W. August Hillenbrand and Nancy K. Hillenbrand, (2002) - Case Law - VLEX 44066564

W. August Hillenbrand and Nancy K. Hillenbrand, (2002)


T.C. Memo. 2002-303


Larry J. Stroble and Jennifer A. Seymour, for petitioners. Stewart Todd Hittinger, for respondent.

MEMORANDUM OPINION WELLS, Chief Judge: Respondent determined deficiencies in petitioners' gift taxes as follows:

Year W. August Hillenbrand Nancy K. Hillenbrand 1993 $124,613 $120,082 1994 19,019 18,329 1995 56,085 55,838 The issue to be decided is whether the Court has jurisdiction to decide whether the deficiencies for the years in issue have been paid, where, in response to the notices of deficiency, petitioners sent the Internal Revenue Service remittances and directed that the remittances be applied to the deficiencies in issue, and, subsequently, respondent made an erroneous nonrebate refund of those remittances to petitioners. All section references are to the Internal Revenue Code, as amended, and all Rule references are to the Tax Court Rules of Practice and Procedure.

Background The parties submitted the instant case fully stipulated, without trial, pursuant to Rule 122. The parties' stipulations of facts are hereby incorporated in this opinion by this reference and are found as facts in the instant case.

Petitioners W. August Hillenbrand and Nancy K. Hillenbrand are husband and wife. When the petition was filed, they were residents of Batesville, Indiana. During the years in issue, petitioner W. August Hillenbrand was the chief executive officer of Hillenbrand Industries, Inc.

During 1993, 1994, and 1995, petitioners made substantial gifts to their children and son-in-law. In 1993, 1994, and 1995, petitioners also made contributions to trusts commonly referred to as 'Grantor Retained Annuity Trusts' (GRATs). Petitioners each filed Federal gift tax returns for 1993, 1994, and 1995.

Respondent examined petitioners' 1993, 1994, 1995, and 19961Federal gift tax returns. For the same periods, respondent also examined the gift tax returns of petitioners' children and sonin-law. Petitioners' gifts to their children and son-in-law were of Hillenbrand Industries stock, interests in a limited partnership, and remainder interests in certain so-called GRATs.

On September 15, 1998, petitioners' attorney, Larry J. Stroble, sent respondent a letter accompanied by six checks remitted by petitioners, William A. Hillenbrand II, Theresa A. Hartmann, Katherine K. Crowther, Richard D. Hillenbrand II, and Martha L. Tuveson. The letter, dated September 15, 1998, accompanying the six checks, stated:

Enclosed are various checks which are to be considered deposits in the nature of cash bonds in accordance with Rev. Proc. 84-58. The checks are cash bonds related to the tax deficiency and interest asserted by the Internal Revenue Service in connection with gift tax examinations of the taxpayers for the years reflected below, and are intended to halt the accrual of interest on such tax deficiencies and previously accrued interest.

The six checks totaled $1,457,460. The check remitted on behalf of petitioners was in the amount of $1,242,082, or $621,041 on behalf of each petitioner. Petitioners intended the check to cover their 1993, 1994, 1995, and 1996 Federal gift tax years, as explained in the letter accompanying the check.

On November 23, 1998, petitioners and respondent agreed upon certain audit adjustments regarding petitioners' 1993, 1994, 1995, and 1996 Federal gift tax years, except for the issue of whether the spousal interests provided for in the GRATs were qualified interests within the meaning of section 2702 for petitioners' 1993, 1994, and 1995 Federal gift tax years (the GRAT issues).

On December 4, 1998, respondent made assessments against petitioners relating to the November 23, 1998, agreement covering the adjustments other than those relating to the GRAT issues. Respondent assessed $411,682.46 in Federal gift taxes against petitioner W. August Hillenbrand's $621,041 deposit, and, on January 4, 1999, sent him an unsolicited refund of $209,358.54. Respondent assessed $387,078.19 in Federal gift taxes against petitioner Nancy K. Hillenbrand's deposit of $621,041, and, on January 4, 1999, sent her an unsolicited refund of $233,358.54 (the foregoing two checks are collectively hereinafter sometimes referred to as the January 4, 1999, refunds). The January 4, 1999, refunds were not related to the GRAT issues.

Respondent and petitioners continued to disagree, however, about the amount of Federal gift taxes due regarding the...

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