Estate of Sieber v. Oklahoma Tax Com'n

• Decision Date: 23 October 2001
• Docket Number: No. 95,500.,95,500.
• Citation: 41 P.3d 1038,2002 OK CIV APP 25
• Parties: The ESTATE OF Ernest L. SIEBER, Protestant/Appellant, v. The OKLAHOMA TAX COMMISSION, Respondent/Appellee.
• Court: United States State Court of Criminal Appeals of Oklahoma. Court of Civil Appeals of Oklahoma

41 P.3d 1038

2002 OK CIV APP 25

The ESTATE OF Ernest L. SIEBER, Protestant/Appellant, v. The OKLAHOMA TAX COMMISSION, Respondent/Appellee.

No. 95,500.

Court of Civil Appeals of Oklahoma, Division No. 4.

October 23, 2001.

Certiorari Denied January 23, 2002.

Kevin M. Coffey, Groom, Hammond & Harris, P.C., and Robert L. Barr, Oklahoma City, Oklahoma, for Appellant.

Tom Kemp, General Counsel, David L. Kinney, Assistant General Counsel, Oklahoma Tax Commission, Oklahoma City, Oklahoma, for Appellee.

Released for Publication by Order of the Court of Civil Appeals of Oklahoma, Division No. 4. KEITH RAPP, Judge:

¶ 1 The Estate of Ernest L. Sieber (Estate), Protestant before the Oklahoma Tax Commission, (OTC) appeals the OTC's Order Adopting Findings and Conclusions of its Administrative Law Judge (ALJ) which resulted in the inclusion of the value of the Ernest L. Sieber Trust (Trust) in the taxable estate of Ernest L. Sieber (Decedent) for Oklahoma estate tax purposes. The authority for this appeal is 68 O.S. Supp.2000, § 225.

BACKGROUND

¶ 2 The facts are straightforward. At first, the OTC audit staff added the Trust's value into the Estate on the ground that the Trust was revocable.¹ Estate protested and OTC receded from that position completely and stipulated that the Trust was irrevocable. The ALJ found and the OTC ordered that the Trust is irrevocable.

¶ 3 OTC's counsel asserted two propositions at the protest hearing as grounds for including the value of the Trust into the Estate for estate tax purposes. The ALJ and the OTC clearly ruled against the Estate on the first of the grounds and that ruling establishes the principle issue on appeal.

¶ 4 The first question is whether the Trust contains a general power of appointment. If the Trust contains this general power, then it is included in the Estate for estate tax purposes pursuant to 68 O.S. Supp.2000, § 807(A)(9).² This issue arises from the language of the Trust, together with the undisputed fact that Decedent and his two children, Robert John Sieber and Carol Ann McCurley (Children), are all beneficiaries as to principal and income and they are also the co-trustees who act by a majority of the trustees. Paragraph 6 of the Trust provides:

6. The Trustor directs that the Trustees pay to the Trustor, or the heirs at law of the Trustor, during the life of this Trust such amounts from both the income and the principal of the trust estate that are in the sole discretion of the Trustees necessary for the maintenance of health, comfort, and welfare of the Trustor, and the heirs at law of the Trustor. (Emphasis added.)

¶ 5 The OTC Order and the ALJ Findings and Conclusions do not delineate which aspect of "general power of appointment" was deemed applicable. However, based upon the administrative record and the appeal documents and briefs, OTC apparently relied solely upon that part of the language of Section 807(A)(9) that refers to a general power of appointment "which is exercisable in favor of the decedent."³

¶ 6 The second ground advanced by OTC's counsel for inclusion of the value of the Trust for estate tax was that the Trustor (Decedent) was a contingent remainderman to the Trust at the time of his death. The Estate Tax Code includes in the estate tax any property "in which the decedent had an interest. . . whether vested or contingent. . . ." 68 O.S. Supp.2000, § 807(A)(1).

¶ 7 It is undisputed that Decedent was survived by his adult Children, his Children's seven children, also adults, and several great-grandchildren. The Trust provides in paragraph 8:

8. Upon termination of the Trust as provided above, the Trustee or Trustees shall distribute the corpus and accrued income of the Trust to the heirs at law of the Trustee as set out on Exhibit "A" which is attached hereto and made a part hereof; provided however, that the Trustee or Trustees may create other trusts for the benefit of the said heirs at law which trusts may receive any part of the proceeds herefrom.

Exhibit "A" of the Trust does not name anyone as an "heir at law" nor does it identify anyone by relationship to Decedent. The text of Exhibit "A" divides specific properties between Robert John Sieber and Carol Ann McCurley and further provides that all the rest and remainder of the property shall be divided in equal parts. The last paragraph then states:

Should either Robert John Sieber or Carol Ann McCurley, or both of them, die prior to the distribution set out herein, then and in that event, that property that would otherwise have become the property of that person shall be distributed to their heirs by right of representation.

