Executor not liable as fiduciary for unpaid estate tax.

• Author: Beavers, James A.
• Position: 2016 Tax Court memorandum decision in Singer v. Commissioner

The Tax Court held that the executor of an estate was not liable for a portion of the estate's unpaid estate taxes, which the IRS claimed he owed as a fiduciary of the estate because he had made distributions of the estate's assets at a time when the estate was insolvent and the estate taxes were unpaid.

Background

Scott Singer was the executor of the estate of Melvin Sacks, who had, with his brother, been a partner in a successful New York law firm. When he died, Sacks was survived not only by his brother, an estranged wife, children, and grandchildren, but also by two girlfriends. In Sacks's will, many of these people were given either cash or property.

At the time of his death in August 1990, Sacks owed the IRS over $4 million in income taxes for various years in the 1980s and 1990. In November 1991, Singer filed an estate tax return showing a gross estate of almost $4 million, a taxable estate of approximately $3.2 million, and an estate tax liability of approximately $1 million. The IRS audited the return, and the estate and the IRS later settled on a liability amount of approximately $1.85 million.

In December 1990, Singer obtained a restraining order from the Surrogate's Court of the State of New York (the probate court handling Sacks's estate) over assets of more than $2 million in Sacks's brokerage account because it appeared that Sacks's testamentary estate would be insufficient to pay creditors' claims, including those of the IRS. Because the estate was insolvent, he also sought to disaffirm the transfer to one of the girlfriends of a residence that Sacks and the girlfriend had purchased months before his death as joint tenants and paid for entirely with Sacks's money. He further sought, as allowed by New York law, contributions to help pay the estate tax from several beneficiaries who received bequests under Sacks's will and his daughter and son-in-law, who had received a gift from Sacks before his death that was includible in his federal and state gross estate for estate tax purposes.

In 1994, Singer submitted, and the IRS accepted, an offer in compromise (OIC) of $1 million for all of Sacks's unpaid income tax liabilities. The surrogate's court allowed this amount to be withdrawn from Sacks's brokerage accounts to make the OIC payment. In 1999, the IRS filed an amended proof of claim with the surrogate's court, which included only the estate's outstanding estate tax liability and did not mention any income tax liability...