Feinberg's Estate, In re

• Decision Date: 29 December 1966
• Parties: , 223 N.E.2d 780, 19 A.F.T.R.2d 576, 67-1 USTC P 9185 In the Matter of the ESTATE of Reuben FEINBERG, also known as Monte Stephen, Deceased. UNITED STATES of America, Respondent, v. Augusta FEINBERG, as Administratrix, Appellant. In the Matter of the ESTATE of Hyman M. FIELD, Deceased. UNITED STATES of America, Respondent, v. Rebecca FIELD et al., as Executors of Hyman M. Field, Deceased, Appellants.
• Court: New York Court of Appeals Court of Appeals

Page 249

277 N.Y.S.2d 249

18 N.Y.2d 499, 223 N.E.2d 780, 19

A.F.T.R.2d 576,

67-1 USTC P 9185

In the Matter of the ESTATE of Reuben FEINBERG, also known

as Monte Stephen, Deceased.

UNITED STATES of America, Respondent, v. Augusta FEINBERG, as Administratrix, Appellant.

In the Matter of the ESTATE of Hyman M. FIELD, Deceased.

UNITED STATES of America, Respondent, v. Rebecca FIELD et al., as Executors of Hyman M. Field, Deceased, Appellants.

Court of Appeals of New York.

Dec. 29, 1966.

Kevin B. McGrath and Norman Friedman, New York City, for appellant feinberg.

David I. Silverman and Charles Jaffa, New York City, for appellants Field and others.

Joseph P. Hoey, U.S. Atty. for Eastern Dist. of New York (Joseph Rosenzweig, Asst. U.S. Atty., Joseph Kovner and Thomas Stapleton, Attys., Dept. of Justice, Washington, D.C., of counsel), for respondent.

FULD, Judge.

These two cases call upon us to decide whether the mere filing of a notice of claim for unpaid taxes (estate and income) with the representatives of an estate constituted the commencement of a 'proceeding in court' within the meaning of Internal Revenue Code provisions, thereby tolling the Statutes of Limitation set forth in those provisions.

In Matter of Feinberg, the decedent died intestate in 1947 and his widow was appointed administratrix of the estate. In that capacity, she filed her husband's income tax return for 1947, reporting that he had been a partner in National Wire Rope Products and had earned income amounting to slightly under $36,000. The Internal Revenue Service audited the tax return, obtaining the administratrix' consent to extend the time for making tax assessments until June 30, 1954. On May 13 of that year, the Government made a deficiency assessment of $32,440.09 based on the decedent's unreported distributive interest in the partnership. Shortly thereafter, on August 12, the District Director of Internal Revenue filed a verified proof of claim with the administratrix who neither paid nor fornally rejected it. In 1957, the Government petitioned the Surrogate's Court to compel an accounting but, although a citation was issued, it was never served on the administratrix as her whereabouts were unknown. This proceeding was marked off the calendar in 1958 and a docket entry was made in 1960 terminating it as abandoned. The Government finally located the administratrix in Colorado and, in 1962, some Eight years after the assessment was made, it filed a petition to compel an accounting and served her with a citation. In her answer, the administratrix moved to dismiss the proceeding, asserting that it was time barred by subdivision (c) of section 276 of the Internal Revenue Code of 1939 (now U.S.Code, tit. 26, § 6502, subd. (a), par. (1)) which provided that an income tax 'may be collected by distraint or by a proceeding in court, but only if begun (1) within Six years after the assessment of the tax'.

In Matter of Field, the other case on appeal, the decedent died in 1946 and a year later the executors under his will reported an estate tax of nearly $23,000. In 1950, the Internal Revenue Service claimed that there was a tax deficiency of $33,000 which, several years later, after litigation in the Tax Court of the United States, was reduced on stipulation to slightly less than $12,000. In 1954, an assessment was made for $14,707.31, representing the unpaid taxes plus interest and, a year later, the District Director filed a verified proof of claim with the executors who neither paid nor formally rejected it. Extensive discussions took place between the Government and the executors over payment of the claim but to no avail. In 1962, Eight years after the assessment had been made, the Government sought to compel an accounting and also distrained the estate's bank account. The executors responded by charging that the Government's application was not timely, relying upon section 874 (subd. (b), par. (2)) of the Internal Revenue Code of 1939 (now U.S.Code, tit. 26, § 6502, subd. (a), par. (1)) which provided that an estate tax, just as an income tax, may be collected 'by distraint or by a proceeding in court' if begun within six years after the assessment of the tax.

The Surrogate's Court held in both cases that the Government was too late to press it tax claims. On appeal, the Appellate Division unanimously reversed and granted leave to appeal on certified questions.

