ATTORNEYS FOR APPELLANT: ATTORNEYS FOR APPELLEES: GREGORY F. ZOELLER KEVIN M. ALERDING ATTORNEY GENERAL OF INDIANA PHILIP A. WHISTLER JOHN P. LOWREY ICE MILLER LLP DEPUTY ATTORNEY GENERAL Indianapolis, IN Indianapolis, IN DAVID A. BAKER PEGGY A. QUINN McDERMOTT WILL & EMERY LLP Chicago, IL
RICHARD B. URDA, JR. ATTORNEY AT LAW South Bend, IN ______________________________________________________________________
IN THE INDIANA TAX COURT ______________________________________________________________________ Sep 30 2015, 10:28 am
INDIANA DEPARTMENT OF STATE ) REVENUE, INHERITANCE TAX DIVISION, ) ) Appellant, ) ) Cause No. 71T10-1211-TA-00074 v. ) ) JAMES F. KEENAN and WELLS FARGO ) BANK, N.A., as Co-Personal Representatives ) of the ESTATE OF JUDD LEIGHTON, ) ) Appellees. ) ______________________________________________________________________
ON APPEAL FROM THE ST. JOSEPH PROBATE COURT The Honorable Peter Nemeth, Judge Case No. 71J01-0602-EU-000007
FOR PUBLICATION September 30, 2015
FISHER, Senior Judge
The Indiana Department of State Revenue, Inheritance Tax Division appeals the St. Joseph Probate Court’s order that determined that the Estate of Judd Leighton
timely filed with the Department its claim for refund of inheritance tax paid. The sole
issue before the Court is whether the Probate Court erred in making that determination.
The Court finds that the Probate Court did indeed err.
FACTS AND PROCEDURAL HISTORY
Mary Leighton died on March 16, 2001. Prior to her death, Mary created a
revocable trust that in turn created a marital deduction trust for the benefit of her
husband, Judd, who survived (“the Marital Trust”).
After Mary’s death, a dispute concerning the management and disposition of
certain assets within her estate arose between several of her heirs and Judd. Litigation
ensued in the Probate Court. (See, e.g., Appellant’s App. at 273-74.) On December
19, 2005, while that litigation was still pending, Judd died.
On September 11, 2006, Judd’s Estate filed a petition for extension of time to file
its Indiana inheritance tax return.1 The Probate Court granted the petition, extending
the time for Judd’s Estate to file its return to March 19, 2007. Nonetheless, Judd’s
Estate remitted an estimated inheritance tax payment, in the amount of $1.375 million,
to the St. Joseph County Treasurer on September 15, 2006.2 (Appellant’s App. at 249-
50.)
On March 15, 2007, Judd’s Estate filed its Indiana inheritance tax return with the
Probate Court. The return reported an Indiana inheritance tax liability of $1,317,801
1 Judd’s Estate was required to file its Indiana inheritance tax return by September 19, 2006. See IND. CODE § 6-4.1-4-1 (2005) (amended 2010) (stating that inheritance tax returns are due within 9 months of the decedent’s death). 2 Judd’s Estate made this estimated payment to preserve its right to the 5% statutory discount for early payment. See IND. CODE § 6-4.1-9-2 (2005); 45 IND. ADMIN. CODE 4.1-9-2(a) (2005).
2 and claimed a refund of $57,199.3 (Appellant’s App. at 248.) The return also indicated
that a final adjudication in the pending litigation between Mary’s heirs and Judd’s Estate
could possibly impact the amount of inheritance tax Judd’s Estate actually owed. (See
Appellant’s App. at 273-74.)
On March 19, 2007, the Probate Court issued an “Order Determining Inheritance
Tax Due” (Order), accepting the return of Judd’s Estate as filed. (See Appellant’s App.
at 276-80.) The Probate Court then forwarded the inheritance tax return to the
Department. The Department did not challenge the Probate Court’s Order; it did,
however, file an appearance as an intervening party in the pending Probate Court
litigation between Mary’s heirs and Judd’s Estate because it was “interested in [its]
outcome . . . and its implications on the Indiana inheritance tax due by [Judd’s E]state.”
(Appellant’s Br. at 5; Appellant’s App. at 17-18; Appellees’ App. at 3-4, 15.) In January
of 2009, Mary’s heirs and Judd’s Estate settled their litigation with the approval of the
Probate Court. (See Appellees’ App. at 19-21.)
