State Tax Commissioner v. Tuchscherer

• Decision Date: 15 October 1964
• Docket Number: No. 8159.,8159.
• Citation: 130 N.W.2d 608
• Parties: STATE of North Dakota by its TAX COMMISSIONER, Appellant, v. Gabriel P. TUCHSCHERER and Anna M. Gross as Administrator and Administratrix, respectively, Gabriel P. Tuchscherer, Anna M. Gross, Dominick E. Tuchscherer, Katharine M. Tuchscherer, and Regina M. Niegum, Respondents.
• Court: North Dakota Supreme Court

130 N.W.2d 608

STATE of North Dakota by its TAX COMMISSIONER, Appellant, v. Gabriel P. TUCHSCHERER and Anna M. Gross as Administrator and Administratrix, respectively, Gabriel P. Tuchscherer, Anna M. Gross, Dominick E. Tuchscherer, Katharine M. Tuchscherer, and Regina M. Niegum, Respondents.

No. 8159.

Supreme Court of North Dakota.

October 15, 1964.

COPYRIGHT MATERIAL OMITTED

Helgi Johanneson, Atty. Gen., Joseph R. Maichel, Special Asst. Atty. Gen., Bismarck, for appellant.

Duffy & Haugland, Devils Lake, and A. R. Jongewaard, Rugby, for respondents.

TEIGEN, Judge.

The State of North Dakota, by its Tax Commissioner, has appealed from a judgment of the district court decreeing that the order of the county court correctly fixed the estate tax in the matter of the estate of John D. Tuchscherer, deceased. The respondents are the coadministrators and the heirs at law. A trial de novo has been demanded.

John D. Tuchscherer died intestate on July 23, 1960, a resident of McHenry County, North Dakota. His estate was placed in probate in that county. In the process of the administration of the estate, there was filed for approval an estate tax return. The county judge assessed the tax on April 26, 1961, and forwarded the return with its order to the office of the State Tax Commissioner for approval. The State Tax Commissioner, who has supervision of the enforcement and collection of estate taxes (Section 57-37-19, N.D.C.C.), refused to approve the return. He returned it to the county judge with a letter stating the reason for his refusal and incorporated recommendations for amendment of the return. He stated certain properties held in joint tenancy should be valued at 100% of their value for tax purposes instead of 50% as shown by the return.

After the first order was entered, there was a refund for overpayment of the Federal tax. The court then entered an order dated August 10, 1961, amending its order determining the estate tax to include the refund for overpayment of the Federal tax and in this order rejected the contentions made by the State Tax Commissioner as follows:

"IT IS FURTHER ORDERED, That as so amended the Court finds that the Order is according to the statutes applicable and that the joint tenancy property has been assessed at fifty percent of its actual value as set forth in Section 57-37-06 of the North Dakota Century Code and that, therefore, no further amendment of said Order be made."

On November 17, 1961, the Tax Commissioner petitioned the county court to review the appraisal made and all issues of law and fact pertaining to assessment of estate tax pursuant to Section 57-37-20, N.D.C.C. A hearing was held on January 12, 1962. The county court dismissed the Tax Commissioner's petition on the grounds and for the reason that the amended order determining the estate tax was entered on August 10, 1961, and had become final as no appeal had been taken therefrom within thirty days. It held the question was resjudicata. The court dismissed the petition by order entered on February 14, 1962.

The Tax Commissioner appealed from the order dismissing its petition to the district court. The district court found that the county court's order determining the estate tax was not res judicata. It also held the challenged properties were, in fact, joint tenancy properties includable for estate tax purposes at 50% of their full value and, therefore, the amended order of the county court dated August 10, 1961, correctly fixed the estate tax. Judgment was entered accordingly and this appeal was taken.

The facts were stipulated and, omitting the formal parts, the salient portions are as follows:

"1. That the decedent, John D. Tuchscherer, furnished the money which went into the several Certificates of Deposit, savings accounts and United States Government bonds listed in the amended inventory in this estate under the heading `Property held in joint tenancy by decedent and following named person and listed here for estate tax purposes, only.'

Stipulation contains a listing of the subject properties, purchased in units naming one of the decedent's five children as co-owners in each, showing a total value of $134,000 and 50% value of $67,000.