It is not disputed that the Federal Government may proceed in our courts to obtain a recovery on its claims for unpaid taxes. (See Matter of Gellatly's Estate, 283 N.Y. 125, 127, 27 N.E.2d 809.) Nor is there any question that, in bringing such proceedings, 'the United States is not bound by state statutes of limitation or subject to the defense of laches'. (United States v. Summerlin, 310 U.S. 414, 416, 60 S.Ct. 1019, 1020, 84 L.Ed. 1283; see Matter of Smathers' Estate, 249 App.Div. 523, 293 N.Y.S. 314.) Congress has provided identically worded six-year Statutes of Limitation to govern collection of estate and income taxes following assessment (Internal Revenue Code of 1939 § 276, subd. (c); § 874, subd. (b), par. (2); now U.S.Code, tit. 26, § 6502, subd. (a), par. (1)), and they represent the exclusive requirements for timeliness which the Federal Government must meet.

Accordingly, as noted above, we are required to determine whether, under Federal Law, the Government did in fact institute a 'proceeding in court * * * within six years after the assessment of the tax' against each of the two estates before us. Although neither Congress nor the United States Supreme Court has defined what is meant by a 'proceeding in court', as that term is used in the Internal Revenue Code, there is no disagreement among the parties that a judicial settlement of claims against an estate constitutes such a proceeding. The real issue is whether the proceeding was timely Commenced by the Government. We note that the Supreme Court has already established the minimal steps in a State court which are necessary to commence a suit or proceeding for purposes of a Federal Statute of Limitations. (See Herb v. Pitcairn, 325 U.S. 77, 65 S.Ct. 954, 89 L.Ed. 1483; Burnett v. New York Cent. R.R. Co., 380 U.S. 424, 85 S.Ct. 1050, 13 L.Ed.2d 941.) In the Herb case (325 U.S. 77, 65 S.Ct. 954, supra), a suit was brought under the Federal Employers' Liability Act (FELA) within the limitations period--but in an Illinois court that lacked vanue. Thereafter, when the litigation was transferred to the proper forum, it was dismissed for not having been 'commenced' before the FELA Statute of Limitations had run. Under Illinois law, an action was not 'commenced' until it was brought in a court of competent jurisdiction. The Supreme Court reversed, holding that (p. 79, 65 S.Ct. p. 955), '(W)hen process has been adequate to bring in the parties and to start the case on a course of judicial handling which may lead to final judgment without issuance of new initial process, it is enough to commence the action within the federal statute'.

It thus appears that the critical factor is whether the service of the process employed in any particular case would, without more, operate to bring the parties into court. However, the types of legal proceedings and the procedures employed to institute such proceedings vary markedly from jurisdiction to jurisdiction. (See, e.g., Hanna v. Plumer, 380 U.S. 460, 85 S.Ct. 1136, 14 L.Ed.2d 8.) Under such circumstances as these, it is highly unlikely that Congress intended to gauge by some uniform Federal standard--which might very well be impossible to formulate--the sufficiency of legal process in all State courts. In the past, when Congress has legislated in an area of differing State rules without making provision for such diversity, the courts have frequently construed this to mean that in each State the appropriate local rule is to be adopted as the applicable Federal law. ¹ It was felt in those instances that 'the Congressional purpose can best be accomplished by application of (the) settled state rules * * *, so long as it is plain * * * that the state rules do not effect a discrimination against the government'. (R.F.C. v. Beaver County, 328 U.S. 204, 210, 66 S.Ct. 992, 995.) This principle has been consistently applied Without exception in cases such as the ones before us. ² As a Federal Court of Appeals observed in United States v. Saxe, 1 Cir., 261 F.2d 316, 319, 'Whether notice of a claim against * * * (an) estate * * * constitutes 'a proceeding in court,' presents a question of federal law. But the answer to the question depends upon the nature, function and effect of such a notice under (State) law.' Thus, when, under State law, a notice of claim would be regarded as the first step toward judicial settlement of the claim, a notice of claim for unpaid Federal taxes has been held to toll the Statutes of Limitation prescribed by the Internal Revenue Code. ³ Similarly, when local rules provide that a notice of claim, without more, will not bring the matter into court, filing such a notice for unpaid Federal taxes has failed to save the claim from being time barred. (See United States v. Saxe, 261 F.2d 316, supra.)

In New York, it is settled that the filing of a verified claim with the representatives of an estate is the first step toward having the claim 'tried and determined upon the judicial settlement' (Surrogate's Ct.Act, former § 211 (Code Civ.Proc., § 2681, as enacted by L.1914, ch. 443; now Surrogate's Ct.Act, § 211--a)), and it is viewed, therefore, as 'the commencement of a special proceeding that (tolls) the statute of limitations'. (Matter of Schorer's Estate, 272 N.Y. 247, 250, 5 N.E.2d 806, 807; see Matter of Guy's Estate, 275 App.Div. 143, 88 N.Y.S.2d 693; Matter of Whitcher, 230 App.Div. 239, 243 N.Y.S. 720.) Former section 211 of the Surrogate's Court Act provided that, 'If the executor or administrator doubts the justice or validity of any...