Case ID: ohio-misc_40/html/0036-01.html
Source: Caselaw Access Project
Author: {"author": "Zimmers, J.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

In re Estate of Lytle.
    (No. 194677
    Decided March 18, 1974.)
    Common Pleas Court of Montgomery County.
    
      Messrs. Cowden, Pfarrer, Greiv & Becker and Mr. Randall N. Bothmann, for estate of Ellenore K. Lytle.
    
      Mr. William J. Brown, Attorney General, and Mrs. Mary Aim B. Gall, for the Tax Commissioner of Ohio.
   Zimmers, J.

The executor, John Horace Lytle, Jr., was appointed by this court on September 3, 1971 — decedent having died August 28, 1971.

The court’s records further show that an inventory and appraisement was filed in this court on November 2, 1971, and that, under schedule C of such inventory, certain mutual fund stock was appraised at the mean price between the bid and asked prices, as of the date of decedent’s death. The executor paid estate tax to the Tax Commissioner based on the mean price of the mutua] funds. A certificate of determination by the Tax Commissioner, dated April 10,1973, was filed in this court on August 25,1973. It shows that $5,923.63 was paid and that such amount was based on the mean value of the mutual common stock. This valuation was made in accordance with an established policy of the Department of Taxation. This policy, the department explains, is based on the unreported case of In re estate of Eellmuth, No. 34210, Probate Court of Eoss County.

It was stipulated between the parties that on June 23, 1973, the executor presented an application for a refund of estate tax, based on the United States Supreme Court case of United States v. Cartwright (1973), 41 L. W. 4593, and that on August 2 the Ohio Department of Taxation denied the application for a refund, the Tax Commissioner holding that the mistake was not one of fact and that the exceptions were not timely filed after the final determination was made.

On September 25, 1973, the executor filed exceptions to the Tax Commissioner’s denial of the executor’s application for a refund, pursuant to E. C. 5731.30. The aforementioned exceptions to the Tax Commissioner’s denial for a refund are now before the court. It should be noted that the executor did not file exceptions to the Tax Commissioner’s certificate of determination of April 10, 1973, but filed exceptions to the Tax Commissioner’s denial of a refund. The court finds that the exceptions to the denial were timely filed by the executor, since he had no notice of the Tax Commissioner’s denial of the refund until August 2, 1973.

The taxpayer contends that the mutual funds in question, as shown in schedule B of his tax return, were mistakenly valued at the mean between the “bid” and “asked” prices and this mistake was a mistake of fact, as provided for in E. C. 5731.28, and the estate is entitled to a refund of the difference between the mean and bid prices.

The Tax Commissioner contends that the valuation of the mutual funds, if in error, constituted a mistake of law and that the estate is not entitled to a refund under E. C. 5731.28. The court has been favored with briefs by both parties.

The question before the court is whether the payment of the estate tax on the basis of the mean price at the time of decedent’s death was a mistake of fact or a mistake of law.

R. C. 5731.30, which provides for the filing of exceptions to a final determination of the Tax Commissioner concerning estate tax liability, provides in part:

“The tax commissioner, the person or corporation required to file the return, or any interested party may file exceptions in writing to the tax commissioner’s final determination of taxes with the probate court of the county in which the return is required to be filed as provided in section 5731.21 of the Revised Code. Exceptions shall be filed within sixty days from the receipt of the certificate of determination issued by the tax commissioner, stating the grounds upon which such exceptions are taken.”

R. C. 5731.28, which governs the filing of claims for the refunding of the estate taxes already paid, provides:

“If any debts deductible under section 5731.16 of the Revised Code are proved against the gross estate after the tax levied by section 5731.02 or division (A) of section 5731.-19 of the Revised Code has been determined, or if the determination of taxes so made is erroneous due to a mistake of fact, a claim for refund of tax may be filed by an executor, administrator, trustee, person in possession of property subject to tax, or any transferee thereof, within three years from the time the return was required to be filed (determined without regard to any extension of time for filing), in the form prescribed by the tax commissioner. The claim for refund shall be filed in the same manner as is prescribed for the filing of a return in section 5731.21 of the Revised Code and the determination of its correctness shall be made in the same manner as is provided for in the case of the return itself.”

