Etate of Michael Chiuccarello v. Director, Division of Taxation

NOT FOR PUBLICATION WITHOUT APPROVAL OF

THE TAX COURT COMMITTEE ON OPINIONS

TAX COURT OF NEW JERSEY

Joshua D. Novin 60 Nelson Place 8th FL

Judge LeRoy F. Smith Jr. Public Safety Building

Newark, New Jersey 07101

(973) 792-5840 Fax: (973) 622-1240

October 1, 2014

Jeremy M. Vaida, Esq.

Deputy Attorney General

Division of Law

Richard J. Hughes Justice Complex

P.O. Box 106

Trenton, New Jersey 08625-0106

John A. Calzaretto, Esq.

Calzaretto & Bernstein, LLC

459 Route 38 West

Maple Shade, New Jersey 08052

Re: Estate of Michael Chiuccarello

v. Director, Division of Taxation

Docket No. 007010-2013

Dear Counsel

This letter constitutes the court s opinion with respect to the motion for summary judgment filed by the Director of the Division of Taxation in the above-referenced matter.

Plaintiff, the Estate of Michael Chiuccarello (the Estate or plaintiff ), filed a Complaint with the Tax Court of New Jersey contesting the denial by the Director of the Division of Taxation (the Director ) of plaintiff s claim for an estate tax refund as untimely. The Director filed a motion for summary judgment, arguing that there were no genuine issues as to any material fact in dispute, as plaintiff failed to timely submit a request for a refund within the applicable limitation period under N.J.S.A. 54:38-3. In opposition to the motion for summary judgment, plaintiff argued that the Director, by issuing a Notice of Assessment: Deficiency, restarted the clock on the limitation period and therefore should be precluded from asserting N.J.S.A. 54:38-3 andN.J.A.C.18:26-3A.12(a) as a bar to the refund request. For the reasons that follow, the court grants the Director s motion for summary judgment.

Procedural History and Findings of Fact

Michael Chiuccarello died testate on November 19, 2006, a resident of the County of Gloucester and State of New Jersey. On August 16, 2007, after having obtained an extension of time to remit payment of the New Jersey estate tax, as required by N.J.S.A. 54:38-5, the Estate made an estimated estate tax payment of $80,000.00.

On November 29, 2010, more than thirty-nine months after having made the estimated estate tax payment, the Estate filed a New Jersey Estate Tax Return, Form IT-Estate. On the IT-Estate return the Estate reported a tentative New Jersey estate tax of $94,106.26, and a credit for estate, inheritance, succession or legacy taxes paid to other jurisdictions of $15,477.29, for a net New Jersey estate tax due of $78,628.97. The return further reflected the credit for New Jersey estate taxes previously paid of $80,000.00, and therefore made a claim for a refund of $1,371.03. The return does not indicate, and the record contains no explanation of, the reason for the thirty-nine month delay between the date payment of the estimated New Jersey estate taxes was made and the filing of the Estate s New Jersey Estate Tax Return.

On June 7, 2011, to complete an audit of the Estate s New Jersey Estate Tax Return, the Director s auditor requested supplemental information and documentation from the Estate to support the value of assets reported on the estate tax return. The Director did not receive the information requested from the Estate. Accordingly, by letter dated October 19, 2011, the Director renewed its request for supplemental information from the Estate. On February 16, 2012, the Director notified the Estate that the information requested pursuant to its June 7, 2011 and October 19, 2011 letters had not been received, and that [u]nless the requested information is received within the next thirty (30) days, the Transfer Inheritance and Estate Tax Section will have no alternative but to complete an assessment, which may be arbitrary in nature, based upon the information available to it, which will result in a substantial tax increase, in accordance with the provisions of N.J.S.A. 54:49-5.

The Estate did not forward the requested information. Therefore, on May 31, 2012 the Director issued a Notice of Assessment: Deficiency to the Estate asserting an estate tax balance due of $51,844.25, inclusive of penalties and interest. On August 15, 2012, the Estate filed a Notice of Protest and Appeal with the Director contesting the Notice of Assessment: Deficiency.

