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Estate of Skeba v. United States

United States District Court, D. New Jersey

October 3, 2019

ESTATE OF AGNES R. SKEBA, Plaintiff,
v.
UNITED STATES OF AMERICA, Defendant.

          MEMORANDUM

          PETER G. SHERIDAN, U.S.D.J.

         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, ¶ 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:

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 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 original 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 Plaintiffs 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 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 ...


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