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ROSANO v. U.S.

September 20, 1999

ROBERT ROSANO, AS EXECUTOR OF THE ESTATE OF MARY R. ROSANO, PLAINTIFF,
v.
UNITED STATES OF AMERICA, DEFENDANT.



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 12-13.

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.

DEFENDANT'S OBJECTIONS

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.

PLAINTIFF'S OBJECTIONS

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.

CONCLUSION

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.

SO ORDERED.

REPORT AND RECOMMENDATION

Pursuant to the Order of District Judge Joanna Seybert, dated March 23, 1999, the defendant's motion for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure has been referred to the undersigned. For the reasons that follow, this Court respectfully reports and recommends that the defendant's motion be GRANTED in part and DENIED in part.

FACTUAL BACKGROUND

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 account.

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, fn. 7.

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).

Decedent issued a series of forty-three checks from her Merrill Lynch account that cleared after her death. These checks total $431,454.87. (Def. 56.1 Stat. at ¶ 9) The decedent's estate did not include the Merrill Lynch account as part of the gross estate. (Def. 56.1 Stat. at ¶ 10).

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 tax.(Id.).

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 ΒΆ 15) Plaintiffs dispute ...


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