Eisenmesser and Miehl obtain tax court memorandum decision in favor of client executor

March 16, 2016 | Trusts & Estates | Tax

Scott Eisenmesser and Christopher Miehl successfully petitioned against the IRS on behalf of the Firm’s client, the Executor of an estate, with the U.S. Tax Court declaring that the Executor was not personally liable as the fiduciary of the estate for unpaid federal estate tax.

The underlying petition against the IRS was filed in response to a Notice of Fiduciary Liability from the IRS which asserted the executor was liable as fiduciary of the estate in an amount over $400,000.

Decedent’s Will distributed assets to five individual beneficiaries but there were no provisions for the payment of federal or state estate tax.  The executor secured contribution toward the payment of estate tax from three of the beneficiaries, and submitted an offer in compromise to settle the decedent’s outstanding income tax liabilities.  The executor requested a release of funds from a brokerage account that was under court control to pay funds to the decedent’s wife’s estate, the IRS and to the New York State Department of Taxation.  The payments to the wife’s estate and the New York Department of Taxation were the basis for the IRS claim against the executor, for over $400,000 in total.

Under 31 USC 3713(b), an executor is personally liable for unpaid tax to the extent of an estate distribution when: (1) the executor distributed estate assets; (2) the estate was insolvent at the time of the distribution or was made insolvent by the distribution; and (3) the executor had notice of the government’s claim.

The contested issue was the insolvency of the estate.  Eisenmesser and Miehl successfully argued that in determining whether the estate was insolvent at the time of distribution, the IRS failed to consider the estate’s contribution rights towards estate tax liability from those beneficiaries who had received non-probate assets that were includible in the gross estate, as provided for under applicable New York law.  Therefore, the IRS did not meet its burden of proving that the estate was insolvent on the date of distribution, and as a result, the Tax Court found that our client was not personally liable as a fiduciary for the amount of the distribution.

 

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