On February 18, 2010, the Internal Revenue Service sent a Notice of Deficiency
to Judd’s Estate assessing it with an additional federal estate tax liability. (See
Appellees’ App. 23 ¶ 3.) The Notice of Deficiency was based on the IRS’s belief that
Judd’s Estate used an improper methodology to calculate the fair market value of
Judd’s interest in the Marital Trust. (See Appellees’ App. 23 ¶ 3.) Judd’s Estate filed a
petition in the United States Tax Court on May 18, 2010, challenging the additional
federal estate tax assessment. (See Appellees’ App. 24 ¶ 4.)
3 The return reported inheritance tax due of $1,387,159, less the 5% discount of $69,358, for a net total of $1,317,801. (Appellant’s App. at 248.) Because it had previously made an estimated payment of $1,375,000, the Estate claimed a refund of $57,199 (i.e., $1,375,000 minus $1,317,801). (Appellant’s App. at 248.) 3 While the federal litigation was pending, Judd’s Estate discovered that when
Mary’s estate filed its Indiana inheritance tax return, it did not elect QTIP status for the
Marital Trust transfer even though it elected such status for federal estate tax
purposes.4 (See, e.g., Appellant’s App. at 28-29 ¶¶ 7-9, 282.) Consequently, Indiana
inheritance tax had ultimately been paid twice on the transfer of the Marital Trust
property: once by Mary’s estate and then again by Judd’s Estate. (See, e.g.,
Appellant’s App. at 29 ¶ 10, 174, 282.)
In April of 2011, Judd’s Estate and the IRS resolved their issue regarding the
proper valuation of Judd’s interest in the Marital Trust and filed a stipulation of
settlement with the United States Tax Court. (See Appellant’s App. at 288-90;
Appellees’ App. at 24 ¶ 6.) Their stipulation agreement recognized that in calculating its
federal estate tax liability, Judd’s Estate was entitled to take a deduction equal to the
amount it paid in Indiana inheritance taxes. (See Appellant’s App. at 289 ¶ 5.)
Accordingly, to the extent Judd’s Estate indicated that it was attempting to recover its
payment of Indiana inheritance tax related to the QTIP issue, the IRS agreed to keep
the federal matter open until the refund issue had been resolved with the Department.
(See Appellant’s App. at 289-90 ¶¶ 5-6.)
On August 9, 2011, Judd’s Estate filed a claim with the Department seeking a
refund of $644,998, which incorporated the refund of $57,199 as initially claimed on its
inheritance tax return as well as the $587,799 of Indiana inheritance tax it paid relating
to the QTIP issue. (Appellant’s App. at 281-96.) The Department denied the refund
claim on the basis that it had not been timely filed. (Appellant’s App. at 297.)
4 For a general discussion regarding QTIPs and their election, see In re Estate of Young, 851 N.E.2d 393, 396-97 (Ind. Tax Ct. 2006). 4 On November 22, 2011, Judd’s Estate filed a “Complaint For Refund of
Overpayment of Tax” with the Probate Court. (Appellant’s App. at 27-35.) The
Department subsequently moved to dismiss the Complaint, arguing that because the
refund claim had not been timely filed, the Probate Court lacked subject matter
jurisdiction. (See Appellant’s App. at 41-51.) Judd’s Estate responded with a motion for
summary judgment, claiming that it was entitled to judgment as a matter of law because
it did timely file its refund claim with the Department. (See Appellant's App. at 214-29.)
On October 15, 2012, the Probate Court conducted a hearing on the parties’
motions. The Probate Court, ruling from the bench, denied the Department’s motion to
dismiss and granted summary judgment in favor of the Estate. (See Probate Court Hr’g
Tr. at 45.)
The Department appealed to this Court on November 20, 2012. The Court heard
oral argument on April 12, 2013. Additional facts will be supplied as necessary.
STANDARD OF REVIEW
The Indiana Tax Court acts as a true appellate tribunal when it reviews an appeal
of a probate court’s determination concerning a claim for refund of inheritance tax. IND.
CODE § 6-4.1-10-5 (2015); In re Estate of Young, 851 N.E.2d 393, 395 (Ind. Tax Ct.
2006). Accordingly, while the Court will afford the Probate Court great deference in its
role as the finder of fact, it will review its legal conclusions de novo. In re Estate of
Young, 851 N.E.2d at 395.
