Peter De Rosa, Executor, Plaintiff-Appellant, v. State of New Jersey, Department of the Treasury, Division of Taxation, Defendant-Respondent. (2016)

Plaintiff Peter De Rosa, executor of the estate of Joseph Rendeiro, appeals from a July 28, 2014 Tax Court order granting summary judgment in favor of defendant New Jersey Department of the Treasury, Division of Taxation (Division). Plaintiff also challenges the Tax Court's January 22, 2015 order calculating plaintiff's remaining tax liability at $96,054.01, and denying the estate the benefit of the 2009 Tax Amnesty Program (Amnesty Program). We affirm.

Joseph Rendeiro (decedent) executed his Last Will and Testament (Will) on June 2, 2006, and died on December 3, 2006. The Will, admitted to probate on December 19, 2006, provided for the following distributions: $10,000 to decedent's granddaughter, Jessica Fagin;¹ $25,000 to decedent's sister, Mary Pereira; and the “rest, residue and remainder” of the estate to plaintiff, decedent's son-in-law.² The Will also appointed plaintiff as executor.

On March 5, 2007, Fagin filed an action in the Probate Part, alleging that plaintiff exercised undue influence over the decedent and that the decedent lacked the capacity to execute a will. On June 2, 2008, following mediation, the parties entered into a settlement agreement, which provided that Fagin would receive $400,000 from the estate, rather than the $10,000 set forth in the Will.

On June 15, 2009, plaintiff, as executor, filed a New Jersey resident decedent inheritance tax return in conjunction with the Amnesty Program. Importantly, the tax return reported Fagin as a Class A beneficiary in the amount of $400,000.³ Plaintiff issued a check to the Division in the amount of $196,818.12, representing the purported principal tax due ($178,925.57), plus fifty-percent of the interest accrued on the principal since 2006.⁴

On December 10, 2009, the Division issued a notice of assessment, indicating that plaintiff had underreported the amount of inheritance tax due. The Division determined that only the $10,000 distribution to Fagin that was contemplated in the Will was eligible for treatment as a Class A distribution. According to the Division's assessment, the remaining $390,000 that Fagin received pursuant to the settlement agreement was not a tax-exempt Class A distribution; rather, it was a Class C distribution subject to the progressive tax structure of New Jersey's inheritance tax.⁵ N.J.S.A. 54:34–2. The Division calculated that the principal tax actually due amounted to $239,279.22, and not $178,925.57 as reported. After accounting for the additional principal tax due, the additional interest accrued, and a five-percent amnesty penalty, the Division determined that $96,758.98 in inheritance-tax liability remained unsatisfied.⁶

On January 22, 2010, the estate filed an administrative protest to the assessment, which the Division upheld in a final determination on April 28, 2011. On July 28, 2011, plaintiff filed an action in the Tax Court, seeking to vacate the assessment. The parties filed cross-motions for summary judgment in March and April 2012, which the Tax Court decided in favor of the Division in a published written opinion issued on July 17, 2014. De Rosa v. Dir., Div. of Taxation, 28 N.J. Tax 73 (Tax 2014).

The Tax Court judge relied on the Supreme Court decision in Pope v. Kingsley, 40 N.J. 168, 174 (1963), to conclude that the inheritance tax due must be calculated in accordance with the distribution to Fagin set forth in the Will, and not in accordance with the $400,000 distribution provided by the settlement agreement. De Rosa, supra, 28 N.J. Tax at 80–81. Therefore, the judge granted the Division's motion for summary judgment, and ordered the parties to submit computations reflecting the amount due in light of the decision. In a second published opinion, issued on January 22, 2015, the court accepted the Division's computation and rejected plaintiff's computation. De Rosa v. Dir., Div. of Taxation, 28 N.J. Tax 256, 258 (Tax 2015). In particular, the court held that the estate was required to pay, pursuant to N.J.S.A. 54:53-19(b), a five-percent penalty on the principal that plaintiff failed to pay prior to the close of the Amnesty Program's forty-five-day window.

