Greene v. United States

• Decision Date: 21 March 1978
• Docket Number: No. 75 C 4076.,75 C 4076.
• Citation: 447 F. Supp. 885
• Parties: Blanche GREENE, Executrix of the Estate of Arthur Greene, Deceased, Plaintiff, v. The UNITED STATES of America, Defendant.
• Court: U.S. District Court — Northern District of Illinois

447 F. Supp. 885

Blanche GREENE, Executrix of the Estate of Arthur Greene, Deceased, Plaintiff, v. The UNITED STATES of America, Defendant.

No. 75 C 4076.

United States District Court, N. D. Illinois, E. D.

March 21, 1978.

COPYRIGHT MATERIAL OMITTED

Franklin H. Chanen, David Shayne, Henry L. Mason III, Kathryn Korn, Sidley & Austin, Chicago, Ill., for plaintiff.

Myron C. Baum, Acting Asst. Atty. Gen., Jerome Fink and James W. Littlefield, Attys., Dept. of Justice, Washington, D. C., Samuel K. Skinner, U. S. Atty., N. D. Ill., Chicago, Ill., for defendant.

MEMORANDUM OPINION

WILL, District Judge.

Plaintiff, executrix of the estate of Arthur Greene, deceased, brings this action, pursuant to 26 U.S.C. § 7422 against the United States, for refund of $173,575.55 in estate taxes paid, plus interest from the date of overpayment. Before us at this time is plaintiff's motion for summary judgment, supported by affidavits and financial documents. The United States has responded to the motion and also moved to strike three of the affidavits on the ground that they are inadmissible under Illinois state law. Our jurisdiction is founded upon 28 U.S.C. § 1346(a). For the reasons herein stated, we deny defendant's motion to strike, and grant in part and deny in part plaintiff's motion for summary judgment.

I.

Arthur Greene died testate on January 7, 1969, and his will was admitted to probate and letters testamentary were issued by the Probate Division of the Circuit Court of Cook County on January 28, 1969. On May 23, 1969, plaintiff filed an inventory of the estate, which was approved by the court on that day, but she alleges that the Clerk of the Court failed to note the filing on the court's docket. The inventory noted no real estate and fourteen items of personal property.

On April 19, 1972, the probate court, on its own motion, ordered plaintiff to present an inventory which was filed and approved on May 3, 1972. The new inventory included certain of the original inventory items and added an additional $74,828 of assets. The notice which accompanied the filing of the new inventory stated that

an inventory of estate not previously inventoried has been filed in the above proceeding. Claims may be filed against the estate of Arthur Greene, deceased, on or before the First Monday in the month of July, 1972. All claims not filed on or before that date are forever barred as to the estate listed in such inventory.

On June 5, 1972, claims were formally filed with respect to debts owed by the deceased to Blanche Greene, his wife, Jane Michel, his daughter, and D. Daniel Michel, his son-in-law, in an aggregate amount of $428,577.87.¹ The claims of the Michels were allowed by the court on August 14, 1972. Each of the orders contained the following direction:

It is further ordered that this claim is to be paid from assets not previously inventoried within seven months from the issuance of letters testamentary and are sic to be paid only from other assets of the estate.

Due to the fact that Blanche Greene was Executrix, the court appointed a special executor to contest her claim. That claim was allowed on October 16, 1972 with the same direction as to source of payment as the others.

On September 11, 1972, upon petition of Blanche Greene, the probate court found that the May 23, 1969 inventory did not comply with the Illinois Probate Act with the result that "creditors of the estate may have been materially misled." The court declared that the 1969 inventory was "of no force and effect and that the items listed therein were not inventoried by said document within the meaning of Section 204 of the Probate Act." The May 3, 1972 inventory was declared to be the true and sole inventory of the estate.

Following the filing of estate tax returns by plaintiff, including a payment of $38,500, the Internal Revenue Service disallowed deductions of the debts plus interest allegedly owed and paid to plaintiff and the Michels. The Service also recomputed the marital and charitable deductions, reducing the estate by the amount of federal estate tax due prior to computing the deductions. The Service assessed deficiencies against the estate in the amount of $146,663.96 plus interest of $32,159.59. The total amount of $178,823.55 was paid on December 13, 1973. After an unsuccessful claim for refund via administrative channels, this action was filed.

