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Indiana Department of State Revenue v. Keenan

Tax Court of Indiana

September 30, 2015

INDIANA DEPARTMENT OF STATE REVENUE, INHERITANCE TAX DIVISION, Appellant,
v.
JAMES F. KEENAN and WELLS FARGO BANK, N.A., as Co-Personal Representatives of the ESTATE OF JUDD LEIGHTON, Appellees

As Amended October 13, 2015.

ON APPEAL FROM THE ST. JOSEPH PROBATE COURT. The Honorable Peter Nemeth, Judge. Case No. 71J01-0602-EU-000007.

ATTORNEYS FOR APPELLANT: GREGORY F. ZOELLER, ATTORNEY GENERAL OF INDIANA, JOHN P. LOWREY, DEPUTY ATTORNEY GENERAL, Indianapolis, IN.

ATTORNEYS FOR APPELLEES: KEVIN M. ALERDING, PHILIP A. WHISTLER, ICE MILLER LLP, Indianapolis, IN; DAVID A. BAKER, PEGGY A. QUINN, McDERMOTT WILL & EMERY LLP, Chicago, IL; RICHARD B. URDA, JR., ATTORNEY AT LAW, South Bend, IN.

OPINION

Page 1057

FISHER, Senior Judge.

The Indiana Department of State Revenue, Inheritance Tax Division appeals the 2 St. Joseph Probate Court's order that determined that the Estate of Judd Leighton timely filed with the Department its claim for refund of inheritance tax paid. The sole issue before the Court is whether the Probate Court erred in making that determination. The Court finds that the Probate Court did indeed err.

FACTS AND PROCEDURAL HISTORY

Mary Leighton died on March 16, 2001. Prior to her death, Mary created a revocable trust that in turn created a marital deduction trust for the benefit of her husband, Judd, who survived (" the Marital Trust" ).

After Mary's death, a dispute concerning the management and disposition of certain assets within her estate arose between several of her heirs and Judd. Litigation ensued in the Probate Court. (See, e.g., Appellant's App. at 273-74.) On December 19, 2005, while that litigation was still pending, Judd died.

On September 11, 2006, Judd's Estate filed a petition for extension of time to file its Indiana inheritance tax return.[1] The Probate Court granted the petition, extending

Page 1058

the time for Judd's Estate to file its return to March 19, 2007. Nonetheless, Judd's Estate remitted an estimated inheritance tax payment, in the amount of $1.375 million, to the St. Joseph County Treasurer on September 15, 2006.[2] (Appellant's App. at 249-50.)

On March 15, 2007, Judd's Estate filed its Indiana inheritance tax return with the Probate Court. The return reported an Indiana inheritance tax liability of $1,317,801 and claimed a refund of $57,199.[3] (Appellant's App. at 248.) The return also indicated that a final adjudication in the pending litigation between Mary's heirs and Judd's Estate could possibly impact the amount of inheritance tax Judd's Estate actually owed. (See Appellant's App. at 273-74.)

On March 19, 2007, the Probate Court issued an " Order Determining Inheritance Tax Due" (Order), accepting the return of Judd's Estate as filed. (See Appellant's App. at 276-80.) The Probate Court then forwarded the inheritance tax return to the Department. The Department did not challenge the Probate Court's Order; it did, however, file an appearance as an intervening party in the pending Probate Court litigation between Mary's heirs and Judd's Estate because it was " interested in [its] outcome . . . and its implications on the Indiana inheritance tax due by [Judd's E]state." (Appellant's Br. at 5; Appellant's App. at 17-18; Appellees' App. at 3-4, 15.) In January of 2009, Mary's heirs and Judd's Estate settled their litigation with the approval of the Probate Court. (See Appellees' App. at 19-21.)

On February 18, 2010, the Internal Revenue Service sent a Notice of Deficiency to Judd's Estate assessing it with an additional federal estate tax liability. (See Appellees' App. 23 ¶ 3.) The Notice of Deficiency was based on the IRS's belief that Judd's Estate used an improper methodology to calculate the fair market value of Judd's interest in the Marital Trust. (See Appellees' App. 23 ¶ 3.) Judd's Estate filed a petition in the United States ...


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