The opinion of the court was delivered by: Seybert, District Judge.
ORDER ADOPTING REPORT & RECOMMENDATION
Pending before the Court are the objections of both plaintiff
and defendant to the July 29, 1999 Report and Recommendation of
Magistrate Judge Michael L. Orenstein regarding the defendant's
motion for summary judgment in this action for recovery of estate
taxes. Magistrate Judge Orenstein, in a thorough and
well-reasoned report, recommended to this Court that the
defendant's motion be granted in part and denied in part.
Defendant timely filed what it termed its "Acknowledgment of
Mootness Regarding One Issue, and Objection With Respect to
Another" on August 9, 1999. Plaintiff filed his objections to the
Report and Recommendation on August 12, 1999. Defendant filed its
opposition to the plaintiffs objections on August 23, 1999. The
plaintiff submitted no response to the defendant's objections.
Pursuant to Fed.R.Civ.P. 72, this Court has conducted a de novo
review of the magistrate judge's findings and conclusions. The
Court also has considered the parties' respective objections to
the report and recommendation. For the reasons discussed below,
the report and recommendation is ADOPTED in full, subject to this
Court's modifications as set forth below. See Fed.R.Civ.P.
72(b) ("district judge may accept, reject, or modify the
recommended decision [or] receive further evidence"). As a result
of the modifications to the recommendation, the defendant's
motion for summary judgment is GRANTED in its entirety.
The factual background of this case is set forth explicitly in
the report and those facts will not be repeated here. See
Report and Recommendation at 1-4. Essentially, the magistrate
judge recommended that the defendant's motion for summary
judgment be granted in its entirety, except on two points. First,
the magistrate judge found the existence of a material issue of
fact regarding whether the two checks which were dated December
29, 1989 but which cleared on January 3, 1990 were in fact
deposited in 1989. If the checks were, in fact, deposited in
1989, as claimed by plaintiff, they would be excludable from the
decedent's gross estate. The defendant disputes that these checks
were deposited in 1989. See Report and Recommendation, at
The second issue of material fact identified by the magistrate
judge pertains to two checks drawn on the Merrill Lynch account.
One of these checks was made payable to Lawrence Washburn and the
other to Robert Livingston. Plaintiff claims that these checks
were not gifts, but rather were payments for legal services and
real estate taxes, and thus were excludable from the gross
estate. Defendant claims that the plaintiff waived this argument
because he failed to raise it in the administrative proceeding.
The magistrate judge, noting that neither party had submitted the
administrative record of the plaintiff's claim for refund,
reported that there was a material issue of fact regarding
whether these checks were gifts or payments for services
rendered. See Report and Recommendation, at 17-18.
Having reviewed the defendant's position on this matter, the
Court agrees that this issue is moot. Therefore, summary judgment
will be granted on the issue of the Gallucci checks.
Regarding the second issue, defendant essentially admits that
it failed to include the administrative record as part of its
motion papers, but now has supplied the Court with a copy of the
plaintiffs Form 843 and the memorandum that accompanied it. A
district court, on review of a report and recommendation, is
permitted to consider additional evidence as part of its review
of the recommended disposition of a motion. Fed.R.Civ.P. 72(b).
As noted previously, the plaintiff has not responded to this
objection. Moreover, from a review of the plaintiff's Form 843
and the accompanying memorandum, it is apparent that the
plaintiff failed to raise any argument in the administrative
proceedings that the two Merrill Lynch checks at issue were
payments for legal services and real estate taxes, rather than
gifts. As a result, plaintiff is barred from raising this
argument in these proceedings. See Angelus Milling Co. v.
Commissioner, 325 U.S. 293, 296, 299, 65 S.Ct. 1162, 89 L.Ed.
1619 (1945); United States v. Felt & Tarrant Mfg. Co.,
283 U.S. 269, 272-73, 51 S.Ct. 376, 75 L.Ed. 1025 (1931); Alabama
By-Products Corp. v. Patterson, 258 F.2d 892, 900 (5th Cir.
1958) ("[a]ll grounds upon which a taxpayer relies must be stated
in the original claim for refund . . . [and] [a]nything not
raised at that time cannot be raised later in a suit for
refund.") (citations omitted).
Because the plaintiff's argument that the Washburn check and
the Livingston check were not gifts was not raised in the
administrative proceeding, such argument was waived. Therefore,
the defendant's motion for summary judgment on the issues
regarding the Merrill Lynch checks is GRANTED.
