Personal Representative Liable for Unpaid Federal Income Taxes

 

The recent Pennsylvania District Court case of U.S. v. David A. Tyler and Louis J. Ruch [enhanced version available to lexis.com subscribers] is designed reminds estate executors (Florida Personal Representatives) that if they fail to do their job right, they can incur personal liability for the income taxes of the decedent whose estate they are administering. In the PA case, the decedent had a substantial unpaid income tax liability at the time of her death. Notwithstanding the liability, the estate executors, with knowledge of the income tax liability, conveyed real property of the estate to the son of the decedent (who was also one of the executors) for one dollar. The son eventually sold the real property, and later claimed that he lost the proceeds in the stock market.

The IRS imposed the income tax liability on the executors for disposing of the real estate without first satisfying the income tax liabilities of the decedent. The District Court found for the IRS and imposed liability for the taxes on the executors. The executors got caught under the federal priority statute (also known as the federal claims statute) under 31 USC 3713(b). This provision is not under the Internal Revenue Code, but is referenced in Code §6901(a)(1)(.  This provision is an exception to the normal rule that executors will not have personal liability for the debts and obligations of a decedent. Under the statute, a fiduciary that disposes of assets of an estate before paying a claim of the Government is liable to the extent of the payment for unpaid claims of the Government if three elements are met: (1) the fiduciary distributed assets of the estate; (2) the distribution rendered the estate insolvent; and (3) the distribution took place after the fiduciary had actual or constructive knowledge of the liability for unpaid taxes.  If there is more than one executor all executors will be jointly and severally liable for this liability.

View more information from Marc J. Soss at http://www.fl-estateplanning.com/ and http://info.fl-estateplanning.com/

Marc Soss' practice focuses on estate and tax planning; probate and trust administration and litigation; guardianship law; and corporate law in Southwest Florida.  Marc is a frequent contributor to LISI and has published articles and been quoted in the Florida Bar, Rhode Island Bar, North Carolina Bar, Association of the United States Navy, Lawyers USA, Military.Com, Forbes.Com, and CNN Business. Marc also serves as an officer in the United States Naval Reserve.

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