On appeal, plaintiff raises the following points of argument for our consideration:

POINT I

THE PROVISIONS OF THE INHERITANCE TAX STATUTE REQUIRE AN ACTUAL TRANSFER OF ASSETS ON WHICH TO IMPOSE THE INHERITANCE TAX AND A DEEMED TRANSFER OR THE RIGHT TO RECEIVE A TRANSFER DOES NOT SATISFY THIS STATUTORY “TRANSFER” REQUIREMENT.

POINT II

THE NEW JERSEY DIVISION OF TAXATION POSITION IS IN CONFLICT WITH THE NEW JERSEY SUPREME COURT HOLDING IN THE LINGLE ESTATE CASE.

POINT III

THE JUDICIAL OPINIONS CITED BY THE TAX COURT JUDGE IN HIS OPINION DO NOT SUPPORT HIS HOLDING.

POINT IV

THE REGULATORY SECTIONS WHICH THE NEW JERSEY DIVISION OF TAXATION RELIES UPON ARE INAPPOSITE.

POINT V

THE REQUIREMENT FOR A JUDGMENT AS OPPOSED TO A NEGOTIATED SETTLEMENT AGREEMENT IS AGAINST PUBLIC POLICY.

POINT VI

THE ESTATE FUNDS WHICH WERE DISTRIBUTED TO MS. JESSICA K. FAGIN PURSUANT TO THE SETTLEMENT AGREEMENT WERE NOT “CONSTRUCTIVELY RECEIVED” BY THE PLAINTIFF AND ACCORDINGLY HE CANNOT BE TAXED UPON THOSE FUNDS.

POINT VII

THE OPINION OF THE MISSOURI SUPREME COURT IN IN RE GARTSIDE'S ESTATE IS PERSUASIVE.

POINT VIII

THE TRIAL COURT JUDGE INCORRECTLY ADJUDICATED THE APPLICABILITY OF THE CALENDAR YEAR 2009 TAX AMNESTY PROGRAM THAT WAS ENACTED INTO LAW ON MARCH 17, 2009.

We find no merit in any of these arguments and conclude they lack sufficient merit to warrant discussion in a written opinion. R. 2:11-3(e)(1)(E). We affirm substantially for the reasons set forth by Judge Vito L. Bianco in his cogent opinions published at 28 N.J. Tax 73 (2014) and 28 N.J. Tax 256 (2015). We add the following brief comments.

We are satisfied the judge properly concluded that, when applied to the facts of this case where the executor was also a beneficiary, case law and the inheritance tax statute required the Division to calculate the inheritance tax under the terms of a decedent's will, and not pursuant to a settlement agreement between private parties.

The judge also correctly rejected plaintiff's claim that the estate should be entitled to a reduction in interest and penalty under the Amnesty Program, even though the estate failed to abide by the program's requirements. Plaintiff could have protected the estate under the Amnesty Program by paying the tax as though there had been no settlement, under protest, and then obtaining a refund, if successful. The estate provided no reasonable explanation for its failure to do so.

Affirmed.

FOOTNOTES

1.   Fagin was referred to as “Jessica King” in the Will.

2.   According to the inheritance tax return filed by plaintiff, the decedent's gross estate was $2,218,733.66.

3.   No inheritance tax is imposed on any distributions to Class A beneficiaries. N.J.S.A. 54:34–2(a)(2); N.J.A.C. 18:26–1.1 and - 2.5.

4.   The Amnesty Program provided an incentive for taxpayers to come forward and pay the balance of delinquent taxes during a designated forty-five-day window. In exchange for filing under the Amnesty Program, taxpayers were required to pay one half of the interest accrued on their tax liability, and would no longer face criminal or civil penalties in connection with their prior delinquency. See N.J.S.A. 54:53–19(a).

5.   For Class C beneficiaries, this progressive structure ranges from an eleven-percent tax on transfers between $25,000 and $1,100,000, up to a sixteen-percent tax on transfers in excess of $1,7000,000. See N.J.S.A. 54:34–2(c)(2), N.J.A.C. 18:26–1.1 and -2.7.

6.   The record contains no evidence of payment of the remaining balance.

PER CURIAM