Beneficiary and Fiduciary Liability for Income, Gift and Estate Taxes

It might be either a blessing or a curse to be appointed as the Personal Representative of an house or Trustee of the trust (collectively a “Fiduciary”). 1 of the most over looked areas of the job is the fact that the U. S. Authorities has a “general taxes lien” on all real estate and trust property when a decedent leaves examined and unpaid taxes and a “special tax lien” for estate taxes on a decedent’s death. Because a result, when counseling a Fiduciary on the estate and trust government process it is important to inform them that with the responsibility also comes the potential for personal liability. Accountant In Kingsford

On many occasions a Fiduciary may be positioned into a position where assets completing outside the probate house (life insurance, jointly placed property, retirement accounts, and pension plans) or trust, that they have no control, constitute a substantive portion of the resources (real property, stocks, cash, etc. ) subject to estate taxation. Without the ability to direct or assume charge of the resources the Fiduciary may have both a liquidity problem and not enough means to gratify the estates taxes (income or estate) responsibility. For this reason by itself, a Fiduciary should be very reluctant to disperse any funds to a beneficiary before all prescription of limitation periods terminate for the Internal Earnings Service (“IRS”) to evaluate a tax deficiency.

Legal responsibility for Income and Real estate Taxes:

Internal Revenue Code (“IRC”)? 6012(b) holds a Fiduciary accountable for filing the decedent’s final income and estate taxation statements. IRC? 6903(a) further establishes a Fiduciary’s responsibility for addressing the estate in all of the duty matters after filing the required Notice Concerning Fiduciary Relationship (IRS Form 56). Under IRC? 6321, when the tax is not paid an IRS mortgage will spring into being. When an estate or trust possesses insufficient resources to pay all the debts, federal law requires the Fiduciary to first meet any federal taxes deficiencies before any other debt (31 U. H. C.? 3713 and IRC? 2002).

A Fiduciary who fails to stick to this requirement will subject themselves to personally liability for the amount of the unpaid tax deficiency (31 U. S. C.? 3713(b)). Very arises when an individual has obtained an interest in the exact property that would prevail over the federal tax lien under IRC? 6323 (United Areas v. Estate of Romani, 523 U. S. 517 (1998)). When there are insufficient estate or trust assets to pay a federal tax obligation, consequently of the Fiduciary’s activities, the IRS may accumulate the tax obligation immediately from the Fiduciary without regard to transferee legal responsibility (United States v. Whitney, 654 F. 2d 607 (9th Cir. 1981)). In the event that the IRS determines a Fiduciary to be in person liable for the taxes deficiency it will be required to follow normal deficiency procedures in examining and collecting the duty (IRC? 6212).