Swietlik v. U.S.

• Decision Date: 26 December 1985
• Docket Number: No. 85-1887,85-1887
• Citation: 779 F.2d 1306
• Parties: -1497, 86-1 USTC P 13,652 Joseph I. SWIETLIK, personal representative of the estate of Helen V. Safran, deceased, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Seventh Circuit

Page 1306

779 F.2d 1306

57 A.F.T.R.2d 86-1497, 86-1 USTC P 13,652

Joseph I. SWIETLIK, personal representative of the estate of Helen V. Safran, deceased, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

No. 85-1887.

United States Court of Appeals Seventh Circuit.

Argued Oct. 30, 1985.

Decided Dec. 26, 1985.

Joseph I. Swietlik, Swietlik & Petajan, Milwaukee, Wis., for plaintiff-appellant.

Joan I. Oppenheimer, Asst. Atty. Gen., Tax Div., U.S. Dept. of Justice, Washington, D.C., for defendant-appellee.

Before CUDAHY and POSNER, Circuit Judges, and GRANT, Senior District Judge. ^*

POSNER, Circuit Judge.

Bernard Safran killed his mother, Helen Safran, in 1977, and was allowed to plead no contest to reckless homicide. A trust company, First Wisconsin, was appointed personal representative of the estate. Mrs. Safran's will had left her considerable property to Bernard. Relatives of Helen challenged the will on the ground that the common law bars a murdering heir from collecting his inheritance. See Riggs v. Palmer, 115 N.Y. 506, 22 N.E. 188 (1889). Litigation ensued in the state courts of Wisconsin in which the crucial issue (left unresolved by the criminal proceedings) was whether Bernard had killed his mother with sufficient deliberateness to be barred by the murdering-heir rule. In 1978, while the litigation was in progress, First Wisconsin filed a federal estate tax return and with it a check for the tax liability shown as due on the return--more than $400,000. In 1979 the Wisconsin trial court held that Bernard's guilty plea disqualified him from inheriting. On appeal, the Supreme Court of Wisconsin held that reckless homicide per se was not disqualifying; the question was whether Bernard had intentionally killed his mother, and to answer the question the case would have to be remanded to the trial court for a factual inquiry. In re Estate of Safran, 102 Wis.2d 79, 306 N.W.2d 27 (1981). The following year the litigation was settled by an agreement under which a small portion of the estate went to Bernard (how much, the record does not disclose) and the rest to the objecting relatives. First Wisconsin then resigned as personal representative and was replaced by Swietlik.

Under Wisconsin law the probate court can award reasonable attorney's fees out of the assets of an estate to the objecting party in a will contest--provided the objector wins. Wis.Stat. Sec. 879.37. After the contest over Helen Safran's will was settled, the victorious objectors were awarded substantial fees, and in 1983 Swietlik on behalf of the estate filed a claim for refund of more than $100,000 in estate tax, on the ground that the fees were deductible expenses of the estate. The government refused to pay. It said the claim for refund was barred by 26 U.S.C. Sec. 6511(a), which requires that such a claim be filed no later than three years after the estate tax return is filed or two years after the estate tax is paid, whichever is later, and by 26 U.S.C. Sec. 6511(b)(1), which provides that no untimely claim shall be allowed; Swietlik's claim had been filed more than five years after the filing of the return and the paying of the tax. After the claim was rejected, Swietlik brought this suit for refund, which the district court dismissed because of the untimeliness of the claim. See 26 U.S.C. Sec. 7422(a). Swietlik appeals.

When the deadline for seeking a refund expired in April 1981, no one could know whether or in what amount the estate would incur a deductible expense for the legal fees of the objectors in the will contest. But Swietlik does not argue that the then contingent nature of any claim for refund prevented the statute of limitations in section 6511(a) from running. If a claim for refund is contingent or uncertain in amount or, as here, both, the proper procedure is to file a conditional claim before the statute of limitations runs out; if you fail to do that the statute of limitations will bar the refund. See O'Brien v. United States, 766 F.2d 1038, 1041 n. 3 (7th Cir.1985) (disapproving a contrary intimation in Chertkof v. United States, 676 F.2d 984, 991 (4th Cir.1982)). See also United States v. Wells Fargo Bank, 393 F.2d 272 (9th Cir.1968), where the estate knew before the filing deadline passed that it would incur attorney's fees but didn't know how much they would be.

