Court Opinion

ID: 9572108
Source: CourtListenerOpinion
Date Created: 2023-08-21 20:38:29.320324+00
Date Added: 2024-06-11T12:31:32.489415
License: Public Domain

SHEPARD, Chief Justice.
This is an appeal from a summary judgment entered by the district court, which in turn was an appeal from the Idaho State Tax Commission. The sole question is the valuation of certain U. S. Treasury bonds for the purpose of state inheritance tax determination. The appellant Tax Commission contends the determination should be on the basis of the par value of the bonds, and the respondent taxpayer asserts that the district court was correct in making such determination based on the open market value.
The decedent E. Wanek Stein died testate on August 14, 1973. Among the assets of his estate were U. S. Treasury bonds with a par value of $300,000, which Stein had purchased three weeks before his death. Those bonds are described only as “U. S. Treasury bonds[,] 3V2% due 11/15/1998.” Clk. Tr. 44. Those bonds evidently are Series G or H government savings bonds, commonly called “flower” bonds. It is stipulated that they may be redeemed in payment of federal estate taxes following the death of their holder, and when so used are redeemed at par value. It is also undisputed in the instant case that those bonds, if sold on the open market, would command a price substantially less than their par value.
On February 13,1974, the personal representative of the estate, Wanek R. Stein, *71filed with the Idaho State Tax Commission a transfer and inheritance tax return which was marked “estimated.” That return placed the value of the bonds at their purchase price, which was $221,450.00. As of the date of death, the estimated market value of the bonds was $209,813.00.
In January 1976 the Tax Commission ascertained that 72 percent of the bonds had been redeemed at par value in payment of federal estate taxes. The Commission therefore raised the valuation of that portion of the bonds to par value for purposes of state inheritance tax. A notice of deficiency was sent, which was in part paid, but objection was made to the revaluation of the bonds used to pay the federal estate taxes. The personal representative filed a complaint in the district court seeking a redetermination of the deficiency as asserted by the Tax Commission. Upon motion therefor, summary judgment was entered in favor of the personal representative.
Although a procedural issue is presented as to the time within which the Tax Commission may make a deficiency determination, we do not reach that issue since our affirmance of the district court’s definition of the fair market value of the bonds is dispositive of the appeal.
Taxation of U. S. Treasury bonds under our inheritance tax statutes , must be based on their fair market value. See I.C. §§ 14-402-418. The Commission asserts that because the bonds in the instant matter had a unique characteristic allowing them to be redeemed at par value for federal estate tax purposes, such a redemption requires their fair market value to be placed at par value. Regulation 402(a) of the Tax Commission requires a valuation as argued by the Commission here, however, it is conceded that said regulation was not in effect at the time of decedent’s death. The Commission argues, nevertheless, that such regulation somehow provides a guideline as to the legislative intent in the enactment of I.C. § 14-402. We do not agree.
The construction of the statutory term “fair market value” by the Commission’s Regulation 402(a) is not necessarily the only construction of the statute nor does it comport with the clear meaning of the statute. Courts of various jurisdictions have disagreed in cases such as the one at bar. Illinois, Montana, Oregon and West Virginia support the holding of the district court. See, e. g., In re Estate of Barker, 24 Ill. App.3d 959, 321 N.E.2d 709 (1974); In re Estate of Power, 156 Mont. 100, 476 P.2d 506 (1970); Department of Revenue v. First Nat’l Bank, 4 Or.App. 477, 479 P.2d 256 (1971); Aul v. Haden, 154 W.Va. 484, 177 S.E.2d 142 (1970). The courts of California, New York, North Dakota, Ohio and Washington support the position taken by the Tax Commission here. See, e. g., In re Estate of Rosenfeld, 62 Cal.2d 432, 42 Cal. Rptr. 447, 398 P.2d 783 (1965); In re Estate of Behm, 14 N.Y.2d 826, 251 N.Y.S.2d 475, 200 N.E.2d 457 (1964); Clapp v. Cass County, 236 N.W.2d 850 (N.D.1975); In re Estate of Young, 16 Ohio Misc. 332, 243 N.E.2d 123 (1969); In re Estate of Eggert, 82 Wash.2d 332, 510 P.2d 645 (1973).
We hold that the U. S. Treasury bonds have a value for inheritance tax purposes determined by the open market at the time of death; i. e., “the price which a buyer willing but not obliged to buy would pay a seller willing but not obligated to sell, both having full knowledge of all pertinent facts affecting value.” In re Estate of Power, 476 P.2d at 507-08. A grisly bargain is struck between the federal government and the owner of the bonds, since the only way in which the owner can obtain their par value is to die. Thereafter value for the bonds may only be obtained in payment of federal estate taxation. Living owners of such bonds cannot obtain their par value from the government. Hence, a redemption following the death of the owner in payment of federal estate taxes is not a sale on the open market. Further, since the federal tax commissioner is required to redeem such bonds at their par value when offered in payment of federal estate taxes, the U. S. government is not a willing buyer.
No rational public policy would be served by placing a different value on U. S. Treasury bonds as contrasted with other person*72al property. Both must be assigned their open market value. Although the death of the decedent enhanced the value of the bonds to his estate, it did not change their value on the open market. Heirlooms and other personal property with unique characteristics may have enhanced value to certain persons, but they are nevertheless valued according to the open market value, and the bonds in the instant case are no different. Judgment of the district court is affirmed. Costs to respondent.
McFADDEN, DONALDSON and BISTLINE, JJ., concur.