On September 5, 2012, the Estate forwarded the Director documents supporting the reported value of assets on the Estate s New Jersey Estate Tax Return. Based upon the information supplied by plaintiff, on October 25, 2012, the Director issued an amended Notice of Assessment calculating plaintiff s State of New Jersey estate tax liability of $77,276.97, which reflected an overpayment of tax of $2,723.03. The October 25, 2012 amended Notice of Assessment further provided that the Estate would not be awarded the refund. The notice explained that [p]ursuant to the provisions of R.S. 54:38-3 and N.J.A.C. 18:26-3 A. 12, the overpayment of tax will not be refunded since the application for refund was made more than three years from the date that the tax was paid.

An administrative appeal ensued. On February 28, 2013, the Director received a letter on behalf of the plaintiff alleging, among other things, that the claimed refund resulted from a successful appeal of the State of New Jersey Assessment dated May 31, 2012. The letter further argued that the refund amount was not determined until the October 25, 2012 Notice of Assessment was issued, therefore, the provisions of N.J.S.A. 54:38-3 and N.J.A.C. 18:26-3A.12(a) should be inapplicable to the subject refund.

On April 16, 2013, the Director issued a final determination letter rejecting plaintiff s refund request as untimely. The Director upheld the determination that plaintiff s request for a $1,371.03 refund was not timely since more than three years had elapsed from the date the estate tax payment had been remitted and plaintiff submitted a request for a refund. The Director s letter further noted that no protective claim was filed by plaintiff within the statutory period.

The plaintiff appealed the Director s final determination by filing a complaint with the Tax Court of New Jersey on May 10, 2013. After discovery, the Director moved for summary judgment. The parties waived oral argument.

Conclusions of Law

Standard for Summary Judgment.

Summary judgment is designed to provide a prompt, businesslike and inexpensive method of disposing of any cause which a discriminating search of the merits in the pleadings, depositions and admissions on file, together with the affidavits submitted on the motion clearly shows not to present any genuine issue of material fact requiring disposition at a trial. Judson v. Peoples Bank & Trust Co.,17 N.J.67, 74 (1954).

A trial court could should grant a motion for summary judgment when the pleadings, depositions, answers to interrogatories and admissions on file demonstrate that no genuine issue exists as to any material fact challenged and that the moving party is entitled to the relief sought as a matter of law . R. 4:46-2.

In Brill v. Guardian Life Insurance Co. of America, 142 N.J. 520, 536 (1995)(quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986)), our Supreme Court adopted the federal approach to resolving motions for summary judgment, in which the essence of the inquiry [is] whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law. In conducting this inquiry, the trial court must engage in a kind of weighing that involves a type of evaluation, analysis and sifting of evidential materials. Id. at 536.

The standard established by our Supreme Court in Brill is as follows

[W]hen deciding a motion for summary judgment under R.4:46-2, the determination whether there exists a genuine issue with respect to a material fact challenged requires the motion judge to consider whether the competent evidential material presented, when viewed in the light most favorable to the non-moving party in consideration of the applicable evidentiary standard, are sufficient to permit a rational fact finder to resolve the alleged disputed issue in favor of the non-moving party.

The inquiry requires a determination by the court of whether there exists a genuine issue of material fact , and a consideration of whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party. Id. at 540. On a motion for summary judgment the moving party shoulders the burden to exclude any reasonable doubt as to the existence of any genuine issue of material fact with respect to the claims being asserted. United Advertising Corp. v. Metuchen, 35 N.J.193, 196 (1961). It is critical that a trial court ruling on a summary judgment motion not shut a deserving litigant from his [or her] trial. Brill at 540 (quoting Judson v. Peoples Bank & Trust Co. of Westfield, 17 N.J. 67, 77 (1954)). The trial court must evaluate all the evidence presented and determine whether it is so one-sided that one party must prevail as a matter of law. Brillat 540. A motion for summary judgment should only be denied in cases where the party opposing the motion has come forward with evidence that creates a genuine issue as to any material fact challenged. Id.at 529.

