Estate of Myers v. Commissioner1 is an important estate-planning case as it suggests the Internal Revenue Service can pursue unpaid estate taxes against its choice of beneficiaries, probate or non-probate. In addition, it indicates that the IRS has no obligation to file a special estate tax lien against non-probate assets as the lien arises on the estate’s creation without requiring any IRS action at all. Thus, the IRS has no chance to abuse discretion in continuing a lien and proposing levy action.
Background
Every taxpayer has a right to notice and an opportunity in front of an IRS Office of Appeals hearing before enforcement of an unpaid taxes collection order through lien or levy.2 When the tax obligation is clear, an abuse of discretion standard applies. The decision stands if not arbitrary, capricious or without sound basis.
An IRS agent must verify rules have been satisfied, consider taxpayer-raised issues regarding alternatives in collection and ascertain whether there’s a balance between the taxpayer’s interests and efficient tax administration.3 At a collection due process (CDP) hearing, a taxpayer can raise any relevant issue.4
The IRS can pursue collection from beneficiaries of non-probate assets,5 which are otherwise includible in the estate.6 An estate tax lien automatically attaches to the estate’s entirety at the date of the estate’s creation whether the property ever enters the administrator’s possession.7
Unlike a general tax lien under Internal Revenue Code Section 6321, a special estate tax lien works without assessment, notice or demand automatically on the estate’s creation and applies even to non-probate assets.8 It continues for 10 years until paid in full or expiration.9 IRC Section 6324 special estate tax liens can be enforced through levy.10
Estate Wanted Compromise With Non-Probate Assets
The estate beneficiary wanted a decision from the IRS Office of Appeals reviewed. The decision continued a lien and a proposed levy to collect estate tax through installment payments. The estate believed the IRS abused its discretion by failing to seek collection from non-probate assets beyond the estate beneficiary’s control.
After the CDP hearing, collection occurred first against non-probate assets, then jointly owned probate property. Even though a special estate tax lien time could lapse, Section 6324(a)(2) transferee liability may be open.
The estate began installment payments under IRC Sections 6161 and 6166. The payments were made properly for many years. Nevertheless, the estate then became delinquent. The unpaid liability was $380,289 at the time of becoming delinquent. The estate submitted an offer in compromise.
The estate was unable to pay unless land was sold that would be difficult to sell. The estate wanted collection to occur against non-probate assets. The IRS determined the offer in compromise to be unavailable.
No Abuse of Discretion
The estate argued that the IRS didn’t adequately weigh the difficulty in collection based on the liability’s size, previous payments, declining values of property and the lack of access to non-probate assets.
The Tax Court held that the sustaining of the filing of the notice of federal tax lien and the sustaining of the levy notice issuance were appropriate. The IRS at no time abused its discretion by failing to place a lien on non-probate assets before the statute of limitations expired and therein precluded collection from non-probate assets. It also came well short of abusing its discretion in levying probate assets in what ended up being an efficient manner.
The Future
It would be informative to know why the IRS agents didn’t seek collection from non-probate assets. However, as Estate of Myers v. Commissioner indicates, they had no obligation to do so.
Endnotes
1 T.C. Memo. 2017-11 (2017).
2 Internal Revenue Code Sections 6320 and 6330.
3 IRC Section 6330(c)(1)-(3).
4 Section 6330(c)(2)(A).
5 IRC Sections 6324(a)(2), 6901(a)(1)(A)(ii) and (h).
6 IRC Sections 2034 to 2042.
7 Section 6324(a)(1) and Treasury Reguations Section 301.6324-1(a)(1).
8 Section 6324(a)(1).
9 Ibid.
10 Treas. Regs. Section 301.6331-1(a)(1).