5.5.9 Administrative and Judicial Actions for Estate Taxes

Manual Transmittal

September 16, 2013

Purpose

(1) This transmits a new section to IRM Part/Chapter 5.5 Decedent Estates and Estate Taxes, to provide additional guidance on collection of estate and gift tax accounts.

Material Changes

(1) This new IRM 5.5.9 section addresses administrative and judicial actions related to estate and gift tax accounts. This section includes guidance on the various liens used for estate tax collection.

Effect on Other Documents

This transmits a new section to IRM Part/Chapter 5.5 Decedent Estates and Estate Taxes.

Audience

Small Business/Self-Employed Collection Employees

Effective Date

(09-16-2013)

Scott D. Reisher
Director, Collection Policy

Section Overview

  1. This is a new IRM section to provide guidance on administrative and judicial actions that may be taken on estate and gift tax accounts. This section includes guidance on the various liens used for estate and gift tax collection. It does not cover all case scenarios, due to variations in each case based on Code provisions, lien law and issues unique to each estate account.

Lien Attachment to Estate Assets

  1. The chart below provides the specific estate tax liens and what estate assets they attach. All collection and litigation action must be taken before the applicable lien period expires.

    LIEN ATTACHES DURATION
    Estate Tax Lien IRC 6324(a)(1) All assets includable on Form 706 and schedules plus any appreciation on those assets. 10 years from date of death. Generally the best lien to use if available. Recording not required.
    General Lien IRC 6321 Assets of the probate estate that remain at the time the estate tax or audit assessment. Does not attach to non-probate assets that were included in the gross estate. Subsequent recording is required to defeat most transferees and creditors. Arises on date of assessment and remains until the statute of limitations for collection (CSED) expires. If an event occurs to extend the CSED, Notices of the Federal Tax Lien (NFTL) may need to be re-filed as they expire in order to maintain priority over most other transfers and creditors.
    Like Lien for Estate Tax IRC 6324(a)(2) It arises where a transferee of non-probate property re-transfers such property to a purchaser or security interest holder, the transferee remains personally liable under IRC 6324(a)(2), but the re-transferred property is divested of the IRC 6324(a)(1) lien and a replacement lien or “Like Lien” attaches to all of the initial transferee’s other property. The transferee remains personally liable under section 6324(a)(2) to the extent of the value of those assets at the date of death. Same as the Estate Tax Lien. 10 years from date of death. No recording necessary.
    IRC 6324A for IRC 6166 extended payout cases Specific property described in the lien agreement (Forms 13925 or 688-J) Coincides with CSED. Must be recorded.
    IRC 6324B for IRC 2032A and IRC 2057 special valuation cases Specific property designated in the lien agreement or on schedule A-1 or T. (Form 668-H) Coincides with CSED, if no event to trigger the recapture tax. Must be recorded.

The Estate Tax Lien - IRC 6324(a)

  1. By this statute an estate tax lien arises upon the gross estate of the decedent for 10 years from the date of death. No assessment, no notice and no demand for payment are necessary to create the estate tax lien. It attaches at the time of the decedent’s death, before the tax is determined. It is referred to as the "silent lien" and does not have to be recorded to enforce the lien.

  2. The estate tax lien under IRC 6324(a) attaches to all property included in the "gross estate" for estate tax calculation purposes. Assets in the gross estate are reported on the Form 706 and the attached schedules. This lien is only applicable to Form 706 estate tax assessments.

  3. The estate tax lien attaches to property, not the value of the property. If the property appreciates or depreciates in value, the estate tax lien attaches to the current value.

  4. Though the estate tax lien arises at date of death, it does not take priority over pre-existing liens, such as mortgages, which attached during the decedent’s lifetime. The estate tax lien is not valid against a mechanic’s lien or the lien interests described in IRC 6323(b).

  5. You will generally use the IRC 6324(a) lien first, if it has not expired. It attaches to all property included in the "gross estate" and continues to follow the property if sold or transferred by the executor.

  6. The general lien under IRC 6321 and the special estate tax lien under IRC 6324(a) are not exclusive of each other, but are independent and cumulative. This estate tax lien is broader than the IRC 6321 general tax lien because a general lien attaches only to probate property, but the estate tax lien attaches to both probate and non-probate property so long as they were included in the gross estate.

Exceptions to Estate Tax Lien

  1. In certain circumstances, the estate tax lien may be divested of assets used for the payment of charges against the estate and expenses of administration allowed by any court having jurisdiction over the estate. Review court records for such orders and consult with counsel. However, the decision by an executor to use estate assets to pay expenses of administration does not divest those assets of the estate tax lien, unless approved by a court. See Kleine v. United States, 539 F.2d 427, 432-33 (5th Cir. 1976).

  2. The estate tax lien is inferior to liens described in IRC 6323(b) such as mechanics liens, and ad valorem property tax liens, as well as pre-existing liens such as mortgages or pledges that attached to assets during the decedent’s lifetime.

  3. Where the executor has filed an estate tax return, paid the tax shown on the return, and been granted a formal discharge of personal liability by the IRS, probate property that is subsequently sold to a purchaser or encumbered by a lien for a loan will be divested of the estate tax lien.

Discharge of Property from the Estate Tax Lien

  1. If probate property included in the gross estate is sold, the executor must request a discharge of the specified property from any applicable estate tax lien.

  2. The request and documentation is provided on Form 4422,Application for Certificate Discharging Property Subject to Estate Tax Lien. These requests are processed by Estate & Gift Examination if the closing letter Letter 627,Estate Tax Closing Letter, has not been issued or the return has not yet been filed. If the closing letter has been issued, Advisory is responsible for processing the request, providing a conditional commitment letter and the discharge. See Form 4422 instructions for information on what documents are necessary and which office will handle the request.

    Note:

    The closing Letter 627 issued by Examination states the letter is not proof that any amount of tax due has been paid, nor does it release an executor from personal liability. See letter for more details.

  3. To determine if a discharge from the lien has been issued, you will need to do a county records check. Advisory may have retained the discharge file or a copy may be with the tax return. The discharge must be recorded; therefore, it is best to perform a property records search to determine if it was issued.

  4. If the discharge was not issued, the estate tax lien attaches as of date of death and follows the property. If the IRC 6321 lien is in effect, determine the date the property was sold compared to the date the lien was recorded to see if it attaches. If a discharge is not issued, collection by levy or seizure can be pursued against the property. Secure or summons for copies of closing documents from the title company when pursuing a seizure of property that was not discharged from the lien. Typically, since the title company has issued a title policy, the title company will pay the sale proceeds to IRS to clear the title. If necessary, a suit to foreclose the tax lien can be referred to Department of Justice for enforcement of the Service’s lien position.

Estate Tax Lien Expiration

  1. The estate tax lien expires 10 years from date of death and cannot be extended or suspended. All enforcement (seizure, sale, levy) against estate assets using the estate tax lien must be completed before expiration of this lien. This includes litigation action necessary to foreclose the lien. The suit must obtain judgment before the end of the 10 year period.

The Assessment Lien – IRC 6321

  1. The estate tax lien operates separately and independently of the general tax lien under IRC 6321. If the estate tax lien under IRC 6324 expires, the IRS can use the IRC 6321 lien to collect the tax liability.

