Decedent was survived by four children, two of whom were the personal representatives of her estate. The fiduciaries elected to defer a portion of the estate taxes under IRC Section 6166. Soon after, they distributed her assets to the beneficiaries, who each agreed in writing to bear responsibility for unpaid estate taxes.
A few years later the relevant corporation went bankrupt. The next year the estate defaulted on unpaid estate taxes. The IRS then attempted to collect the taxes both from the personal representatives and all beneficiaries.
The Court concluded that the beneficiaries were not liable because Code Section 6324(a)(2), which imputes personal liability to the Decedent’s transferees, did not apply to the beneficiaries because they did not receive the assets immediately upon death. They were only entitled to assets after certain gifts were made and all taxes were paid. The Court concluded that the immediate transferees were the Trustees of the family trust which received the assets under the decendent’s Will.
The Court also held the personal representatives personally liable under the claims statute for distributing assets before estate taxes were paid. The contribution agreement did not change this conclusion because this was treated as a contract between the personal representatives and the beneficiaries, which agreement did not affect the IRS.