¶ 8 OTC's counsel's position at the administrative hearing, and here, is that if those two individuals had died prior to distribution and if neither had left heirs, then no one would receive the Trust property. In that event, the Trust property would revert back to the Trustor and be distributed in probate, thereby constituting Trustor as a contingent remainderman, so the value of the Trust is included in his estate. Under this hypothetical, the fact that Decedent's Children, the named individuals in Exhibit "A", actually survived him is immaterial.

¶ 9 The ALJ made findings of fact on this issue, which the OTC adopted without change.⁴ The ALJ found that Robert John Sieber and/or Carol Ann McCurley were vested remaindermen of the Trust, subject to being divested. The ALJ did not specify how they might be divested. The ALJ further found that if Robert John Sieber or Carol Ann McCurley died prior to distribution, then their heirs were contingent remaindermen of the Trust by right of representation, but made no finding regarding identity of those persons. Finally, the ALJ found that if both died prior to distribution and without heirs, then no one would receive the Trust property and the Estate would be a contingent beneficiary by operation of law.⁵

¶ 10 However, in the Conclusions of Law, also adopted by the OTC, the only basis assigned by the ALJ for including the value of the Trust in the Estate was the existence of a general power of appointment. No mention was made of the alternative, contingent remainder basis under Section 807(A)(1). The OTC Order made no changes. Nevertheless, here OTC submits the contingent remainder basis as a ground to include the value of the Trust in the Estate. Estate argues that this ground should not be utilized because the ALJ did not so rule and no appeal was taken from the absence of any such ruling to the OTC.

¶ 11 The OTC denied Estate's request for Hearing in Banc and adopted the ALJ's Findings, Conclusions, and Recommendations without modification. Estate appeals.

STANDARD OF REVIEW

¶ 12 In review pursuant to Section 225, this Court will affirm an OTC order if the record contains substantial evidence in support of the facts upon which the decision is based and the order is otherwise free of error. El Paso Natural Gas Co. v. Oklahoma Tax Commission, 1996 OK CIV APP 69, 929 P.2d 1002; see Dugger v. Oklahoma Tax Commission, 1992 OK 105, ¶ 1, 834 P.2d 964, 965

.

¶ 13 Where the facts are not disputed an appeal presents only a question of law. Baptist Building Corp. v. Barnes, 1994 OK CIV APP 71, ¶ 5, 874 P.2d 68, 69. The appellate court has the plenary, independent and nondeferential authority to reexamine a trial court's legal rulings. Neil Acquisition, L.L.C. v. Wingrod Investment Corp., 1996 OK 125, 932 P.2d 1100 n. 1. Matters involving legislative intent present questions of law which are examined independently and without deference to the trial court's ruling. Salve Regina College v. Russell, 499 U.S. 225, 111 S.Ct. 1217, 113 L.Ed.2d 190 (1991); Keizor v. Sand Springs Ry. Co., 1993 OK CIV APP 98, ¶ 5, 861 P.2d 326, 328. When reviewing tax statutes, just as with other statutes, this Court's goal is to ascertain legislative intent and effectuate that intent. Wilson v. State of Oklahoma ex rel. Oklahoma Tax Comm'n, 1979 OK 62, ¶ 5, 594 P.2d 1210, 1212.

ANALYSIS AND REVIEW

¶ 14 The estate tax does not tax property as such. The tax is levied upon the shifting of economic benefits and the privilege of transmitting and receiving such benefits. In re Harkness' Estate, 1921 OK 329, 204 P. 911. Thus, several categories of interests may find themselves subject to being treated as included in an estate for tax purposes.

History Leading to ALJ's Consideration of Issues

¶ 15 At this juncture a review of the administrative proceedings will set the scene for the following analysis. OTC originally included the Trust in the Estate on the ground that the Trust was revocable. The Estate protested this decision by written protest dated September 10, 1999. The Estate presented its position in writing, filed January 12, 2000, which addressed the revocable-irrevocable issue.

¶ 16 Then, OTC filed its Division's Memorandum Brief on January 12, 2000. In this document OTC no longer asserted that the Trust was revocable. There, and at the administrative hearing, OTC stipulated that the Trust was irrevocable. However, in the Memorandum Brief and thereafter, OTC took the position that Decedent possessed a general power of appointment and that Decedent had a contingent interest in the Trust property.

¶ 17 The matter came before the ALJ on January 19, 2000. At that time, the Estate argued the revocable issue, but OTC stipulated that the Trust was irrevocable. The Administrative Hearing Record contains a discussion in which counsel for the Estate spoke about a prehearing conference and a discussion then of the issues.⁶ The appellate record does not contain a transcript of the prehearing conference or a prehearing conference order. In any event, Estate's counsel announced that he was proceeding on the basis of the issue set out by OTC in its adjustment sheet, which was the revocable trust issue. At one point the ALJ appeared to agree that whether the Trust was revocable was the issue for trial.⁷

¶ 18 The Estate did not address in any...