Opinion ID: 2229012
Heading Depth: 1
Heading Rank: 2

Heading: proceedings to set aside tax order

Text: Pleadings and Motion. Section 25-2001(4) empowers a district court and county court, see Neb.Rev.Stat. § 24-528 (Reissue 1985), to vacate its judgment or order after the term at which such judgment or order was made, if there has been fraud practiced by the successful party in obtaining the judgment or order. On November 4, 1983, the Nebraska Tax Commissioner filed a petition to vacate the Knox County Court's inheritance tax order entered on June 16, 1981. The Tax Commissioner alleged that, if properly computed, the inheritance tax payable to Knox County should not have been in excess of about $8,000.00, whereas the inheritance tax collected by Knox County was $48,375 as the result of the worksheet signed by Roubicek and Thomas. The Tax Commissioner claimed that the Inheritance Tax Worksheet was fraudulently prepared and executed with the express purpose and intention of grossly overstating the inheritance tax due Knox County, in order to eliminate the estate tax due the State of Nebraska.... The Tax Commissioner also alleged: That said fraud and collusion first became known to the State of Nebraska and its officers and employees in September, 1983, after another similar attempt to eliminate the state estate tax was brought to the attention of the Attorney General in August, 1983; the Department of Revenue of the State of Nebraska then initiated an investigation of estates in Knox County, Nebraska, to discover whether similar practices had occurred in the past; that that investigation led to the discovery of the fraud and collusion in this estate; that the Tax Commissioner could not, in the exercise of reasonable diligence, have discovered said fraud and collusion before she did. Bearing in mind that the property valuations for the West estate are not disputed for the purposes of the present appeal but are accepted as reflected on the inheritance tax worksheet in question, the value of the West gross estate is $2,319,355. From that gross estate, there are deducted $357,265 (federal estate tax paid), $1,069,744 (widow's succession interest; exempt), and $40,000 ($10,000 exemption for each of the four West children), or $1,467,009 as the total for the deduction and exemptions, which results in $852,346 as the net value of the West estate subject to the Nebraska inheritance tax at the rate of 1 percent, or an inheritance tax of $8,523. When the inheritance tax is subtracted from $48,375 (the credit allowed to determine the federal estate tax on the West estate), the remainder, $39,852, is the apparent state estate tax due the State of Nebraska, based on the figures reported on the inheritance tax worksheet. In their amended answer, the devisees of Loyd West generally denied the Tax Commissioner's allegations and, as an affirmative defense, raised the statute of limitations prescribed by Neb.Rev.Stat. § 25-2008 (Reissue 1985), which, except in cases of persons under certain disabilities, provides in part: Proceedings to vacate or modify a judgment or order, for the causes mentioned in section 25-2001, subdivisions (4), (5) and (7), must be commenced within two years after the judgment was rendered or order made.... After their answer, the West devisees filed a motion for summary judgment, asserting that the Nebraska estate tax, imposed under Neb.Rev.Stat. §§ 77-2101.01 et seq. (Reissue 1986), is unconstitutional. (The devisees' particular assertions of unconstitutionality are set forth and addressed later in this opinion.) The devisees also sought summary judgment, claiming that the 2-year statute of limitations found in § 25-2008 had run. The court overruled the motion for summary judgment. Hearing on Motion to Vacate. County Judge James J. Duggan testified that he look[ed] at and relied on the inheritance tax worksheet before he entered his order on June 16, 1981, approving the inheritance tax due on account of Loyd West's death. According to Judge Duggan, if the county attorney approves an inheritance tax worksheet, I accept it [the worksheet]. If the county attorney does not approve the worksheet, a hearing would be held regarding the inheritance tax determination, although, after becoming a judge in 1977, Judge Duggan has never had to preside over a contested inheritance tax hearing. Witnesses for the Nebraska Department of Revenue testified about the procedure followed when a Nebraska estate tax return, form 706N, is filed. Unless there is an extrinsic indication of some possible irregularity affecting an estate tax return, the department does not audit a 706N. Basically, then, the department's procedure consists of reference to federal estate tax tables to verify the amount of credit allowable as a result of the taxable estate reported on the federal estate tax return. After confirmation that the amount of the allowed federal estate tax credit claimed by an estate coincides with the amount of the credit shown on the 706N, the department then compares the inheritance tax paid, as reported in the 706N, with the certificate for inheritance tax payment, which has been issued by the collecting county and accompanies the 706N filed with the department. If the amount of the paid inheritance tax equals or exceeds the allowed credit used by the estate to determine its federal estate tax, the department issues its certificate that no Nebraska estate tax is due. However, if the amount of the credit claimed for the federal estate tax exceeds the Nebraska inheritance tax paid, the department issues its certificate reflecting payment of the Nebraska estate tax, if the correct payment of the state estate tax has accompanied the 706N, or issues a notice of the amount due on the Nebraska estate tax, if no payment or an insufficient payment has accompanied the 706N. The department is not supplied with information substantiating any computations for figures appearing on the 706N. The fact that the amount of the inheritance tax paid is