Issues Presented.

The Director argues in support of its motion for summary judgment that plaintiff failed to timely file a claim for a refund of the overpayment of New Jersey estate taxes within the applicable three year statute of limitations period under N.J.S.A. 54:38-3, and therefore the plaintiff s complaint should be dismissed.

In opposition to the motion, plaintiff contends that the Director restarted the clock on the statute of limitations by issuing a Notice of Assessment: Deficiency on May 31, 2012, and therefore the Director should not be afforded the right to deny plaintiff its tax refund under N.J.S.A. 54:38-3 and N.J.A.C. 18:26-3A.12(a).

Alternatively, plaintiff argues that even if the original claimed refund amount of $1,371.03 is barred under N.J.S.A. 54:38-3and N.J.A.C.18:26-3A.12(a), the Director should be equitably estopped from denying plaintiff the $2,723.03 refund reflected in the Director s October 25, 2012 amended Notice of Assessment.

The issues before the court are: (1) whether the Director properly denied plaintiff s claim for a refund as untimely; and, (2) whether, principles of equity should toll the applicable limitations period following the Director s issuance of a Notice of Assessment: Deficiency and therefore bar the Director s reliance upon N.J.S.A. 54:38-3 and N.J.A.C. 18:26-3A.12(a).

Since no genuine issue of material facts exist, the court concludes that this matter is ripe for summary judgment.

Scope of Review.

The scope of review of the Director s decision is limited, the Director s expertise in the highly specialized and technical area of taxation is entitled to great respect by the courts. Moreover, the agency s interpretation of the operative law is entitled to prevail, so long as it is not plainly unreasonable. Quest Diagnostics, Inc. v. Director, Division of Taxation, 387 N.J. Super 104 (App. Div. 2006), cert. denied, 188 N.J. 577 (2006) (citing Metromedia, Inc. v. Director, Division of Taxation, 97 N.J. 313, 327 (1984). However, the courts deference for the Director s decisions is not absolute, as the courts remain the final authorities on the issues of statutory construction and are not obliged to stamp their approval of the administrative interpretation. Koch v. Director, Division of Taxation, 157 N.J. 1, 15 (1999) (citing New Jersey Guild of Hearing Aid Dispensers v. Long, 75 N.J. 544, 575 (1978)).

[S]tatutes of limitations applicable to the filing of claims for tax refunds are to be strictly construed. M.J. Ocean, Inc. v. Director, Division of Taxation, 23 N.J. Tax 646 (2009). As our Supreme Court noted in F.M.C. Stores Co. v. Morris Plains Borough, 100 N.J. 418, 424-425 (1985), [a] strict adherence to statutory time limitations is essential in tax matters, borne of the exigencies of taxation and the administration of local government. This guiding principle is deeply rooted in public policy. Public policy discourages suits for the refund of taxes erroneously paid or illegally collected. It is a well established principle that statutes of limitation applicable to suits against the government are conditions attached to the sovereign s consent to be sued and must be strictly construed. H.B. Acquisitions, Inc. v. Director, Division of Taxation, 12 N.J. Tax 60, 65 (Tax 1991). Strict adherence to the time periods enumerated under the applicable statutes of limitations are necessary in order to provide finality and predictability of revenue to state and local government. Bonanno v. Director, Division of Taxation, 12 N.J. Tax 552, 556 (Tax 1992)(citing Pantasote, Inc. v. Director, Division of Taxation, 8 N.J. Tax 160, 164-166 (Tax 1985)).