LAW
Indiana Code § 6-4.1-10-1 governs claims for refund of Indiana inheritance taxes
paid. When Judd’s Estate filed its claim for refund of inheritance tax with the
5 Department, the statute read as follows:
A person may file with the department of state revenue a claim for the refund of inheritance or Indiana estate tax which has been erroneously or illegally collected. Except as provided in section 2 of this chapter, the person must file the claim within three (3) years after the tax is paid or within one (1) year after the tax is finally determined, whichever is later.
IND. CODE § 6-4.1-10-1(a) (2011) (amended 2013) (emphasis added).
If the Department denied the taxpayer’s claim for refund, the taxpayer could
initiate an appeal with the appropriate probate court within ninety days of the
Department’s order denying the refund. See IND. CODE § 6-4.1-10-4(a) (2011)
(amended 2013). If, however, the taxpayer had not filed its refund claim with the
Department within the time limits prescribed by Indiana Code § 6-4.1-10-1, the probate
court did not have subject matter jurisdiction to hear the appeal. See In re Estate of
Compton, 406 N.E.2d 365, 371-72 (Ind. Ct. App. 1980).
DISCUSSION
The issue before the Court is whether the Probate Court erred in determining that
Judd’s Estate timely filed with the Department its claim for refund of inheritance tax
paid. To resolve that issue, the Court must determine when, under Indiana Code § 6-
4.1-10-1, the inheritance tax liability of Judd’s Estate was “finally determined.”
The Department’s position is that the inheritance tax liability of Judd’s Estate was
finally determined when the Probate Court issued its Order on March 19, 2007.
(Appellant’s Br. at 8.) The Department explains that pursuant to Indiana Code § 6-4.1-
10-1, Judd’s Estate therefore had until the latter of March 19, 2008 (one year from the
date of the Order) or September 15, 2009 (three years from the date of its payment of
inheritance tax) to file its refund claim with the Department. (Appellant’s Br. at 8, 13;
6 Oral Arg. Tr. at 18.) Because Judd’s Estate did not file its claim for refund with the
Department until August 9, 2011, the Department maintains that the Probate Court
erred in determining that it had subject matter jurisdiction to hear the matter and should
have dismissed the case instead. (Appellant’s Br. at 13.)
Judd’s Estate takes the position, however, that when it filed its refund claim on
August 9, 2011, its Indiana inheritance tax liability had not yet been “finally determined.”
More specifically, Judd’s Estate argues that an estate’s Indiana inheritance tax liability
cannot be finally determined until its federal estate tax liability is finally determined.
(See, e.g., Appellees’ Br. at 8-9 (stating that under Indiana Code § 6-4.1-5-1.5, “[t]he
finally-determined federal estate tax values of property interests are presumptively
controlling for state inheritance tax purposes”), 13-14 (alluding to the fact that under
Indiana Code § 6-4.1-7-6, the Department may consider a probate court’s order
determining inheritance tax due as “provisional”), 21 (asserting that because it has not
yet issued a closing letter in this matter, the Department must not believe that the
Probate Court’s Order finally determined the tax liability of Judd’s Estate).) Accordingly,
Judd’s Estate points to the fact when it filed its refund claim with the Department on
August 9, 2011, its federal estate tax liability was “still unresolved.” (Appellees’ Br. at
16-17.)
When a statute is clear and unambiguous, the Court need not apply the rules of
statutory construction other than to require its words and phrases be taken in their plain,
ordinary, and usual sense. City of Carmel v. Steele, 865 N.E.2d 612, 618 (Ind. 2007).
When a statute is susceptible to more than one interpretation, as it is here, it is
ambiguous and the Court must therefore apply other well-established rules of statutory
7 construction. See id.
The foremost of these other rules is that the Court must determine and
implement the intent of the Legislature in enacting that statute. See DeKalb Cnty. E.
Cmty. Sch. Dist. v. Dep’t of Local Gov’t Fin., 930 N.E.2d 1257, 1260 (Ind. Tax Ct. 2010).
Generally, the best evidence of legislative intent is found in the actual language of the
statute itself. Johnson Cnty. Farm Bureau Coop. Ass’n v. Indiana Dep’t of State
Revenue, 568 N.E.2d 578, 581 (Ind. Tax Ct. 1991), aff’d by 585 N.E.2d 1336 (Ind.
