STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
ONE BISCAYNE TOWER, N.V., )
)
Petitioner, )
)
vs. ) CASE NO. 80-2000
) STATE OF FLORIDA, DEPARTMENT ) OF REVENUE, )
)
Respondent. )
)
RECOMMENDED ORDER
Pursuant to notice the Division of Administrative Hearings by its duly designated Hearing Officer, K. N. Ayers, held a public hearing in the above- styled case on 6 April 1981, at Tallahassee, Florida.
APPEARANCES
For Petitioner: Byron G. Peterson, Esquire
1401 Brickell Avenue PH-1 Miami, Florida 33131
For Respondent: Martha J. Cook, Esquire, and
E. Wilson Crump, II, Esquire
Department of Legal Affairs, The Capitol Tallahassee, Florida 32301
By Petition filed 17 October 1980, One Biscayne Tower, N.V., protests the Notice of Proposed Assessment for documentary stamp tax, surtax, penalty and interest in the amount of $283,939.76 on the Special Warranty Deed transferring certain property in Dade County to Petitioner. By this Proposed Assessment the Department of Revenue is asserting that additional taxes are owed on this transaction; and pursuant to Florida Department of Transportation v. J. W. C. Corporation and Department of Environmental Regulation (Fla. 1st DCA, Case No. 00-501 Op. filed March 27, 1981) and Balino v. Department of Health and Rehabilitative Services, 348 So.2d 349 (Fla. 1st DCA 1977), DOR should properly have been designated Petitioner in the caption. However, all pleadings, briefs, motions and other documents filed in this case are captioned with DOR as Respondent and this will not be changed at this stage of the proceedings.
Hereafter, One Biscayne Tower, N.V. will be referred to as Taxpayer and the Department of Revenue as DOR. Since the parties stipulated at the hearing that the facts as contained in the briefs submitted by both parties are correct except with respect to the intent of the parties to the land sale, there is little, if any, dispute as to the facts here involved.
At the hearing Respondent presented two witnesses to testify respecting the intent of One Biscayne Tower, N.V. and I-B-A, Inc., regarding setting up the land trust and the intent with which this land trust was established. The parties further stipulated to the admission into evidence of the Appendix to the
initial brief submitted by Taxpayer, the deposition of Robert A. Pierce, and the documents produced by DOR pursuant to Taxpayer's Notice to Produce.
FINDINGS OF FACT
On February 16, 1979, I-B-A, Inc., a Florida corporation, executed a Declaration of Trust pursuant to Section 689.071, Florida Statutes (1977), designating I-B-A, Inc., as Beneficiary and Lewis H. Harmon as Trustee. The trust agreement defined and declared the interest of the Beneficiary to be personal property only. Pursuant to the terms of the trust agreement I-B-A, Inc., conveyed legal title to the real property described in the Declaration of Trust to the Trustee by Warranty Deed. I-B-A, Inc., assigned its beneficial interest to One Biscayne Tower, N.V. Following the assignment, the Trustee, upon direction of the Beneficiary, conveyed legal title to the property to One Biscayne Tower, N.V. by Special Warranty Deed. These documents were all executed on February 16, 1979, and only minimal documentary stamps were placed on the Warranty Deed and the Special Warranty Deed. The consideration paid for the assignment of the beneficial interest from I-B-A, Inc., to One Biscayne Tower, N.V. was $49,101,000.
On June 27, 1978, attorneys for taxpayer requested a private ruling from DOR respecting the documentary stamp taxes due on conveyances transferring real property through a Florida land trust established pursuant to Section 689.071, Florida Statutes. By letter dated July 10, 1978, DOR responded to this inquiry by opining that if the necessary documentation exists to comply with the statute the two recorded conveyances would require only minimal documentary tax stamps.
One or more articles and/or editorials appeared in Miami newspapers following the February 16, 1979, transaction above discussed pointing out that some $200,000 in documentary stamp taxes had not been collected by the State on the transfer of a large downtown office building from one owner to another.
On November 8, 1979, taxpayer received a Notice of Proposed Assessment under Chapter 201, Florida Statutes, in which DOR claimed $268,939.10 in taxes, penalties and interest due on the Special Warranty Deed by which the Trustee conveyed the trust property to One Biscayne Tower, N.V.
