Steigerwald's Estate, In re

• Decision Date: 14 March 1956
• Parties: Matter of the Appraisal of the ESTATE of John S. STEIGERWALD, Deceased. Surrogate's Court, Erie County
• Court: New York Surrogate Court

Page 862

150 N.Y.S.2d 862

2 Misc.2d 389

Matter of the Appraisal of the ESTATE of John S.

STEIGERWALD, Deceased.

Surrogate's Court, Erie County.

March 14, 1956.

Moot, Sprague, Marcy & Gulick, Buffalo, David L. Landy, and W. Barry Mallon, Jr., Buffalo, of counsel, for executors.

Eugene B. Blazejewski, Buffalo, for New York State Tax Commission.

YEAGER, Surrogate.

This is a motion by the State Tax Commission for an order, pursuant to Subdivision 6 of Section 20 of the Surrogate's Court Act, modifying the pro forma taxing order of February 14, 1953, so as to increase the valuation of certain stock of the Buffalo Jewelry Case Company, Inc., to the amount so fixed and agreed to by the executors for purposes of the federal estate tax, and so as to increase the value of the net estate and the amount of tax accordingly, and in such amount as the Court shall determine to be just and lawful, and for such other and further relief as to this Court shall seem just and proper.

Section 20, subdivision 6 of the Surrogate's Court Act gives the Surrogate power:

'To open, vacate, modify, or set aside, or to enter as of a former time, a decree or order of his court; or to modify or resettle a decree or order of his court to conform its provisions to the decision in writing of the surrogate; or to grant a new trial or a new hearing for fraud, newly discovered evidence, clerical error, or other sufficient cause. The powers conferred by this subdivision must be exercised only in a like case, and in the same manner, as a court of record and of general jurisdiction exercises the same powers.'

There are a number of dates and events which are relevant and have significance. October 29, 1951, was the date of decedent's death. On November 29, 1951, his will was probated. On January 29, 1953, the New York Estate Tax Return was verified and filed, and on the same date the Federal Estate Tax Return was filed. On February 14, 1953, the Estate Tax Appraiser duly reported that the value of 1,115 shares of decedent's stock in Buffalo Jewelry Case Co., Inc., was $52.85 per share or a total of $58,927.75 and the Surrogate made an order on that date determining the value to be as reported by the executors and found by the appraiser: $58,927.75. On March 11, 1955, the District Director of Internal Revenue put a value on said stock of $75 per share, or $83,625 in all, and assessed a Federal Estate Tax accordinly. The executors paid it. On August 16, 1955, the executors accounted judicially and were discharged. On October 10, 1955, the notice of the Tax Commission's motion was served.

As part of both the New York and the Federal returns, the executors furnished certain supporting data: (1) a comparative balance sheet of Buffalo Jewelry Case Co., Inc., for the years 1947-50, inclusive, and the first ten months of 1951; (2) comparative profit and loss statements for the years 1947-51, inclusive; (3) a letter from the executors' attorney describing the formula which had been used in evaluating said stock, and offering to furnish the Estate Tax Appraiser with such additional information as he might require.

The State Tax Commission had certain remedies available if it felt dissatisfied with the Surrogate's Order of February 14, 1953:

(1) An appeal to the Surrogate, under Section 249-x of the Tax Law, within sixty days from the date of his determination. The Commission took no such appeal.

(2) An application to a Supreme Court Justice, under Section 249-x of the Tax Law, within two years from the date of the Surrogate's determination, for a re-appraisal of the stock. The Commission made no such application.

(3) An appeal to the Surrogate, under Section 249-x of the Tax Law, at any time, on the ground of fraud, falsity or incompleteness. The Commission has not appealed.

(4) A motion under Section 20(6) of the Surrogate's Court Act, quoted above, 'to open, vacate, modify, or set aside' the order of February 14, 1953; 'or to grant a new trial or a new hearing for fraud, newly discovered evidence, clerical error, or other sufficient cause.'

The State does not claim fraud or clerical error, but does claim there is newly discovered evidence and other sufficient cause requiring a modification of the Surrogate's order of February 14, 1953, so as to harmonize with the valuation of said stock as found by the District Director of Internal Revenue. It urges that the executors accepted a higher valuation in the federal tax proceeding and that, in the New York proceeding, the value of the stock was not 'litigated.'

Let us consider the question whether or not the value of the stock was litigated in the New York proceeding. If not litigated, but a mistake took place, there have been instances where courts have permitted the mistake to be rectified. In Matter of Troescher's Estate, 2d Dept., 265 App.Div. 971, 38 N.Y.S.2d 945, affirmed 291 N.Y. 760, 52 N.E.2d 965, the executors placed full value on a promissory note. When they later found it was not worth its full value, they were permitted to change its value on the ground that the question of value had not been litigated, only assumed. But how and when did the executors proceed? They made their motion to modify the pro forma order within two years after the entry of the order originally fixing the tax. The Appellate Division expressly pointed out that it was undisputed that the promissory note listed at $9,250 was in fact worthless; and that the only contention raised by the State was that the Surrogate had no power to modify the pro forma order after the time to appeal had expired. A divided court held that he had such power and that the tax was erroneously assessed under a mistake of fact. The Court of Appeals affirmed on the ground that the motion had been timely made, saying that although the new order of the Surrogate changing the value was made more than two years after entry of the order originally fixing the tax, the motion itself was made within two years after such entry, which was timely.

In the instant case, in contrast to the Troescher case, we have sharp disagreement as to value of an estate asset and the further difference that the motion to modify was not made within the prescribed two year period.

There is a Fourth Department case of interest: In re Kramek's Estate, 275 App.Div. 987, 91 N.Y.S.2d 219. Surrogate Paul of Erie County had vacated a pro forma tax order and directed a refund to the estate for overpayment in taxes. The Tax Commission appealed. Three of the Justices voted to affirm, simply modifying the order on the law by striking out the last two paragraphs of the order. The other two Justices voted to modify the order on the ground that the petitioner, as the surviving tenant by the entirety, had not carried the burden of proof with respect to several parcels of real estate to accomplish a reduction in their reported value. Those two Justices observed in their dissenting opinion that the facts set forth in the tax schedules were not litigated but were assumed to be true. We must infer that the other three Justices were of the opinion that the values had been litigated in the New York tax proceeding.

We hold that the value of the Buffalo Jewelry Case Co., Inc., stock was litigated in the New York Estate Tax Proceeding. We do not concur in the State's claim that the executors accepted the higher values found by the District Director of Internal Revenue in a sense which binds them or estops them. They may simply have bought their peace, avoiding protracted and costly litigation.

Let us now consider the State's argument that the federal determination constitutes newly discovered evidence within Section 20(6) of the Surrogate's Court Act. The State does not say it has just discovered that the financial statements, balance sheets, etc., with which it as well as the federal government were supplied, were incomplete, false or erroneous. Nor does it claim that it has, with justification, just discovered that certain conditions in the jewelry case industry, or other factors which it could not reasonably have been expected to know about, exist and would necessitate a higher valuation. We cannot agree that a different tax conclusion arrived at by one branch of the government, as compared with the conclusion of another branch of the government, both based on the same evidence, in and of itself constitutes 'newly discovered evidence.'...