IRA Beneficiary Suffers Transferee Estate Tax Liability 12 Years After Form 706 Filed

by Charles (Chuck) Rubin
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Notwithstanding failing to assess estate tax against an IRA beneficiary wihin the Code §6901 four year transferee statute of limitations, in U.S. v. Maureen G. Mangiardi et al, the IRS was permitted to collect estate taxes under its estate tax lien more than 12 years after estate taxes were assessed.

FACTS: Joseph Mangiardi died on April 5, 2000. He died owning assets through a revocable trust of about $4.57 million and an IRA worth $3.85 million. Estate taxes were determined to be approxmately $2.47 million.

The estate received four years of payment extensions under Code §6161, claiming inability to pay due to reductions in the value of publicly traded securities from a declining market. Only $200,000 in estate taxes have been paid, and there are inadequate assets in the revocable trust to pay the estate taxes. The IRS now seeks to collect against Maureen Mangiardi as a transferee owner of IRA assets of the decedent under the 10 year estate tax lien of Code §6324, in an amount equal to the value of the IRA assets she received.

Maureen asserts two defenses. First, Code §6901 provides for the assessment and collection of taxes from a transferee with the same three year statute of limitations on assessment applicable to the estate under Code §6501, plus one extra year. Code §6901(c). The IRS did not assess taxes against Maureen within this period and never assessed under Code §6901. Instead, the IRS sought to collect the tax directly under the Code §6324 10 year estate tax lien against all gross estate assets. Maureen claimed that an assessment against her within the Code §6901 four year period was required. Unfortunately for her, other courts have previously held that the IRS can proceed to collect under Code §6324 without having to assess the transferee under Code §6901 (including one involving the same estate as the instant case, but which the court did not cite). These cases included Mangiardi , Joseph Est v. Com., 108 AFTR 2d 2011-6776 (2011, CA11), aff’g (2011) TC Memo 2011-24; United States v. Geniviva, 16 F.3d 522, 525 (3d Cir. 1994); Culligan Water Conditioning of Tri-Cities, Inc. v. U.S., 567 F.2d 867, 870-71 (9th Cir. 1978); United States v. Russell, 461 F.2d 605, 606 (10th Cir. 1972); U.S. v. Motosko, No. 8:12-cv-338-T-35-TGW, 2012 WL 2088739; United States v. Matzner, No. 96-8722-CIV, 1997 WL 382126.

Maureen also argued that the 10 year lien had expired by the time the IRS sought to collect from her. While more than 10 years had expired since assessment of the estate tax, the IRS countered that the 10 year lien period was extended by the four year extension of time to pay granted to the estate which extended the statute against the estate. The court nonetheless ruled that since Maureen’s liability, as a transferee, was derivative of the estate’s liability as transferor, the four year extension granted to the estate also extended the statute for collections against her, citing United States v. Kulhanek, 755 F. Supp. 2d 659 (W.D. Pa. 2010).

COMMENTS. The above result is bad for IRA and other beneficiaries for many reasons. First, it allows beneficiaries to be hit with estate taxes many years after death, and without knowledge that taxes were never paid and thus that the potential liability existed.

Second, this extended time period can be more than 10 years, since extensions granted to the estate extend this 10 year period. Presumably, if estate taxes are extended for 10 or 15 years under Code §6166, this extension can be tacked on to the 10 year estate tax lien period.

Lastly, it would appear that an IRA beneficiary is liable as a transferee for the full amount of IRA assets that are inherited. However, the IRA beneficiary really does not benefit by the full amount, since income taxes will have to paid by him or her on amounts withdrawn from the IRA. This is unfair – the beneficiary will be liable for more in estate taxes than the net amounts received from the IRA. While Code §691(c) may provide an income tax deduction for the estate taxes attributable to the IRA, mismatched tax years between deduction and income may void or limit the benefit of this deduction to the IRA beneficiary.

United States v. Maureen G. Mangiardi et al., No. 9:13-cv-80256 (USDC So.D.Fla.)

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Charles (Chuck) Rubin, Gutter Chaves Josepher Rubin Forman Fleisher P.A. | Attorney Advertising

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