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3 Points About Unpaid Estate Tax and Automatic Liens

Posted on: February 13th, 2017
The United States Tax Court filed a memorandum shortly after the New Year pertaining to an estate tax case. The case highlights three important tax matters that executors (personal representatives) might misinterpret or otherwise overlook during estate administration. 

Estate of Ruben A Myers, Deceased, Ken Norton Executor v. Commissioner of Internal Revenue involves an estate that taps the boundaries of statutes of limitations and showcases the default liens that apply to an estate upon the decedent’s death. 

In this case, estate tax installment payments were made for a number of years, but then ceased.

Three things to know:
  1. Automatic lien. U.S. Code § 6324 includes provisions for an automatic estate tax lien that applies to the estate upon the decedent’s death. This lien collectively ascribes to all of the decedent’s property included in the gross estate upon their date of death. Per the Myers memo, the lien applies to property “whether or not the property comes into the possession of the executor.” This is a critical point that executors without prior probate experience or knowledge of the law could miss, and thus increase their personally liability for unpaid estate tax debt.
  2. Date of death statute of limitations. Per the code above, a date of death statute of limitations of 10 years applies. In Myers, the decedent died on November 15, 2005. Estate tax installment payments were made for a number of years after the decedent’s death, but then ceased. In the spring of 2015, the executor was involved in a series of collections attempts, requiring the executor to submit financial information and a Form 656 Offer in Compromise (OIC) by a hearing in April 2015. The executor complied with most requirements, but did not submit a Form 656. The court determined the executor was ineligible for an OIC and remained liable for the estate tax debt (in excess of $380,000). The statute of limitations expired on November 15, 2015; however, the court ruled that the executor remains liable because all proper collections procedures were followed. The court determined that the executor misinterpreted U.S. Code § 6324, which applies an automatic lien.
  3. Date of assessment statute of limitations. Per U.S. Code § 6321, the statute of limitations for personal liability follows 10 years from the date the estate tax was assessed. In Myers, the federal estate tax return was filed in February 2007, which leads the court and officials to surmise that the estate was assessed prior to the return’s filing. This extends the statute of limitations, further indicating the executor’s liability.

The case above underscores several matters that could cause an administrative and financial burden on executors. Probate counsel and tax review with an estate attorney at the start of and during estate administration helps to mitigate difficulties. 
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