax statutes that
impose penalties, precedence requires that “penal statutes are to be construed strictly’
.
.
.
and
that [a taxpayer] ‘is not to be subjected to a penalty unless the words of the statute plainly
impose
it.” Comm ‘r v. Acker, 361 U.S. 87, 91(1959) (internal citations omitted). The Gou/d principle
has been subject to some criticism. See, Fedders Fin. Corp. v. Director, Division of Taxation,
96 N.J. 376, 3 84-85 (1984). Due to same, the law has evolved in estate tax matters to
acknowledge that the estate bears the burden to prove it has exercised ordinary business care
and
prudence in the event it filed a late return.
(quoting 26 CFR
§
United States v. Boyle, 469 U.S. 241, 246 (1985)
301.6651(c)(1) (1984)).
In Boyle, Chief Justice Burger addressed “whether a taxpayers reliance on an attorney
to
prepare and file a tax return constitutes ‘reasonable cause’ under
8
§
6651 (a)(l) of the Internal
Revenue Code, so as to defeat a statutory penalty incurred because of a late filing.” Id. at 242.
According to 26 CFR
§
301.6651-1(c)(1), a taxpayer filing a late return must show that he or she
exercised ordinary business care and prudence and was nevertheless unable to file the return
within the prescribed time. Id. at 243. Chief Justice Burger reasoned there was an administrative
need for strict filing requirements. He wrote:
The time has come for a rule with as ‘bright’ a line as can be
drawn consistent with the statute and implementing regulations.
Deadlines are inherently arbitrary; fixed dates, however, are often
essential to accomplish necessary results. The Government has
millions of taxpayers to monitor, and our system of self-assessment
in the initial calculation of a tax simply cannot work on any basis
other than one of strict filing standards. Any less rigid standard
would risk encouraging a lax attitude toward filing dates. Prompt
payment of taxes is imperative to the Government, which should
not have to assume the burden of unnecessary ad hoc
determinations.
(Id. at 248-49).
Accordingly, Chief Justice Burger differentiated between a taxpayer’s reliance on advice
from an attorney or accountant as reasonable care, but he found that “a taxpayer does not have to
be a tax expert to know that tax returns having filing dates and taxes must be paid when due.”
Id. at 251. As such, simple reliance on one’s attorney or accountant does not meet the
reasonable care standard.
The resolution of this matter hinges on an interpretation of a section of the IRS Code (26
C.F.R. 6651) called “Failure to file tax return or to pay tax.” This provision has several
sections, and each shall be addressed.
Generally,
§
6651 addresses the assessment of penalties for late filing of a return, and late
payment of taxes due. More specifically, the penalty under
file a timely return.
§
665 1(a)(1) reads:
9
§
6651 (a)(1) addresses the failure to
In case of failure (1) to file any return on the date prescribed
therefor (determined with regard to any extension of time for
filing), unless it is shown that such failure is due to reasonable
cause and not due to willful neglect, there shall be added to the
amount required to be shown as tax on such return 5 percent of the
amount of such tax if the failure is for not more than 1 month, with
an additional 5 percent for each additional month or fraction
thereof during which such failure continues, not exceeding 25
percent in the aggregate.
.
26 U.S.C.
§
665 1(a)(1).
On the other hand, the penalty for failure to timely pay the tax is set forth in
§
6651 (a)(2).
This section reads:
In case of failure. (2) to pay the amount shown as tax on any
return specified in paragraph (1) on or before the date prescribed
for payment of such tax (determined with regard to any extension
of time for payment), unless it is shown that such failure is due to
reasonable cause and not due to willful neglect, there shall be
added to the amount shown as tax on such return 0.5 percent of the
amount of such tax if the failure is for not more than 1 month, with
an additional 0.5 percent for each additional month or fraction
thereof during which such failure continues, not
exceeding 25 percent in the aggregate.
.
§
.
665 1(a)(2).
The calculation of the penalty imposed for failure to timely file a return (subsection (a)(l)) and
failure to timely pay the tax (subsection (a)(2)) is clarified in
§
665 1(b).
It declares:
(b) Penalty imposed on net amount due. For purposes of-(1) subsection (a)(l), the amount of tax required to be shown
on the return shall be reduced by the amount of any part of the tax
which is paid on or before the date prescribed for payment of the
tax and by the amount of any credit against the tax which may be
claimed on the return,
(2) subsection (a)(2), the amount of tax shown on the return
shall, for purposes of computing the addition for any month, be
reduced by the amount of any part of the tax which is paid on or
before the beginning of such month and by the amount of any
credit against the tax which may be claimed on the return[.j
10
§ 665 1(b).
The parties disagree on how to construe these provisions. Plaintiff proffers two
interpretations that support its position. First, Plaintiff argues that subsection (a)(1) should be
read together (inpari materia) with
§
665 1(b)(1). In reading these subsections together,
Plaintiff concludes that the late filing penalty is calculated by using the formula set forth in
subsection (a)(1) incorporating the “net amount due” on the “the date prescribed for payment” as
set forth in subsection (b)(1).
