by Gregory S. Dowell

February 28, 2019

The lesson would seem to be clear but, surprisingly, this one had to end up in district court: Don’t think you can receive assets from an estate, and then be allowed to stiff the federal government on the federal estate taxes.

A recent district court case concluded that beneficiaries of an estate were liable for the estate’s unpaid estate tax liability. Internal Revenue Code Section 6324(a)(2) states:

If the estate tax imposed by chapter 11 is not paid when due, then the spouse, transferee, trustee (except the trustee of an employees’ trust which meets the requirements of section 401(a)), surviving tenant, person in possession of the property by reason of the exercise, nonexercise, or release of a power of appointment, or beneficiary, who receives, or has on the date of the decedent’s death, property included in the gross estate under sections 2034 to 2042, inclusive, to the extent of the value, at the time of the decedent’s death, of such property, shall be personally liable for such tax.

In this case, U.S. vs Ringling (DC SD 2/21/2019), there was no dispute about the amount of the federal estate tax or that fact that it was unpaid, and there was no dispute that the beneficiaries had received property that had been properly includible in the estate. A quick overview of the facts show that there were three beneficiaries of an estate that primarily involved a family farm, life insurance proceeds and crops. A special bequest of estate assets was also made to the grandson of the decedent. Letters of representative were issued to the beneficiaries, and a special administrator was appointed over the probate proceeding. A federal estate tax return and an amended state inheritance tax return were filed. One of the beneficiaries, acting in her capacity as a representative, signed the federal estate tax return, which reported a tax due of just under $29,000. However, no payments were made on the balance due.

The IRS assessed the unpaid tax, as well as interest and penalties, bringing the total assessment to just under $66,000. When payment was not made, the IRS sent a notice of intent to levy. Ultimately, the IRS brought suit, seeking a judgment against each beneficiary. Only one response from a single beneficiary was received, which was in opposition to the motion for summary judgment. In what seems to have been a relatively clear case, the district court granted the IRS’ summary judgment and found that the beneficiaries were liable for the Estate’s unpaid tax liability, under Code Section 6324(a)(2).