In re Estate of Praag
Case Date: 09/11/1997
Court: 4th District Appellate
Docket No: 4-96-0841
IN THE APPELLATE COURT OF ILLINOIS FOURTH DISTRICT In Re: ESTATE OF ALEX VAN PRAAG, ) Appeal from Deceased. ) Circuit Court of SAFECO INSURANCE COMPANY OF AMERICA, ) Macon County Petitioner-Appellant, ) No. 79P48 v. ) GREGORY S. VAN PRAAG, Special ) Administrator of the Estate of Alex ) Van Praag and FIRST NATIONAL BANK OF ) Honorable DECATUR, ) Jerry L. Patton, Respondents-Appellees. ) Judge Presiding. JUSTICE GREEN delivered the opinion of the court: Alex Van Praag died in 1979 and proceedings for the probate of his estate in the circuit court of Macon County ensued. In 1981, the decedent's son, James Van Praag, became coadministrator with will annexed and later became the sole person serving in that capacity. The instant dispute arises because in 1988, the Internal Revenue Service (IRS) levied upon the estate account at the Soy Capital Bank of Decatur (Soy Bank) in the sum of $83,676, leaving the estate insolvent. The princi- pal issue here is whether James was liable to the estate for its loss arising from that levy. The circuit court held he was. We conclude the court could properly have made such a determination and affirm. On August 10, 1993, a hearing was held on four issues. The First National Bank of Decatur (FNBD), a prior personal representative of the estate, had been awarded a fee of $25,000, and it requested that fee be paid and the estate closed. The estate had made a charge of malpractice against a former attorney for the estate and James sought leave to settle that matter. Questions of fees for James and his attorney were also at issue. On November 22, 1993, the court entered an order authorizing settlement of the malpractice case and ordered the closing of the estate. Fees were denied for James and his attorney. The court also ordered James was not allowed to take credit for or deduct from the estate funds the $83,000 levied by the IRS but was to pay all creditors, legatees, and beneficiaries of the estate as if that sum had not been levied. The order required the estate to be closed by December 30, 1993, and a final report be filed. Safeco Insurance Company (Safeco), appearing as surety on the fiduciary bond of James, moved to reconsider the November 22, 1993, order. That motion was apparently denied in regard to the issues here by an order of December 16, 1993, which granted certain relief on matters covered by the November 22 order that are not material here. The December 16 order impliedly denied any other relief from the November 22 order. Neither James nor Safeco filed a final report. Accordingly, on April 16, 1996, the court entered its own final report. 755 ILCS 5/24-15 (West 1996). That document again directed James to pay to Gregory Van Praag, who had been appointed special administrator, the $83,000, issued an attachment against James (755 ILCS 5/24-16(c) (West 1996)), and directed the special administrator (Gregory) to proceed against Safeco on James' bond. On August 22, 1996, the circuit court entered an order approving its final account. On October 16, 1996, the court entered a personal judgment against James and in favor of the estate for the sum of $83,000 purportedly nunc pro tunc September 23, 1996. Safeco has filed a notice of appeal and contends no basis was shown for holding James responsible for the loss resulting from the IRS levy. Gregory maintains Safeco's contention that James was not responsible for the loss from the IRS levy is barred because of the res judicata effect of the November 22, 1993, order, which was not appealed. He contends that order was final as to the rights of James in regard to the loss from the IRS levy under Supreme Court Rule 304(b) (155 Ill. 2d R. 304(b)). This conten- tion involves a very complicated analysis of the appealability of orders in civil cases that do not end the case. As we conclude the judgment on appeal can be upheld on the merits, we choose not to consider further the res judicata contention. Most of the evidence concerning the liability of James for the IRS levy came from the August 10, 1993, hearing. Michael Bitner, an agent for the IRS, was called by FNBD and testified as follows: (1) in July 1989, he was requested by the IRS to investigate whether the estate bank account at Soy Bank could be levied upon to recover a 1978 tax obligation; (2) he identified an internal IRS memorandum requesting his involvement in the collection procedure, and the memorandum indicated James and his attorney preferred to have the account levied upon rather than for the IRS to file a claim in the probate proceeding; (3) he identified an IRS document that showed Alex and Bernice Van Praag's (Van Praags) initial 1978 tax assessment and a second 1988 assessment showing a $31,911 deficiency; and (4) he sent a letter to the judge then presiding over Alex's estate relating that the IRS wished to levy the estate bank account rather than file a claim in the probate proceeding. The evidence indicated the IRS had a well-meaning practice, of dubious propriety, of contacting judges in charge of estates to see if they objected to a levy against the assets of an estate before making such a levy. The evidence indicated the judge then presiding over the estate informed Bitner he had no objection. The record was undisputed that the IRS then made such a levy upon the estate bank account at Soy Bank for what the IRS claimed to be unpaid taxes for 1978 owed jointly by the Van Praags. However, on cross-examination, Bitner stated he was unable to find the IRS records indicating why the 1988 assessment was made. Bitner admitted the record indicated that in November 1982, a refund was made to the Van Praags for overpayment of their 1978 taxes in the sum of $31,911. That sum was also the exact amount of the claimed deficiency for the year 1988. The amount of this claim was increased to $83,676 by charges for interest, penalties, and costs. James admitted that his mother, Bernice, received all of the alleged overpayment of $31,911 and none of it was ever placed in the estate. Bitner also admitted the record indicated the Van Praags had paid their 1978 taxes in full, and the record gave no indication why an assessment was made in 1988. The record also showed the IRS had made numerous attempts to collect the 1988 assessment from Bernice and she had refused to pay. Bitner testified the use of a levy to collect taxes from an estate was not the usual procedure, but James and James Nangle, an attorney representing James, had indicated to him they both thought the levy process would be a swifter and surer way of getting paid than would the filing of a claim in the estate. Use of the levy procedure gave considerable leverage to the IRS and made things more difficult for the creditors, lega- tees, and beneficiaries of Alex's estate. Federal statutes require that when the estate of a deceased debtor is insufficient to pay all debts of the decedent, the claim of the United States "shall be paid first." 31 U.S.C. 3713(a)(1)(B) (1988). The decisions of an Illinois appellate court and one of a United States district court have held the foregoing priority is subject to funeral expenses and costs of administration. Harrison v. Deutsch, 294 Ill. App. 8, 11, 13 N.E.2d 511, 512 (1938); United States v. Weisburn, 48 F. Supp. 393, 397 (E.D. Pa. 1943). However, this exception is not certain, and here, James did nothing to prevent the IRS from pushing its claim for taxes ahead of FNBD's claim for fees for serving as personal representative, which was a cost of administration. Under section 18-10 of the Probate Act of 1975, a claim of the United States government is stated to be a third-class claim inferior to not only burial expenses and expenses of administration, but also inferior to a surviving spouse's award. Ill. Rev. Stat. 1987, ch. 110 |