Estate of DeNiro v. Commissioner, Docket No. 9178-76.
| Decision Date | 30 August 1982 |
| Docket Number | Docket No. 9178-76. |
| Parties | Estate of Vincent DeNiro, Deceased, Helen M. Papalia and Joanne F. DeNicholas, Administratrices, Louis R. DeNiro, Transferee, Frank DeNiro, Transferee, and Michael DeNiro, Transferee v. Commissioner. |
| Court | U.S. Tax Court |
James C. Herndon, William T. Walker, and Robert W. Malone, 1500-I Cascade Plaza, Akron, Ohio, for the petitioners. Richard S. Bloom and Buckley D. Sowards, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined a deficiency of $46,268.20 in the 1969 Federal income tax of the Estate of Vincent DeNiro and imposed an addition to tax pursuant to section 6651(a)(1)1 of $11,567.05.2 The issues for decision are:
1. Whether the payments made by two corporations to satisfy the estate tax liability assessed by respondent against the Estate of Vincent DeNiro were includable in the estate's taxable income for 1969.
2. Whether the Estate of Vincent DeNiro is liable for the addition to tax under section 6651(a)(1) for failure to file an income tax return for 1969.
Some of the facts have been stipulated and are found accordingly.
The decedent, Vincent DeNiro, died intestate on July 17, 1961, in Youngstown, Ohio. He was survived by two daughters, Joanne F. DeNicholas and Helen M. Papalia; three brothers, Louis R. DeNiro, Frank DeNiro, Jr., and Michael DeNiro (hereinafter sometimes referred to as "the DeNiro brothers"), and his mother. On the date of his death, the decedent owned the following property: 100 percent of the common stock of Cicero's, Inc.; 100 percent of the common stock of Valley Land Company (hereinafter VLC); 65 percent of the common stock of National Cigarette Service of Youngstown, Inc. (hereinafter NCS); cash in the amount of $50,000; and life insurance policies with a cash value of $15,646. The Estate of Vincent DeNiro (hereinafter sometimes referred to as "petitioner") never filed a Federal estate tax return or a 1969 Federal income tax return.
On August 23, 1965, the DeNiro brothers were convicted in the United States District Court for the Northern District of Ohio of willfully attempting to evade and defeat the Federal estate tax owed by the decedent's estate. United States v. Frank DeNiro, Jr., Michael DeNiro, and Louis DeNiro, an unreported case (N.D. Ohio, August 23, 1965). Their conviction was subsequently affirmed by the United States Court of Appeals for the Sixth Circuit. United States v. DeNiro 68-1 USTC ¶ 12,528, 392 F. 2d 753 (1968), cert. denied 393 U.S. 826 (1968). The District Court found that (1) on the date of the decedent's death his brothers agreed to secure permanent possession of all the properties which had belonged to their deceased brother to the exclusion of his rightful heirs (the decedent's daughters); and (2) that by August 22, 1962, the decedent's assets "were jointly gathered together by Louis, Frank, and Michael DeNiro, each sharing equally in the actual ownership * * *."
During 1969, petitioner owned 65 percent of the stock of NCS and 100 percent of the stock of VLC. At all times relevant hereto, however, the DeNiro brothers controlled the operations of both NCS and VLC (hereinafter sometimes referred to as "the corporations"). Frank DeNiro, Jr., was the president of both NCS and VLC, and Louis DeNiro was secretary-treasurer of NCS. NCS was in the business of operating vending machines, and VLC was in the business of owning and operating rental apartments.
On or about April 9, 1969, respondent made jeopardy assessments for estate tax, addition to tax, and interest of $1,188,000 against petitioner and the DeNiro brothers, as transferees of the estate. Respondent also filed and recorded Federal tax liens against petitioner, the DeNiro brothers, as transferees of the estate, and Cicero's, Inc., NCS, and VLC, as nominees of the estate. No assessments were made against the corporations.
On or about May 9, 1969, Frank DeNiro, Jr., Louis DeNiro, Michael DeNiro, Samuel Karam, their attorney, Jack Marmagin, the accountant for NCS, and Anthony Davanzo, the accountant for VLC, attended a meeting with two Internal Revenue Service attorneys, Bernard Friedlander (now deceased) and Michael Ruggieri. At this meeting, the DeNiro brothers signed a Form 890 (Estate Tax Waiver of Restriction on Assessment and Collection of Deficiency and Acceptancy of Overassessment) consenting to the assessment and collection of an estate tax deficiency of $81,000, plus interest thereon. Subsequently, respondent made a partial abatement of the original jeopardy assessments and the amount of the assessment remaining after abatement, $104,577.04, was paid by NCS and VLC in 1969.