Following an informal conference between Taxpayer's attorneys and DOR, DOR on June 18, 1980, issued a Revised Notice of Proposed Assessment under Chapter 201, Florida Statutes, in which DOR claimed $283,939.76 in taxes, penalties and interest, with interest accruing at the rate of $66.18 per day. In this assessment DOR claimed taxes were due on the Special Warranty Deed from Trustee to Taxpayer or, in the alternative, on the assignment of the beneficial interest under the trust from I-B-A, Inc., to One Biscayne Tower, N.V.
Both the Warranty Deed from I-B-A, Inc., to the Trustee and the Special Warranty Deed from the Trustee to One Biscayne Tower, N.V. were recorded. The Trust Agreement was not recorded.
DOR's basis for the assessment issued in this transaction was that no recorded instrument contained a provision declaring the interests of the beneficiaries under the Trust Agreement to be personal property-only.
Following receipt of the Revised Assessment, the Trustee and One Biscayne Tower, N.V. filed suit in the Circuit court in and for Dade County seeking to reform the Warranty Deed from I-B-A, Inc., to the Trustee to include
a provision specifically stating that the interest of the beneficiaries under the Trust Agreement was personal property only. I-B-A, Inc., was joined as a defendant. On 18 July 1980, the parties to this suit submitted a stipulation to the court that final judgment may be entered ex parte without delay, reforming the Warranty Deed ab initio in accordance with the Complaint. By Final Judgment entered 12 August 1980, Circuit Judge Dan Satin reformed this Warranty Deed ab initio to include the language in a recorded instrument specified in Section 689.071(4), Florida Statutes.
The purpose of the parties in setting up a Florida land trust through which to transfer the property was to avoid the payment of documentary stamp taxes and surtaxes on the $49,101,000 purchase price which a bankruptcy court had approved for the sale of this asset. Accordingly, the reformation of the Warranty Deed was to comply with the intent of the parties at the time the Warranty Deed was executed and delivered.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of these proceedings.
The parties, in their briefs, have argued the proposition that Florida courts, without the benefit of Section 689.071 would have recognized the Trust Agreement here involved to create for the beneficiary an interest in personal property only. The taxpayer argues that the duties with which the Trustee is burdened are such that an active trust is established, while DOR contends that, even if such a trust was recognized at common law, here only a passive trust was created and the Statute of Uses passed the legal title to the beneficiary, causing the trust to fail. The duties assigned the Trustee here are sufficient to create an active trust; however, Section 689.071, Florida Statutes, was in force and effect at the time these transactions occurred and the provision's thereof are controlling. Section 689.071 settled the issue and made an Illinois Land Trust applicable to Florida. This statutory provision generally recognizes that the Trust Agreement will not be recorded and defines "recorded instrument" as conveyances, deeds, mortgages, lease assignments or other instruments transferring any interests in real property in this State, including leaseholds and mortgage interest.
The first two subsections of Section 689.071 provide generally that deeds and conveyances purporting to transfer real property from a trustee in a recorded instrument in which the beneficiaries are not named shall be effective to transfer the property held by the trustee, and the grantees under such a conveyance take the legal title held by the trustee. Subsections (3), (4) and
provide in part:
All persons dealing with the trustee under said recorded instrument as hereinabove provided shall take any interest transferred by the trustee thereunder . . . free and clear of the claims of all the named or unnamed beneficiaries of such trust, and of any unrecorded declarations or agreements collateral thereto whether referred to in said recorded instrument or not, and of any- one claiming by, through or under said beneficiaries including and without limiting the foregoing to any claim arising out of
any dower or courtesy interest of the spouse of any beneficiary thereof; provided, nothing herein contained shall prevent a
beneficiary of any said unrecorded collateral declarations or agreements from enforcing
the terms thereof against the trustee.
In all cases where said recorded instrument, as hereinabove provided, con- tains a provision defining and declaring the interests of beneficiaries thereunder to be personal property only, such provision shall be controlling for all purposes where such determination shall become an issue under the laws or in the courts of this state.
This act is remedial in nature and shall be given a liberal interpretation to effectuate the intent and purposes herein- above expressed.