equal to the federal credit for death taxes does not, by itself, indicate any irregularity concerning the 706N. Therefore, the department's standard procedure in reviewing Nebraska estate tax returns does not include an audit or require an investigation or request for additional information concerning an estate. Such departmental procedure, as previously described, existed and was followed regarding the 706N filed by the West estate. Because no error or irregularity appeared on the face of the return filed for the West estate, the Department of Revenue issued its certificate that there was no Nebraska estate tax due from the West estate. Before August 1983, the department had no information about any irregularity involving the return filed for the West estate. However, in August 1983, as the result of information from external sources, the department commenced an investigation into several Nebraska estate tax returns for estates administered in Knox County, including the West estate. At the hearing on the commissioner's petition, other evidence disclosed several instances where Roubicek had prepared inheritance tax worksheets containing an overstated inheritance tax and then sought approval of those worksheets through stipulations with county attorneys. A former county attorney of Antelope County, which is adjacent to Knox County, testified that he had disapproved a worksheet prepared by Roubicek because the inheritance tax was overstated in the worksheet. When the Antelope County attorney told Roubicek the reason for disapproval of the tendered worksheet, Roubicek responded that he wondered what the Antelope County supervisors would think if they found out [the Antelope County attorney] was turning down $8,000 to the county, that is, rejection of the overstated inheritance tax. Regarding another estate which involved assets located in several counties, Roubicek wrote to the various county attorneys and stated: Now, the Federal death tax credit is $6,887.00. In otherwords [sic], a little more than the worksheet figures out and rather than send this extra money to the State of Nebraska on an estate tax, I propose that the extra credit be divided among the counties proportionately; which I have done. So, each of you fellows is getting a bit more. Tell me if you find this agreeable. I am enclosing a stipulation and waiver which, if satisfactory, please sign and return to me. John Thomas, Knox County attorney when the West inheritance tax was determined, testified about his general procedure followed for stipulation to an inheritance tax worksheet, which included his consideration of property valuations, deductions, and the computation of the inheritance tax reflected in the tendered worksheet. After applying various rules of thumb to the inheritance tax worksheet for the West estate, Thomas accepted the worksheet prepared by Roubicek and stipulated that the inheritance tax was $48,375, inasmuch as Thomas had satisfied himself that Knox County was entitled to something in the neighborhood of 48,000 maybe a little more, maybe a little less. Although he did not recant the figure reflected on the questioned worksheet for the amount of inheritance tax due Knox County, Thomas conceded that the stipulated values in the worksheet would not support the inheritance tax liability stated in that worksheet. Regarding another estate for which Roubicek was the personal representative's attorney, Thomas admitted that there was a stipulation between Roubicek and Thomas whereby the inheritance tax was intentionally overstated and, therefore, deliberately overpaid to Knox County to avoid payment of an estate tax to the State of Nebraska. In his testimony, Roubicek offered lengthy explanations about some methods for valuation different from the methodology utilized for the West estate, that is, methods which might have produced property valuations greater than those entered on the worksheet approved by Thomas. According to Roubicek, those other methods of possible valuation might have increased the value of the West estate to somewhere near $10 million and, correspondingly, would have increased the West inheritance tax to $48,375, as asserted in the inheritance tax worksheet filed in the county court. Notwithstanding the other methods of possible valuation which might have resulted in the inheritance tax of $48,375, Roubicek admitted that, as stated in the worksheet, Thomas and he had stipulated to specific estate valuations for inheritance tax purposes as well as to the overstated amount of $48,375 as the inheritance tax due Knox County. As an explanation for the overstatement of inheritance tax due Knox County, Roubicek testified: I am faced with an inheritance tax proceeding in which my clients properly are required to disclose all their financial transactions perhaps for two or three years, which they are extremely desirous of avoiding.... County Court's Decision. The county court found that the inheritance tax order was procured through collusion of counsel and intentional fraud. Also, the court found that the 2-year statute of limitations (§ 25-2008) did not bar the Tax Commissioner's action, because the Tax Commissioner, in the exercise of reasonable diligence, could not have discovered the fraud within the 2 years after the fraudulently obtained inheritance tax order. As a result of those findings, the county court set aside the inheritance tax order entered on June 16, 1981, and ordered a redetermination of the inheritance tax liability concerning the death of Loyd West. On appeal by the personal representative, the district court affirmed the county court's judgment which set aside the inheritance tax order. In the appeal to this court, the personal representative contends (1) Nebraska's estate tax law is unconstitutional; (2) the 2-year statute of limitations in § 25-2008 prevented the county court from setting aside the inheritance tax order; and (3) fraud, required to set aside a judgment pursuant to § 25-2001, has not been established.