NCS and VLC paid $89,257.04 and $15,320, respectively, of the assessment. The payment made by VLC represented proceeds of an insurance claim filed by VLC with respect to fire damage to one of its apartment units, while NCS borrowed $69,757.04 of the amount it paid. After NCS and VLC paid the assessment, respondent released the Federal tax liens he had filed against petitioner, the DeNiro brothers, Cicero's, Inc., NCS, and VLC.
On or about June 15, 1970, NCS filed its corporate income tax return for the 1969 calendar year. On September 14, 1971, NCS filed a Form 1120X (Amended U.S. Corporate Income Tax Return) for 1969, claiming a deduction of $89,257.04 for the payment it had made with respect to the estate tax assessment. On January 31, 1972, the refund claimed on the amended return was allowed. On January 31, 1977, however, the United States filed a complaint in the United States District Court for the Northern District of Ohio, alleging that NCS was not entitled to deduct the $89,257.04 payment and that the refund was erroneous. This suit was settled by the parties and was dismissed by the District Court pursuant to stipulation on March 21, 1979.
On or about January 15, 1971, VLC filed its corporate income tax return for the taxable year ended July 31, 1970. Sometime in September 1971, VLC filed a Form 1120X (Amended U.S. Corporate Income Tax Return) for the taxable year ended July 31, 1970, claiming a deduction of $15,320 for the payment it had made with respect to the estate tax assessment. Its refund claim was disallowed.
In October 1974, the DeNiro brothers, NCS, and VLC, commenced a refund action in the United States District Court for the Northern District of Ohio, asserting that the $104,577.04 paid by the two corporations constituted an overpayment of petitioner's estate tax. The District Court dismissed the corporations as plaintiffs in the suit after determining that it did not have jurisdiction over their claim. On July 21, 1975, the jury found the value of the estate was less than the government claimed and entered a judgment for a refund of $51,155.73 for the DeNiro brothers. DeNiro, et al. v. United States, an unreported case (N.D. Ohio, 1975, 36 AFTR 2d 75-6517). This judgment was later amended to provide for a refund of $61,613 in order to allow the estate an $18,000 deduction for attorney fees incurred in securing the refund.
The United States appealed the amended judgment to the United States Circuit Court of Appeals for the Sixth Circuit. The issues on appeal related to the standing of the DeNiro brothers to maintain the refund action, the sufficiency of the evidence upon which the jury determined the amount of the taxable estate, and the allowance by the District Court of the deduction for attorney fees. The Sixth Circuit affirmed the District Court. DeNiro v. United States 77-2 USTC ¶ 13,205, 561 F. 2d 653 (6th Cir. 1977). Although the Court of Appeals determined the DeNiro brothers did not have standing to sue for a refund individually, the court decided that the brothers had standing to seek a refund on behalf of petitioner, as executors. The Court of Appeals decided that the DeNiro brothers had standing to sue in that capacity because they became "executors" of the estate for purposes of the estate tax requirements3 and were liable for the payment of the tax when they took actual possession of the decedent's property after his death and no executor or administrator was appointed. In concluding its opinion, which was filed August 30, 1977, the Court of Appeals remanded the case "for entry of judgment on the verdict in favor of the estate of Vincent DeNiro with such provisions relating to payment as the district court determines to be necessary for protection of the heirs at law of Vincent DeNiro." DeNiro v. United States, 561 F. 2d at 658.
On September 12, 1977, Joanne F. DeNicholas and Helen M. Papalia, the decedent's daughters, were appointed co-administratrices of the decedent's estate by the Probate Court of Mahoning County, Ohio. In March 1978, NCS and VLC petitioned the Probate Court of Mahoning County, Ohio, for authority to present claims to petitioner for the amounts they had paid to respondent with respect to petitioner's estate tax assessment. On May 15, 1978, pursuant to the remand by the Sixth Circuit, the District Court for the Northern District of Ohio entered a second amended judgment for a refund of $67,741.33, plus interest, for petitioner in order to allow an additional deduction for the attorney fees incurred in resisting the government's appeal, and ordered that the refund be paid to "Helen M. Papalia and Joanne F. DeNicholas as fiduciaries of the estate of Vincent DeNiro."
On May 31, 1978, an agreement (hereinafter sometimes referred to as "the estate settlement agreement") settling their claims to the decedent's estate was entered into by NCS, VLC, Frank, Louis, and Michael DeNiro, and Helen M. Papalia and Joanne F. DeNicholas, individually and as co-administratrices of the decedent's estate. On June 27, 1978, the Probate Court of Mahoning County approved the agreement.
Pursuant to the agreement, the DeNiro brothers agreed to pay the sum of $30,000 to the decedent's daughters, Helen M....
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