Had either of the recorded instruments in the instant transaction, viz. the warranty deed to Trustee or the special warranty deed to Taxpayer contained a provision defining and declaring the interests of the beneficiaries thereunder to be personal property only, by reason of subsection (4) above these deeds would have required only minimal documentary tax stamps.
Taxpayer argues that subsection (5) above quoted requires the other provisions of this section be liberally construed; therefore it was unnecessary for either deed to contain language defining the beneficial interest as personal property only. A reading of Section 689.071 leads to the conclusion that the legislative intent therein expressed is to allow the Trustee to convey good legal title to a grantee regardless of the provisions in the unrecorded trust agreement. If the Trustee received good legal title in the conveyance of the trust corpus (real property) to him, which conveyance would be recorded, he in turn could convey good legal title to a purchaser and the beneficiaries would have no recourse against such a purchaser for value. This was the intent of the Legislature. It was not the intent to create a loophole via which documentary stamp taxes could be avoided.
Sections 201.02 and 201.021, Florida Statutes, establish a documentary tax on deeds and other instruments conveying an interest in realty for consideration. The tax is levied based on the documents executed in connection with the conveyance. Department of Revenue v. McCoy Motel, Inc., 302 So.2d 440 (Fla. 1st DCA 1974)
While the fundamental rule of construction is that tax laws are to be construed strongly in favor of the taxpayer and against the government, and that all ambiguities are to be resolved in favor of the taxpayer, Maas Brothers, Inc.
v. Dickinson, 195 So.2d 193 (Fla. 1967), exemptions to taxing statutes are special favors granted by the Legislature and are to be strictly construed against the taxpayer. State ex rel. Szabo Food Services, Inc. v. Dickinson, 286 So.2d 529 (Fla. 1973); Wanda Marine Corp. v. State, Department of Revenue, 305 So.2d 65 (Fla. 1st DCA 1974). Accordingly, one claiming an exemption from taxes must strictly comply with the statute granting that exemption. That statute here is Section 689.071(4) wherein the provision declaring the beneficiary's interest to be personal property only must be contained in a recorded instrument before the benefits of this trust shall be controlling for all purposes. One of these purposes here intended was to make the beneficial interest personal
property which could be sold without payment of documentary taxes. That is the issue here and in order for the deed conveying this property to Taxpayer to be exempt from documentary taxes on the consideration actually paid for the property, either the Warranty Deed or the Special Warranty Deed must contain the magic language declaring the beneficiary's interest to be personal property only. Since neither of these deeds contained this language on February 16, 1979 the transaction did not qualify as a Florida land trust 50 as to be exempt from all but nominal documentary stamp taxes.
After the controversy over documentary stamp taxes arose between DOR and Taxpayer, proceedings were instituted in the Circuit Court in and for Dade County to reform the Warranty Deed conveying the trust property from I-B-A to Trustee. In this proceeding DOR was not a party and was unaware of the action until after Final Judgment had been entered reforming this deed ab initio to contain the words defining the beneficiaries' interest to be personal property only.
Both DOR and Taxpayer have cited numerous cases in which courts have accepted and have refused to accept reformed instruments. Reformation of an instrument is an equitable remedy which a chancery court exercises to prevent manifest injustice and to express the intent of the parties. Nielsen v. Paniel, Inc., 202 So.2d 894 (Fla. 2nd DCA 1967). Most of those cases cited in which the Court refused to be bound by a reformed instrument that changed an individual's tax consequence involved the U. S. Commissioner of Internal Revenue where the reformed document was attempted to be used to set aside taxes IRS had determined were due. The rationale of these decisions was expressed in D'Ippolito v. Gross, 12 ATFR 2d 5840, 5842 (D.N.J. (1963) where the Court stated:
. . . if your theory is true that the state courts could, after a tax is found to be due, reform an instrument to such a degree that the tax would not be due then, of course,
the state courts could very seriously affect the tax structure of the United States and the national income.
