INHERITANCE ESTATE TAX IS CALCULATED ACCORDING TO TERMS OF THE PROBATED WILL AND NOT ACCORDING TO A SUBSEQUENT SETTLEMENT AGREEMENT
In a prior ruling in the estate/inheritance tax and estate administration case of Derosa v. Director, Div of Taxation, No 011413-2011 (Jan. 22, 2015), the Tax Court affirmed the Director’s higher assessment of plaintiff’s New Jersey transfer inheritance estate tax, determining the New Jersey law requires tax to be calculated according to the terms of a probated will, and not according to the terms of a settlement agreement. Under the settlement agreement at issue, a granddaughter of the late Joseph Rendeiro received $400,000 from the estate rather than the $10,000 she was to receive according to the terms of the will. The court affirmed the increased assessment of $239,297.22
The sole remaining issue before the court was the calculation of interest (and penalty, if any) due by plaintiff, Peter De Rosa, as the executor of the estate of Joseph Rendeiro, on the balance of the estate’s transfer inheritance tax obligation.
Each party submitted counter-computations pursuant to R.8:9-4, utilizing 6 percent interest, as per the court’s order. De Rosa submitted a recalculated balance of $75, 046.08 to reflect the estate’s participation in the 2009 New Jersey Tax Amnesty Program, which provided a 50 percent reduction in interest owed and a complete abatement of all tax penalties. The Director maintained that the estate failed to qualify under the Tax Amnesty Program and submitted a recalculated balance in the amount of $95,985.64, which reflects the full amount of interest owed as well as a statutory 5 percent amnesty penalty as to the unpaid tax liability.
When DeRosa filed the estate’s inheritance tax return in 2009, he failed to report the full amount of the estate’s tax liability in accordance with long-settled New Jersey law regarding the tax effect of settlement agreements entered into after a testamentary disposition. The law was unequivocal and well-settled. Consequently, it was within the discretion of the Director of deny DeRosa the benefit of the reduced interested payments under the 2009 Tax Amnesty Program and to assess late payment penalties and statutory tax amnesty penalties because he failed to make full payment under the program, and he did so without reasonable cause.
The court accepted the interest computations of the Director and rejected the interest computations of DeRosa. Interest should be calculated at 6 percent per annum, plus a 5 percent amnesty penalty on the unpaid, amnesty-eligible assessment, for a total balance of $96,054.01, in accordance with the detailed break-down of the interest and amnesty penalty calculations provided by the Director.
Reference: Case & Analysis, New Jersey Law Journal, 219 N.J.L.J. 397, (February 9, 2015)
Filed Under: Estate Litigation; Probate/Estate Administration; Tax Law
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