Mangiardi v. Comr.—IRS Estate Tax Levy on Beneficiaries Upheld

By Steven B. Gorin  

Thompson Coburn LLP, St. Louis, MO 

In Mangiardi v. Comr., T.C. Memo 2011-24, the IRS gave an estate six annual §61611  extensions of time to pay estate tax on the grounds of hardship. Concerned that the ten-year statute of limitations under §6324(a)(1) was coming up, the IRS granted the seventh request of time, but only for a couple of months, explaining: The extension to pay is only being allowed until 12/5/04 because, if the liability is not paid in full by that date, the IRS will begin making transferee assessments against the heirs of the estate that received assets and have not paid to the IRS their portion of the estate tax and interest owed. We can not provide any additional time because we must ensure that the transferee assessments are made prior to the assessment expiration date to make those assessments. 

The IRS sent a notice of intent to levy to the estate when the estate did not meet the deadline. When appealing the notice of intent to levy, the estate claimed that the IRS was precluded from collecting the estate tax liability from beneficiaries because the time for making a transferee assessment under §6901 had expired. Thus, the estate suggested an offer-in-compromise in which the estate would offer a reduced amount based on doubt as to collectibility of the remaining assets in the revocable trust.

Although the IRS originally thought it needed to make transferee assessments against the beneficiaries, before the §6901 assessment expiration date, it never made those assessments and later asserted that a §6901 assessment against transferees was not required before personal liability could be imposed under §6324(a)(2).

The Tax Court ruled that it could not evaluate the legitimacy of the IRS' denial of the §6161 extension, although it seemed to view the IRS' actions as pretty lame.  However, that issue was moot because the court issued its judgment after the latest date for a §6161 extension, so the court did not further address that issue.

The court pointed out that the Third and Tenth Circuits have held that the IRS may collect estate tax from a transferee pursuant to §6324(a)(2) without a prior assessment against the transferee under §69012  and that the Tax Court has found those cases to be persuasive and well reasoned.3  However, the court noted, "We also sympathize with the beneficiaries of decedent's estate in that years later they find themselves at risk of forfeiting their inheritance without prior notice, especially after respondent had ample opportunity to make assessments against them." Nevertheless, the court sustained the levy as lawful.

Regarding the offer-in-compromise: Petitioner offered the remaining assets in the estate (approximately $700,000) as an offer-in-compromise; however, respondent determined petitioner's reasonable collection potential to be at least $3 million given that the beneficiaries received $3,433,007 in IRA distributions. Because petitioner did not offer an acceptable amount, respondent did not abuse his discretion in rejecting petitioner's offer-in-compromise.  

Thus, the court sustained the IRS' proposed collection actions.

For more information, in BNA's Tax Management Portfolios, see Gopman and McCawley, 832 T.M., Estate Tax Payments and Liabilities,  and in Tax Practice Series, see ¶6300, Credits, Deferred Tax Payments, and Tax Liabilities. 

1 All references to the "Code" are to the Internal Revenue Code of 1986, as amended. 

2 Citing U.S. v. Geniviva, 16 F.3d 522, 525 (3d Cir. 1994) and U.S. v. Russell, 461 F.2d 605, 607 (10th Cir. 1972). 

3 Citing Ripley v. Comr., 102 T.C. 654, 659 (1994).