Baptiste v. C.I.R., 93-2960

• Decision Date: 12 July 1994
• Docket Number: No. 93-2960,93-2960
• Parties: -5220 Gabriel J. BAPTISTE, Jr., Transferee, Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 433

29 F.3d 433

74 A.F.T.R.2d 94-5220

Gabriel J. BAPTISTE, Jr., Transferee, Appellant, v. COMMISSIONER OF INTERNAL REVENUE, Appellee.

No. 93-2960.

United States Court of Appeals,

Eighth Circuit.

Submitted March 14, 1994.

Decided July 12, 1994.

Paul J. Peter of Lincoln, NE, for appellant.

Christine A. Grant, Washington, DC, argued (Gary R. Allen and David I. Pincus, on the brief), for appellee.

Before McMILLIAN, WOLLMAN and BEAM, Circuit Judges.

McMILLIAN, Circuit Judge.

Gabriel J. Baptiste, Jr. (Gabriel) appeals the United States Tax Court's determination that (1) the decision in Estate of Baptiste v. Comm'r, No. 44928-85 (T.C. May 13, 1988) (Estate of Baptiste ), was res judicata as to the existence and amount of estate tax imposed on the transfer of Gabriel J. Baptiste, Sr.'s Estate for purposes of determining Gabriel's transferee liability pursuant to 26 U.S.C. Sec. 6324(a), and (2) he was liable for interest on the amount of his personal liability for unpaid estate tax, beyond the value of the property transferred, accrued since the due date of the estate tax return. For the reasons discussed below, we affirm in part and reverse in part the judgment of the tax court.

I. BACKGROUND

In September 1981 Gabriel J. Baptiste, Sr. (decedent) died. Shortly after decedent's death, Gabriel, one of decedent's three children, received $50,000 as a beneficiary of decedent's life insurance policy. In December 1982 the Estate of Gabriel J. Baptiste, Sr., Barbara Baptiste, Statutory Executrix (transferor), filed a federal estate tax return.

The Commissioner of Internal Revenue (Commissioner) determined that there was a deficiency in estate tax and, on September 18, 1985, the Commissioner mailed a notice of deficiency to the transferor. The transferor timely filed a petition in the tax court contesting the deficiency. The Commissioner and the transferor agreed that $62,378.48 of estate tax was owed to the government and, in accordance with that agreement, the tax court, in Estate of Baptiste, entered a stipulated decision that a deficiency in the amount of $62,378.48 in estate tax was due from the transferor. However, the transferor never paid the tax.

Pursuant to 26 U.S.C. Sec. 6324(a)(2) of the Internal Revenue Code, ¹ if an estate tax is not paid when due, then certain beneficiaries of the estate are personally liable for the tax to the extent of the value, at the time of the decedent's death, of any property they received from the estate. Consequently, the Commissioner mailed a notice of transferee liability to Gabriel asserting liability against him for estate tax in the amount of $50,000, plus interest, as an insurance beneficiary, and, thus, a transferee of property of the transferor under Sec. 6324(a)(2). ²

Gabriel did not contest the determination that he was personally liable as a transferee under Sec. 6324(a)(2). Instead, he filed a pro se petition contesting the amount of the underlying estate tax liability. The Commissioner filed an answer which admitted and denied certain allegations. In addition, the Commissioner set forth affirmative allegations that Gabriel was liable under Sec. 6324(a)(2) as a transferee at law for the deficiency in estate tax due from the estate.

Gabriel failed to respond to the Commissioner's affirmative allegations and the matter of Gabriel's transferee liability was deemed admitted under Tax Ct.R. 37(c). ³ The Commissioner filed a motion for summary judgment, relying upon the pleadings, affirmative allegations contained in the answers that were deemed admitted, and the decision of the tax court in Estate of Baptiste. The Commissioner asserted that the stipulated decision establishing $62,378.48 as the amount of estate tax was res judicata with respect to the estate tax liability of the transferor, and that Gabriel, as a transferee at law under Sec. 6324(a)(2), was liable for $50,000, plus interest, of the unpaid estate tax of the transferor. At that time, Gabriel obtained counsel.

The tax court granted partial summary judgment in favor of the Commissioner on April 1, 1992. The tax court determined that its decision in Estate of Baptiste was res judicata as to the existence and amount of estate tax due from the estate of the decedent. The tax court then determined that Gabriel was personally liable under 26 U.S.C. Sec. 6324(a)(2) for the unpaid taxes to the extent of the value, at the time of decedent's death, of his interest in the insurance benefits. At the time of decedent's death, the value of the proceeds of insurance on decedent's life payable to him was $50,000. The tax court reserved judgment as to the extent of Gabriel's liability for accrued interest on the amount of his personal liability for unpaid estate tax and denied that portion of the Commissioner's summary judgment motion without prejudice. On March 29, 1993, the tax court entered an order finding Gabriel liable for accrued interest on the amount of his personal liability for unpaid estate tax from the due date of the decedent's estate tax return. Gabriel appealed.