1992). The actual language of Indiana Code § 6-4.1-10-1 as it read during the period at
issue in this case, however, does not provide the Court with any clues as to the
meaning of the phrase “finally determined.” Consequently, the Court may consider both
the history and the subsequent development of the inheritance tax refund claim statute
for clues. See Sangralea Boys Fund, Inc. v. State Bd. of Tax Comm’rs, 686 N.E.2d
954, 957 (Ind. Tax Ct. 1997), review denied.
Prior to 1980, Indiana’s inheritance tax refund claim statute explicitly linked the
deadline for filing a refund claim to either the payment of the tax or the court order that
determined the tax. See, e.g., 1937 Ind. Acts 847 (providing that a refund claim was to
be filed within three years of payment or within one year of the order “by the court of
highest resort having jurisdiction in the premises,” whichever was later (emphasis
added)); IND. CODE § 6-4.1-10-1 (1976) (stating that a claim for an inheritance tax refund
must be filed “within three (3) years after the tax is paid or within one (1) year after the
tax is finally determined by the highest court hearing the matter, whichever is later”
(emphasis added)). In 1980, the Legislature changed the wording of the statute to
state, simply, that a refund claim was to be filed “within three (3) years after the tax is
8 paid or within one (1) year after the tax is finally determined, whichever is later.” 1980
Ind. Acts 647 (emphasis added). In 2013, the Legislature changed the statutory
wording again, providing that the refund claim was to be filed “within[] (1) three (3) years
after the tax is paid[] or (2) one (1) year after the tax is finally determined under IC 6-
4.1-5-10[,] whichever is later.” 2013 Ind. Acts 2515 (emphasis added). See also IND.
CODE § 6-4.1-5-10 (2013) (requiring probate courts to issue orders determining the
amount of inheritance tax due).
Based on these statutory iterations, the Court finds that the Legislature has
always intended that the deadline for filing an Indiana inheritance tax refund claim be
tied to either the payment of the tax or the probate court order determining the amount
of inheritance tax due. Nevertheless, Judd’s Estate argues that because the version of
the statute that existed between 1980 and 2013 did not explicitly refer to a court order, it
stood for something entirely different. (See generally Appellees’ Br. at 14-15;
Appellees’ Supplemental Br. at 1-3.) The Court does not find the argument persuasive.
Given that the Indiana inheritance tax refund statutes both prior to 1980 and after
2013 clearly tied the deadline for filing a refund claim to a court’s order determining the
amount of Indiana inheritance tax due, it is more logical to presume the Legislature
intended the same meaning for the version of the statute that existed between 1980 and
2013. See Badawi v. Orth, 955 N.E.2d 849, 852 (Ind. Ct. App. 2011) (explaining that
because courts presume the Legislature intends statutes to be applied logically, they
will not read statutes in such a way that creates absurd results). Thus, when the
Legislature amended the refund statute in 1980 and again in 2013, it never intended to
change the meaning of the statute; rather, it was simply attempting to express more
9 succinctly its intent: that the deadline for filing a refund claim was tied to either the
payment of the tax or to the court order determining the tax. See Indiana Dep’t of
Revenue v. Kitchin Hospitality, LLC, 907 N.E.2d 997, 1002 (Ind. 2009) (stating that
“[w]here it appears that the Legislature amends a statute to express its original intention
more clearly, the normal presumption that an amendment changes a statute’s meaning
does not apply” (citation omitted)). Consequently, in this case, the Probate Court’s
Order “finally determined” the Indiana inheritance tax liability of Judd’s Estate.
Moreover, the Court is not persuaded by the argument that the Indiana
inheritance tax liability of Judd’s Estate was not finally determined when it filed its refund
claim because its federal estate tax liability was “still unresolved.” For instance, as
Judd’s Estate has correctly noted, “[t]he finally determined federal estate tax value of a
property interest is presumed to be the fair market value of the property interest for
Indiana inheritance tax purposes[.]” IND. CODE § 6-4.1-5-1.5(b) (2011). (See also
Appellees’ Br. at 8-9.) Nonetheless, the record before the Court demonstrates that
neither the federal estate tax nor the Indiana inheritance tax liabilities of Judd’s Estate
were being “held up” on a valuation issue. (See Appellant’s App. at 288-90; Appellees’
App. at 24 ¶ 6 (indicating that the issue between Judd’s Estate and the IRS as to the
valuation of Judd’s interest in the Marital Trust for purposes of federal estate tax liability
was resolved well before Judd’s Estate filed its Indiana inheritance tax refund claim with
the Department).) Here, the only thing “holding up” the federal estate tax liability of
Judd’s Estate is whether it can deduct the amount of Indiana inheritance taxes it paid
related to the QTIP issue. This is, in turn, contingent upon whether Judd’s Estate
receives a refund from the Department for the Indiana inheritance tax it related to that