Plaintiff now moves for summary judgment on her action for refund, based on her affidavit and those by the Michels attesting to the validity of the debts and the probate court action approving their payment. Defendant has asserted various defenses to the motion and in addition has moved to strike the affidavits on the ground that they are inadmissible under the Illinois Deadman's Act, Ill.Rev.Stat. ch. 51, § 2, and do not otherwise comply with Fed.R.Civ.P. 56(e).

II.

26 U.S.C. § 2053(a)(3) provides for the deductibility of claims against an estate which are "allowable by the laws of the jurisdiction" under which the estate is being administered. Regulation 20.2053-1(b) (2) provides that

The decision of a local court as to the amount and allowability under local law of a claim or administrative expense will ordinarily be accepted if the court passes upon the facts upon which deductibility depends. If the court does not pass upon those facts, its decree will of course, not be followed. For example, if the question before the court is whether a claim should be allowed, the decree allowing it will ordinarily be accepted as establishing the validity and amount of the claim. However, the decree will not necessarily be accepted even though it purports to decide the facts upon which deductibility depends. It must appear that the court actually passed upon the merits of the claim. This will be presumed in all cases of an active and genuine contest. If the result reached appears unreasonable, this is some evidence that there was not such a contest, but it may be rebutted by proof to the contrary. If the decree was rendered by consent, it will be accepted, provided the consent was a bona fide recognition of the validity of the claim (and not a mere cloak for a gift) and was accepted by the court as satisfactory evidence upon the merits. It will be presumed that the consent was of this character, and was so accepted, if given by all parties having an interest adverse to the claimant. The decree will not be accepted if at variance with the law of the state. . . ."

Regulation 20.2053-4 further requires that "only claims enforceable against the decedent's estate may be deducted." Thus, an unenforceable claim which is nevertheless allowed by the state court may not be deducted.

In order to determine the deductibility of the instant obligations, we must find the answers to a series of questions. The first, and the one to which defendant's motion to strike is directed, is whether the debts were valid obligations of the decedent regardless of their later collection. Assuming that the debts were valid, we must then determine if the claims were enforceable at the time of decedent's death, and, if so, the relevance of the fact that they were not filed until well after the cut-off date for claims against the assets inventoried in 1969. If, as plaintiff argues, the deductibility of debts is determined at the time of death irrespective of subsequent events, we need not proceed further. If, however, we must look at the status of the claims at time of formal filing, we must determine whether the claims may only be deducted from the $74,828 in new assets listed in the 1972 inventory and from which the probate court ordered payment, or whether the subsequent order of that court declaring the first inventory invalid and declaring the 1972 document the sole and true inventory permits the claims to be allowable, and therefore deductible from the whole estate. We reach each question in turn.

A. Validity of the Obligations

Defendant alleges as its first defense to the motion for summary judgment that the burden of proof as to the validity of the obligations has not been met. In support of this claim, defendant charges that the affidavits of Mrs. Greene and the Michels are inadmissible pursuant to the provisions of the Illinois Deadman's Act, Ill.Rev.Stat. ch. 51, § 2, and pursuant to Fed.R.Civ.P. 56(e), and that, in any event, all but the last of Greene's loans and the unpaid balance of the first two of Jane Michel's loans would be barred by the applicable statute of limitations. Each of the affidavits in question contains a sworn statement of the value of the loan, payments made on interest and principal by Arthur Greene or his estate, and copies of the affiant's and/or decedent's records.

Ill.Rev.Stat. ch. 51, § 2, provides in relevant part:

In the trial of any civil action in which any party sues or defends as the representative of a deceased or incompetent person, no adverse party or person directly interested in the action shall be allowed to testify on his own behalf to any conversation with the deceased or incompetent person or to any event which took place in the presence of the deceased or incompetent person, except in the following instances: . . .

We first note that the Seventh Circuit has stated that "there is a serious question whether the Illinois Dead Man's Statute would be applicable in a federal refund suit." Patrick v. United States, 524 F.2d 1109, 1117-18 (7th Cir. 1975). Assuming, however, that defendant is correct in its invocation of Fed.R. of Evidence 601 under which the capacity of witnesses is determined by reference to state law, and, although the instant action is a civil proceeding in which the decedent's representative is suing in that capacity, we find that the Illinois Deadman's Statute is inapplicable to the affidavits.

The purpose of the statute is "to protect the estates of deceased persons and the interests of parties suing or defending as executor, administrator, heir,...