Opinion
Docket No. 001822-2011
04-17-2012
Morris Reichbach v. Director, Division of Taxation
NOT FOR PUBLICATION WITHOUT APPROVAL OF
THE TAX COURT COMMITTEE ON OPINIONS
Patrick DeAlmeida
Presiding Judge
R.J. Hughes Justice Complex
Morris Reichbach
825 Woodland Drive
Lakewood, New Jersey 08701
Carl A. Wohlleben
Deputy Attorney General
Division of Law
R.J. Hughes Justice Complex
Dear Mr. Reichbach and DAG Wohlleben:
This letter constitutes the court's opinion with respect to the motion of defendant, Director, Division of Taxation, for summary judgment in the above-referenced matter in which plaintiff challenges the Director's final determination assessing gross income tax, penalties and interest for tax year 2007. For the reasons explained more fully below, the Director's motion for summary judgment is granted and the final determination is affirmed.
I. Procedural History and Findings of Fact
The following findings of fact are based on the certifications and exhibits submitted by the parties with respect to defendant's motion. R. 1:7-4(a).
Plaintiff Morris Reichbach is a resident of New Jersey. Prior to October 27, 2000, Mr. Reichbach owned two residential properties in Lakewood Township. The parcels, designated by the Township as 12G, Lot 14 and Block D, Lot 3, are commonly known as 825 Woodland Drive and 221 Williams Street.
On October 27, 2000, Mr. Reichbach transferred his ownership interest in the parcels to his children. Deeds memorializing the transfers were prepared by an attorney and plainly indicate that Mr. Reichbach conveyed "any and all interest he may have to the grantees in equal shares." In addition, the deeds state that Mr. Reichbach's children received the property "as joint tenants with right of survivorship . . . ." Neither deed indicates that Mr. Reichbach retained a life tenancy with respect to the properties. Nor has plaintiff produced any document memorializing the issuance of a life tenancy to him contemporaneous with the transfer of his interest in the properties to his children. The deeds were recorded with the Ocean County Clerk on December 28, 2000.
Mr. Reichbach continued to live at 825 Woodland Drive after he transferred ownership of that property to his children. It is not clear from the record who resided at 221 Williams Street after Mr. Reichbach transferred his ownership of that property to his children. Mr. Reichbach paid the local property taxes on both parcels for tax year 2007. The combined local taxes for both properties for that year was $10,541.63.
On line 36c of his 2007 New Jersey gross income tax return, Mr. Reichbach deducted $10,540.63 for local property taxes. It is not clear why he deducted one dollar less than he paid.
On June 21, 2010, Mr. Reichbach's children conveyed to Mr. Reichbach a life tenancy interest at 825 Woodland Drive. The deed states that Mr. Reichbach's children "have just been informed that they may be joint tenants with the right of survivorship" with respect to the property. In addition, the deed states that the transfer is made by Mr. Reichbach's children "to the extent that they have any interest in said property which there were not aware of." Finally, the deed notes that the property was transferred to Mr. Reichbach's children "without their knowledge" in the 2000 deed. This deed was filed with the Ocean County Clerk on July 19, 2010.
In another deed dated June 21, 2010 Mr. Reichbach's children conveyed to him a life tenancy at 221 Williams Street. This deed also contained notations indicating that Mr. Reichbach's children were unaware of the prior transfer of ownership to them from Mr. Reichbach. The June 21, 2010 deed concerning 221 Williams Street was recorded with the Ocean County Clerk on August 11, 2010.
On November 30, 2010 and December 1, 2010, the Division of Taxation, issued computer-generated notices to Mr. Reichbach denying the local property tax deduction claimed on his 2007 New Jersey gross income tax return.
On January 20, 2011, an employee of the Division issued a notice to Mr. Reichbach stating that the information he submitted in response to the two computer-generated notices did not establish Mr. Reichbach's entitlement to the local property tax deduction. The notice stated that "[o]ur records indicate that you do not own the properties located at 825 Woodland Drive and 221 Williams Street." The notices demanded payment of $779 within 30 days to avoid the imposition of additional penalties and interest.
On February 16, 2011, a Division employee issued a second notice to Mr. Reichbach indicating that additional information submitted by him did not establish his entitlement to a deduction for local property taxes on his 2007 gross income tax return. The notice stated that a "review of the deed your [sic] submitted indicates that your life tenancy rights to the properties located at 825 Woodland Avenue [sic] and 221 Williams Street did not begin until June 21, 2010." The notice stated that Mr. Reichbach had an outstanding gross income tax obligation of $549.90, which had to be paid within 30 days to avoid additional penalties and interest. The February 16, 2011 notice indicated that the assessment would become final if not appealed within 90 days.
On March 30, 2011, Mr. Reichbach filed a Complaint in this court challenging the Director's February 16, 2011 assessment of gross income tax. Plaintiff paid the outstanding taxes, penalties and interest.
On March 9, 2012, the Director moved for summary judgment in his favor. Plaintiff opposed the motion. Neither party requested oral argument.
II. Conclusions of Law
Summary judgment should be granted where "the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2. In Brill v. Guardian Life Ins. Co., 142 N.J. 520, 523 (1995), our Supreme Court established the standard for summary judgment as follows:
[W]hen deciding a motion for summary judgment under Rule 4:46-2, the determination whether there exists a genuine issue with respect to a material fact challenged requires the motion judge to consider whether the competent evidential materials presented, when viewed in the light most favorable to the non-moving party
in consideration of the applicable evidentiary standard, are sufficient to permit a rational factfinder to resolve the alleged disputed issue in favor of the non-moving party.
The court finds that there are no disputed material facts at issue in this matter and that the legal issues presented are ripe for resolution through summary judgment.