Flitcroft v. Commissioner of Internal Revenue, 328 F. 2d 449 (CCA 9th 1964) involved the reformation of a trust agreement to comply with California law to make the trust irrevocable as intended by the trustor and trustees when the trust was established. After being advised by California taxing authorities that the trust instrument did not comply with California law to be irrevocable, the trustors and trustees filed suit in a California court to reform the trust instrument. The District Director of Internal Revenue was joined as a party to those proceedings. This official removed the case to federal court, then had IRS dismissed as a party. The trustors and trustees resumed their action in the state court and the Trust Agreement as reformed ab initio to contain the words needed to make the trust irrevocable. In holding this reformation effective for the purposes intended, the Court relied upon the fact that IRS was notified of the proceedings so no evidence of a collusive, non-adversary proceeding was present; upon the fact that the determination was of California law only and no federal issue was included; and whether that determination was correct.
Here the reformation of the deed was instituted by the parties to the conveyance without notice to DOR. Also the equitable purpose to correct a manifest injustice is not here present.
Reformation of the deed by the Circuit Court occurred some 18 months after the initial instruments were executed, delivered, and recorded and some six months after the trust expired of its own terms. However, this judicial decision reforming the Warranty Deed from I-B-A to the Trustee is not subject to collateral attack in this tribunal. This final judgment reforming the Warranty Deed ab initio brings this recorded instrument in compliance with Section 689.071(4) at the time the instrument was executed and delivered.
From the foregoing it is concluded that neither the Warranty Deed from I-B-A, Inc., to Trustee or the Special Warranty Deed from Trustee to One Biscayne Tower, N.V. contained the language necessary to be included in a recorded instrument to bring that instrument into compliance with Section 689.071(4) so as to make the beneficiaries' interest personal property only which could be sold without documentary tax stamps; how ever, when the Warranty Deed was reformed ab initio to contain this language the transaction then came within the provisions of Section 689.071(4) and no additional documentary stamp taxes were due on those instruments executed and delivered 16 February 1979. This Final Judgment ordering this reformation is not subject to collateral attack in this tribunal. It is therefore
RECOMMENDED that the Revised Notice of Proposed Assessment assessing Taxpayer $283,939.76 be dismissed.
Entered this 7th day of April 1981.
COPIES FURNISHED:
Byron G. Peterson, Esquire 1401 Brickell Avenue PH-1 Miami, Florida 33131
Martha J. Cook, Esquire, and
E. Wilson Crump, II, Esquire Department of Legal Affairs The Capitol
Tallahassee, Florida 32301
N. AYERS Hearing Officer
Division of Administrative Hearings The Oakland Building
2009 Apalachee Parkway
Tallahassee, Florida 32399-1550
(904) 488-9675
FILED with the Clerk of the Division of Administrative Hearings this 7th day of April 1981.
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AGENCY FINAL ORDER
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STATE OF FLORIDA DEPARTMENT OF REVENUE
ONE BISCAYNE TOWER, N.V.,
Petitioner,
vs. CASE NO. 80-2000
STATE OF FLORIDA, DEPARTMENT OF REVENUE,
Respondent.
/
FINAL ORDER OF THE DEPARTMENT OF REVENUE
Pursuant to notice, the Governor and Cabinet sitting as The Department of Revenue on August 4, 1981, considered the Recommended Order entered by the Division of Administrative Hearings, the Exceptions thereto and the Proposed Substituted Order recommended by the Department of Revenue and entered the following Final Order which is based upon the public hearing held by the Hearing Officer, K. N. Ayers on April 6, 1981.
APPEARANCES
For Petitioner: Byron G. Petersen
1401 Brickell Avenue, PH-1 Miami, Florida 33131
For Respondent: E. Wilson Crump, II
Department of Legal Affairs The Capitol LL04 Tallahassee, Florida 32301
Martha J. Cook Department of Revenue
422 Fletcher Building Tallahassee, Florida 32301
By Petition filed October 17, 1980, One Biscayne Tower, N.V., protests the Notice of Proposed Assessment for documentary stamp taxes, surtax, penalty and interest in the amount of $283,939.76 on the Special Warranty Deed transferring certain property in Dade County to Petitioner. Since the parties stipulated at the hearing that the facts as contained in the briefs submitted by both parties are correct except with respect to the intent of the parties to the land sale, there is little, if any, dispute as to the facts here involved.
At the hearing Respondent presented two witnesses to testify respecting the intent of One Biscayne Tower, N.V. and I-B-A, Inc., regarding setting up the
land trust and the intent with which this land trust was established. The parties further stipulated to the admission into evidence of the Appendix to the initial brief submitted by Taxpayer, the deposition of Robert A. Pierce, and the documents produced by DOR pursuant to Taxpayer's Notice to Produce.
