Indiana Dept. of State Revenue, Inheritance Tax Div. v. Cohen's Estate
Decision Date | 22 June 1982 |
Docket Number | No. 1-571A181,1-571A181 |
Citation | 436 N.E.2d 832 |
Parties | INDIANA DEPARTMENT OF STATE REVENUE, INHERITANCE TAX DIVISION, Petitioner-Appellant, v. ESTATE OF Herman COHEN, Deceased, Respondent-Appellee. |
Court | Indiana Appellate Court |
Linley E. Pearson, Atty. Gen., William Eric Brodt, Deputy Atty. Gen., Indianapolis, for petitioner-appellant.
David H. Goeller, Patrick, Gabbert, Wilkinson, Goeller & Modesitt, Terre Haute, for respondent-appellee.
Petitioner-appellant Indiana Department of State Revenue, Inheritance Tax Division (Tax Department) appeals from a negative judgment entered in the Vigo Superior Court in a bench trial, which favored Respondent-appellee Estate of Herman Cohen, Deceased (Estate) upon the Tax Department's petition for rehearing, reappraisement and redetermination of inheritance and transfer tax.
We reverse.
Herman Cohen (decedent) died on August 6, 1979, leaving an estate with assets valued in excess of $1,000,000. Included therein were four unsecured, interest-free promissory notes, having a face value of $112,000. These notes were executed by Martha Foulkes (Martha) within two years of decedent's death. In the schedule of all property, the Estate claimed the fair market value of the notes was $0.00 because Martha was insolvent at the time of decedent's death. Martha, a residuary beneficiary of decedent's estate, received approximately $716,792.71 as her distributive share. On December 19, 1980, the trial court entered findings of fact and conclusions of law wherein it found that Martha was insolvent at decedent's death and the notes were worthless assets of the estate.
The Tax Department presents the following two issues for review. However, because we are reversing, we shall only discuss Issue One.
I. Whether promissory notes, given to the decedent in his lifetime by a maker who is insolvent at the decedent's date of death but who is a residuary beneficiary of the decedent and by virtue thereof becomes possessed of funds more than sufficient to pay the notes, should be listed in the decedent's taxable estate at their face value?
II. Whether the guid (sic) pro quo given by the decedent for certain non-interest bearing demand promissory notes, within two years of his death, constituted transfers made in comtemplation of death pursuant to Ind.Code 6-4.1-2-4(a)(2) and Ind.Code 6-4.1-2-4(b). 1
The Estate contends the promissory notes are worthless for inheritance tax purposes because Martha, the maker of the notes, was insolvent at the decedent's date of death. The Tax Department disagrees, arguing that Martha was solvent and financially able to pay off her indebtedness at the time of decedent's death by virtue of her legacy from decedent's estate. Both the Tax Department and the Estate agree that the assets in decedent's estate must be reported at their fair market value as of the date of decedent's death. However, the Tax Department contends that the fair market value of the notes should be determined by their collectibility.
On appeal, the judgment of the trial court will be upheld if it can be sustained on any legal theory supported by the record. National Mutual Insurance Company v. Fincher, (1981) Ind.App., 428 N.E.2d 1386. In reviewing a negative judgment, the Court of Appeals abstains from reweighing the evidence and resolving all credibility issues, and considers only that evidence favorable to the appellee and all reasonable inferences drawn therefrom. Glen Gilbert Construction Company, Inc. v. Garvish, (1982) Ind.App., 432 N.E.2d 455. A party appealing from a negative judgment must establish that the evidence is without conflict and leads to but one conclusion, that which is not reached by the trial court. Campbell v. City of Mishawaka, (1981) Ind.App., 422 N.E.2d 334.
In its holding, the court in Gearhart's, supra, at 114, stated:
The Estate disputes the applicability of Gearhart's to the present case, arguing that Kentucky's inheritance tax statute appraises the value of a decedent's estate at a different time than the Indiana Death Statute.
In Gearhart's, the court cited, at 113, the relevant portions of the Kentucky inheritance tax law as follows:
" "
Ind.Code 6-4.1-2-1 provides, in pertinent part: "(a)n inheritance tax is imposed at the time of a decedent's death on certain property interest transfers made by him." We agree with the Tax Department that both statutes value estate assets for inheritance tax purposes as of the decedent's date of death.
Next, the Estate argues that Estate of Elizabeth v. Harper, Deceased v. Commissioner of Internal Revenue, (1948) 11 Tax Court 717, is controlling, the United States Tax Court having faced the issue of valuation of obligations of a legatee-maker who claims insolvency at the time of the testator's death.
In Harper, the testator's estate contained certain notes secured by securities and executed by heirs to his estate. The value of the securities and the net worth of the makers were less than the face amount of the notes at the time of the testator's death. However, the net worth of the makers exceeded the face value of the notes when the value of their inheritance from the residuary estate was included. For purposes of assessing the Federal Estate Tax, the U.S. Tax Court held that the value of the notes includable in the testator's gross estate is the value of the assets held as security for the notes plus the net worth of the makers. In other words, the distributive shares of the heirs indebted to the estate could not be included in valuing the decedent's interest at...
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