Sullivan's Estate, In re

• Decision Date: 29 December 1970
• Citation: 317 N.Y.S.2d 877,65 Misc.2d 461
• Parties: In re Application to reduce the interest upon New York Estate Taxes not paid within fifteen months of Decedent's Death in the ESTATE of John J. SULLIVAN, Deceased. Surrogate's Court, Jefferson County
• Court: New York Surrogate Court

Page 877

317 N.Y.S.2d 877

65 Misc.2d 461

In re Application to reduce the interest upon New York

Estate Taxes not paid within fifteen months of

Decedent's Death in the ESTATE of John

J. SULLIVAN, Deceased.

Surrogate's Court, Jefferson County.

Dec. 29, 1970.

McKay & O'Keefe, New York City, for petitioners; John A. O'Keefe, New York City, of counsel.

Robert R. Hrabchak, Watertown, for the State Tax Commission.

DECISION

LEON SCHWERZMANN, Jr., Judge.

The executors of this estate, having failed to pay over 33 1/3% Of the New York estate tax due thereon until nearly 6 years after the date of decedent's death, seek to have the resulting interest liability on the unpaid portion reduced from 10 per cent to 6 per cent per annum.

The governing statute, of course, is § 249-z(1) of the Tax Law, made applicable by § 962(b) thereof. Relevant to this application, § 249-z(1) provides that the tax in question 'shall be due and payable at the time of the decedent's death and shall be paid by the executor,' (par. 1); that if any portion of such tax is not paid within 15 months of decedent's death, or within any extension thereof, 'interest shall be charged and collected thereon at the rate of ten per centum per annum from the date of decedent's death to the date of payment,' (pars. 4, 5); and that the rate of such interest may be reduced by the court from 10 per cent to 6 per cent 'if by reason of * * * necessary litigation or other unavoidable cause of delay The tax cannot be determined and paid as herein provided, but such reduction of interest shall be only for the period during which such cause of delay was operative.' (par. 6) (Emphasis supplied.) With reference to the emphasized portion of the foregoing paragraph, it may be noted that the section expressly provides a method for determining and paying the tax, at any time before it is actually assessed and its exact amount known, by authorizing the representative to estimate the amount of the tax and to make a 'temporary payment' in anticipation thereof 'for the purpose of avoiding interest.' (par. 1)

The facts, in order of their occurrence, were these: The decedent died on July 26, 1963, and on January 27, 1964, the executors paid $30,000 in anticipation of the New York estate tax. In October of 1964, the executors filed a federal inheritance tax return, but failed to file the corresponding state return which was due at the same time. In July of 1966, the executors were first advised, and ny letter dated October 3, 1967 they were formally notified, of the results of the audit of their federal return. These indicated (a) that the executors had undervalued the net taxable estate to the extent of $317,514, (b) that at least 68% Of this undervaluation, or $226,027 thereof, was attributable to errors and omissions on the part of the executors in the preparation of the return, i.e., their miscalculation of the marital deduction, their omission of certain assets, their improper valuation of a government bond, and their treatment of the estimated estate tax as a direct deduction from the gross taxable estate, and (c) that the Internal Revenue Service was taking the further position that the executors had undervalued the stock of a closely held corporation to the extent of $20,161, and that they had failed to include in the gross taxable estate, as a gift in contemplation of death at a value of $71,325, a certain insurance policy which the decedent had transferred to his son just prior to his death.

The executors subsequently engaged in both tax and condemnation litigation, but the record is silent as to the relevant particulars of either. The moving papers show only that 'litigation was instituted in the Tax Court,' that 'coincidental' therewith certain condemnation 'litigation was also undertaken,' and that the tax litigation was terminated by a consent order made and entered on December 9, 1969. Following the tax litigation, and in April of 1970, the executors paid the deficiency in the federal tax; on June 25, 1970, they made an additional payment of $20,000 in anticipation of the unpaid balance of the state tax; and on July 3, 1970, they filed their first...