Estate Beneficiaries Liable for Unpaid Estate Tax (Ringling, DC SD)

The beneficiaries of a decedent’s estate were liable for the decedent’s unpaid estate tax. Prior to his death, the decedent owned property jointly with each of his three daughters. Within three years of his death, the decedent transferred property to his grandson, including two parcels of real property, the family farm, a certificate of deposit, and a corn crop. Nearly eight years after his death, the estate tax return was filed, reporting the jointly owned property, the property transferred to the grandson, and other property. The beneficiaries made a few payments to satisfy the estate tax liability but it remained substantially unpaid.

Tax Not Paid When Due

To establish transferee liability under Code Sec. 6324(a)(2), the government must prove: (1) that the estate tax was not paid when due and (2) the transferee, surviving joint tenant, or beneficiary received property that was includible in the gross estate under Code Secs. 2034-2042. After the estate tax return was filed, the IRS assessed estate tax, interest and penalties. Although partial payments were made, the estate tax was never paid in full. One of the estate beneficiaries sought to contest the motion for summary judgment by asserting that a typographical error created a genuine dispute of material fact. However, the beneficiary did not provide any evidence that the liability amount in the evidence submitted by the government was disputed.

Property Includible in Estate

The corn crop and certificate of deposit given to the grandson and the forgiveness of a loan on real property between the decedent and the grandson were transfers that occurred within three years of the decedent’s death. Thus, the transfers were includible in the gross estate under Code Sec. 2035. In addition, the decedent retained a life estate and the right to income from the family farm. Therefore, the farm was includible in the decedent’s gross estate under Code Sec. 2036.

The decedent owned government bonds, two vehicles and a checking account with one or all of his daughters as joint tenants with right of survivorship. As a result, the jointly owned property was included in the decedent’s gross estate under Code Sec. 2040. Finally, life insurance policies, of which the three daughters were the beneficiaries, were includible in the gross estate under Code Sec. 2042. The government established transferee liability under Code Sec. 6324(a)(2), and each beneficiary was liable for the estate tax to the extent of the value of the property received as of the date of death.

D. Ringling, DC S.D.

Other References:

Code Sec. 6324

CCH Reference – FINH ¶21,065.52

CCH Reference – FINH ¶21,065.55

Tax Research Consultant

CCH Reference – TRC ESTGIFT: 51,104

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AUTHOR

CCHTaxGroup

All stories by: CCHTaxGroup