To claim a refund a taxpayer must strictly adhere to the statutory requirements and accepted governmental regulations. Refund moneys are available to be claimed by a taxpayer according to well-defined procedures. An otherwise eligible taxpayer or vendor who does not comply with the established procedures waives his entitlement to any refund. Commercial Refrigeration & Fixture Co., Inc. v. Director, Division of Taxation, 2 N.J. Tax415, 419 (Tax 1981). A taxpayer who elects not to observe the established administrative guidelines and protocols will be barred from its claim for a refund. Limitation periods for claims for refunds are common administrative provisions found in tax legislation and justified by the need for predictability of revenues by public agencies. William McCullough Transp. Co. v. Division of Motor Vehicles, Bureau of Motor Carriers, 113 N.J. Super. 353, 360 (App. Div. 1971)(quoting Wm. Eisenberg & Sons, Inc. v. Martin, 120 N.J.L. 348 (Sup. Ct. 1938)). Thus, filing a refund claim just one day late, even when the claim was mailed to the Director several days prior to the filing deadline, justifies its rejection as untimely. Estate of Ehringer v. Director, Division of Taxation, 24 N.J. Tax 599, 611 (Tax 2009)(citing Lenox, Inc. v. Director, Division of Taxation, 19 N.J. Tax 437 (Tax 2001)).

Analysis of the New Jersey Estate Tax.

The State of New Jersey imposes an estate or transfer tax [u]pon the transfer of the estate of every resident decedent dying after December 31, 2001, which would have been subject to an estate tax payable to the United States under the provisions of the Federal Internal Revenue Code of 1986 (26 U.S.C. 1 et seq.) in effect on December 31, 2001. N.J.S.A. 54:38-1(a)(2)(i).

For purposes of resolving this motion, it is not necessary that the court engage in a detailed discussion concerning the methodology used to calculate the estate or transfer taxes due and owing following a decedent s death. The date when New Jersey estate or transfer taxes are due and the date when a taxpayer must file its returns are of most importance. N.J.A.C. 18:26-3 A. 10 provides that [t]he New Jersey estate tax is due at the date of a decedent's death, however, if payment is remitted within nine months of the date of the decedent s death no late penalty shall be imposed. Additionally, N.J.A.C. 18:26-3A.10(d) provides that New Jersey estate tax returns must be filed within nine months following the death of the decedent. However, the Director may under certain prescribed circumstances grant an extension of time to file the return, for a period up to six months, upon the request of a representative of the estate. Any extension requested for a period in excess of six months will be granted only in cases where the Director determines that exceptional circumstances exist. N.J.A.C. 18:26-3A.10(d). This allows a taxpayer to extend the time period within which an estate tax return may be filed, but does not provide the authority to extend the time to pay the tax. The tax liability is due on the decedent's date of death and must be paid in full within nine months. N.J.A.C. 18:26-3A.10(d).

Claim for Refund

It is undisputed that on August 16, 2007, plaintiff made an estimated estate tax payment of $80,000.00. The record further reflects that plaintiff did not file a protective refund claim with the Director.

Filing a protective refund claim within the limitations period affords a taxpayer the right to assert a claim for a refund when the refund amount can be finally determined, which may not arise until after the limitations period has expired. A protective refund claim puts the Director on notice within the statutory refund claim period that likely future events will entitle the taxpayer to a refund in an amount that can be determined with certainty only after expiration of the limitations period. Estate of Ehringer v. Director, Division of Taxation, 24 N.J Tax 599, 614 (Tax 2009). In Forbes v. Director, Division of Taxation, 14 N.J. Tax 257, 264 (Tax 1994), Judge Lasser explained that [r]efund claims are frequently filed dependent on future events such as the result of future federal audits or the results of litigation.

In this case, plaintiff could have filed a protective refund claim within the three year limitations period to preserve its right to a refund, but failed to do so.

It was not until November 29, 2010, some thirty-nine months after paying the estimated estate tax, that the plaintiff filed a New Jersey Estate Tax Return and requested a refund of $1,371.03. The record contains no explanation for the thirty-nine month delay; and the statute clearly provides that [a]ll applications for the refund of taxes claimed to have been excessively or erroneously paid hereunder must be filed within three years from the date of payment. N.J.S.A. 54:38-3. In other words, the three year limitations period shall commence running on the date payment of the tax is made.

