The U.S. District Court for the District of Maryland has held a pair of family estate executors liable for the unpaid taxes of the estate.
During her lifetime, Carol Shriner failed to file federal income tax returns for 1997 and 2000 through 2003. She died on June 3, 2004. In May 2005, her estate filed tax returns on her behalf reporting taxes due, and the IRS assessed liabilities.
On numerous occasions the IRS notified the Shriners’ law firm of the outstanding amounts of the estate’s unpaid tax liabilities. Nevertheless, the estate made distributions totaling $470,963 to Robert and Scott Shriner, co-administrators of Carol Shriner’s estate, leaving the estate without sufficient assets to pay the income tax.
In its decision, linked to on the TaxProf blog, the court cited 31 U.S.C. 3713(b), which provides that a “representative of a person or an estate paying any part of a debt of the person or Estate before paying a claim of the Government is liable to the extent of the payment for unpaid claims of the Government.”
Under the statute, the court said that Robert and Scott are personally liable for the unpaid claim of the United States, to the extent of the distribution of estate assets, if they distributed assets of the estate. The distribution rendered the estate insolvent and unable to pay fully the outstanding taxes, and the distribution took place after Scott and Robert knew, or should have known, of the government’s claim, according to the court.
Since the law firm’s knowledge of the unpaid taxes was imputed to their clients, the court held that Robert and Scott were personally liable for the estate’s unpaid tax liabilities.