II. DISCUSSION

Gabriel argues on appeal that (1) the decision in Estate of Baptiste is not res judicata as to the existence and amount of estate tax imposed on the transfer of decedent's estate for purposes of determining his transferee liability pursuant to 26 U.S.C. Sec. 6324(a), and (2) he is not personally liable for interest, beyond the value of the property transferred, accrued since the due date of the decedent's estate tax return.

The court of appeals has exclusive jurisdiction to review the decisions of the tax court "in the same manner and to the same extent as decisions of the district courts in civil actions tried without a jury." 26 U.S.C. Sec. 7482(a). Because the questions in this case are purely legal, we review them de novo. Estate of Robertson v. Comm'r, 15 F.3d 779, 781 (8th Cir.1994).

Res Judicata

When a person dies and estate tax is not paid by the estate, a lien attaches to the decedent's gross estate. 26 U.S.C. Sec. 6324(a)(1). To the extent the estate tax remains unpaid, the recipient of property included in the decedent's gross estate becomes personally liable for the tax, up to the value of the property received. 26 U.S.C. Sec. 6324(a)(2). Gabriel first argues that the decision entered by the tax court in Estate of Baptiste pursuant to a stipulated agreement, regarding the deficiency in estate tax, carried no res judicata effect for purposes of imposing personal, transferee liability on him under Sec. 6324(a)(2). We disagree.

Res judicata promotes judicial economy by preventing repetitious suits involving the same cause of action. The general rule of res judicata provides that when a court of competent jurisdiction has entered a final judgment on the merits of a cause of action, the parties and their privies are thereafter bound not only as to every matter presented to the court but also as to every matter that might have been brought before the court. Headley v. Bacon, 828 F.2d 1272, 1274 (8th Cir.1987). It is well established that the doctrine of res judicata applies to the field of federal taxation. United States v. International Bldg. Co., 345 U.S. 502, 73 S.Ct. 807, 97 L.Ed. 1182 (1953).

The doctrine of res judicata is applicable when an identical issue is contested in a separate proceeding arising out of a single cause of action. Krueger v. Comm'r, 48 T.C. 824, 828, 1967 WL 990 (1967) (Krueger ). In the present case, the requirement that the claims raised in the subsequent litigation be in substance the same as those in the prior litigation has been satisfied. The cause of action giving rise to the present case is the transferor and Gabriel's respective obligation to pay the estate tax imposed on the transfer of decedent's estate. In Estate of Baptiste, the tax court determined that $62,378.48 was the amount of estate tax due on the transfer of decedent's estate pursuant to chapter 11 of the Internal Revenue Code. Pursuant to 26 U.S.C. Sec. 2001, a tax is imposed on the transfer of the taxable estate of every decedent who was a citizen or resident of the United States at the time of his or her death. Under 26 U.S.C. Sec. 2002, the estate tax is payable by the executor of the estate. The estate tax is due at the time fixed for filing the estate tax return. Pursuant to 26 U.S.C. Sec. 6324(a)(2), if the estate tax is not paid when due, then certain beneficiaries, or transferees, of the estate are personally liable for the tax to the extent of the value, at the time of the decedent's death, of any property received from the estate. Thus, the amount of the executor's liability under Sec. 2002, and the amount of a transferee's liability under Sec. 6324(a)(2), are both determined by the amount of estate tax imposed by Sec. 2001. The decision in Estate of Baptiste determined the amount of liability for estate tax. Consequently, the issue decided in Estate of Baptiste and the issue of transferee liability are identical for purposes of applying the res judicata doctrine.

The requirement under the res judicata doctrine that the parties in the subsequent action are the same as, or in privity with, those in the earlier litigation has also been satisfied in the present case. It is well settled that a transferor, such as the estate in the present case, and a transferee, such as Gabriel, are in privity for purposes of determining the amount of tax imposed on the transfer of decedent's estate. See Krueger, 48 T.C. at 829; Estate of Egan v. Comm'r, 28 T.C. 998, 999, 1957 WL 1125 (1957), aff'd, 260 F.2d 779 (8th Cir.1958).

Further, the stipulated decision against decedent's estate, which was entered as a result of an agreement between the Commissioner and the transferor, was a final decision on the merits for purposes of res judicata. See Forehand v. Comm'r, 66 T.C.M. (CCH) 1763, 1993 WL 533995 (1993) (decision entered pursuant to stipulated agreement between estate and commissioner is binding, and a transferee...