The U.S. District Court for the Eastern District of New York abstained from jurisdiction in a claim by the government to collect estate taxes because the ultimate resolution depended on the application of state law in a quiet title action pending in state court. In July 1991, the IRS made a tax assessment against an estate for estate tax due plus penalties and interest. In August 1995, an installment agreement was executed by the estate because the estate had no liquid assets to provide for payment of the liability. Under the agreement, the estate agreed to pay the estate tax liability by making monthly payments. In June 2005, the executrix of the estate died and the estate defaulted on the installment payments. Accordingly, the IRS issued a notice requiring immediate payment of the outstanding balance due, demanding payment within 30 days of the date of the letter and indicating that the IRS had filed appropriate Notices of Federal Tax Liens to protect the government's interest.
The wrinkle here is that, although the two properties that were subject to the liens are owned presently by the estate in fee simple, the executrix, in her individual capacity, had already commenced an action against the government in the Supreme Court of the State of New York alleging that any claims to, or liens against, the properties that the government may make are invalid and of no force and effect because the government and the IRS were time-barred from asserting said claims or liens. The executrix, in her individual capacity, was seeking to quiet title to the premises, indicating that she was the lawful owner.
Accordingly, in light of: (1) the fact that the parties' dispute involved property over which the state court had assumed jurisdiction; (2) the duplicative nature of the two proceedings; (3) the likelihood of piecemeal litigation and the waste of federal judicial resources if both actions were to proceed; (4) the government's failure to remove the quiet title action to federal court; (5) the fact that the quiet title action was commenced more than two years prior to the assessment action and has been litigated actively; and (6) the need to apply state law to ultimately determine the outcome of the government's claim, the court exercised its discretion to abstain from jurisdiction and dismissed the action without prejudice.