A Beneficiary/Transferee is Liable for Unpaid Estate Taxes

A Beneficiary/Transferee is Liable for Unpaid Estate Taxes

In the case of U.S. vs. Mangiardi, 112 AFTR 2nd, 2013-5108 (D.C. Florida, 7/19/2013), the U.S. District Court denied a motion to dismiss a transferee liability case brought by the IRS and sustained the IRS’ proposed collection actions against a beneficiary of the descendant’s IRA applying the ten year statute of limitations under IRC §6324, the lien for unpaid estate tax.

The Estate of Joe Mangiardi, who died in early 2000, requested and received six extensions of time to pay the $2.6 million in estate tax owned, basing its requests on the grounds that the assets to be used to pay the tax were marketable securities that were undervalued due to poor market conditions. In 2006, the IRS served a levy notice on the Estate for unpaid estate taxes.

The decedent’s daughter, who was executrix of his estate and co-trustee of his revocable trust, had, along with the other co-trustees, unsuccessfully engaged in active trading of the $4.5 million in marketable securities held by the estate and the trust during the period of the estate tax extensions. They also paid themselves hundreds of thousands of dollars in fees. At the time the levy notice was received, the Estate declared itself insolvent and unable to pay the $3 million in estate taxes if owned.

The executrix argued that, because the estate was subject to the four year statute of limitations under IRC §690,1 the IRS could no longer recover the $400,000 share of the assets which she had received from the decedent’s IRA.

The district court ruled in favor of the IRS and stated that the relevant statute of limitations was actually the ten years statute of limitations under IRC §6324, reasoning that, because the liability of the transferee was derivative of that of the transferor (i.e., the estate), the statue of limitations was also derivative. The decedent’s gross estate in favor of the U.S. therefore, when estate property was transferred to her that was includable in her father’s gross estate to the extent of the value of such property at the time of his death.

Reference: Probate and Trust Law Section Newsletter, No. 134

Filed Under: Estate Law: Estate Tax Litigation

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