FINDINGS OF FACT
On February 16, 1979, I-E-A, Inc., a Florida corporation, executed a Declaration of Trust pursuant to Section 689.071, Florida Statutes (1977), designating I-B-A, Inc., as Beneficiary and Lewis H. Harmon as Trustee. The trust agreement defined and declared the interest of the Beneficiary to be personal property only. Pursuant to the terms of the trust agreement I-B-A, Inc., conveyed legal title to the real property described in the Declaration of Trust to the Trustee by Warranty Deed. I-B-A, Inc., assigned its beneficial interest to One Biscayne Tower, N.V. Following the assignment, that Trustee, upon direction of the Beneficiary, conveyed legal title to the property to One Biscayne Tower, N.V. by Special Warranty Deed. These documents were all executed on February 16, 1979, and only minimal documentary stamps were placed on the Warrant Deed and the Special warranty Deed. The consideration paid for the assignment of the beneficial interest from I-B-A, Inc., to One Biscayne Tower, N.V. was $49,101,000.
On June 27, 1978, attorneys for Taxpayer requested a private ruling from DOR respecting the documentary stamp taxes due on conveyances transferring real property through a Florida land trust established pursuant to Section 689.071, Florida Statutes. By letter dated July 10, 1978, DOE responded to this inquiry by opining that if the necessary documentation exists to comply with the statute the two recorded conveyances would require only minimal documentary tax stamps.
One or more articles and/or editorials appeared in Miami newspapers following the February 16, 1979, transaction above discussed pointing out that some $200,000 in documentary stamp taxes had not been collected by the State on the transfer of a large downtown office building from one owner to another.
On November 8, 1979, taxpayer received a Notice of Proposed Assessment under Chapter 201, Florida Statutes, in which DOR claimed $268,939.10 in taxes, penalties and interest due on the Special Warranty Deed by which the Trustee conveyed the trust property to One Biscayne Tower, N.V.
Following an informal conference between Taxpayer's attorneys and DOR, DOE on June 18, 1980, issued a Revised Notice of Proposed Assessment under Chapter 201, Florida Statutes, in which DOR claimed $283,939.76 in taxes, penalties an interest, with interest accruing at the rate of $66.18 per day. In this assessment DOR claimed taxes were due on the Special Warranty Deed from Trustee to Taxpayer or, in the alternative, on the assignment of the beneficial interest under the trust from I-B-A, Inc., to One Biscayne Tower, N.V.
Both the Warranty Deed from I-B-A, Inc., to the Trustee and the Special Warranty Deed from the Trustee to One Biscayne Tower, N.V. were recorded. The Trust Agreement was not recorded.
DOR's basis for the assessment issued in this transaction was that no recorded instrument contained a provision declaring the interests of the beneficiaries under the Trust Agreement to be personal property only.
Following receipt of the Revised Assessment, the Trustee and One Biscayne Tower, N.V. filed suit in the Circuit Court in and for Dade County seeking to reform the Warranty Deed from I-B-A, Inc., to the Trustee to include a provision specifically stating that the interest of the beneficiaries under the Trust Agreement was personal property only. I-B-A, Inc., was joined as a defendant. On 10 July 1980, the parties to this suit submitted a stipulation to the court that final judgment may be entered ex parte without delay, reforming the Warranty Deed ab initio in accordance with the Complaint. By Final Judgment entered 12 August 1980, Circuit Judge Dan Satin reformed this Warranty Deed ab initio to include the language in a recorded instrument specified in Section 689.071(4), Florida Statutes.
The purpose of the parties in setting up a Florida land trust through which to transfer the property was to avoid the payment of documentary stamp taxes and surtaxes on the $49,101,000 purchase price. The sale of this land had been authorized by the bankruptcy court having jurisdiction over the property.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to end the subject matter of these proceedings.