R. C. 5731.01(B) provides as follows:

“The value of any property included in the gross estate shall be the price at which such property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of relevant facts. All relevant facts and elements of valne as of the valuation date shall be considered in determining such valne.”

Neither party has briefed the question of whether a mistake was actually made. Both briefs assume a mistake was made and proceed to analyze whether it is one of law or fact. This court is of the opinion that to answer the question at bar it must decide whether a mistake was actually made and, more importantly, what the mistake was and who made it. In so deciding, the court will have ipso facto decided the issue briefed.

In other words, the question this court must ask itself is: Can this court, under contest, allow mutual funds to be included at any other value than the “bid” price? The court in the Hellmuth case, supra, which decision the Tax Commissioner states was the basis for his “policy” to include mutual fund shares at the mean between the “bid” and “asked” prices on the date of death, found that the taxpayer introduced no evidence to support his position that the “bid” price was the correct taxable value. Pursuant to the analysis of a mutual fund transaction in the majority opinion of United States v. Cartwright, supra, this court finds that no fact other than the bid price and the valuation date is necessary to determine the value of an open end investment company or a mutual fund share. At page 4595, Justice White observes:

“In the context of the Investment Company Act, the redemption price may thus be properly viewed only as the final step in a voluntary transaction between a willing buyer and a willing seller. As a matter of statutory law, holders of mutual fund shares cannot obtain the “asked” price from the fund. That price is never paid by the fund; it is used by the fund when selling its shares to the public, and even then the fund receives merely the net asset value per share from the sale, with the sales load being paid directly to the underwriter. In short, the only price that a shareholder may realize and that the fund — the only buyer — will pay is the redemption price.”

This court also notes the introductory comments of Justice Stewart in his dissent, at page 4596:

“This ease presents a narrow issue of law regarding the valuation of certain assets-sliares in an open-end investment company or “mutual fund” — for purposes of the Federal Estate Tax. The case turns upon a single question of law: whether or not §20.2031-8(b) of the Treasury Regulations, which provides a specific method for valuing such shares, represents a reasonable implementation of the legislation enacted by Congress.” (Emphasis added.)

This court will not treat the cases cited by both parties for the reason that none of them deal with the exact question presented as well and as completely as the Cartwright case. This court observes, however, that the case of In re Estate of Kangesser (1968), 14 Ohio App. 2d 95, cited by the taxpayer, was reversed in 18 Ohio St. 2d 139 (1969). Even the Kangesser case was decided before the present statute, giving a right to a refund, was passed, but the statute has in effect codified the decisions of Ohio courts to the date of its enactment.

A “mistake of law” is a mistake of a person who knows the facts of the case but is ignorant of the legal consequence. State, ex rel. McCormack, v. American Building & Loan Assn., 177 Tenn. 385, 150 S. W. 2d 1048, 1065.

A “mistake of law” occurs when a person is truly acquainted with the existence or nonexistence of facts, but is ignorant of or comes to erroneous conclusion as to their legal effect; a payment made by reason of wrong construction of terms of contract is made under mistake of law. American Oil Service, Inc., v. Hope Oil Co., 233 C. A. 2d 822, 830, 44 Cal. Rptr. 60, 65.

In the case at bar, the taxpayer does not contend that he was mistaken as to the “bid” price or as to the date of death. The only mistake he made was to agree with the policy of the Tax Commissioner, which policy this court is hereby holding to be erroneous for the same reasons that the U. S. Supreme Court held the Federal regulation in error in the Cartwright case, supra. Therefore, this court holds the mistake made in the case at bar to be one of law and the exceptions to the denial of the application for refund must be overruled.

Exceptions overruled.