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HomeMy WebLinkAbout21-2001-157 Orphans' IN RE: ESTATE OF PAULINE : IN THE COURT OF COMMON PLEAS OF RIFE : CUMBERLAND COUNTY, PENNSYLVANIA : ORPHANS’ COURT DIVISION : NO. 21-01-0157 IN RE: APPEAL OF PETITIONER BEFORE HESS, J. OPINION AND ORDER In August of 1984 Gary Henline became a forty-nine percent (49%) owner of M.F. Rockey Moving Corporation (“M.F. Rockey”) after working for M.F. Rockey for several years. Pauline Rife owned the other fifty-one percent (51%) of M.F. Rockey at that time. Between January 24, 2000, and her death on January 24, 2001, Pauline Rife used her own funds to purchase a number of vehicles and conveyed the title to the vehicles to M.F. Rockey. Pauline Rife also made several cash contributions to M.F. Rockey during the year prior to her death. On July 24, 2000, Pauline Rife, who owned fifty-one percent (51%) of M.F. Rockey Moving Corporation, gave forty-nine percent (49%) to her son, Frederick Rife. Pauline Rife subsequently sold her remaining two percent (2%) interest in the corporation to Henline, pursuant to a stock purchase agreement between Pauline Rife and Henline. Frederick Rife died in August of 2000, and Pauline Rife died on January 24, 2001. After Frederick Rife’s death, M.F. Rockey was required to buy back the shares from the Frederick Rife Estate, pursuant to the stock purchase agreement. Henline, as majority shareholder of M.F. Rockey, had the corporation buy back the shares with the consideration received in his sale of M.F. Rockey. After investigating the nature of the contributions Pauline Rife made to M.F. Rockey during the year prior to her death, Sharon Paxton, Esq., counsel for the Estate of Pauline Rife, reported the transfers as inter vivos transfers, subject to Pennsylvania inheritance tax in NO. 21-01-0157 accordance with Section 2107(c) of the Inheritance and Estate Tax Act of 1991. 72 P.S. § 9107(c). The Department of Revenue issued a Notice of Appraisement, Allowance and Disallowance of Deductions and Assessment of Tax on December 22, 2003, which imposed an inheritance tax liability against Gary Henline in his capacity as “transferee” of the inter vivos gifts made to M.F. Rockey by Pauline Rife within one year of her death. Henline was taxed on forty-nine percent (49%) of the value of the majority of the transfers, as he was forty-nine percent (49%) owner of M.R. Rockey when those transfers were made. Henline was taxed on fifty-one percent (51%) of the value of two transfers which were made by Pauline Rife when Henline was fifty-one percent (51%) owner of M.F. Rockey. Henline appealed the notice. The Board of Appeals held, on September 18, 2007, that Henline was required to pay the tax on Pauline Rife’s inter vivos transfers to M.F. Rockey, but reduced the tax liability when the Board discovered that several of the transfers originally calculated in the amount to be taxed were not made during the year prior to Pauline Rife’s death. The Board held that the amount to be taxed is $33,445.31, and the amount of tax demanded to be paid by Henline is $6,775.26. Henline appealed this ruling to the Court of Common Pleas. According to Section 2107(c)(1) of the Pennsylvania Inheritance and Estate Tax Act of 1991: All transfers of property specified in subclauses (3) through (7) which are made by a resident or a nonresident during his lifetime are subject to tax to the extent that they are made without valuable and adequate consideration in money or money's worth at the time of transfer. 72 P.S. § 9107(c)(1). And according to Subclause (3): 2 NO. 21-01-0157 A transfer conforming to subclause (1) and made within one year of the death of the transferor is subject to tax … to the extent that the value at the time of the transfer or transfers in the aggregate to or for the benefit of the transferee exceeds three thousand dollars ($3,000) during any calendar year. 72 P.S. § 9107(c)(3). According to the plain language of these statutory provisions, it would appear that the vehicle transfers and cash distributions made to M.F. Rockey one year prior to Pauline Rife’s death are taxable. The remaining question, however, is whether Mr. Henline is personally liable to pay the tax on these distributions. According to Section 2144(f) of the Pennsylvania Inheritance and Estate Tax Act of 1991: In the absence of a contrary intent appearing in the will or other instrument of transfer and except as otherwise provided in this section, the ultimate liability for the inheritance tax, including interest, shall be upon each transferee. 