The opinion of the court was delivered by: Rimm
This is a transfer inheritance tax matter in which the Director, Division of Taxation, moves for summary judgment. The Director contends that the complaint must be dismissed under N.J.S.A. 54:34-13 and N.J.S.A. 54:49-18(a) because plaintiff neither protested the Director's assessment nor filed a complaint in the Tax Court to challenge the assessment within ninety days of the date the assessment was made.
The decedent, Lois M. Eckel, died on September 28, 1991. Her Last Will and Testament named plaintiff, Louis B. Off, as her sole beneficiary and the executor of her estate. On September 1, 1992, approximately a year after the date of death, plaintiff filed a New Jersey Transfer Inheritance Tax Return. The return indicated that $151,687 was due for transfer inheritance taxes. The calculations resulting in the indicated taxes involved a deduction against the assets of the estate for claimed executor's commissions in the amount of $39,981.12.
On January 7, 1993, the Director sent a notice of assessment to plaintiff indicating that, based on an audit of the return filed, the amount of tax due was increased by $3,528.86 from $151,687 to $155,215.86. The tax increase was due to the Director's reduction from $39,981.12 to $17,250.63 of executor's commissions allowed as a deduction on the tax return. A notation on the analysis of tax attached to the assessment notice stated as follows: "Not allowed on real property, N.J.A.C. 18:26-7.10." The version of that regulation then in effect provided as follows, in its entirety:
(a) In the absence of a judgment of the court exercising jurisdiction over the probate of an estate, the deduction for executor's or administrator's commissions shall be determined as of the date of death of decedent as follows:
Next 800,000 3 1/2 percent
Excess over 1,000,000 2 percent
provided, however, that where the amount claimed is less than that determined by the application of the rates set forth above, only such amount as claimed shall be allowed; and provided, further, where a formal accounting is not to be filed that, if in the discretion and judgment of the Director, it should appear that the claim for an allowance of executor's or administrator's commissions is in an amount greater than that which results from application of the above rates, he shall allow such amount as is deemed appropriate after having considered the risk, pain and trouble experienced by the fiduciary in the discharge of his or its duties and in this connection the fiduciary shall file an affidavit of services rendered in support of the claim.
(b) Where a formal account is filed and the amount allowed by the court for executor's or administrator's commissions is greater than the amount previously fixed by the Branch, the fiduciary is to forward a plain copy of the judgment allowing commissions and upon revision of the assessment there shall be applied the rate used by the court to the value, as of the date of death as determined by the Inheritance Tax Branch of the property on which the allowance of the court is based, but the value of any property excluded from the New Jersey Transfer Inheritance Tax shall be excluded from the computation.
(c) The value of property which is held by the decedent and another as joint tenants with right of survivorship, as trustee for, or payable on death to another or which has been the subject of an inter vivos transfer, in contemplation of, or to take effect in possession or enjoyment at or after death, is to be excluded from the amount on which an executor's or administrator's commissions is computed in the absence of the judicial allowance thereon.
(d) Executor's or administrator's commissions are allowed on real estate that is actually sold by the executor or administrator or which is expressly directed to be sold by the terms of the decedent's will. The real estate must be sold by the representative and not the beneficiary(s) in order to qualify.
(e) In the absence of a judgment of the court exercising probate jurisdiction over the estate, and the filing of a plain copy thereof with the Bureau, the provisions of N.J.S.A. 3A:10-2, shall not be considered in the determination of the amount allowable as a deduction.
[N.J.A.C. 18:26-7.10; See 23 N.J.R. 2320(a).]
There was another small adjustment made by the Director to plaintiff's return which is de minimis and is not the subject of any dispute between the parties.
Included in the notice of assessment was information regarding the taxpayer's appeal rights indicating that the taxpayer could apply for a review of the notice of assessment by sending a written request to the Director or by filing a complaint with the Tax Court within ninety days of the notice. The information conforms with N.J.S.A. 54:34-13 which reads as follows:
Any interested person dissatisfied with the appraisement or assessment so made may appeal therefrom to the Tax Court within 90 days after the making and entering of the assessment, in accordance with the provisions of the State Uniform Procedures Law, R.S. 54:48-1 et seq.
The information provided on the assessment notice also conforms with the applicable provision of the State Uniform Procedure Law, N.J.S.A. 54:49-18(a), which provides, in pertinent part, as follows:
If any taxpayer shall be aggrieved by any finding or assessment of the director, he may, within 90 days after the giving of the notice of assessment or finding, file a protest in writing signed by himself or his duly authorized agent, certified to be true, which shall set forth the reason therefor, and may request a hearing. Thereafter, the director shall grant a hearing to the taxpayer if the same shall be requested and shall make a final determination confirming, modifying or vacating any such finding or assessment.
During the ninety days following the date of the notice of assessment, plaintiff neither protested the assessment with the Director nor filed a complaint with the Tax Court. Accordingly, on June 15, 1993, over five months after the assessment was made, defendant sent plaintiff's counsel a letter informing him that, unless the unpaid tax liability was satisfied on or before August 15, 1993, defendant would institute collection efforts.
By letter dated June 22, 1993, plaintiff's counsel, for the first time, informed defendant that he believed that the assessment was erroneous and that the taxpayer would "apply to the court for the approval of the Executor's commissions and then resubmit the approved Executor's commissions to you." On October 19, 1993, plaintiff's counsel wrote defendant again, advising that an application would be made to the Superior Court of New Jersey, Chancery Division, Probate Part, upon completion of the federal estate tax audit and that, following approval of the executor's commissions by the Probate Part, counsel would submit evidence of the approved executor's commissions to defendant. On March 9, 1994, defendant wrote to plaintiff's counsel asking to be apprised of the status of the matter.
Thereafter, on April 18, 1994, over fifteen months after the date of assessment, an action was filed in the Superior Court of New Jersey, Chancery Division, Probate Part, Atlantic County, Docket No. 80415, designated as In the Matter of the Estate of Lois Eckel, deceased, for an order allowing executor's commissions. A copy of the federal tax return was attached to the complaint. On July 8, 1994, that court entered an order "ordering that Executor's commissions on corpus shall be allowed to Louis B. Off in the amount of $39,981.12." On July 14, 1994, counsel for plaintiff sent a copy of the July 8, 1994 order to the Director and requested that the return be amended to reflect commissions in the amount of $39,981.12. By letter dated July 25, 1994, defendant informed plaintiff's counsel that, because plaintiff failed to file a formal account as required by N.J.A.C. 18:26-7.10(b), and, pursuant to N.J.A.C. 18:26-7.10(d), defendant was precluded from allowing executor's commissions on the real estate.
On August 25, 1994, plaintiff filed a complaint in the Tax Court. In the complaint, plaintiff acknowledges that the Director assessed taxes against the estate, specifically reducing the deduction for executor's commissions from $39,981.12 to $17,250.63 based on N.J.A.C. 18:26-7.10 which does not allow executor's commissions on real property unless sold by the executor. Plaintiff asserts, however, that the adoption of, and reliance on N.J.A.C. 18:26-7.10 by the Director in disallowing executor's commissions on real estate was "arbitrary and capricious," because, as alleged in the complaint, N.J.S.A. 54:34-5, dealing with deductions to ascertain market value, does not exclude executor's commissions on real estate as a deduction for transfer inheritance tax purposes. In effect, plaintiff challenges both the Director's refusal to revise plaintiff's assessment in accordance with N.J.A.C. 18:26-7.10(b) and the Director's ...