This much is common ground between Swietlik and the government. Where they part company is over the question whether even a conditional claim could have been filed before the will contest was settled in 1982. The government concedes that despite the flat and unqualified language of section 6511(a) and the tradition of strict construction of statutes of limitations in suits against the government (of which more later), a legal incapacity to file a claim--infancy, for example--would toll the statute of limitations. We have our doubts. The only cases we can find that involve a defense of legal incapacity to the statute of limitations in section 6511(a) involve "restricted" Indians; and though all hold that the statute of limitations is tolled by the Indians' legal incapacity to file a refund claim, see Dodge v. United States, 362 F.2d 810, 815 (Ct.Cl.1966) (per curiam); Nash v. Wiseman, 227 F.Supp. 552, 556 (W.D.Okla.1963); Daney v. United States, 247 F.Supp. 533, 535 (D.Kan.1965), aff'd on other grounds, 370 F.2d 791 (10th Cir.1966); Harrington v. United States, 70-1 U.S. Tax Cases (CCH) p 9215, at p. 82,860 (N.D.Okla.1970), they may (as Dodge suggests, see 362 F.2d at 815) rest on the special obligations of the United States toward Indians. The government's concession is appealing, though; for why would Congress, in giving a taxpayer two or three years to file a claim, at the same time erect an obstacle to suit impossible to overcome even by someone who exercises the very highest degree of diligence in prosecuting his claim and is prevented from meeting the statutory deadline only by legal incapacity to file it? On the other hand a long line of cases under the Federal Tort Claims Act holds that the statute of limitations in that Act is not tolled by infancy. See, e.g., Robbins v. United States, 624 F.2d 971, 972 (10th Cir.1980). But we shall not have to decide whether incapacity can ever toll the statute of limitations in section 6511(a); for we reject Swietlik's argument that his predecessor, First Wisconsin, was incapacitated from filing a conditional claim for refund during the will contest.

It is true that under Wisconsin law the personal representative of an estate which has been devised by will is deemed a fiduciary of the person(s) named in the will to take the estate, see, e.g., Estate of Hoyt, 22 Wis.2d 209, 125 N.W.2d 350 (1963); 1 MacDonald, Wisconsin Probate Law and Practice Secs. 7:38-7:39 (8th ed., Berman & Hallinan eds., 1982), and until the will contest was resolved this was the unworthy Bernard. On this base Swietlik builds the following argument. Had First Wisconsin filed a conditional claim for refund of estate taxes in anticipation that the objectors might prevail in the contest and claim a reasonable attorney's fee from the estate, this could not have helped Bernard, and could have hurt him, and would therefore have been a breach of trust. Filing such a claim could not (Swietlik argues) have helped Bernard because if he won the will contest the objectors would not be entitled to any award of attorney's fees from the assets of the estate, so there would be nothing to deduct. True, the estate could deduct on its estate tax return the fees it had expended in defending the will contest, and this would require the filing of a conditional claim. But an alternative would be to add back the amount of the fees to the income that the estate had distributed to Bernard as its beneficiary and let Bernard deduct the fees on his personal income tax return; and depending on the respective marginal tax brackets of the estate and Bernard, and on other factors, this could be, and apparently was, more advantageous to Bernard than deducting the fees on either the estate's income tax return or the estate tax return would have been. See 26 U.S.C. Sec. 642(g); 3 Bittker, Federal Taxation of Income, Estates and Gifts paragraphs 81.2.6-81.4.7 (1981); Metzer, The Deduction of an Estate's Administration Expenses: Section 642(g) of the Internal Revenue Code and Its Impact, 21 Tax L.Rev. 459, 464-87 (1966). All this is on the assumption that Bernard would win the will contest, which was at least a possibility when the time for filing a claim for refund ran out. If he lost, he would have no income from the estate from which to deduct an expense (attorney's fees) in collecting that income--but if he lost he wouldn't care a fig whether the estate got a tax refund.

If filing a claim for refund could not have helped Bernard, it could have hurt him, by extending the period within which the government could claim that more estate tax was due than indicated on the estate tax return. See 26 U.S.C. Sec. 7422(e). Swietlik concludes that it would have been a breach of trust for his predecessor to have filed a claim for refund before the will contest was resolved, and that therefore the predecessor was as legally incapable of filing such a claim as a child would have been.

This we greatly doubt and on several grounds. Although First Wisconsin was obligated to defend Bernard in the will contest, it must have known from the first (as there was never any doubt about who had killed Mrs. Safran) that there was a high probability that the contest would end adversely to Bernard, and must have known that Bernard's successors as beneficiaries of the estate would be entitled to a reasonable attorney's fee paid out of the assets of the estate and probably would want to deduct the fee from the estate tax. The objectors were unlikely to waive their statutory right to attorney's fees and deduct all of the legal expenses of the will contest on their income...