Tax Court rules on inheritance tax valuation

The Indiana Tax Court has rejected an estate’s attempt to sidestep trial rules by allowing verified tax returns to stand in for affidavits in determining a property’s fair market value.

The ruling came today in Estate of Christine L. Neterer, Deceased; Deborah Pollock and Marilyn Humbarger, Co-Personal Representatives v. Indiana Dept. of State Revenue, No. 49T10-1006-TA-26, an estate case in which Senior Judge Thomas Fisher ruled that the Indiana Department of Revenue has the ability to investigate any circumstances relating to inheritance tax enforcement and collection.

Deborah Pollock and Marilyn Humbarger served as personal representatives for the estate of their aunt Christine L. Neterer, who died in 2006 and shared one half interest in real property located in Elkhart County. An appraisal found the property had a fair market value of $855,250, and after a 30 percent discount and reduction by the county assessor, the estate’s inheritance tax liability was almost $31,938.

Shortly thereafter, the state department issued a notice indicating the property value and inheritance tax was higher because a life insurance policy had not been included in the return and the 30 percent discount wasn’t allowed. As a result, the estate was ordered to pay $13,279 more in inheritance tax.

The estate disagreed with the 30 percent discount disallowance, but eventually the estate paid the requested additional amount in full. More than a year later, the estate filed an administrative claim contending it was entitled to a refund of the additional tax amount it had paid. That led to a case in Elkhart Circuit’s Probate Court, and the trial judge ultimately found the state department didn’t improperly collect the taxes or disallow the discount under Indiana Code 6-4.1-3-13.

Specifically, the estate tried to use verified tax returns to prove the fair market value warranted the 30 percent discount, rather than supporting or opposing affidavits that are required under Indiana Trial 56(E). The probate court found that the estate didn’t supply those affidavits and so didn’t offer adequate evidence showing the need for the 30 percent discount.

Evidence submitted by the estate wasn’t compiled by experts, Fisher wrote, and it didn’t show the 30 percent discounted was warranted. Fisher affirmed the Probate Court’s summary judgment grant in favor of the state department.