The parties, in their briefs, have argued the proposition that Florida courts, without the benefit of Section 689.071, Florida Statutes, would have recognized the Trust Agreement here involved to create for the beneficiary an interest in personal property only. The taxpayer argues that the duties with which the Trustee is burdened are such that an active trust is established, while DOR contends that, even if such a trust agreement was recognized at common law, here only a passive trust was created and the Statute of Uses passes the legal title to the beneficiary, causing the trust to fail. The duties assigned to the trustee here are insufficient to create an active trust; however, Section 689.071, Florida Statutes, was in force and of effect at the time these transactions occurred and the provisions thereof are controlling. This statutory provision generally recognizes that the Trust Agreement will not be recorded and defines "recorded instrument" as conveyances, deeds, mortgages, lease assignments or other instruments transferring any interests in real property in this State, including leaseholds and mortgage interest.
The first two subsections of Section 689.071 provide generally that deeds and conveyances purporting to transfer real property from a trustee in a recorded instrument in which the beneficiaries are not named shall be effective to transfer the property held by the trustee, and the grantees under such a conveyance take the legal title held by the trustee. Subsections (3), (4) and
provide in part:
All persons dealing with the trustee under said recorded instrument as hereinabove provided shall take any interest thereunder
. . . free and clear of the claims of all the named or unnamed beneficiaries of such trust, and of any unrecorded declarations or agree- ments collateral thereto whether referred to in said recorded instrument or not, and of anyone claiming by, through or under said beneficiaries including and without limiting the foregoing to any claim arising out of
any dower or courtesy interest of the spouse
of any beneficiary thereof; provided, nothing herein contained shall prevent a
beneficiary of any said unrecorded collateral declarations or agreements from enforcing the terms thereof against the trustee.
In all cases where said recorded instrument, as hereinabove provided, contains a provision defining and declaring the interests of beneficiaries thereunder to be personal property only, such provision shall be controlling for all purposes where such determination shall become an issue
under the laws or in the courts of this state.
This act: is remedial in nature and shall be given a liberal interpretation to effectuate the intent and purposes hereinabove expressed.
Had the warranty deed to Trustee Lewis H. Harmon contained a provision defining and declaring the interest of the beneficiaries thereunder to be personal property only, by reason of subsection (4) above the Special Warranty Deed and the assignment of beneficial interest to One Biscayne Tower, N.V., would have required only minimal documentary stamp tax.
Taxpayer argues that subsection (5) above quoted requires the other provisions of this section be liberally construed; therefore it was unnecessary for either deed to contain language defining the beneficial interest as personal property only. A reading of Section 689.071 leads to the conclusion that the legislative intent therein expressed is to allow the Trustee to convey good legal title to a grantee regardless of the provisions in the unrecorded trust agreement. If the Trustee received good legal title in the conveyance of the trust corpus (real property) to him, which conveyance would be recorded, he in turn could convey good legal title to a purchaser and the beneficiaries would have no recourse against such a purchaser for value. This was the Intent of the Legislature. It was not the intent to create a loophole via which documentary stamp taxes could be avoided.
Sections 201.02 and 201.021, Florida Statutes, establish a documentary tax on deeds and other instruments conveying an interest in realty for consideration. The tax is levied based on the documents executed in connection with the conveyance. Department of Revenue v. McCoy Motel, Inc., 302 So.2d 440 (Fla. 1st DCA 1974).
While the fundamental rule of construction is that tax laws are to be construed strongly in favor of the taxpayer and against the government, and that all ambiguities are to be resolved in favor of the taxpayer, Maas Brothers, Inc.
v. Dickinson, 195 So.2d 193 (Fla. 1967), exemptions to taxing statutes are special favors granted by the Legislature and are to be strictly construed against the taxpayer. State ex rel. Szabo Food Services, Inc. v. Dickinson, 286 So.2d 529 (Fla. 1973); Wanda Marine Corp. v. State, Department of Revenue, 305 So.2d 65 (Fla. 1st DCA 1974). Accordingly, one claiming an exemption from taxes must strictly comply with the statute granting that exemption. That statute here is Section 689.071(4) wherein the provision declaring the beneficiaries' interest to be personal property only must be contained in a recorded instrument before the benefits of this trust shall be controlling for all purposes. One of these purposes here intended was to make the beneficial interest personal property which could be sold without payment of documentary taxes. That is the
issue here and in order for the deed conveying this property to Taxpayer to be exempt from documentary taxes on the consideration actually paid for the property, the Warranty Deed must contain the magic language declaring the beneficiaries' interest to be personal property only. Since the original Warranty Deed failed to contain this language the transaction did not qualify as a Florida land trust so as to be exempt from all but nominal documentary stamp taxes.
