COURT DISMISSES ESTATE TAX REFUND SUIT NOT COMMENCED BY EXECUTOR.

                    UNITED STATES DISTRICT COURT

I. FACTS

1. Amelia E. Koch and Ralph J. Koch were husband and wife, and lived in Evansville, Indiana. Amelia Koch died on July 25, 1991, and Ralph Koch died a few days later on August 7, 1991.

2. Shortly after their deaths, probate estates were opened for both decedents in the Vanderburgh Superior Court, Probate Division. The decedents' daughter, Betty James, served as the Personal Representative of both estates.

3. At the time of the decedents' deaths, Amelia Koch and Ralph Koch owned 57 and 135 shares of common stock in Center Heights Lumber Company, Inc., respectively. At the time of their deaths, Center Heights had a total of 287 shares of stock outstanding.

4. Center Heights is a close-held, family corporation, with its principal place of business in Evansville, Indiana. Kenneth Koch is its President.

5. In preparation of filing a United States Estate Tax Return for both estates (Form 706), Betty James obtained an appraisal of Center Heights by Robert Swan, C.P.A., of the Kemper C.P.A. Group ("Swan Valuation"). Robert Swan determined the fair market value of each share of stock to be worth $7,184.00. (Compl., Ex. C).

6. On November 6, 1992, Betty James filed the Ralph Koch 706 with the Internal Revenue Service in Cincinnati, Ohio. Among the assets included on the Ralph Koch 706 were the decedent's 135 shares of Center Heights stock valued at $970,000.00 per the Swan Valuation. Kenneth Koch paid to the estate $174,885.83, which represented his proportionate share of estate taxes due as a result of the inclusion of property jointly held by both him and Ralph Koch. (Plaintiffs' Ex. 1). The Personal Representative made an additional estimated payment of $5,114.17. Thus, a total estimated payment of $180,000.00 was made at the time Ralph Koch's federal estate tax return was filed.

7. The remaining amount of federal estate taxes assessed are currently being paid by Center Heights by way of a redemption of the decedent's shares of Center Heights stock and an election under 26 U.S.C. section 6166 to pay the federal estate taxes in installments.

8. On June 29, 1995, Kenneth Koch, as President of Center Heights, executed an agreement consenting to the creation of an Internal Revenue Code section 6324A lien in order to secure payment of estate taxes deferred under section 6166. (Plaintiffs' Ex. 2 & 3).

9. On January 5, 1993, Betty James filed the Amelia Koch 706 with the Internal Revenue Service in Cincinnati, Ohio. Among the assets included on the Amelia Koch 706 were the decedent's 57 shares of stock valued at $409,488.00 per the Swan Valuation. A total amount of $26,560.00 was paid in federal estate taxes, penalties and interest in her estate by way of a redemption of the decedent's shares of Center Heights stock pursuant to 26 U.S.C. section 303. ¹

10. On November 5, 1995, Center Heights and Kenneth Koch obtained a Valuation Report prepared by Gaither Rutherford & Co., L.L.P. (the "Gaither Valuation"), which concluded that the fair market value of the decedents' shares was $2,387.00 per share. The Gaither Valuation took into account discounts associated with the poor marketability inherent in closely-held corporate stock. (Compl., Ex. D).

11. Based upon the Center Heights stock as determined by the Gaither Valuation, the total value of Ralph Koch's shares was $322,245.00. Had the Gaither Valuation been utilized, Ralph Koch Estate tax would have been reduced by $243,672.11. Likewise, the Gaither Valuation determined the total value of Amelia Koch's shares to be $136,059.00. Had the Gaither Valuation been utilized when her assets were valued, Amelia Koch would not have owed any estate taxes. (Compl., Ex. D).

12. On November 6, 1995, Center Heights submitted to the Internal Revenue Service a Form 843 "Claim for Refund and Request for Abatement," along with a Supplemental Form 706 "United States Estate (and Generation-Skipping Transfer) Tax Return for the Ralph Koch estate. (See Government Ex. 4). A similar claim was submitted for the Amelia Koch estate on November 20, 1995. (See Government Ex. 2).

13. On May 7, 1996, the Internal Revenue Service denied and disallowed the Claims for Refund filed by Center Heights in both the Estate of Amelia Koch and Ralph Koch on the grounds that Center Heights and Koch did not have standing to file the claims pursuant to 28 U.S.C. section 1346(a)(1).

14. On November 10, 1997, in order to close both decedent's estates, Judge Hugo C. Songer, Special Judge of the Vanderburgh Superior Court, Probate Division, issued two Orders Approving Personal Representative's Supplemental Report of Distribution and Petition for Discharge. The orders were nearly identical and served to close the respective estates and release Betty James from any further liability. In addition, Judge Songer granted Kenneth Koch, as President of Center Heights, the authority to represent the estate with respect to any remaining legal issues regarding the federal estate taxes in both Amelia Koch's and Ralph Koch's respective estates. Specifically, the order provided:

     The President of [Center Heights] is authorized, directed, and

15. On or about February 23, 1998, Center Heights and Koch requested the Internal Revenue Service to re-examine its denial and disallowance of the Claims for Refund filed by Center Heights and Kock in light of the Order Approving Personal Representative's Supplemental Report of Distribution and Petition for Discharge entered in the Amelia Kock Estate on November 10, 1997.

16. On May 4, 1998, Center Heights and Koch received a response from the Internal Revenue Service to the February 23, 1998 letter in which the Internal Revenue Service denied the claim.