Since the estate tax was overpaid on March 18, 2014 and the
extension ran until September 10, 2014, there was no net amount due on the September deadline;
and hence, no penalty may be imposed.
Secondly, the Plaintiff argues that the phrase “such failure is due to reasonable cause not
due to willful neglect” in subsection (a)(1) protects the taxpayer from a penalty if the return was
filed late due to a reasonable cause.
The government disagrees with the taxpayer’s arguments. The government proffers that
the requirements of’ 665 1(a)(1) and (b) must be construed with another statute (26 U.S.C.
6151) entitled “Time and place for paying taxes shown on returns.”
§
§
6151 states: “[T]he date
filed for payment of such tax shall be deemed a reference to the last day fixed for such payment
(determined without regard to any extension of time for paying the tax).” More specifically,
6151 reads in pertinent part:
(a) General rule. Except as otherwise provided in this subchapter
[26 USCS § 6151 et seq.] when a return of tax is required under
this title or regulations, the person required to make such return
shall, without assessment or notice and demand from the Secretary,
pay such tax to the internal revenue officer with whom the return is
filed, and shall pay such tax at the time and place fixed for filing
the return (determined without regard to any extension of time for
filing the return).
***
11
§
(c) Date fixed for payment of tax. In any case in which a tax is
required to be paid on or before a certain date, or within a certain
period, any reference in this title to the date fixed for payment of
such tax shall be deemed a reference to the last day fixed for such
payment (determined without regard to any extension of time for
paying the tax).
Based on
§
6151, the government cleverly reasons that the last day for payment was nine months
after the death of Agnes Skeba
penalty may be assessed.
--
March 10, 2014; because no return was filed by that date a
Applying the rationale to the facts, the government contends only
$750,000 was paid on or before March 10, 2014 when $2,528,838 was due on that date.
such, referring back to
§
As
665 1(a)(1), a 25% penalty on the difference is assessed because it was
not paid by March 10, 2014.
As such, the full payment of the estate tax on March 18, 2014 is of
no avail because the “last date fixed” was March 10, 2014. As such, the government argues that
the imposition of a penalty in the amount of $450,959.00 is appropriate.
The IRS’ arguments miss the mark. First, both §S 665 1(a)(1) and (a)(2) designate the
specific day on which penalties will be assessed for both late filing and payment of the estate tax
return.
Both paragraphs specify that the “date prescribed” is to “be determined with regard to
any extension of time for filing.” As such, the language of the statute in dispute is the one which
is given precedence over a more generic statute like
§
61 51. See, La Vallee Northside Civic Asso.
v. VI. Coastal Zone Mgrnl. Corn., 866 F.2d 616, 621 (3d Cir. 1989); see also, Meyers v.
Heffernan, No. 12-2434 (MLC), 2014 WL 3343803, at *8 (D.N.J. July 8, 2014).
The government has a valid point that there is an administrative need to complete and
close tax matters. Here, the Estate had nine months to file the return, the extension added six
months, and defendant unilaterally added another nine months to file the return. Although there
was the timely payment of the estate taxes, the matter, in the government’s view, lingered and
the administrative objective to timely close the file was not met. See generally, United States v.
12
Boyle, 469 U.S. 251 (1985). There may be a need for some other penalty for failure to timely
file a return, but Congress must enact same.
Finally, another issue in this case is whether Plaintiff had reasonable cause and not
willful neglect to timely file a return. Both parties had reasonable arguments. In this case,
White submitted his letter explaining the rationale for not filing (see above) and without a
hearing or communication, the IRS reply was “pending litigation is not a reasonable cause.”
(ECF No. 13-14, p. 171). Based on the facts, this curt statement is insufficient. As such, the
decision is arbitrary.
In White’s letter, he refers to Judge Frank Cuiffani as presiding over the litigation in
question. Judge Cuiffani was a terrific judge. There is little reason to believe that he let this
case sit on the docket without cause. Additionally, Mr. White refers to the Hoagland law firm
and one of the attorneys assigned to the case was diagnosed with cancer.
The Hoagland firm is
a very prestigious and professional firm. Hence, the IRS denial without any further
investigation of the facts is arbitrary.
In addition, the IRS should have reviewed the entire file of the Estate, not just the last
letter from White.
For example, in White’s letter of March 6, 2014 he notes that there was
difficulty in “securing all of the necessary valuations and appraisals.
litigation.” New Jersey is not Iowa.
.
.
caused by the contested
In Monroe, New Jersey, a farm will often sit in residential,
retail, and manufacturing zones. To appraise such a farm requires intensive knowledge of zoning
considerations. The IRS should have conducted an evidentiary hearing or undertaken some
investigation before deciding the issue. At the end of the day, the curt one-line denial of the IRS
is arbitrary and capricious.
13
For all of the reasons set forth above, Plaintiff’s motion is granted; and Defendant’s
motion is denied.
yJLQ
PETER G. SHERIDAN, U.S.D.J.
14
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?