72 P.S. § 9144(f). Therefore, the “transferee” is liable for the tax. According to Section 2102 of the Act, “transferee” is defined as “any person to whom a transfer is made and includes any legatee, devisee, heir, next of kin, grantee, beneficiary, vendee, assignee, donee, surviving joint tenant and insurance beneficiary.” 72 P.S. § 9102. The attorney for the Pauline Rife Estate, the Pennsylvania Department of Revenue, and the Department of Revenue Board of Appeals all concluded that Gary Henline was a transferee of the vehicle and cash contributions Pauline Rife made to M.F. Rockey. However, the sole support cited for the conclusion that Henline, as a shareholder, is a transferee for purposes of the 3 NO. 21-01-0157 Pennsylvania Inheritance and Estate Tax Act of 1991 is a federal gift tax law regulation. Internal Revenue Service Treasury Regulation 25.2511-1, Transfers in General, reads as follows: (h)(1) . . . A transfer of property by B to a corporation generally represents gifts by B to the other individual shareholders of the corporation to the extent of their proportionate interests in the corporation. However, there may be an exception to this rule, such as a transfer made by an individual to a charitable, public, political or similar organization which may constitute a gift to the organization as to a single entity, depending upon the facts and circumstances in the particular case. We fail to understand how a federal regulation with respect to the taxation of gifts has anything to do with the law regarding Pennsylvania inheritance taxation. Our Estate Tax Act specifically describes the transfer subject to taxation and defines, with particularity, a “transferee” who is liable for the tax. Nowhere in that definition is there any reference to shareholders of a transferee corporation. It is a question for another day as to whether a corporation can be a “person to whom a transfer is made.” In the meantime, we have not been furnished, nor can we find, any authority for the proposition that shareholders of a transferee 1 corporation are individually liable for the payment of inheritance tax. The department may argue, particularly where there are only one or two shareholders, that these shareholders should bear the responsibility for the inheritance tax for some reason of public policy. It is fundamental to our juris prudence, however, that where a statute is unambiguous, the plain language controls 1 We do not find this surprising. Imposing liability on individual shareholders who could number in the hundreds would be cumbersome if not totally impracticable. 4 NO. 21-01-0157 and cannot be ignored “in pursuit of the statute’s alleged … spirit or purpose.” Koken v. Reliance Ins. Co., 893 A.2d 70, 82 (Pa. 2006) referencing 1 Pa.C.S.A. Section 1921(b). ORDER AND NOW, this day of March, 2008, the appeal of Gary L. Henline in this matter is SUSTAINED and the decision and order of the Board of Appeals dated September 18, 2007, is REVERSED. BY THE COURT, _______________________________ Kevin A. Hess, J. Gary Henline, Pro Se 39 Shamrock Circle Westminster, MD 21157 Thomas J. Gohsler, Esquire Attorney for Dept. of Revenue Office of Chief Counsel Dept.. 281061 Harrisburg, PA 17128-1061 :rlm 5 IN RE: ESTATE OF PAULINE : IN THE COURT OF COMMON PLEAS OF RIFE : CUMBERLAND COUNTY, PENNSYLVANIA : ORPHANS’ COURT DIVISION : NO. 21-01-0157 IN RE: APPEAL OF PETITIONER BEFORE HESS, J. ORDER AND NOW, this day of March, 2008, the appeal of Gary L. Henline in this matter is SUSTAINED and the decision and order of the Board of Appeals dated September 18, 2007, is REVERSED. BY THE COURT, _______________________________ Kevin A. Hess, J. Gary Henline, Pro Se 39 Shamrock Circle Westminster, MD 21157 Thomas J. Gohsler, Esquire Attorney for Dept. of Revenue Office of Chief Counsel Dept.. 281061 Harrisburg, PA 17128-1061 :rlm