  2. In addition to the IRC 6324(a) lien, after the estate tax has been assessed, a notice and demand is given, and there is a neglect or refusal to pay, the regular assessment lien under IRC 6321 also arises.

  3. It is important to file notice of this lien's existence as soon as possible because it is not effective against purchasers, secured parties, mechanics' lien, or judgement lien creditors until it is recorded. However, the lien attaches to whatever probate assets the estate has at the time of assessment, and is effective against heirs, trustees, and other unsecured parties. The Service may lose its lien priority in assets between expiration of the estate tax lien and recording of the IRC 6321 lien. Estate assets that remain at the time the IRC 6321 lien was recorded can be considered for collection action. Recording the IRC 6321 lien will put other creditors, potential buyers, transferees and title companies on notice of unpaid estate taxes.

  4. Notices of Federal Tax Lien must be filed in the proper jurisdiction to protect the governments' interest amongst other creditors. State law dictates the place of filing. IRM 5.12.2.8, Place for Filing Notice of Federal Tax Lien, and Exhibit 5.12.2-4 specify where liens should be filed for estates, decedents and trusts. Please consult Area Counsel if there is any uncertainty regarding lien filing locations.

  5. This lien applies for 10 years from the assessment date and can be refiled if the CSED has not expired. These two liens are cumulative. The IRS has the right to use both of them to collect an estate tax liability.

  6. Administrative means such as levy or seizure may be taken to enforce either lien against estate assets. For judicial enforcement, a suit to foreclose either lien may be referred to Department of Justice.

The Like Lien

  1. Non-probate property is property that passes directly to a specified person by designation, contract or by law. See IRM 5.5.1.5,Probate and Non-Probate Property, for more information concerning probate and non-probate assets. Non-probate property may be included in the gross estate, such as annuities that are reported on Schedule I. If the estate tax is not paid, under IRC 6324(a)(2), the recipient of non-probate property is personally liable for the estate tax to the extent of the date of death value on all non-probate property received. If the transferee re-transfers such property to a purchaser or security interest holder, the re-transferred property is divested of the IRC 6324(a)(1) lien and a "like lien" attaches to all of the initial transferee's other property.

  2. The IRC 6324(a)(2) lien arises independently from the estate tax lien. It expires 10 years from the date of death. A separate assessment against transferees is not required. The government can establish a person’s liability by filing suit under IRC 7402 and 7404. Levy and seizure action can also be taken utilizing the "like lien" . Consult with Counsel when taking enforcement using this lien.

The Gift Tax Lien

  1. For gift tax collection the Service has two liens that can be utilized to collect unpaid gift tax accounts:

    • IRC 6324(b) of the Code provides that the federal gift tax shall be a lien upon all gifts made during the period for which the return was filed for a period of (10) years from the date of the gift.

    • As with estate taxes, the IRC 6321 lien is also available to collect gift taxes.

      LIEN ATTACHES DURATION
      Gift Tax Lien IRC 6324(b) All gifts made during the period for which the unpaid gift tax arose. Includes gifts made to all donees even if they were subject to the annual exclusion or other deductions. Attaches to appreciation on the gifted property, and is not limited to the value of the gift on the date of the donation. 10 years from date of gift. Generally the best lien to use if available. No recording required.

      LIEN ATTACHES DURATION
      General Lien IRC 6321 All assets of donor on date the gift tax is assessed and assets acquired thereafter during which time the gift tax remains unpaid. Does not attach to the property given as a gift unless it is re-acquired by the donor or a separate assessment of donee liability is made against the donee under IRC 6901. Subsequent recording is required to defeat purchasers, holders of security interests, mechanic's lienors or judgment lien creditors.. Arises on date of assessment and remains until the statute of limitations for collection (CSED) expires. If the CSED as been extended, Notices of the Federal Tax Lien (NFTL) may need to be re-filed as they expire in order to maintain priority over most other transfers and creditors.

  2. A general tax lien arises and attaches to all of the property and rights to property of the Donor as of the date of assessment. However, because the property given as a gift was transferred out of the donor’s hands before there was an assessment, the gifted property is not subject to this lien unless re-acquired by the donor.

    • This lien arises on the date of assessment, and expires when the CSED expires.

    • It is not limited to 10 years from the date of the gift.

    • Requires notice and demand be given to the donor.

    • It does require filing of a Notice of Federal Tax Lien (NFTL) to defeat certain creditors.

    • May be enforced by levy or seizure against the Donor’s other property and rights to property.

    • May be enforced through judicial suit to foreclose the lien when necessary.

  3. The NFTL is filed in the donor’s name (the person whom the tax assessment was made against), with their SSN, and their address. Where a NFTL should be recorded depends on the type of property (real or personal) and which state the property or donor resides in. See IRM 5.12.2.8, and Exhibit 5.12.2-4 which provides a chart for where to file property by type and state.

  4. When a gift is made, IRC 6324(b) imposes a lien on gift: This lien follows the gift into the donee’s (or transferee of a donee) hands and into subsequent transferee’s hands unless they are purchasers or security interest holders.

  5. If donee or a subsequent transferee of the donee re-transfers the gift to a purchaser or security interest holder, the gift is divested of the gift tax lien and a replacement gift tax lien arises on all of the donee’s other property and after acquired property.

    • No assessment is necessary

    • Notice and demand are not required

    • No public filing of the lien is required

    • Both the gift tax lien and the replacement gift tax lien expire 10 years after the date of the gift and cannot be extended.

    • Can be enforced through seizures and levies so long as the 10 years has not expired.

  6. These two liens are cumulative. The IRS has the right to use both of them to collect a gift tax liability.

  7. Recording the Notice of IRC 6321 lien will put other creditors, potential buyers, transferees and title companies on notice of unpaid gift taxes.

  8. Administrative means such as levy or seizure may be taken to enforce either lien. The government does not need to pursue the donor before collecting against the donees, and it is not required to pursue the donees in any particular order or to pursue all of the donees. For judicial enforcement, a suit to foreclose either lien may be referred to Department of Justice.

Seizure and Levy Action

  1. Seizures and levies may be used to collect any assets currently held by the executor in the probate estate, unless the estate’s probate assets are under the control of a probate court.

  2. Seizures and levies may be used to collect property in the hands of third parties, such as heirs, if there is a general tax lien under IRC 6321 or an estate tax lien under IRC 6324 against property held by that third party. This does not require an assessment under IRC 6901, though the levy is subject to prior creditors as listed in IRC 6323. Transferred property to which a federal tax lien or estate tax lien has attached at the time of transfer is subject to collection action in the hands of the transferee without regard to the transferee’s liability. See United States v. Bess, 357 U.S. 51 (1958).

  3. In the same way that a seizure can be used to collect property subject to the general tax lien that has been transferred to a third party, property subject to the estate tax lien and the lien under IRC 6324(a)(2) can be administratively seized and sold without making a IRC 6901 transferee assessment against the third party.