"2. That in using the term `joint tenants' herein, or in saying that the co-tenants did not put any of their own money into these funds, it is not intended to pass upon the legal relationship of the parties, but to indicate the contracts as they are drawn and to refer as to the personal funds of the co-tenants only in the sense that they were not funds derived from whatever relationship existed between the decedent and co-tenant.

"3. That at least four or five years prior to decedent's death decedent turned over to the co-tenants in each case the certificate or other instrument evidencing these several items.

"4. That an oral family agreement was entered into between the decedent and the respondents herein at the time the several instruments were turned over to the respective respondents which provided that the decedent was to receive the interest during his lifetime on the various items which are specified in paragraph 1 of this stipulation. Although the respondents had physical possession of the various instruments and therefore had the legal right to cash them in, the oral agreement provided that this legal right should not be exercised by the respondents unless an emergency arose which necessitated the disregarding of the family agreement and the cashing of these instruments by the respondents in the absence of an emergency necessitating it would be deemed a breach of good faith.

"5. That as no emergency arose necessitating the disregarding of the family agreement the respondents did not exercise the power to cash in these instruments except for purposes of renewal.

"6. That during the ensuing years the decedent generally obtained from each co-tenant the certificates of deposit and savings account books which were necessary for him to have in order to collect interest and renew the certificates of deposit and to collect interest on the savings accounts in the Minot Federal Savings and Loan Association

"7. That upon collecting the interest on the savings accounts and upon collecting the interest and renewing the certificates of deposit, the renewed certificates of deposit and the savings account books were returned by the decedent to the several co-tenants.

"8. That in several instances a co-tenant actually collected the interest but in each case turned the interest collected over to the decedent or deposited the same to the decedent's account so that the decedent received the benefit of all of this interest collected on these various items during his lifetime pursuant to the family agreement.

"9. That as the interest on these instruments was collected by the decedent or deposited to the decedent's account, and as pursuant to the oral agreement the decedent was to receive the interest therefrom during his lifetime, the respondents herein did not report any interest from these intangibles on either their state or Federal income tax returns.

* * * * * *

"11. That during the lifetime of the decedent the co-tenants did not place any of their own money into these several deposits nor did they withdraw any of the funds for their own individual use. * * *"

Two issues are presented on this appeal: (1) Is the order of the county court assessing the estate tax res judicata, and (2) Is the order of the county court assessing said tax in error?

We will consider the second issue first because, if the county court was correct in its determination that the value of the decedent's interest for estate tax purposes was 50% of the value of the property, it would serve no purpose to review the question of whether or not the county court's order is res judicata.

Thus, the first question is whether the government bonds, savings accounts, and certificates of deposit, purchased by the deceased with his money and made payable to himself and a child as joint tenants and payable to either or the survivor, are taxable for estate tax purposes at 50% or 100% of their value, where possession was given the child but an oral agreement was entered into whereby the child agreed not to cash the instruments during the lifetime of the father unless an emergency arose and the further agreement that the father was to receive the interest earned by these investments during his lifetime.

The Tax Commissioner relies on Section 57-37-02(3), N.D.C.C., which defines a gross estate of a resident decedent for estate tax purposes to include intangible personal property wherever located; Section 57-37-04, which provides that the gross estate of all decedents shall also include property transferred in contemplation of death and property transferred prior to death intended to take effect in possession or enjoyment either at or after death; and Section 57-37-08, N.D.C.C., which includes in the gross estate, for estate tax purposes, the value of revocable and irrevocable trusts whenever a donor reserves a life income therefrom. He argues that Section 57-37-06, N.D.C.C., providing that the gross estate shall include the value of jointly held properties payable to either or the survivor and shall be valued for estate tax purposes by dividing the value of the entire property by the number of joint tenants, does not apply in this case.

According to the Tax Commissioner's interpretation of the stipulated facts, the decedent did not intend to create joint tenancies but it was his intention to make gifts of the properties to the various respondents and thereby vest legal title in them, subject to the reservation of the right of the decedent to receive the interest or income from these accounts, deposits, and bonds until his death; and that, because of the oral agreement, the properties are properly classified under one of the other sections of the Code referred to above and, therefore, are taxable at 100% of their value....