Case ID: nc-app_30/html/0533-01.html
Source: Caselaw Access Project
Author: {"author": "MARTIN, Judge.", "license": "Public Domain", "url": "https://static.case.law/"}
Date Created: 2024-08-24T03:29:51.129683

FRED J. STANBACK, JR., Executor of the Estate of Fred J. Stanback v. J. HOWARD COBLE, Secretary of Revenue of North Carolina
    No. 7619SC119
    (Filed 18 August 1976)
    Taxation § 27— inheritance taxes — U. S. Treasury bonds — valuation
    The Secretary of Revenue is required by G.S. 106-29 (a) to value assets of an estate for inheritance tax purposes at the same amount as they have been valued for federal estate tax purposes; therefore, there was no taxable gain to an estate for income tax purposes on the difference between the alternate value placed on U.S. Treasury bonds for State inheritance tax purposes and the par value of the bonds as accepted in satisfaction of federal estate taxes since the bonds should be reassessed for inheritance tax purposes at the same value as they were accepted in satisfaction of the federal estate taxes.
    Judge Vaughn concurs in the result.
    Appeal by defendant from Kivett, Judge. Judgment entered 18 November 1975, Superior Court, Rowan County. Heard in the Court of Appeals 13 May 1976.
    This is a civil action brought pursuant to G.S. 105-266.1 for the refund of income tax paid by the plaintiff to the defendant for the taxable year 1972. The estate of Fred J. Stan-back, Sr., had acquired United States Treasury bonds having a total par value in excess of $570,000. Decedent’s executor, the plaintiff, used these bonds as a credit for $570,000 of federal estate tax during the taxable year 1972. Under the alternate valuation date of 3 November 1973 chosen by the executor for inheritance tax purposes the bonds had a fair market value of $454,746.
    The North Carolina Income Tax Diviison made an assessment against the plaintiff based on a gain in income resulting from the disposition of the bonds. Since North Carolina viewed the basis of the bonds as $454,746 and the bonds had been used to satisfy federal estate taxes of $570,000, the Department of Revenue made an assessment against the plaintiff for additional income tax of $8,471.17 on the taxable gain of $115,254. Plaintiff paid the tax on 7 November 1974 and requested a refund which was denied.
    
      The court entered judgment for the plaintiff, concluding as a matter of law that the bonds should be valued at par for North Carolina inheritance tax purposes and therefore the difference in the par value and the fair market value of such bonds was not income to the estate of Fred J. Stanback, Sr. and plaintiff is entitled to a refund. Defendant appealed.
    
      Kluttz and Hamlin, by William C. Kluttz, Jr., for plaintiff.
    
    
      Attorney General Edmisten, by Associate Attorney William H. Boone, for the State.
    
   MARTIN, Judge.

Defendant contends that G.S. 105-29 (a) does not require North Carolina to strictly conform with federal estate tax valuations in view of the sentence in that statute stating: “In either event the Secretary of Revenue shall proceed to determine, from such evidence as may be brought to his attention or which he shall otherwise acquire, the correct value of the said estate . . . . ” Defendant contends the two situations referred to in the sentence are a higher assessment of the estate’s value by the federal government than the value reported for North Carolina interitance tax purposes or a lower assessment by the federal government than that reported for inheritance tax purposes. In either event, defendant contends he has flexibility in determining the estate’s value for inheritance tax pur-purposes. Defendant further contends that G.S. 105-144 (a) provides that the basis of the bonds is their fair market value at the date of death or the alternate valuation date and that the estate therefore acquired a gain in income through the “disposition” of the bonds at an amount in excess of their basis and such gain was properly treated as income to the estate of Fred J. Stanback, Sr. We disagree.

G.S. 105-29(a), which provides that “If the amount of said estate as assessed and fixed by the federal government shall be in excess of that theretofore fixed or assessed under this schedule for the purpose of determining the amount of taxes due the state from said estate, then the Secretary of Revenue shall reassess said estate and fix the value thereof at the amount fixed, assessed, and determined by the federal government . . . ” , requires the Secretary of Revenue to value assets of an estate at the same amount as for federal estate tax purposes, and the sentence of that statute cited by defendant does not qualify this requirement but refers instead to the “events” of an executor contesting the Secretary of Revenue’s increasing the estate value or petitioning the Secretary to reduce the estate value.

There is divergence in the views of courts in other jurisdictions dealing with the question whether United States Treasury bonds are to be valued for state inheritance or estate tax purposes at par or face value or at the lower market price. For this reason no useful purpose would be made to discuss the several cases cited by the parties sustaining their positions.

We think the meaning of G.S. 105-29 is clear. However, if the meaning is doubtful, it should be construed against the State and in favor of the taxpayer unless a contrary legislative intent appears. See In Food House, Inc. v. Coble, Sec. of Revenue, 289 N.C. 123, 221 S.E. 2d 297 (1976).

Affirmed.

Judge Clark concurs.

Judge Vaughn concurs in the result.