IN THE MATTER OF ESTATE OF SIEBRASSE

• Decision Date: 07 April 2004
• Docket Number: No. 22964, No. 22978
• Citation: 678 NW 2d 822,2004 SD 46
• Court: South Dakota Supreme Court
• Parties: IN THE MATTER OF THE ESTATE OF HENRY SIEBRASSE, Deceased.

2004 SD 46

678 NW 2d 822

IN THE MATTER OF THE ESTATE OF HENRY SIEBRASSE, Deceased.

Nos. 22964, 22978

Supreme Court of South Dakota.

Considered on Briefs on February 17, 2004

Opinion Filed April 7, 2004

JEFF G. HURD, JOHN H. RAFORTH of Bangs, McCullen, Butler, Foye & Simmons, Rapid City, South Dakota, Attorneys for appellant Estate & Donald Siebrasse.

KENNITH L. GOSCH, MELISSA E. NEVILLE of Bantz, Gosch, Cremer, Peterson & Sommers, Aberdeen, South Dakota, Attorneys for appellee Delbert Siebrasse.

ZINTER, Justice

[¶ 1.] This appeal involves an ongoing probate dispute. Delbert and Donald Siebrasse are devisees of their father's estate. As a result of Delbert's successful efforts to reduce the taxable value of his inheritance, the total value of the taxable estate was reduced. As a result of that reduction, the Estate received a federal estate tax refund. Over Estate's objection, the circuit court ordered that the entire refund be given to Delbert, rather than apportioning the new tax liability among all persons in proportion to their respective interests.¹ In deciding this refund issue, the circuit court also valued Delbert's inherited land and denied Delbert's request for attorney's fees. Both brothers appeal, and we: (1) reverse the order requiring an immediate distribution of the entire tax refund to Delbert, (2) remand for an apportionment of the ultimate estate tax liability, (3) reverse the trial court's finding on the valuation of Delbert's land, (4) remand for a reconsideration of Delbert's attorney fee request, and (5) affirm all other issues.

Facts and Procedural History

[¶ 2.] Henry Siebrasse died on May 1, 1999. Henry was survived by his daughter, Leola Siebrasse Hall, and two sons, Donald and Delbert. Henry's will was admitted to probate, and his son Donald was appointed personal representative. Donald, as personal representative, reported the value of Delbert's inherited land at $328,600 for tax purposes. However, Delbert argued that the value should be reduced by $183,600 to $145,000. The federal estate tax was calculated on the value of the total estate, which included the personal representative's $328,600 land value. The tax was apportioned among all those interested in the estate, and Delbert paid $92,710 as his pro rata share.

[¶ 3.] This land valuation disagreement became the subject of two previous appeals before this Court. In the first, we held that Delbert was denied due process when he was denied a hearing on valuation. In re Estate of Siebrasse, 2002 SD 26, 640 NW2d 747 (Siebrasse I). We remanded the case "for a hearing on the valuation of the land Delbert inherited and for additional appropriate proceedings if the value is changed." Id. ¶13. On rehearing of that appeal, we next held that because the will did not include a tax clause, the federal estate taxes were to be apportioned among all of the devisees of the Estate under SDCL 29A-3-916(b). In re Estate of Siebrasse, 2002 SD 118, 652 NW2d 384 (Siebrasse II).

[¶ 4.] Following Siebrasse II, Delbert petitioned the circuit court for a hearing to determine the value of the real property he inherited. Delbert sought to reduce the value of the land and resulting estate and inheritance taxes. A hearing on this question became necessary because Donald, acting as personal representative, declined to support Delbert's revaluation/refund claim. Later, however, Donald relented to the point of giving Delbert a power of attorney that permitted Delbert to pursue the refund on his own. Consequently, the circuit court valuation hearing was continued indefinitely.

[¶ 5.] Delbert then filed his revaluation claim with the IRS. Delbert argued that the IRS had not previously been given sufficient information about the nature of the land to properly value it. He asserted that his inherited land had been over-valued by $183,600. He claimed that his lower valuation would reduce the value of the total estate and the corresponding federal estate tax liability.

[¶ 6.] The IRS subsequently accepted Delbert's claim, reduced the tax on the entire estate, and refunded $90,580.18 to the Estate ($75,525 in estate tax and $18,055.18 in interest). This dispute then developed over the right to the refund. The Estate argued that the refund was still being examined by the IRS, and therefore, it should not have been distributed until the federal estate tax was finally determined. Estate also argued that if the refund was to be distributed, it should be allocated among all those interested in the estate in accordance with their ultimate federal estate tax liability under the apportionment statute. Delbert, however, claimed that because the entire refund arose from his efforts, "equity demanded" that the entire refund belonged to him. Delbert sought an immediate distribution along with his attorney's fees and prejudgment interest.

