Rosano v. U.S.A., Docket No. 99-6299

• Decision Date: 17 January 2001
• Docket Number: Docket No. 99-6299
• Citation: 245 F.3d 212
• Parties: (2nd Cir. 2001) ROBERT ROSANO, as Executor of the Estate of Mary R. Rosano, Plaintiff-Appellant, v. UNITED STATES OF AMERICA, Defendant-Appellee. Argued:
• Court: U.S. Court of Appeals — Second Circuit

Page 212

245 F.3d 212 (2nd Cir. 2001)

ROBERT ROSANO, as Executor of the Estate of Mary R. Rosano, Plaintiff-Appellant, v. UNITED STATES OF AMERICA, Defendant-Appellee.

Docket No. 99-6299

UNITED STATES COURT OF APPEALS For the Second Circuit

Argued: Jan. 17, 2001

Decided: April 06, 2001

A. LAWRENCE WASHBURN, JR., New York, N.Y. for Plaintiff-Appellant.

MARION E.M. ERICKSON, Tax Division, Department of Justice, Washington, D.C. (Paula M. Junghans, Acting Assistant Attorney General, Richard Farber, on the brief, Loretta E. Lynch, United States Attorney, Of Counsel), for Defendant-Appellee.

Before: VAN GRAAFEILAND, NEWMAN & LEVAL, Circuit Judges

VAN GRAAFEILAND, Senior Circuit Judge:

The parties do not dispute the facts, which are aptly summarized in the Report and Recommendation of Magistrate Judge Orenstein, which was adopted, with minor modifications, by Judge Seybert. Rosano v. United States, 67 F. Supp. 2d 113 (E.D.N.Y. 1999). This case concerns an attempt by the decedent, Mary Rosano, to decrease the amount of money in her taxable estate by making gifts of less than $10,000 to numerous relatives and friends. She did this by writing checks to relatives and friends. Mary Rosano died on January 21, 1990. The checks in question were not paid until after her death.

Rosano's executor did not include the amount of the disputed checks in the estate. The IRS conducted an audit and increased the value of the estate by the amount of the disputed checks, resulting in an additional estate tax liability of $200,948.57. Additionally, the IRS imposed $35,349.00 in penalties plus $63,702.30 in interest. The estate paid these amounts in full, then filed a claim for a refund. The IRS denied the refund, and the estate filed the instant suit.

The case was assigned to Magistrate Judge Orenstein. Judge Orenstein stated that any gift of $10,000 or less that was "completed" prior to Mary Rosano's death should not be included in the estate. 67 F. Supp. 2d at 119. The issue, therefore, was whether checks that were paid after Mary Rosano died were "completed gifts". Id. Federal law provides that a gift is completed when the donor has parted completely with "dominion and control" over the gift. Id. To determine whether Rosano parted with dominion and control, Judge Orenstein turned to New York state law. Under New York law, Mary Rosano had the ability, at any time until the checks were paid, to order that payment on the checks be stopped. Thus, she retained dominion and control over the checks at the time of her death and the gifts were not completed. Id. at 120-21.

Judge Orenstein next considered the estate's argument that the checks should be considered to have been paid on the date they were delivered by Rosano to the donees, rather than on the date they were actually paid. The estate's argument was a variation on the doctrine of "relation-back," which generally is applied in cases involving charitable donations. Under it, checks delivered to donee charities prior to a decedent's death but not paid until after the decedent's death may be considered completed on the date of delivery. Estate of Belcher v. Commissioner, 83 T.C. 227 (1984). Recently this doctrine was extended to the non-charitable donation context, to govern whether a gift was made within a year in which it would be exempt from the gift tax, but in that case the donor was alive at the time the checks were paid. Metzger v. Commissioner, 38 F.3d 118 (4th Cir. 1994). The estate has pointed to no court that has allowed payment to relate back to the date of delivery if the donor was deceased on the date of actual payment and the donee was not a charitable entity.

DISCUSSION

The decision below correctly resolves the arguments made by appellant. We address only appellant's argument that we should apply the doctrine of relation-back to gifts made to non-charitable donees where the donor has died prior to the payment of the gifts.

The doctrine of relation-back is entirely judicially created. See id. at 124 (Luttig, J., dissenting). Accordingly, in evaluating appellant's argument, we have no easy recourse to legislative authority. Rather, we must evaluate the policy goals that led the courts to create the doctrine, and determine whether the goals are met by applying the doctrine in the instant case. We conclude that they are not.

Other courts have refused to apply the doctrine when the decedent died prior to payment of a non-charitable gift. McCarthy v. United States, 806 F.2d 129, 131-33 (7th Cir. 1986); Newman v. Commmissioner, 111 T.C. 81 (1998). In McCarthy, the court offered two reasons for its refusal to extend the doctrine of relation-back. First, a rationale for applying the doctrine in the...