  4. For example, a decedent’s estate files a Form 706 reflecting real estate owned by the decedent on Schedule A (probate property). Because the real estate was included in the "gross estate" the 10 year estate tax lien has attached to it. If the Executor distributes the property to the decedent’s children, administrative seizure of the real estate in the hands of the children can be used to enforce that lien without the need to make a IRC 6901 assessment against the children. If the children had transferred this probate property to a good faith purchaser without getting the estate tax lien released or discharged, the estate tax lien will follow it into the hands of the new owner and it can be administratively seized from the new owner without the need to make a IRC 6901 transferee assessment against that new owner. Administrative collection could not be used against other assets of the children or the purchaser without first obtaining a judgment or a IRC 6901 transferee assessment against them.

  5. If the decedent held only a life estate in the real property, having transferred the remainder to his children, the property should have been included on Schedule G of the Form 706 as part of the "gross estate" . The children would also be personally liable for the tax under IRC 6324(a)(2). The 10 year estate tax lien also attaches to this property and can be enforced by administrative seizure without the need to make a IRC 6901 transferee assessment against the children. Administrative collection could not be used against the children’s other assets at this point without first obtaining a judgment or a IRC 6901 transferee assessment against them.

  6. However, if the real estate was re-transferred by the children to a good faith purchaser, the estate tax lien no longer follows this non-probate property, but a replacement "like lien" attaches to the children’s other property. This like lien can also be enforced against the children’s other property through administrative seizure and sale without the need to make a IRC 6901 assessment against the children.

  7. Collection of the estate tax involves complex analysis of different classes of assets subject to various liens and replacement liens which may be difficult to remember at a later date. Justification for a seizure or levy should be preserved in writing and supported by documentation. Special language may be useful to explain the basis for the lien and the levy or seizure being used to enforce it.

Seizure or Levy Issued to Executor

  1. Because the executor is responsible for paying the estate tax, in his representative capacity for the estate, it is not appropriate to issue a levy to the executor to collect the estate tax. Rather a levy should be issued to any third parties who are holding assets of the estate for the executor – such as banks, brokerage firms or insurance companies.

  2. An executor is defined in Treas. Reg. § 20.2203–1: The term executor means the executor or administrator of the decedent's estate. However, if there is no executor or administrator appointed, qualified and acting within the United States, the term means any person in actual or constructive possession of any property of the decedent. The term "person in actual or constructive possession of any property of the decedent" includes, among others, the decedent's agents and representatives; safe-deposit companies, warehouse companies, and other custodians of property in this country; brokers holding, as collateral, securities belonging to the decedent; and debtors of the decedent in this country.

Levy Issued to Third Party Holding Property of the Probate Estate

  1. A levy can be issued to third parties who hold probate property that is subject to an estate tax lien or the general tax lien. For example, a levy can be issued to a bank or brokerage account for the cash, stocks or bonds in an account which is part of the probate estate controlled by the executor. The levy is a demand to turn over the taxpayer's property.

  2. However, it may be useful to include an additional statement on the levy explaining that the levy is issued to the third party to collect an unpaid estate tax owed by the Estate of [Decedent’s Name], [Executor’s Name], and to provide the Tax Identification Number (TIN) for the Estate, the TIN for the Decedent and any Employer Identification Number (EIN) for the Estate.

  3. Providing both TIN’s is helpful because some estates do not apply for a separate TIN, or do not notify the third party of the need to change the TIN number associated with their records once the Decedent has died. Additionally, the estate may apply for an EIN for purposes of filing income tax returns for the estate on Forms 1041. Therefore, it is also possible that the estate’s EIN may have been used to open accounts or to identify assets held by third parties for the estate.

Levy or Seizure Issued to Third Party to Whom Probate Property Has Been Transferred Subject to Estate Tax Lien

  1. If you identify probate property that was transferred to a third party that is subject to the estate tax lien (and none of the exceptions apply) then a levy can be issued to the initial recipient of that probate property to collect the unpaid tax. The levy is a demand to turn over the taxpayer's property. For example, the Executor sells the Decedent’s unencumbered house to an unrelated third party for cash. The house is still subject to the IRC 6324(a) estate tax lien. If you have determined that none of the exceptions for liens under IRC 6324(c) apply, the house can be seized or a suit to foreclose can be referred to enforce the lien. However, IRM 5.17.3.4.5(3),Seizure of a Residence/Principal Residence requires approval by the Area Director before seizing any property used by any person as a principal residence. If you determine the property is being used as a residence, you must obtain approval of the Area Director.

  2. In this case it may be useful to add additional language to the notice of levy that explains the continued attachment of the estate tax lien and identifies the property. For example:
    You are hereby notified that the property and rights to property described below are subject to the estate tax lien provided by IRC 6324 of the Internal Revenue Code for unpaid estate taxes owed by the Estate of [Name of Decedent], [Name of Executor], using Tax Identification Number [Estate’s TIN], using the Decedent’s Tax Identification Number [Decedent’s TIN], or using the Estate’s Employment Identification Number [Estate’s EIN]. Said property and rights to property are hereby levied upon and seized for satisfaction of the aforesaid tax, together with all additions as provided by law.
    Demand is hereby made upon you to turn over said property and rights to property, or if less, the full amount of the unpaid estate tax liability specified above.

Levy or Seizure Issued to Third Party to Whom Probate Property Has Been Transferred Subject to General Tax Lien

  1. If you identify probate property that was transferred to a third party after there was an assessment of the unpaid estate tax or unpaid audit deficiency, but subject to the general IRC 6321 lien for which the recipient does not have priority over the government, then, a seizure or levy can be issued to the third party to collect the unpaid tax. The levy is a demand to turn over the taxpayer's property. For example, an NFTL is filed against the estate for additional unpaid estate taxes. If the executor subsequently sells the decedent’s unencumbered house to an unrelated third party for cash, the house is still subject to the general lien. If you have determined that none of the exceptions for general liens apply, the house can be seized or a suit to foreclose can be referred to enforce the lien.

  2. In this case it may be useful to add additional language to the notice of levy that explains the continued attachment of the general tax lien and identifies the property. For example:
    You are hereby notified that the property and rights to property described below are subject to tax lien provided by IRC 6321 of the Internal Revenue Code for unpaid estate taxes owed by the Estate of [Name of Decedent], [Name of Executor], using Tax Identification Number [Estate’s TIN] or using the Decedent’s Tax Identification Number [Decedent’s TIN], or using the Estate’s Employment Tax Identification Number [Estate’s EIN].
    Said property and rights to property are hereby levied upon and seized for satisfaction of the aforesaid tax, together with all additions as provided by law. Demand is hereby made upon you to turn over said property and rights to property, or if less, the full amount of the unpaid estate tax liability specified above.

Levy or Seizure Issued to Trustee or “Transferees” Who Held Non-Probate Property on the Date Of Death That was Included in the Gross Estate

  1. If you determine that a trust’s assets were included on the Form 706 in the gross estate, then the estate tax lien provided by IRC 6324(a)(1) attaches to the trust’s assets that were included in the gross estate, plus any appreciation in those assets. This lien can be enforced by seizure or suit to foreclose.

  2. Similarly if there are other persons who had possession of non-probate property on the date of death that was included in the gross estate then the estate tax lien attaches to that non-probate property and a levy may be issued to the holder of such property. The levy is a demand to turn over the taxpayer's property.