Each of plaintiff's nine objections are overruled. The Court
has considered plaintiff's objections and the defendant's
responses thereto, and has concluded that none of the issues
raised in the plaintiff's objections compels a result different
than that recommended by Magistrate Judge Orenstein. The New York
statutes cited by plaintiff have no bearing on the precise issues
in this case. Finally, plaintiff admits that the magistrate judge
correctly applied existing law, and the Court declines the
plaintiffs invitation to creatively extend the law to reach the
result he desires.
The Report and Recommendation of Magistrate Judge Orenstein is
ADOPTED subject to the modifications stated above, and the
defendant's motion for summary judgment is GRANTED in its
entirety. The Clerk of the Court is directed to close this case.
REPORT AND RECOMMENDATION
On September 17, 1997, the plaintiffs commenced the within
action seeking a refund of estate taxes, interest and penalties
thereon in the amount of $181,939. The decedent, Mary Rosano,
died on January 21, 1990. (Def. 56.1 Stat. at ¶ 1)*fn1 At the
time of her death, she was domiciled in the state of New York.
The decedent's son, Robert S. Rosano, was appointed executor of
her estate. (Id.) Decedent's other son, Lawrence R. Rosano,
along with Robert S. Rosano are beneficiaries of the decedent's
estate, and are named as plaintiffs in this action.*fn2
At all times relevant to this case, the decedent maintained a
checking account with European American Bank (hereinafter "EAB"),
and a cash management account with Merrill Lynch. Title to the
EAB account was held in the names Mary R. Rosano or Robert R.
Rosano. (See Ex. 3 and Ex. 5 of the defendant's exhibits.) The
Merrill Lynch account was entitled "Mary R. Rosano and Robert R.
Rosano and Lawrence R. Rosano JTWROS (joint tenants with right of
survivorship)." (See defendant's exhibits 8, 10 and 11). At
issue in this action are certain checks drawn on these accounts.
Four of the checks were written on the EAB account, and
forty-three of the checks were written on the Merrill Lynch
Plaintiffs allege in its complaint and claim for a refund that
the checks at issue were gifts to members of decedent's family or
close friends. For purposes of this motion for summary judgment,
the defendant agrees to assume that these checks were in fact
gifts, made with the requisite donative intent of the decedent.
See Def.'s supporting mem. at 2, and Def.'s reply mem. at 5,
Specifically, Ronda Gallucci received a $9,950 check drawn on
the EAB account, dated December 29, 1989. (Def. 56.1 Stat. at ¶
2) That check, however, did not clear until January 3, 1990.
(Id.) Thereafter, Ms. Gallucci received a second check, dated
January 5, 1990 in the amount of $9,990 drawn on the EAB account.
(Def. 56.1 Stat. at ¶ 3) This check cleared on January 30, 1990,
after the decedent's January 21, 1990 death. (Id.) For tax
purposes, the decedent's estate treated these checks as two gifts
— one gift for $9,950 made in 1989 and one gift for $9,990 made
in 1990. (Def. 56.1 Stat. at ¶ 4).
Raymond J. Galluci received a $9,950 check drawn on decedent's
EAB checking account, dated December 29, 1989. (Def. 56.1 Stat.
at ¶ 5) The check cleared on January 3, 1990. (Id.) Raymond J.
Galluci received another check in the amount of $9,990, dated
January 5, 1990, drawn on the decedent's EAB checking account.
(Def. 56.1 Stat. at ¶ 6) That check cleared on January 30, 1990.
(Id.) For tax purposes, the decedent's estate treated these two
checks as two gifts, one made in 1989 in the amount of $9,950 and
the other for $9,990 in 1990. (Def. 56.1 Stat. at ¶ 7).
On its Internal Revenue Service Form 706, "United States Estate
(and Generation-Skipping Transfer) Tax Return," the decedent's
estate reported that it owed an estate tax liability of
$238,041.41. (Def. 56.1 Stat. at ¶ 11) Upon audit, the Internal
Revenue Service made total adjustments of $510,960.58 to the
taxable estate. (Def. 56.1 Stat. at ¶ 12) The plaintiffs do not
dispute $67,191.58 of the audit adjustments, and do not seek a
refund of the additional tax amount attributable thereto. (Def.
56.1 Stat. at ¶ 13).
Upon audit, the Internal Revenue Service treated all of the
Gallucci checks as gifts made in 1990, and therefore calculated
that the decedent gave Ronda and Raymond J. Gallucci each
$19,940. (Def. 56.1 Stat. at ¶ 14). Plaintiffs dispute this
adjustment and seek a refund of the resulting additional
The remaining $423,889 of the adjustments relate to the Merrill
Lynch account. The Internal Revenue Service included the value of
the Merrill Lynch account on the day after the decedent's death
as part of the gross estate. (Def. 56.1 Stat. at ¶ 15) Plaintiffs