[¶ 7.] The circuit court concluded that because the refund arose from Delbert's sole efforts to revalue his inherited land, equity required that the Estate should pay the entire refund to Delbert. The circuit court specifically declined to apportion the refund as a part of the new estate tax liability. The circuit court also ruled that Delbert was not entitled to his attorney's fees because he expressly waived them if he received the entire refund. The circuit court finally adopted a finding that the value of Delbert's inheritance was $145,000. Each of these rulings is now challenged.

[¶ 8.] Estate appeals raising the following issues:

1. Whether the circuit court denied the Estate due process when it valued Delbert's inherited land after the hearing on the motion to distribute the estate tax refund.

2. Whether the circuit court erred in ordering the distribution of the federal estate tax refund before the taxes were finally determined.

3. Whether the estate tax liability remaining after the refund arising from the revaluation of Delbert's land should have been apportioned among all those liable for the tax.

By Notice of Review, Delbert raises the following issues:

4. Whether Delbert is entitled to attorney's fees in pursuing the federal estate tax refund.

5. Whether Delbert is entitled to prejudgment interest on the federal estate tax refund withheld from distribution by the Estate's personal representative.

Analysis and Decision

[¶ 9.] 1. Whether the circuit court denied the Estate due process when it valued Delbert's inherited land after the hearing on the motion to distribute the estate tax refund.

[¶ 10.] We previously held that it was a violation of due process to value Delbert's inheritance without notice and opportunity to be heard. Siebrasse I, 2002 SD 26, ¶12, 640 NW2d at 750. We review due process questions de novo. Roth v. Farner-Bocken Co., 2003 SD 80, ¶44, 667 NW2d 651, 665.

[¶ 11.] The Estate points out that prior to Siebrasse I, the circuit court adopted Estate's value of the inherited land without a hearing and this Court reversed. Estate argues that this time the circuit court "committed the same error in a different direction," by adopting Delbert's value without a hearing. Procedurally, we note that Delbert had noticed a hearing on valuation, and then abandoned it when the Estate granted him the power of attorney to seek the refund. Therefore, the circuit court did not conduct a specific valuation hearing. The valuation finding at issue was made as a part of the hearing on the refund dispute.²

[¶ 12.] Considering this procedural history, we believe that the Estate was technically on notice that the land valuation was a likely issue at the refund distribution hearing. It was on notice because a distribution on the Estate's requested method using the apportionment statute would have required that the ultimate tax liability be apportioned pro rata according to the interest received. However, we also observe that under the apportionment statute, the value used to determine the tax is the value used to apportion the tax. SDCL 29A-3-916(b).³ Therefore, because there is no dispute that $145,000 was the value used to determine the tax, no separate valuation was required. Moreover, the trial court did not apportion the ultimate tax liability and refund under 29A-3-916(b). Instead, it gave the entire refund to Delbert. Under these circumstances, a valuation finding was unnecessary to the circuit court's method of distributing the refund. Because a valuation finding was unnecessary, we reverse that finding and remand for a valuation hearing should it be necessary for any purpose in future proceedings.

[¶ 13.] 2. Whether the circuit court erred in ordering the distribution of the federal estate tax refund before the taxes were finally determined.

[¶ 14.] The circuit court concluded that the refund should be distributed immediately. Donald, however, argues that an immediate distribution exposed him to personal liability because, as personal representative of the estate, he was liable for any tax that was erroneously refunded. "We review a trial court's conclusions of law under the de novo standard[.]" Burkhart v. Lillehaug, 2003 SD 62, ¶9, 664 NW2d 41, 42 (citing Osloond v. Osloond, 2000 SD 46, ¶6, 609 NW2d 118, 121).

[¶ 15.] We first note that if refunds are later determined to be erroneous, the IRS may recover them. 26 USC 7405 provides:

(a) Refunds after limitation period.—Any portion of a tax imposed by this title, refund of which is erroneously made, within the meaning of section 6514, may be recovered by civil action brought in the name of the United States.

(b) Refunds otherwise erroneous.—Any portion of a tax imposed by this title which has been erroneously refunded (if such refund would not be considered as erroneous under section 6514) may be recovered by civil action brought in the name of the United States.

We also note that this record reflects Donald was contacted by the IRS and advised that the government intended to reexamine the refund. In fact, Donald showed Delbert a letter from the IRS stating...