  3. In this case it may be useful to add additional language to the notice of the levy that explains the continued attachment of the estate tax lien and identifies the property. For example:
    You are hereby notified that the property and rights to property described below are subject to the estate tax lien provided by IRC 6324 of the Internal Revenue Code for unpaid estate taxes owed by the Estate of [Name of Decedent], [Name of Executor], using Tax Identification Number [Estate’s TIN] or using the Decedent’s Tax Identification Number [Decedent’s TIN], or using the Estate’s Employment Tax Identification Number [Estate’s EIN].
    This lien attached to said property because it was included in the “gross estate” on the estate tax return. Said property and rights to property are hereby levied upon and seized for satisfaction of the aforesaid tax, together with all additions as provided by law. Demand is hereby made upon you to turn over said property and rights to property, or if less, the full amount of the unpaid estate tax liability specified above.

Levy Issued to Initial Recipients of Non-Probate Property Distributed After the Date Of Death

  1. If you determine that a trustee of a trust that had its assets included in the gross estate has distributed trust assets to one of the trust beneficiaries, or you determine that other non-probate property has been transferred or received by any spouse, beneficiary, heir, or other distributee, then the estate tax lien provided by IRC 6324(a)(1) remains attached to that property. The assets can be levied because the estate tax lien attached to the assets in the hands of the transferees.

  2. In this case it may be useful to add additional language to the notice of levy that explains the continued attachment of the estate tax lien and identifies the property. For example:
    You are hereby notified that the property and rights to property described below are subject to the estate tax lien provided by IRC 6324 of the Internal Revenue Code for unpaid estate taxes owed by the Estate of [Name of Decedent], [Name of Executor], using Tax Identification Number [Estate’s TIN] or using the Decedent’s Tax Identification Number [Decedent’s TIN], or using the Estate’s Employment Tax Identification Number [Estate’s EIN].
    This lien attached to said property because it was included in the "gross estate" on the estate tax return. Said property and rights to property are hereby levied upon and seized for satisfaction of the aforesaid tax, together with all additions as provided by law. Demand is hereby made upon you to turn over said property and rights to property, or if less, the full amount of the unpaid estate tax liability specified above.

Levy Issued to Third Parties In Possession of Non- Probate Property for Initial Holders or Transferees of Non- Probate Property

  1. If you determine that a trust’s assets were included on the Form 706 in the gross estate, then the estate tax lien provided by IRC 6324(a)(1) attaches to the trust’s assets that were included in the gross estate, plus any appreciation in those assets. Regardless of whether the trust’s assets are still held in the trust or they have been distributed to the beneficiaries of the trust, collection of the tax due can be enforced with a levy issued to banks, brokerage firms, or other financial institutions which hold the assets for the trust or the beneficiary.

  2. Similarly if there are other persons who had possession of non-probate property on the date of death that was included in the gross estate – such as joint bank accounts with rights of survivorship - then the estate tax lien attaches to that non-probate property and collection may be enforced by a levy issued to the bank, brokerage firm or similar financial institution where that account is located.

  3. The same rules would apply for any other non-probate property included in the gross estate which has been distributed to the initial transferee.

  4. In these cases, it may be useful to add additional language to the notice of levy that explains the continued attachment of the estate tax lien and identifies the property. Additionally, because the property is now held by third party for a trust or transferee, it may be useful to include the TIN for the trust or the transferee. For example:
    You are hereby notified that the property and rights to property of [Trust with TIN, or Transferee with TIN] described below are subject to the estate tax lien provided by IRC 6324 of the Internal Revenue Code for unpaid estate taxes owed by the Estate of [Name of Decedent], [Name of Executor], using Tax Identification Number [Estate’s TIN] or using the Decedent’s Tax Identification Number [Decedent’s TIN], or using the Estate’s Employment Tax Identification Number [Estate’s EIN].
    This lien attached to said property because it was included in the "gross estate" on the estate tax return. Said property and rights to property are hereby levied upon and seized for satisfaction of the aforesaid tax, together with all additions as provided by law. Demand is hereby made upon you to turn over said property and rights to property, or if less, the full amount of the unpaid estate tax liability specified above.

Seizure or Levy to Enforce IRC 6324(a)(2) “Like Lien”

  1. Similarly, if you determine that the initial transferee of non-probate assets has re-transferred those assets to a purchaser or security interest holder, then the estate tax lien provided by IRC 6324(a)(1) does not follow the non-probate property into the hands of the purchaser or security interest holder. However, a replacement lien or "like lien" has arisen and attached to all of the initial transferee’s other property. This "like lien" is subject to the same exceptions as the estate tax lien. If you determine that none of the exceptions for the IRC 6324(a)(1) estate tax lien apply, seizure or levy may be issued to the initial transferee or to any bank, brokerage firm or other financial institution holding the other assets of the initial transferee.

  2. The transferee’s personal liability is limited to the date of death value of the assets received.

  3. In this case it may be useful to add additional language to the notice of levy that explains the continued attachment of the estate tax lien and identifies the property. If the property is held by third party for a trust or transferee, it may be useful to include the TIN for the trust or the transferee. For example:
    You are hereby notified that the property and rights to property of [Initial Transferee with TIN] described below are subject to the “Like Lien” provided by IRC 6324(a)(2) of the Internal Revenue Code for unpaid estate taxes owed by the Estate of [Name of Decedent], [Name of Executor], using Tax Identification Number [Estate’s TIN] or using the Decedent’s Tax Identification Number [Decedent’s TIN].
    This lien attached to said property because non-probate property that was included in the "gross estate" on the estate tax return was transferred to [Initial Transferee], and then re-transferred to a purchaser or security interest holder. Under IRC 6324(a)(2) a replacement or "Like Lien" has arisen and attached to all other property of [Initial Transferee] . Said property and rights to property are hereby levied upon and seized for satisfaction of the aforesaid tax, together with all additions as provided by law. Demand is hereby made upon you to turn over said property and rights to property, or if less, the full amount of the unpaid estate tax liability specified above.

Levy to Enforce Gift Tax Liens

  1. Special language should be used on the seizure or levy to inform the recipient of basis for the lien and its enforcement by seizure or levy. By way of example, the following language might be included on the seizure or levy.
    You are hereby notified that the property and rights to property described below are subject to the gift tax lien provided by IRC 6324(b) of the Internal Revenue Code for unpaid gift taxes owed by [Name of Donor], using Tax Identification Number [Estate’s TIN] or using the Decedent’s Tax Identification Number [Decedent’s TIN].
    Said property and rights to property are hereby levied upon [or seized] for satisfaction of the aforesaid tax, together with all additions as provided by law. Demand is hereby made upon you to turn over said property and rights to property, or if less, the full amount of the unpaid gift tax liability specified above.

Collection on Bonds

  1. In some probate proceedings the estate administrator will be required to post bond. For more information on this type of bond see IRM 5.5.2.9, Probate Bonds. Bonds may be also furnished where the time to pay estate tax or the deficiency has been extended. See IRM 5.6.1.2.3,Estate Tax Bonds and Other Collateral. In order to collect outstanding tax it may be necessary to demand payment from the surety that has underwritten the bond.