After the controversy over documentary stamp taxes arose between DOR and Taxpayer, proceedings were instituted in the Circuit Court in and for Dade County to reform the Warranty Deed conveying the trust property from I-B-A, Inc., to Trustee. In this proceeding DOE was not a party and was unaware of the action until after Final Judgment had been entered reforming this deed ab initio to contain the cords defining the beneficiaries' interest to be personal property only.
Both DOR and Taxpayer have cited numerous cases in which courts have accepted and have refused to accept reformed instruments. Reformation of an instrument is an equitable remedy which a chancery court exercises to prevent manifest injustice and to express the intent of the parties. Nielsen v. Paniel, Inc., 202 So.2d 894 (Fla. 2d DCA 1967). Most of those cases cited in which the Court refused to be bound-by a reformed instrument that changed an individual's tax consequence involved the U.S. Commissioner of Internal Revenue where the reformed document was attempted to be used to set aside taxes IRS had determined were due. The rationale of these decisions was expressed in D'Ipnolito v.
Gross, 12 ATER 2d 5842 (D.N.J. (1963)) where the Court stated:
. . . if your theory is true that the state courts could, after a tax is found to be due, reform an instrument to such a degree that the tax would not be due then, of course, the state courts could very seriously affect the tax structure of the United States and the national income.
Flitcroft v. Commissioner of Internal Revenue, 328 F. 2d 449 (CCA 9th 1964) involved the reformation of a trust agreement to comply with California law to make the trust irrevocable as intended by the trustor and trustees when the trust was established. After being advised by California taxing authorities that the, trust instrument did not comply with California law to be irrevocable, the trustors and trustees filed suit in a California court to reform the trust agreement. The District Director of Internal Revenue was joined as a party to those proceedings. This official removed the case to federal court, then had IRS dismissed as a party. The trusters and trustees resumed their action in the state court and the Trust Agreement as reaffirmed ab initie to contain the words needed to make the trust irrevocable. In holding this reformation effective for the purposes intended, the Court relied upon the fact that IRS was notified of the proceedings so no evidence of a collusive, non-adversary proceeding was present; upon the fact that the determination was of California law only and no federal issue was included; and whether that determination was correct.
Here the reformation of the deed was instituted by the parties to the conveyance without notice to DOE. Also the equitable purpose to correct a manifest injustice is not here present.
Reformation of the deed by the Circuit Court occurred some 18 months after the initial instruments were executed, delivered, and recorded some six months
after the trust expired of its own terms. Therefore, the judicial decision reforming the Warranty Deed from I-B-A to the Trustee did not affect the documentary stamp tax liability which attached to the Warranty Deed of February 16, 1979 because the recorded instrument executed and delivered on that date did net contain the language required under Section 609.071. Subsequent reformation does not affect the Department's tax assessment and the Department is not bound by an order of a circuit court when it was net a party to the proceeding.
From the foregoing it is concluded that the recorded instruments in this transaction failed to contain the necessary language to bring the transaction into compliance with Section 689.071(4) and the interests of the beneficiaries were interests in real property which, if sold, would be subject to full documentary stamp taxes. Thus, since only minimal documentary stamp taxes were paid on this transaction, additional documentary stamp taxes are due to the Department of Revenue. It is therefore
RECOMMENDED that the Revised Notice of Proposed Assessment assessing Taxpayer One Biscayne Tower $283,939.76 with interest accruing daily be upheld.
Entered this 5th day of August 1981.
RANDY MILLER EXECUTIVE DIRECTOR DEPARTMENT OF REVENUE STATE OF FLORIDA
Filed With the Clerk this 5th day of August 1981.
| Issue Date | Proceedings |
|---|---|
| Aug. 07, 1981 | Final Order filed. |
| Apr. 27, 1981 | Recommended Order sent out. CASE CLOSED. |
| Issue Date | Document | Summary |
|---|---|---|
| Aug. 05, 1981 | Agency Final Order | |
| Apr. 27, 1981 | Recommended Order | Warranty deed amended ab initio to contain language to make beneficiaries' interest personal property; thus no additional documentary stamp taxes due. |
