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Case Alert: Statute Of Limitations On Federal Estate Tax Collection

Case Alert: Statute of Limitations on Federal Estate Tax Collection

For estates valued above the applicable estate tax exemption amount, the executor or personal representative of an estate must prepare and file the estate tax return, and pay the applicable estate tax. In many areas of law, statutes of limitations can bar claims and protect assets from liens. However, in respect to federal estate tax, a new case highlights a muddled area of limitations for estate tax collection. The case is an exception to the Internal Revenue Service’s (IRS) standard ten-year statute of limitations that starts from the time of assessment. (A three-year statue of limitations presently applies for assessments, starting from the date the return was filed).

United States v. Holmes

The United States v. Holmes is an appeal case filed in June 2017 involving the 1997 estate of Shirley H. Bernhardt. Bernhardt bequeathed her estate to Kevin and Barbara Holmes, her nephew and his wife. The Holmeses filed and paid tax reported on an estate tax return in 1998, approximately 9 months following Bernhardt’s death. A 2001 audit by the IRS found the Holmes couple’s estate tax calculation deficient by more than $1.2 million.

Since the time of the audit, numerous petitions, appeals, assessments, and liens have been filed. The matters of contention surrounded more than just the estate tax valuation. Liens were filed against the Holmeses’ personal property, which liens the Holmeses argued should have been placed against the estate. The Holmeses countersued for damages they claimed to incur due to placement of the liens. Conflict also surrounded the ten-year statute of limitations.

Final Ruling and Action

The IRS filed suit for collection almost eleven years following a July 2004 assessment. According to Wealth Management, “[t]he IRS argued that the statute of limitations period was suspended for 241 days — from Oct. 5, 2013 (the date of the postmark on the taxpayers’ request for a hearing) until June 2, 2014. The IRS relied on IRC Section 6330(e)(1), which suspends the running of the statute of limitations during the pendency of a hearing.”

The court found that the IRS was within the statute of limitations and eligible to impose a claim for estate tax collection. The court also denied the Holmeses’ request for damages.

The case showcases the importance of accurate estate accounting and proper tax calculation and filing. Not mentioned above, Kevin Holmes is a financial professional. According to the court document, he is a certified public accountant and a tax attorney. This element underscores the importance for careful and experienced review. The case did not explore whether Holmes’ error in tax valuation was intentional. Use this case as a reminder not to rely on a singular individual for estate tax return preparation. Retain an estate attorney in North Carolina familiar with estates and related tax matters to verify documents before submission.


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