  2. When considering enforcement secure a copy of the bond and related documentation. The bond will identify the surety company, the amount of coverage, and potential parties who would be served with a demand or suit letter. Bonds are generally issued on an annual basis, similar to insurance policies. If the bond was renewed, previous bonds may reflect changes in the amount of coverage, which may be based on a reduction in estate assets or creditor claims for debts owed. Typically a financial statement for the applicant/estate is submitted with the bond application, a summons may be issued to the surety for a copy of the application and financial statement.

  3. Once you determine enforcement will be necessary on the bond, send the surety a demand letter for payment. Pattern letter P-300 (see IRM Exhibit 5.6.2.-3) has been modified in Exhibit 5.5.9-1 for use in estate cases. This letter must be signed by the Area Director and sent by certified mail to the surety.

  4. If there is no response from the surety by the deadline date in the demand letter, attempt contact with the surety and document the ICS case history with the following:

    • Whether the surety acknowledged receipt of the demand letter ?

    • Who you will be working with to secure payment - name, title, contact phone number/address ?

    • When you can expect payment in full ?

    • If the surety indicates it will not pay, document the reason for non-payment and ask the surety to send the IRS a written response stating the reasons for non-payment.

  5. If there is no response from the surety or indication the surety will not pay the bond amount, prepare a referral to bring suit against both the fiduciary, alleging he is personally liable under 31 U.S.C. Sec. 3713 and the surety, alleging liability under the probate bond. See IRM 5.5.9.28,IRC 7404 Suit to Collect Estate Tax under General Law, for discussion on this type of suit. Enforcement of a bond for an IRC 6166 liability may not require proof of fiduciary liability, since the bond is for security not a bond for misconduct, see IRC 6165.

  6. State law and/or terms of the bond may dictate the time period to file a suit against the bond, that period may be as short as 30 days. Timely referrals must be made to Area Counsel. Begin the referral process early. IRS Counsel needs time to review the case and authorize DOJ to file a suit.

Using a Summons for Estate and Gift Tax Information

  1. Form 2039,Summons, is the general, all-purpose summons form, suitable for any first-party or third-party summons. Form 2039 should be used to summon an executor of an estate for testimony or books and records, or both. The executor is the person authorized to act on behalf of the estate. As defined in I.R.C. § 2203 in connection with the estate tax imposed by Chapter 11, the term “executor” means the executor or administrator of the decedent, or if there is no executor or administrator appointed, qualified, and acting within the United States, then any person in actual or constructive possession of any property of the decedent.

  2. Form 2039 should be used when summoning third parties, such as accountants, title companies, banks, and investment companies. In most cases, a third-party summons issued in an estate or gift tax examination will be subject to the notice requirement of I.R.C. § 7609(a). (There are a few narrow exceptions to this rule that may apply. See IRM 25.5.6.5.) When required, notice should be given to the taxpayer (the donor or the estate) identified in the heading of the summons, and to all other persons identified by proper name in the description of summoned records. For procedural guidance on third-party summonses, refer to the Summons Handbook, IRM 25.5.6.

  3. In cases in which the estate has failed to file a federal Estate Tax Return, Form 706, the following wording may be used (and adjusted when necessary) to summon information from which the return may be prepared:
    All documents in your possession or control relating to all property and rights to property, whether real, personal, tangible or intangible, in which the decedent (name the decedent) held an interest at the time of his death or which is otherwise includable in the decedent’s gross estate. These documents include, but are not limited to, all documents relating to the existence or value of any of the following:

    1. Bank accounts, brokerage accounts, stocks, bonds, mutual funds, retirement accounts, other investments, mortgages, notes, accounts receivable, contracts, patents, copyrights, proprietorships, joint ventures, partnerships, corporations, limited liability companies, voting rights, household goods, furniture, clothing, automobiles, boats, aircraft, jewelry, gems, antiques, art, collections, annuities, life insurance policies, reversionary rights, rights to revoke, alter or amend transfers, powers of appointment, and other real or personal property, in which the decedent had any interest (as joint tenants with rights of survivorship, as tenants by the entirety, as joint account holders, or with a payable on death designation), at the date of death.

    2. Gifts made by the decedent within three years of his or her death, including any gift taxes paid by the decedent on gifts made within three years of the decedent’s death.

    3. Property held in trust for which decedent was a trustee, held a power of appointment, or was a beneficiary, at the date of death.

    4. Decedent’s last will and testament, any prior amendments, and any probate proceedings in state court.

  4. In cases in which a federal gift tax return, Form 709, has not been filed, the following wording may be used (and adjusted when necessary) to summon information from which the return may be prepared:
    All books, papers, records, and other data in your possession or control relating to any and all gifts, i.e., any transfer of real or personal property, whether tangible or intangible, made directly or indirectly, in trust, or by any other means, where the value of the property transferred exceeds the value of property received, if any. The summoned books, papers, records, and other data include information relating to the fair market value of any gifts made by the donor during (the taxable year in issue). These documents include, but are not limited to, any of the following:

    1. documents reflecting the property or rights to property transferred and the date of such transfer;

    2. documents reflecting the fair market value of such gifts (as of the date the gift was made) and any consideration paid;

    3. documents reflecting all prior gift tax returns filed on behalf of the donor;

    4. documents reflecting the age and marital status of the donor at the time of each gift;

    5. documents reflecting the identity and age of any person (donee) who received any gift from the taxpayer during the tax year(s).

Transferee Liability

  1. Collection action may be pursued against parties who received assets before the taxes were paid as transferees or against the fiduciary for personal liability. Once you have completed a timeline of transfer of estate assets, you will be able to establish who may be considered transferees or have fiduciary liability.

  2. In some cases, you may not be able to take administrative action. For example, if 10 years has passed, the estate tax lien would have expired, but time to collect under the general lien may have been extended. Continue demand for payment and your investigation of estate assets in consideration of referring a suit for judicial action. The following are factors to consider for transferee liability:

    • Identify transferees who are personally liable for a portion of the estate tax.

    • "Transferees" are trustees, beneficiaries, heirs and other distributees who held on the date of death, or who subsequently received, non-probate property.

    • Transferees of non-probate property are personally liable IRC 6324(a) (2) for unpaid estate taxes to the extent of the value of the property they received. The value on the Form 706 estate tax return, or as adjusted by Exam and the Tax Court controls.

    • Can bring collection action in district court against IRC 6324(a)(2) transferee within collection period for the tax.

    • Transferee liability is independent of the estate tax lien and may be pursued by the government without first pursuing the estate’s assets, tax liens or the liability of other transferees.

    • Transferee liability includes the estate tax as well as penalties and interest on that estate tax – up to the value of the assets received.

    • A transferee’s personal liability may also include separate interest that is not capped by the value of the assets received.

    • Although Collection does not need to determine whether a transferee has additional liability for interest, all referrals for IRC 6901 assessment or a suit for a judgment of transferee liability should include information on all transferees, even if they have fully paid the value of the property they received. This is so that Exam and Counsel can evaluate whether or not the transferee has additional liability for interest.

    • Before transferee liability can be enforced through administrative collection, there must be a IRC 6901 assessment or a judgment for such liability.