The court's analysis begins with the familiar principle that the Director's interpretation of tax statutes is entitled to a presumption of validity. "Courts have recognized the Director's expertise in the highly specialized and technical area of taxation." Aetna Burglar & Fire Alarm Co. v. Director, Div. of Taxation, 16 N.J. Tax 584, 589 (Tax 1997)(citing Metromedia, Inc v. Director, Div. of Taxation, 97 N.J. 313, 327 (1984)). The scope of judicial review of the Director's decision with respect to the imposition of a tax "is limited." Quest Diagnostics, Inc. v. Director, Div. of Taxation, 387 N.J. Super. 104, 109 (App. Div.), certif. denied, 188 N.J. 577 (2006). The Supreme Court has directed courts to accord "great respect" to the Director's application of tax statutes, "so long as it is not plainly unreasonable." Metromedia, supra, 97 N.J. at 327. See also GE Solid State, Inc. v. Director, Div. of Taxation, 132 N.J. 298, 306 (1993)("Generally, courts accord substantial deference to the interpretation an agency gives to a statute that the agency is charged with enforcing.").
N.J.S.A. 54A:3A-17(a) provides:
A resident taxpayer under the "New Jersey Gross Income Tax Act," N.J.S.A. 54A:1-1 et seq., shall be allowed a deduction from gross income for property taxes not in excess of $10,000 . . . due and paid for the calendar year in which the taxes are due and payable on the taxpayer's homestead.N.J.S.A. 54:3A-16(a) defines "homestead" as "a dwelling house and the land on which that dwelling house is located which constitutes the place of the taxpayer's domicile and is owned and used by the taxpayer as the taxpayer's principal residence." (emphasis added).
The statute defines ownership for purposes of the Gross Income Tax Act as follows:
In addition to the generally accepted meaning of owned or ownership, a homestead shall be deemed to be owned by a person if that person is a tenant for life or a tenant under a lease for 99 years or more, is entitled to and actually takes possession of the homestead under an executory contract for the sale thereof or under an agreement with a lending institution which holds title as security for a loan, or is a resident of a continuing care retirement community pursuant to a contract for continuing care for the life of that person which requires the resident to bear, separately from any other charges, the proportionate share of property taxes attributable to the unit that the resident occupies . . .
[N.J.S.A. 54A:3A-16c.]
It is clear that Mr. Reichbach did not own either 825 Woodland Drive or 221 Williams Street during 2007. The record contains unequivocal evidence that Mr. Reichbach transferred all of his title and interest in the two properties to his children on October 27, 2000. The deeds memorializing the transfers of those properties contained no reservation of rights to Mr. Reichbach. Nor is there any evidence that a written document vested a life tenancy to Mr. Reichbach in either property at the time of the October 27, 2000 transactions. Mr. Reichbach did not obtain a life tenancy in the properties until June 21, 2010.
New Jersey courts have consistently held that interests in land must conform to the requirements of the statute of frauds. Eileen T. Quigley, Inc. v. Miller Family Farms, Inc., 266 N.J. Super. 283, 294 (App. Div. 1993); see N.J.S.A. 25:1-11 and -12. Oral agreements pertaining to life estates generally are not enforceable. Thomas v. Thomas, 20 N.J. Misc. 419, 423 (Ch. Div. 1942)(holding that "an oral promise or agreement made contemporaneous with the conveyance . . . that the grantor should retain what amounts to a life estate in the conveyed premises, such agreement, being required by the statute of frauds to be put in writing, is unenforceable . . . ."). Cf. Hermanoski v. Hermanoski, 18 N.J. Super. 406 (Ch. Div. 1952) (finding deed to be product of undue influence, where grantors with little proficiency in English and without independent advice conveyed all rights to their property, and reforming deed to effectuate intent to retain a life estate). While Mr. Reichbach may have intended to obtain a life tenancy at the time he transferred ownership in the properties to his children, he failed to secure a written instrument vesting him with any interest in the properties until June 21, 2010, long after the 2007 tax year.
Mr. Reichbach was free to order his affairs in any matter he desired. He elected, with the advice of counsel, to sign and record deeds transferring all of his interest in the two properties to his children. Presumably, Mr. Reichbach perceived a legal benefit from making these transfers. In his Complaint, Mr. Reichbach makes reference to what may have been estate planning motivations for the transfers. Whether his decision will prove to be beneficial in that respect has yet to be determined. However, having made the election to divest himself of his interest in the two properties, Mr. Reichbach must accept the collateral legal consequences of his decision. See General Trading Co. v. Director, Div. of Taxation, 83 N.J. 122 (1980). It is incumbent on this court to apply the tax laws as written by the Legislature. The court is powerless to rewrite the gross income tax statutes to provide a deduction for a party who intended to retain a life estate in property but failed to do so.
The court notes that in his papers Mr. Reichbach appears to request that the court vacate the Director's assessment of $3,935.73 in penalties against him. There is no evidence in the record supporting the contention that the Director assessed that amount of penalties against Mr. Reichbach with respect to his 2007 gross income tax obligation. Nor does Mr. Reichbach cite a single statute, regulation or legal precedent that would support the invalidation of the assessment of interest or penalties resulting from his ill-founded claim to a deduction for local property taxes. The court, therefore, will not disturb the Director's calculation of the amounts due from Mr. Reichbach as a result of the Director's disallowance of the deduction. Finally, the court notes that it need not address the question of whether Mr. Reichbach occupied both 285 Woodland Drive and 221 Williams Street as his homesteads during 2007.
An Order and Final Judgment affirming the final assessment of the Director is enclosed.
Very truly yours,
______________________
Patrick DeAlmeida, P.J.T.C.