In this case, plaintiff made payment in the sum of $80,000.00 on August 16, 2007. Therefore, the three year period within which plaintiff could have submitted a timely request for an estate tax refund was August 16, 2010. Plaintiff never submitted a protective refund claim and did not file a request for a refund until November 29, 2010, more than two months after the three year limitations period expired. Accordingly, plaintiff failed to timely request a refund within the statutory limitation period.

Claims for Equitable Relief.

The court further finds no support for plaintiff s argument that the Director s issuance of a Notice of Assessment: Deficiency, after the applicable limitations period has expired, should bar the Director s reliance on N.J.S.A.54:38-3 and N.J.A.C.18:26-3A.12(a).

Plaintiff did not file its New Jersey Estate Tax Return until November 29, 2010. This was the first opportunity afforded the Director to evaluate the assets, deductions and credits comprising plaintiff s estate. Following receipt of the return, the Director s auditor made three separate written requests for supplemental information from plaintiff: June 7, 2011; October 19, 2011; and February 16, 2012. The plaintiff, however, failed to provide documents responsive to the Director s request. Accordingly, on February 16, 2012, the Director advised plaintiff that [u]nless the requested information is received within the next thirty (30) days, the Transfer Inheritance and Estate Tax Section will have no alternative but to complete an assessment, which may be arbitrary in nature, based upon the information available to it, which will result in a substantial tax increase , in accordance with the provisions of N.J.S.A. 54:49-5.

N.J.S.A. 54:49-5 authorizes the Director to estimate the taxable liability of a taxpayer and to assess taxes, fees, penalties and interest due resulting from the failure of the taxpayer to make any report , as may be required under the tax laws of the State of New Jersey.

No response to the Director s February 16, 2012 letter was received from plaintiff. Therefore, on May 31, 2012, according to N.J.S.A. 54:49-5, the Director issued plaintiff a Notice of Assessment: Deficiency asserting a deficiency balance of $51,844.25. Only after the Director exercised the rights afforded it under N.J.S.A. 54:49-5, did plaintiff provide the requested supplemental documentation to the Director to support the reported asset values on plaintiff s estate tax return. After receiving documentation from plaintiff, on October 25, 2012, the Director issued an amended Notice of Assessment reflecting a net New Jersey estate tax due of $77,276.97, and a tax overpayment of $2,723.03.

Plaintiff s argument that the Director should be estopped from relying upon N.J.S.A.54:38-3 and N.J.A.C.18:26-3A.12(a) in denying plaintiff s refund request following issuance of a Notice of Assessment: Deficiency, after the applicable limitations period had run would amount to a tolling of the statute of limitations. But it is a well-settled principle that [e]ven where equitable considerations can toll a statute of limitations [e]quity demands more than good faith; it demands diligence in the protection of one s own interest. Estate of Ehringer v. Director, Division of Taxation, 24, N.J. Tax599, 617 (NJ Tax 2009) (quoting H.B. Acquisitions, Inc. v. Director, Division of Taxation, 12 N.J. Tax60, 69 (Tax 1991)). Statutes of limitation applicable to the filing of claims for tax refunds or relief from tax assessments are [to be] strictly construed. M.J. Ocean, Inc. v. Director, Division of Taxation, 23 N.J. Tax646, 651 (Tax 2008). As Judge Kuskin observed, the case law dealing with statutes of limitation and the relation thereof in contexts other than those relating to taxation are not persuasive in the tax refund area [T]hose rulings do not apply to tax matters where such relation is unavailable except in the most extraordinary circumstances. Id. at 652.

To invoke the doctrine of equitable estoppel against a public official or public entity, the party claiming the estoppel must demonstrate detrimental reliance on the action or inaction of the official or entity. It is the obligation of the party seeking the benefit of estoppel [who] has the burden of establishing that an officer of the State, conscious of the State s true interest and aware of the private [party s] misapprehension, stood by while the private [party] acted in detrimental reliance. M.J. Ocean, supra 23 N.J. Tax at 655 (quoting Newark v. Natural Resource Council in the Department of Environmental Protection, 82 N.J. 530, 545 (1980)).