10 QTIP issue.
Furthermore, while the Department may indeed accept a probate court’s order
determining inheritance tax due as “provisional,” it may do so only “[i]f the final
determination of federal estate tax shows a change in the fair market value of the assets
of a decedent’s estate or a change in deductions[.]” IND. CODE § 6-4.1-7-6(a)-(b) (2011)
(emphasis added). See also Estate of Neterer v. Indiana Dep’t of State Revenue, 956
N.E.2d 1214, 1218 n.6 (Ind. Tax Ct. 2011), review denied. Here, whether Judd’s Estate
is ultimately entitled to take a deduction on its federal estate tax return for the amount it
paid in Indiana inheritance taxes related to the QTIP issue does not impact or change
the fair market value of the assets in Judd’s Estate nor does it impact or change the
deductions Judd’s Estate can take on its Indiana inheritance tax return. See IND. CODE
§ 6-4.1-3-13 (2011) (listing the deductions an estate can take for purposes of Indiana
inheritance tax). Thus, there is no reason in this case for the Department to declare the
Probate Court’s Order provisional.
Finally, given the fact that the Probate Court’s Order determined the Indiana
inheritance tax liability of Judd’s Estate, the Court need not impart any meaning to the
Department’s lack of a closing letter in this matter. Indeed, as Judd’s Estate explains,
the closing letter simply indicates that there are no outstanding federal issues that might
cause the Department to declare a probate court’s order provisional under Indiana Code
§ 6-4.1-7-6 and that the Department has therefore closed its file and is sending it to
storage. (See, e.g., Oral Arg. Tr. at 57.) As just discussed, there was and is no reason
for the Department to declare the Probate Court’s Order provisional under Indiana Code
§ 6-4.1-7-6.
11 The Court finds that the Probate Court’s Order finally determined the Indiana
inheritance tax liability of Judd’s Estate. Pursuant to Indiana Code § 6-4.1-10-1, Judd’s
Estate therefore had until the latter of March 19, 2008 (one year from the date of the
Order) or September 15, 2009 (three years from the date of its payment of inheritance
tax) to file its refund claim with the Department. Because Judd’s Estate did not file its
claim for refund with the Department until August 9, 2011, the Probate Court lacked
subject matter jurisdiction and should therefore have dismissed the case.
Nonetheless, Judd’s Estate is entitled to the initial refund of $57,199 it claimed on
its Indiana inheritance tax return. Indeed, to the extent the Department has argued that
it was improper for Judd’s Estate to claim a refund on the return itself (see Appellant’s
Br. at 12-13 (asserting that taxpayers cannot “modify” inheritance tax returns and that
Judd’s Estate never provided the Department with any supporting documents or an
explanation demonstrating why it was entitled to the refund)), the Court rejects that
argument for two reasons. First, there was no statute or administrative regulation that
prevented Judd’s Estate from claiming a refund on its inheritance tax return. (See
Appellant’s Br. at 12-13; Appellant’s Reply Br. at 15-16.) But see 2013 Ind. Acts 2515
(amending Indiana Code § 6-4.1-10-1, effective January 1, 2013, to add the
requirement that a person seeking an inheritance tax refund must “file [the] claim . . . on
a form prescribed by the department of state revenue”). Second, it is abundantly clear
from the inheritance tax return why Judd’s Estate claimed the refund. See infra, note 3.
(See also Appellant’s App. at 247 (indicating that the Department received notice in
September 2006 – six months before Judd’s Estate filed its inheritance tax return – that
Judd’s Estate made an estimated inheritance tax payment of $1.375 million).)
12 CONCLUSION
For the above stated reasons, the Court REVERSES the Probate Court’s entry
of summary judgment in favor of the Estate. The Court REMANDS the matter to the
Probate Court with instructions to order the Department to issue a refund of $57,199,
plus all applicable statutory interest, to Judd’s Estate.