People v Kole (IL)

Summary: Trustee and executor was personally liable for failure to pay additional state estate tax owed after federal audit, even though the state had provided a Certificate of Discharge and Determination of Tax.

People v Kole, 2012 Ill App (2d) 110245 (2d D, 2012).

Facts: In 2002, the Internal Revenue Code stated that a person was entitled to a tax credit from the federal estate tax for state estate taxes paid up to a certain amount.  26 USC § 2011.  The Illinois estate tax was tied to the federal state tax and would ‘pick up’ the maximum amount that would be credited under federal law.  The procedure for filing in Illinois was also tied to federal law. 35 ILCS 405/6(c).

Anthony Crespo died on July 31, 2002.  Crespo had named Julius Kole (Kole) as the executor of his estate and successor trustee of the Anthony F. Crespo Living Trust.  On April 30, 2003, Kole made a timely payment of $127,000 in Illinois estate tax and requested an extension to file the estate’s Illinois tax return.  The request was granted, and Kole filed a timely Illinois estate tax return that had a copy of the estate’s federal tax return attached and reported an Illinois estate tax liability of $81,397.  Lisa Madigan (Madigan), the Attorney General of Illinois, received the estate’s Illinois estate tax return and issued a Certificate of Discharge and Determination of Tax.

The IRS audited the estate’s federal tax return and found that the estate’s state death tax credit increased from $81.398 to $243,729.  Madigan filed a complaint alleging that no supplemental Illinois estate tax return was filed and sought additional estate tax, a late-filing penalty, a late-payment penalty, and interest.  Madigan alleged that Kole was personally liable for the additional taxes, penalties and interest. 

Kole moved to dismiss Madigan’s complaint arguing that the 2003 Certificate of Discharge released him from personal liability of any additional estate tax, penalties, or interest.  Madigan argued that the discharge was based upon the information provided and did not extend to subsequent additional taxes.  Madigan and Kole filed multiple summary judgment motions, and the court Granted Kole’s summary judgment motion.  The trial court found that the statute did not impose personal liability for additional estate tax owed.

Holding: Reversed.  Illinois tax returns, including amended and supplemental ones, must be paid by the person required to pay the federal taxes. 35 ILCS 405/6(c).  If the transfer tax is not paid when due, the person required to file is personally liable for the tax.  35 ILCS 405/10(c). While additional taxes are not explicitly included in the language of the statute, when the statute is read as a whole, Section 10(c) imposes liability on additional taxes.

The Certificate of Discharge stated that it was issued based on the information submitted and therefore did not discharge Kole from all liability.  Furthermore, Section 10(e) of the statute did not limit the number of certificates that Madigan can make for an estate and did not reference that the Illinois transfer tax was fully discharged. 35 ILCS 405/10(e). Madigan’s summary judgment motion was granted because all of the elements of tax liability were met.

Opinion Year: 
By: ATG Underwriting Department | Posted on: Mon, 07/23/2012 - 1:39pm