Personal Representative Who Relied on Attorney Was Not Liable for Estate's Unpaid Taxes.

• Author: Fiore, Nicholas J.

In 1989, C died. Because C had no close family members, his friend T agreed to act as personal representative for C's estate. T had had no prior experience in estate administration. T hired an attorney (L) to provide legal services regarding the estate's administration.

In 1989, T paid the estate's debts. Early in 1990, T received Forms W-2 and 1099, which indicated that C had income in 1989 and 1990. T forwarded these to L, who repeatedly advised T that, because of the size of the estate, no taxes were due.

In 1992 and 1993, the IRS mailed letters addressed to C, proposing income tax deficiencies for 1989 and 1990, respectively. T passed these letters on to L, who continued to advise T that the estate was not liable for any Federal taxes.

In May 1993 (prior to closing the estate), L hired a CPA (D) to review the estate's administration. D discovered that certain income tax returns had not been prepared and filed for C or his estate. D reconstructed the available information and filed the necessary returns (without payment) in September. D also informed T and L of the unpaid income tax liabilities. After this, T's only disbursements were to pay debts that had priority over those due the U.S.

In November 1993, T submitted a Form 656, Offer in Compromise, to the Service; it was not accepted. L and D then had a series of meetings with the IRS; as a result, they believed they had negotiated a final resolution. L and D informed T that the matter had been resolved with the Service. L then advised T that there was no tax liability to be paid by the estate, and that it was appropriate for T to pay out the remaining funds and close the estate. T did so.

In 1997, the IRS determined that T was liable for income taxes and additions due from C's estate, under 31 USC Section 3713(b). T challenged this assessment, and the Tax Court (opinion Ruwe, J.) holds for T.

The IRS argues that, under 31 USC Section 3713(b), T is personally liable for the estate's unpaid income tax liabilities. Title 31 USC Section 3713 provides:

Section 3713. Priority of Government claims.

(a)(1) A claim of the United States Government shall be paid first when--

(B) the estate of a deceased debtor, in the custody of the executor or administrator, is not enough to pay all debts of the debtor.

(b) 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...