Transferee Liability for Pre-Death Gifts

  1. A donee who received the pre-death gift can be held personally liable under Section 6324(a)(2) for the unpaid estate tax owed by the donor/decedent’s estate - up to the value of the gifted property that was included in the donor/decedent’s gross estate minus the value of any annual exclusion amount for gifts to that donee.

  2. Section 2035(c)(1)(C) works together with Section 6324 to ensure that taxpayers cannot use certain gifts before their death to defeat estate tax collection efforts. See Armstrong v. Commissioner, 114 T.C. 94 (2000). Section 2035 requires that certain gifts made within three years before the donor’s (decedent) death must be included in his gross estate for estate tax purposes. These gifts include:

    • Pre-death gifts of the decedent's retained interest in property (for example a life estate)

    • Pre-death gifts of the decedent's rights to property that transferred automatically at his death (for example payable on death accounts)

    • Pre-death gifts of property in which the decedent held a revocable trust (such as property held in trust that was revocable by the decedent)

    • Pre-death gifts of life insurance benefits that would have been included in the decedent's gross estate under Section 2042 for estate tax purposes if the gift had not been made.

  3. Because these gifts are included in the gross estate, there is a Section 6324(a)(1) estate tax lien on the property that was the subject of the gift, and the like lien rules apply if that property has been subsequently sold or encumbered by the donee.

  4. These pre-death gifts are normally reported on Schedule G of the Form 706, but might also appear on Schedules D, E, F of Form 706. When life insurance proceeds are involved there should also be an accompanying Form 712 that identifies the specific pre-death gift of non-probate life insurance proceeds.

  5. Consult with your Area Counsel on specific case circumstances to determine the Service's most effective collection avenue.

Asserting Transferee Liability

  1. Transferee liability may be asserted administratively by making an assessment under IRC 6901. Examination would issue a Notice of Deficiency. Resources to help you proceed with your transferee assessment are:

    • IRM 5.1.14.2.1, Report of Investigation of Transferee Liability

    • IRM 4.11.52, Transferee Liability Cases, provides a good outline of transferee liability, statute of limitations and interview questions.

  2. Under this option, a referral would be sent to Examination to issue a Notice of Deficiency. If the period to petition the Tax Court expires without being contested, the case will be sent to Technical Services for an assessment to be made. If a Tax Court petition is filed, the assessment of transferee liability must wait until the Tax Court decision and any judicial appeals of that decision are final. If the IRS is successful in the litigation and the liability is assessed, if the tax remains unpaid after notice and demand an account will be assigned to a Revenue Officer in Collection.

  3. Alternatively, you can request Department Of Justice (DOJ) to file suit for a judgment of personal liability against the transferee. A suit to establish transferee liability can also include a number of other causes of action and defendants in the same case. These might include foreclosing the general or estate tax liens and establishing fiduciary liability. Under this option the suit is referred, if necessary a judgment obtained, and collection is normally handled by DOJ. Generally, you will not see the account again in Collection.

  4. A request to assess Transferee Liability under IRC 6901 or to obtain a judgment for Transferee Liability should contain documentation supporting the following basic facts:

    • The current amount of the unpaid estate tax;

    • The names of the trusts (and trustees) that held non-probate assets included on the Form 706, and the value of those assets reported on the Form 706; and

    • The names of persons who received non-probate assets included on the Form 706 and the values reported on the Form 706.

  5. Consult with your Area Counsel on your specific case circumstances to determine the Service’s most effective collection avenue. IRM 5.17.14, Legal Reference Guide for Revenue Officers, Fraudulent Transfers and Transferee and Other Third Party Liability is another resource on transferee liability.

Fiduciary Liability for Estate Tax

  1. In some case circumstances, you may find that an estate is now insolvent and cannot pay a tax debt owed to the government. This includes estate taxes, gift taxes, Generation Skipping Transfer (GST) taxes, and income and employment taxes.

  2. When other sources of collection, such as enforcing tax liens and transferee or donee liability have been considered and the account remains unpaid, you should consider whether the fiduciaries of the estate or any related trusts have breached their duties to the government under 31 U.S.C. Section 3713 or under state law.

  3. The executor, in his official capacity for the estate, is responsible for paying the estate taxes, gift taxes, and other taxes owed by the estate or the decedent.

  4. Additionally, a trustee of a trust may be liable in his official capacity to pay estate taxes, gift taxes, or other taxes owed by an estate or a decedent. This can happen when the terms of the trust make the trust liable for such taxes under state law, or where the trust is liable for an estate tax under IRC 6324(a) or a gift tax owed by the decedent as a donee under IRC 6324(b).

  5. In the event that you are attempting to collect an unpaid estate or gift tax against a transferee or donee, and that transferee or donee has died, the executor of such transferee or donee may also be liable under Section 3713 for failure to preserve sufficient assets to pay that transferee or donee liability.

  6. The basic elements of Section 3713 liability include:

    1. A fiduciary had knowledge, or notice, of a debt (or claim) due or that might be due to the United States,

    2. After such knowledge, the fiduciary made a distribution to heirs, beneficiaries or paid the debts of other creditors, and

    3. The distribution occurred when the estate or trust was insolvent or rendered the estate or trust unable to fully pay the debt or claim of the United States.

Knowledge of Debt or Claim of Government

  1. A fiduciary includes, "a guardian, trustee, executor, administrator, receiver, conservator, or any person acting in a fiduciary capacity for another person." 26 U.S.C. Section 7701(a) (6).

  2. Consistent with the broad interpretation of Section 3713, the courts have looked beyond titles and modes of appointment to make anyone in control or possession of the debtor’s assets liable for the non-payment of the government’s claim under Section 3713 and its predecessor statutes.

  3. A fiduciary must have had actual or constructive knowledge of the debt owed the United States. Constructive knowledge of a potential claim merely requires knowledge of facts that would cause a prudent (careful) person to make a further inquiry into the existence of the claim.

  4. Taxes, including penalties and interest thereon, qualify as a debt or claim owed to the government for purposes of the priority statute.

  5. There is no requirement that the tax be assessed before it constitutes a claim of the government. Taxes that may be due on a yet unfiled return or that are under audit, or being contested in litigation qualify as a government claim. If the executor or trustee disputes the government’s claim or does not believe it to be valid, he is still required to preserve sufficient assets to pay that claim until it is resolved.

  6. The government is not required to file a claim in probate court.

  7. Knowledge of a potential claim of the government imposes a duty on the fiduciary to make an inquiry to the proper government office regarding the potential claim; merely conducting a unilateral investigation into the legitimacy of the government’s claim does not insulate a fiduciary if he could have resolved the question by contacting such government office.

  8. Prepare a timeline to determine who had knowledge, when and what happened to estate assets once knowledge was established. Below are some points to help you complete a timeline of events:

    • Who filed the Form 706 and when did the fiduciary have knowledge of tax due at filing?

    • If an audit was conducted, who worked with IRS? Was a deficiency assessed?

    • Was there a challenge to the tax in the Tax Court?

    • To whom were past due tax notices or audit correspondence addressed, and when?

    • Was a tax lien recorded? Who received notice of the lien?

    • Were assets sold or distributed after notice of tax due or of a pending audit?

