Gifts of Property and Estate Taxes
- Created: Thursday, 11 June 2015 15:45
by Kelli Madigan, Shareholder
A transferee of property of a donor or a decedent is liable for the gift or estate taxes which have accrued on account of such transfers. If the gift tax is not paid when due, the donee of any gift is personally liable for the tax to the extent of the value of the gift according to IRC Section 3624(b) and IRC Regulation 301.6364-1(b). A lien automatically attaches on the gift property. That lien last for 10 years from the date of the gift. IRC Section 6324(b). If the donee is liable for gift tax under this provision, the IRS is empowered by the transferee statute (IRC Section 6901) to proceed against the donee with the same collection methods that it could use against the donor. Thus, it need not assess the liability against the transferee or issue a notice of transferee liability prior to undertaking any collection efforts, include levy or seizure.
The lien, however, is a lien for an absolute 10 year period from the date of the gift. It is not a statute of limitations on the filing of a foreclosure action or other collection activity against the transferee. Once the 10 years have passed, the lien has lapsed. This does not mean that the transferee may not still be liable for the tax and that the IRS could not pursue other foreclosure action, it simply means that the statutory lien is not available for the IRS to foreclose upon without some other collection activity.
Likewise, the estate tax imposed by virtue of the death of an individual is a lien upon the gross estate of the decedent for 10 years from the date of the decedent’s death until such time as the tax is paid or becomes unenforceable by reason of lapse of time. The lien does not attach to any part of the gross estate used for the payment of charges against the estate and expenses of its administration allowed by any court having jurisdiction over the estate.
Under IRC Section 6324(a)(2), the spouse, transferee, trustee, surviving tenant, person in possession of the property or beneficiary who receives the decedent’s property can be personally liable for any unpaid estate tax. Any property transferred by the recipient to a purchaser or holder of a security interest shall be divested of the lien and the lien shall then attach to the property of the recipient. IRC Section 6324(a)(2). See United States v. Geniviva, 16 F.3d 522, 523 (3d Cir. 1994), where the Tax Court held that an individual assessment under IRC Section 6901 was not a prerequisite to an action to impose transferee liability under IRC Section 6324. Consequently, the children of a decedent were held liable for back taxes, interest and fraud penalties, even though they already received distributions from the estate and were unaware that the estate taxes were unpaid by executor of the estate.
Kelli Madigan is a shareholder with Mathis, Marifian & Richter’s (MM&R) Belleville, Illinois office, who focuses her practice in business law, estate planning, taxation, real estate and banking.