17. Following the denial of their claims, Center Heights and Koch filed suit in this court seeking refunds in the amount of $26,560.00 associated with the Estate of Amelia Koch, and $243,672.11 associated with the Estate of Ralph Koch. Count I seeks judgment against the Government in the amount of $26,560.00 plus interest in connection with the Estate of Amelia Koch, and Count II seeks judgment against the Government in the amount of $243,672.11 plus interest in connection with the Estate of Ralph Koch.

II. STANDING

A. COUNT I -- ESTATE OF AMELIA KOCH

1. WHETHER KENNETH KOCH HAS STANDING

[2] The Plaintiffs assert that this court has jurisdiction pursuant to 28 U.S.C. section 1346(a)(1), which grants the district court original jurisdiction over "[a]ny civil action against the United States for the recovery of any internal-revenue tax alleged to have been erroneously or illegally assessed or collected." The Government contends the court does not have jurisdiction because Kenneth Koch did not file a claim for refund, as the refund is filed in the name of Center Heights only. See 26 U.S.C. section 7422(a) (provides that no federal court action may be brought for the recovery of an internal revenue tax until a claim for refund has been filed). The court agrees. Therefore, because Kenneth Koch did not file a claim for refund as required by 26 U.S.C. section 7422, this court lacks jurisdiction over his request for a tax refund.

2. WHETHER CENTER HEIGHTS AND KENNETH KOCH HAVE STANDING

[3] The Government next argues that neither Center Heights nor Kenneth Koch have standing to file a claim for refund because neither Plaintiff was ever the executor of the estate, and because Betty James was the only person legally liable for taxes, only she may sue for a refund.

[4] A claim for refund, under section 6511 of the Internal Revenue Code "shall be filed by the taxpayer." The Government argues that the executor ² of the estate, Betty James, was the taxpayer in this instance because only she was legally liable for the taxes paid on the estate. See Pershing Division of Donaldson, Lufkin & Jenrette Securities v. United States, 22 F.3d 741 (7th Cir. 1994); Lac Courte Oreilles Band v. United States, 845 F.2d 139 (7th Cir. 1988); Busse v. United States, 542 F.2d 421 (7th Cir. 1976).

[5] Plaintiffs argue that they are indeed the "taxpayer" pursuant to the Supreme Court's decision in United States v. Williams, 514 U.S. 527 (1995). In Williams, a plaintiff paid a tax owed by her ex-husband under protest in order to remove a federal tax lien on her property. The Supreme Court held that "[i]n placing a lien on her home and then accepting her tax payment under protest the Government had surely subjected Williams to a tax." Id. at 535. The Court held she was a taxpayer within the meaning of 26 U.S.C. section 7701(1)(14), which defines a taxpayer as "any person subject to any internal revenue tax." Thus, she had standing to bring a refund action even though the tax she paid was assessed against a third party.

[6] The Government argues this case does not apply to the facts of this case because even if Plaintiffs made payment directly to the Internal Revenue Service, there is no evidence they paid such amounts to remove a lien from the property. Under the facts of this case, the court agrees with the Government. Accordingly, neither Center Heights nor Kenneth Koch have standing to file a claim for refund for taxes paid in the Estate of Amelia Koch. Therefore, the court GRANTS the Government's Motion to Dismiss Count I of Plaintiffs' Complaint.

B. ESTATE OF RALPH KOCH

[7] The estate of Ralph Koch elected to make tax payments in installments pursuant to 26 U.S.C. section 6166. As of this date, the federal estate obligation has not been fully satisfied. The Government argues that pursuant to the full payment rule, the Plaintiffs may not seek a refund at this time. ³ The court agrees.

[8] In Flora v. United States, 357 U.S. 63 (1958), aff'd on reh'g 362 U.S. 145 (1960), the Supreme Court concluded that 28 U.S.C. section 1346(a)(1) "required full payment of the assessment" before a refund suit may be maintained in district court. Id. at 177. Although an exception to the full payment rule exists for "divisible" taxes, estate taxes are not considered divisible. Rocovich v. United States, 933 F.2d 991 (Fed. Cir. 1991) aff'g Rocovich v. United States, 18 Cl. Ct. 418 (1989). Because the estate tax liability of the Estate of Ralph Koch has not been fully paid, this court lacks jurisdiction to consider the claim for refund by the Plaintiffs. Therefore, the court GRANTS the Government's Motion to Dismiss Count II of Plaintiffs' Complaint.

III. CONCLUSION

[9] Based upon the foregoing, the court GRANTS the Government's Motion to Dismiss Plaintiffs' Complaint for Lack of Subject Matter Jurisdiction.

[10] So ordered this day of May, 1999.

                                   Richard L. Young, Judge

² Under the governing law, 26 U.S.C. section 2002, the federal estate tax is to be paid by the executor, and section 2003 defines the executor as "the executor or administrator of the decedent, or, if there is no executor or administrator appointed, qualifying, and acting within the United States, then any person in actual or constructive possession of any property of the decedent." In this case, Betty James was the Personal Representative of the Estate of Amelia Koch under state law, and so was the acting executor within the meaning of section 2002, until the estate was closed in 1997. Neither Center Heights nor Kenneth Koch have ever been the Personal Representative or executor of the Estate of Amelia Koch.

³ The court is aware of 26 U.S.C. section 7422(j)(1) which allows [an estate] to seek a determination of estate tax liability in a refund forum without having to abandon the election to pay the estate tax in installments. Unfortunately for Plaintiffs, this law did not go into effect until July 22, 1998, a date after they had already filed their refund claim, and therefore cannot serve as a basis to grant them relief in this case.