    • Who received estate assets and when?

    • Were any sale proceeds paid to IRS?

    • Were the sold/distributed assets reported on the Form 706 and under the control of the fiduciary?

  9. Determine if the fiduciary was given a discharge from personal liability under IRC 2204 for any tax deficiency. A fiduciary would still be liable for the tax due on the return as originally filed. Look for documentation associated with the Form 706.

Distributions or Payments That Create Section 3713 Liability

  1. Certain types of distributions or payments by an executor or trustee will create Section 3713 liability for the fiduciary. These include:

    • Payment of other debts owed by the decedent.

    • Distributions to heirs or beneficiaries.

    • Other depletions of the estate or trust without adequate compensation to the estate or trust.

  2. For example, rather than making a formal distribution of corporate stock from an estate, the executor who exercises personal control over that stock and holds himself out as its owner to third party lenders was found to have made a distribution for purposes of Section 3713.

  3. However, certain exceptions to the government’s priority under Section 3713 have been allowed by the courts. Administrative expenses such as court costs, reasonable compensation for the fiduciaries and attorneys, and expenses incurred in operating a business or liquidating assets made in the ordinary course of these operations. These administrative expenses must be reasonable and necessarily incurred in the preservation, safekeeping, and management of the assets of the estate, trust or receivership.

Insolvency of Estate or Trust

  1. A fiduciary will only be liable for distributions that were made after the estate became insolvent, or those that made it insolvent. "Insolvent" means that liabilities exceed assets, or in other words, a "balance sheet" insolvency test.

  2. In some cases the information in the timeline you have prepared will quickly reveal that the estate was insolvent (or made insolvent) when the distributions in question were made. For example, after the executor is aware of the government’s tax claim, he distributes all of the estate’s assets to the heirs without paying the taxes owed. The estate was rendered insolvent by those distributions.

  3. In other cases, it may be less obvious, and you may need to construct a balance sheet for the estate immediately after the distribution in question was made. For example, after an executor is aware of the government’s claim for taxes, he distributes one asset to one heir, but has other assets remaining in the probate estate. If the values of the remaining assets are insufficient to cover the government’s claim, the estate is insolvent. Although it may not be necessary to establish the value of every remaining asset or debt against the estate on the date of the distribution, the use of reasonable value ranges may still be sufficient to draw a conclusion regarding the estate’s solvency. This determination needs to be supported with documentation in your referral.

  4. Information on the value of those remaining assets as of the distribution date can sometimes be approximated from:

    • annual reports or statements filed in probate court,

    • annual income tax returns filed by the estate or trust,

    • Form 1099 and Schedule K-1 tax return data reported to the IRS by third parties, and

    • summoning records from the fiduciary or from third parties such as banks where the assets are located.

  5. Additionally, an interview or summoned testimony of the fiduciary may provide information regarding the value of the assets and debts at the time the distributions were made, as well as the fiduciary’s knowledge or constructive knowledge of the government’s claim or potential claim.

Preparing Timely Suit Referrals

  1. If you get to the point that you cannot take administrative action, it is important to get the case out of your inventory and to someone who can continue the collection process through judicial means. Begin the referral process early. IRS Counsel needs time to review the case and authorize DOJ to file a suit. Once DOJ receives the suit, they typically send a pre-suit letter giving the taxpayer 30 days to respond with payment or a settlement offer before a suit is filed. The DOJ attorney will need time to review the case and make the initial pleading as comprehensive as possible. IRM 25.3.2.5,Cases with Imminent CSEDs, provides guidance on referrals involving CSEDs.

  2. In many cases, it is common for the estate or heirs to pay all or a substantial portion of the tax just because DOJ filed a suit.

  3. It is best to recommend that DOJ be allowed to take all possible actions to collect the tax, whether fiduciary responsibility or lien foreclosure so they can go forward with whatever action they deem necessary after their analysis of your case. For example, a referral for a suit to foreclose a tax lien on one property might also include a referral to foreclose all liens on all other properties, as well as reducing the assessment to judgment. Additionally, a referral for a suit to obtain judgments of personal liability on all transferees or donees, and fiduciaries might be included.

  4. Key benefits to suit referrals to DOJ are:

    • Additional discovery, subpoenas, depositions.

    • May include multiple causes of action against multiple defendants.

    • Once judgment is obtained, DOJ will take initial efforts to collect it.

Suit Referrals - IRC 7402 Suit to Reduce Assessments to Judgment

  1. Once a tax has been assessed and administrative collection efforts have proven ineffective or the CSED is about to expire, a suit can be filed to obtain a judgment of liability for the tax. This judgment fixes and extends the liability, but it does not collect assets held by the estate. Additional steps such as a writ of execution or foreclosing on a tax lien or a judgment lien must be used to convert estate assets to cash. Even where the estate has no assets, a suit to reduce assessment to judgment may be necessary or useful to extend the time to seek collection from the Executor or heirs personally.

  2. Once a judgment is obtained, it is critical that the taxpayer’s account CSED be updated. Judgments can last 20 years and be refiled for another 20 years.

  3. Depending on the case and the court, it can take between 1 to 2 years to reach a trial. If an appeal is filed, it may take another year.

  4. Care should be taken to get referrals completed in time to avoid expiration of the CSED. IDRS sets up automatic abatements (TC 608) and lien releases which have to be reinstated and refiled because we filed a timely suit. The transcript will reflect this error and its correction. This creates additional litigating risks. It is difficult for judges to believe that we have no control over our own computer which can lessen our credibility with the court on all other issues.

IRC 7403 Suit to Foreclose (Any) Tax Lien

  1. If you find real property that the estate tax, gift tax or general lien attaches has been transferred without the government’s lien interest being paid you need to:

    1. Put any title company involved in the transfer on notice that the lien was not satisfied. A summons may be issued to the title company to produce records related to the sale, such as the closing statement indicating who received sale proceeds, statements regarding any tax liability of the seller and the title policy.

    2. If the title company does not pay in accordance with the title policy it issued you may proceed with levy and seizure (after appropriate final notice to the estate) of the property.

    3. If these actions do not result in payment you can prepare a suit referral to Department of Justice to foreclose the lien under IRC 7403.

  2. A suit under IRC 7403 is used to enforce any of the tax liens through foreclosure and sale. The court will have discretion on whether to order foreclosure and sale, the timing of the sale and the terms of the sale. Most courts will order foreclosure and sale unless there are special circumstances such as:

    • An arm’s length sale at a fair price

    • A pending sale on the property

  3. It will be necessary to join all parties claiming any interest in the property (you can get this information from probate records). This suit can be brought even if the tax liens are subordinate to the claims of others – provided there is sufficient equity in the property to make it worthwhile. The suit will resolve the priority of claims to the property. Once the property is sold, the court will order distribution of the net proceeds to the claims against the property in order of their priority.

  4. When the 10-year estate or gift tax liens are involved, DOJ should file a suit to foreclose the tax lien a minimum of 3 years before that 10-year tax lien expires. Because filing the suit does not suspend the 10-year life of the lien, DOJ needs to complete the suit and sell the property before the lien expires. It may take that long to litigate the case, resolve any appeals and sell the property before the lien expires.