The facts of this case do not support such a conclusion. The May 31, 2012 Notice of Assessment: Deficiency arose from the Director s audit of the plaintiff s November 29, 2010 estate tax return and plaintiff s failure to timely provide documentation to the Director supporting the value of assets reflected in plaintiff s estate tax return. Subsequent to plaintiff filing its estate tax return, the Director requested in writing, on three separate occasions, supplemental information to support the value of the assets reflected in the estate tax return. The plaintiff elected to ignore those requests. When the supplemental information was not forthcoming, the Director exercised its statutory authority, under N.J.S.A. 54:49-5 to impose upon plaintiff an assessment based upon the information readily available to the Director at that time. Therefore, it was plaintiff s own inaction that resulted in the imposition of the May 31, 2012 Notice of Assessment: Deficiency.

Additionally, the plaintiff failed to diligently protect its own interests. The plaintiff did not file a claim for a protective refund within the applicable limitations period. The plaintiff also did not file its request for a refund in a timely manner. The plaintiff allowed more than thirty-nine months to lapse from the date payment of the estimated estate tax was made until filing its estate tax return. Accordingly, the circumstances giving rise to the May 31, 2012 Notice of Assessment: Deficiency were the direct result of the plaintiff s conduct and not any extraordinary circumstances arising from the Director s actions. The plaintiff has failed to demonstrate that it detrimentally relied upon any action or inaction of the Director.

Finally, although not specifically raised by plaintiff in its brief in opposition to the Director s motion for summary judgment, the Court notes that application of another equitable principle, the doctrine of laches, also does not serve as a bar the Director s reliance upon N.J.S.A.54:38-3 and N.J.A.C.18:26-3A.12(a). Laches is an equitable doctrine, not governed by fixed time limits, that is invoked to deny a party enforcement of a known right when the party engages in an inexcusable and unexplained delay in exercising that right to the prejudice of the other party. Fox v. Millman, 210 N.J.401, 405 (2012). The doctrine of laches can be invoked to deny a party enforcement of a known right when the party engages in an inexcusable and unexplained delay in exercising that right to the prejudice of the other party. M.J. Ocean, Inc. v. Director, Division of Taxation, 23 N.J. Tax646, 652 (Tax 2008)(quoting Knorr v. Smeal, 178 N.J.169, 180-181 (2003)).

In this case, following plaintiff s filing on November 29, 2010 of its New Jersey Estate Tax Return, the Director s auditor, made three separate written requests for supplemental information from plaintiff on June 7, 2011, October 19, 2011 and February 16, 2012. Those requests sought supplemental information to verify the value of assets reported on plaintiff s estate tax return. The plaintiff does not dispute that it received the Director s notices, nor does it provide any reasonable explanation to the court why it elected not to provide the supplemental information to the Director. Further, the Director advised the plaintiff in writing on February 16, 2012, some three months prior to issuance of the May 31, 2012 Notice of Assessment: Deficiency, that [u]nless the requested information is received within the next thirty (30) days, the Transfer Inheritance and Estate Tax Section will have no alternative but to complete an assessment, which may be arbitrary in nature, based upon the information available to it, which will result in a substantial tax increase , in accordance with the provisions of N.J.S.A. 54:49-5. Therefore, any inexcusable and unexplained delay for imposition of the Notice of Assessment: Deficiency was not the result of the Director s actions, but rather was a consequence of the plaintiff s own conduct.

Conclusion

Accordingly, the court concludes that plaintiff s request for an estate tax refund was untimely, having been filed more than three months after expiration of the applicable limitations period under N.J.S.A. 54:38-3. The court further concludes that plaintiff failed to adequately protect its interests by not filing a protective refund claim. Finally, the court concludes that the facts in this case, when viewed in the light most favorable to the plaintiff, fail to demonstrate that application of the equitable principles of estoppel, and the doctrine of laches should serve to defeat the Director s motion for summary judgment. Accordingly, the court grants the Director s motion for summary judgment, affirming the Director s final determination and dismissing the plaintiff s complaint.

Very truly yours,

Hon. Joshua D. Novin, J.T.C.