  5. Depending on the case and the court, it can take between 1 to 2 years to reach a trial. If an appeal is filed, it may take another year or more before the property can be sold.

IRC 7402 and 7403 Suit to Appoint a Receiver

  1. A suit can be filed to appoint a receiver to sell specific property in order to satisfy a federal tax lien. This type of suit is often combined with a suit to foreclose tax liens. In some cases, a receiver may be able to market and privately sell (subject to court approval) unusual or difficult to sell assets, thereby avoiding the potential that a foreclosure sale will greatly depress the sales price below its fair market value. A taxpayer may be more willing to cooperate in appointing a receiver to sell property because it maximizes the recovery on the property and reduces the potential for personal liability of fiduciaries and heirs.

  2. Additionally, a suit to appoint a receiver to take over and manage the entire estate of a decedent can be filed. Here, it is necessary to obtain the certification of the Secretary that such a receiver is in the public interest.

  3. A receiver steps into the shoes of the taxpayer and can take any actions that the taxpayer could have taken. For example, exercising withdrawal and liquidation rights for an interest in a partnership, or repatriating foreign assets.

IRC 7404 Suit to Collect Estate Tax under General Law

  1. Where estate taxes are involved, IRC 7404 allows the government to file suit for the purpose of collecting the tax under any provision of general law. This includes relying on any other federal or state law remedies the government may have.

  2. No assessment is required.

  3. Actions under state law may include:

    • Suits to establish personal liability of transferees of probate property.
      Many state laws provide that a creditor of an estate may bring a direct cause of action under state law against the recipients of probate property if the creditor was not paid by the estate before the assets were distributed.

    • Suits or motions to intervene in a probate court proceeding to demand payment on a government debt, for an annual accounting from the fiduciary, or to appoint a new fiduciary.
      Such actions might be considered in cases where the probate estate has sufficient assets to pay the government’s claims but the assets are under the probate court’s control and there has been a delay in payment of the government’s claim.

    • Suits to enforce a fiduciary’s surety bond or a surety bond given in IRC 6166 extended payout cases.

    • Suits to establish a fiduciary’s liability to the government under state law. For example:
      The fiduciary fails to do anything to pay the tax debt and does not gather the assets of the estate in order to do so.
      The fiduciary pays lower priority claims of the United States (such as the decedent’s gift tax debts thereby benefitting the decedent’s heirs who would otherwise have potential donee liability) using funds that should have been used to pay the administrative income taxes incurred by the date after the decedent’s death. Here, the income taxes had a higher priority than the decedent’s donee’ liability under that state’s probate laws.

  4. When other federal remedies are not available or it appears that they will not be productive, you should consult with Counsel regarding the law supporting these types of state law actions and the facts needed for a referral to bring such an action.

Key Points for Writing a Narrative for an Estate Tax Suit Referral

  1. For estate tax suit referrals focus on the points below, if applicable to your case, when writing your narrative report.

  2. Introduction:

    • Name of the estate

    • Type of tax and balance outstanding

    • Date of death

    • CSED

    • Lien expiration date

    • Is there a need for urgent action on suit

  3. Basis for assessment:

    • When was the tax return filed?

    • What was assessed and when?

    • Were additional amounts assessed and when?

    • Were there Tax Court proceedings?

    • Has the estate filed any supplemental or amended returns?

    • When does the collection statute of limitations expire?

    • When does the IRC 6324 estate tax lien expire?

    • Describe any IRC 6161 extensions to pay, or IRC 6166 deferrals?

  4. Summary of Administrative Actions:

    • Chronological statement of facts supported by exhibits.

    • Timeline, consider setting up a spread sheet to track and summarize information about the different properties.

    • From these, you should be able to create a list of property that the estate tax lien would have attached to, or that was distributed subject to the debts of the estate.

  5. Address tax liens:

    • Describe estate tax lien in effect or notate when it expired

    • Have we filed a Notice of Federal Tax Lien under IRC 6321?

  6. What property is subject to collection or foreclosure action?
    For real estate:

    • Street address, and

    • Legal description if available


    For personal property:

    • Probate or non-probate property

    • Description

    • Who has title or current ownership of it

    • Who has possession of it and what is that person’s relationship to the estate

  7. Are there any encumbrances against the property?

    • What is the fair market value?

    • Secure copies of liens, copies of creditor claims, deeds of trust, Uniform Commercial Code (UCC) financing statements, judgments, or other encumbrances that have been filed against or attached to the property. Copies with date, volume and page number references are preferred, so that we can evaluate lien priority questions.

    • Are there unpaid local property taxes on real estate or personal property?

  8. Documents to include:

    • Account transcripts and ICS history

    • Copies of notice and demand, and any other required statutory notices

    • Administrative files (order them as soon as you can) such as tax return with examination files, appeals, collection or campus files

    • Any correspondence concerning the taxpayer’s position

  9. Gather documentation related to the estate asset being pursued for collection.

  10. Stock in a corporation:

    • Corporation’s articles of organization and by laws.

    • Is the corporation still active and authorized to do business under state law?

  11. Any information you have about the assets inside of the entity. Does the entity operate a business; or does it simply hold real estate, cash or marketable securities that could be easily liquidated? Any information about the value of those assets.

  12. Partnership agreements.

  13. Property in a Trust:

    • Trust agreements, or document establishing the trust

    • Trusts established by the terms of a will

    • Trusts established during decedent’s life, by separate trust agreement

  14. Probate Records:

    • Open or closed

    • Are the assets subject to the court’s supervision, or are they being administered independently

    • Any assets in the probate

    • Inventory and appraisement

    • Annual accountings

    • Any settlement documents with beneficiaries

    • Docket sheet

  15. Name of all personal representatives or trustees:

    • Addresses for service of process

    • Does personal representative or trustee already have an attorney, if so who and contact information

    • Was a bond posted by the personal representative, what are its terms

  16. Summation and statement as to type of suit being recommended:

    • To seek personal liability against? If so against whom?

    • To foreclose tax liens?

    • To intervene in a court action to assert and protect lien rights?

  17. Contact information for you, and other IRS employees who worked the case. DOJ may need to contact you with questions or need assistance.

  18. IRM 5.17.2,Legal Reference Guide for Revenue Officers, Investigations and Reports also provides guidance on preparation of suit referrals.

Pattern Letter P–300 - revised for estates

[AREA DIRECTOR LETTERHEAD]
Name and address of Executor and Estate (John Smith as Executor for the Estate of _____ ):
Date:
Name of IRS Contact:
Contact Telephone Number:
[Name and address of surety]
[Salutation]
Our records show the principal named above has not paid the tax liability for which a surety bond in the amount of $[amount] was executed by, [name of surety], as surety.
Consequently, we demand that [name of surety] pay the full amount of the bond within 30 days of the date of this letter. A check payable to the United States Treasury in the amount of the bond can be mailed or delivered to the representative at the address above.
If the bond is not paid within 30 days the Internal Revenue Service may request Department of Justice to file suit against [name of surety] to enforce the bond.
If you have any questions, please contact the Internal Revenue Service representative whose name and telephone number are shown above.
Sincerely yours,
Area Director
cc: [copy to estate executor]