CCA 200830001: More facts needed to assess estate tax liability of institution

Number

200830001

Outcome

Advice

Document type

Chief Counsel Advice

IRS subject

DECEDENTS ESTATES: Collection procedures: Liability of fiduciary

Topics

Income and deductions

Code sections

§ 2002, § 2203

Ruling dated

February 26, 2008

Publicly released

July 25, 2008

Source

View Official PDF

Apply this to your situation

This page covers legal advice the IRS Office of Chief Counsel wrote for IRS staff, issued in 2008, which can't be cited as precedent. Ask about your situation and see what the current Code and IRS guidance say, with citations.

Not precedent. Under 26 U.S.C. § 6110(k)(3), this written determination may not be used or cited as precedent. It is advice from the IRS Office of Chief Counsel to IRS personnel on the facts they presented, and identifying details were redacted by the IRS before release. The official IRS release (linked on this page as a PDF) is the authoritative source.

About this page: The plain-English summary and ruling snapshot below were written by Ezel based on the official IRS release. The full text is the IRS's own document.

View official IRS release (PDF)

Plain-English summary

Chief Counsel considered whether an institution that held a nonresident decedent's property could be personally liable for estate tax after transferring the property to the surviving spouse. The institution might count as a statutory executor under Internal Revenue Code section 2203, but that label alone does not establish liability under the separate federal insolvency statute, 31 U.S.C. § 3713. The advice explains that liability under that statute depends on the institution's role in controlling estate property and paying debts ahead of the government, among other facts. Because the case needed substantial factual development, Chief Counsel reached no conclusion on the institution's potential liability.

Ruling snapshot

Question: Could the institution be liable for unpaid estate tax after distributing the decedent's property?
Outcome: Advice given. The facts were insufficient to decide liability.
Key authorities: IRC §§ 2002, 2203; 31 U.S.C. § 3713; Treas. Reg. § 20.2002-1.

Full text (IRS public release)

Office of Chief Counsel
Internal Revenue Service
Memorandum
Number: 200830001
Release Date: 7/25/2008
CC:PA:BR5
GL-139529-07

UILC: 21.01.01-00

date: February 26, 2008
to: Jeffrey E. Gold, Associate Area Counsel, Washington, D.C.
CC:SB:2:WAS:1

from: Joseph Conley, Senior Technician Reviewer, Branch 5 (Procedure & Administration, CC:PA:Br5)

subject: Taxpayer

This Chief Counsel Advice responds to your request for assistance. This advice may not be used or cited as precedent.

LEGEND

Taxpayer (or Taxpayer’s Estate) ---------------------------------
Institution X
-----------------
Property A
------------------
Decedent
---------------------
Surviving Spouse
-------------------
Foreign Country 1
---------
Foreign Country 2
---------
Foreign Country 3
-------
U.S. state
----------------
account
---------------------------

ISSUES

Whether as a statutory executor under I.R.C. § 2203, Institution X is liable as a representative within the meaning of 31 U.S.C. § 3713 for the Decedent’s estate tax liability to the extent of the cash value of Property A it distributed to the Decedent’s surviving spouse.

GL-139529-07
2

CONCLUSIONS

This case requires substantial development, and for that reason, no conclusion can be reached now about Institution X’s potential liability under 31 U.S.C. § 3713. ---------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------

FACTS

To the extent they have been developed, the facts of this case are as follows. The Decedent was a nonresident alien. He is believed to have been a dual citizen of Foreign Country 1 and Foreign Country 2. At the time he died in Foreign Country 3, the Decedent owned an Institution X account in a United States state containing Property A.

Sometime after the Decedent’s death, his Surviving Spouse contacted Institution X to obtain the contents of the account. ---------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------

GL-139529-07
3

LAW AND ANALYSIS

The legal question in this case is whether a person who is a statutory executor under I.R.C. § 2203 can constitute a representative within the meaning of the Federal Insolvency Statute, 31 U.S.C. § 3713. 1 The statute is comprised of two sections. In pertinent part, section 3713(a) provides that the federal Government’s claim shall be paid first when the estate of a deceased debtor in the custody of an executor or administrator lacks sufficient assets to pay all the debts. This section applies the same rule to insolvent persons that make assignments for the benefit of creditors, commits acts of bankruptcy, or whose property is attached. Section 3713(b) contains the enforcement provision; it makes the representative of the deceased debtor (or the other insolvent persons described in section 3713(a)) who fails to pay the Government’s claim first personally liable for that claim to the extent of the funds paid to other creditors.

The relevant federal tax provisions involved in this issue are I.R.C. §§ 2002 and 2203 and Treas. Reg. § 20.2002-1. I.R.C. § 2002 provides that “[t]he tax imposed by [the federal estate tax provisions] shall be paid by the executor.” 2 In pertinent part, Treas. Reg. § 20.2002-1 elaborates on this principle in the context of estates of nonresident aliens lacking an executor or administrator and identifies the legal authority for an executor’s personal liability for the federal estate tax liability. 1 31 U.S.C. § 3713 provides:

(a)(1) A claim of the United States Government shall be paid first when—

(A) a person indebted to the Government is insolvent and— (i) the debtor … makes a voluntary assignment of property;
(ii) property of the debtor, if absent, is attached; or (iii) an act of bankruptcy is committed; or (B) the estate of a deceased debtor, in the custody of the executor or administrator, is not enough to pay all debts of the debtor.

(2) This subsection does not apply to a case under title 11.

(b) A representative of a person or an estate (except a trustee acting under title 11) paying any part of a debt of the person or estate before paying a claim of the Government is liable to the extent of the payment for unpaid claims of the Government.
2
I.R.C. § 2002 does not impose personal liability on the executor for the estate tax liability. Occidental Life Insurance v. Commissioner, 50 T.C. 726 (1968), and Garrett v. Commissioner, T.C. Memo. 1994-70.

GL-139529-07
4

The Federal estate tax imposed … [on] estates of nonresidents not citizens is payable by the executor or administrator of the decedent’s estate. … If there is no executor or administrator appointed, qualified and acting in the United States, any person in actual or constructive possession of any property of the decedent is required to pay the entire tax to the extent of the value of the property in his possession. See section 2203, defining the term “executor.” The personal liability of the executor or such other person is described in section 3467 of the Revised Statutes (31 U.S.C. § 192) … . 3

I.R.C. § 2203 defines executor with a significant qualification as follows:

The term ‘executor’ wherever it is used in this title in connection with the estate tax … means the executor or administrator of the decedent, or if there is no executor or administrator appointed, qualified, and acting with in the United States, then any person in actual or constructive possession of any property of the decedent. (Emphasis added.)

In a case similar to the known facts of the Taxpayer’s account – Institution X transfer, the Tax Court considered whether an I.R.C. § 2203 statutory executor fit within the category of persons who could be held liable under the Federal Insolvency Statute. In Occidental Life Insurance v. Commissioner, 50 T.C. 726 (1968), the decedent was a resident and citizen of Canada, who sold insurance policies for Occidental. After the decedent’s death, Occidental held commissions earned on insurance policies that the decedent had sold during his employment. There was no executor or administrator qualified in the United States to represent the decedent’s estate, although the decedent’s spouse and children were the Canadian executors. Occidental turned over the decedent’s commissions to the Canadian executors. The Service asserted liability against Occidental for the portion of the estate tax liability that equaled the assets turned over, and argued that Occidental’s status as a statutory executor under I.R.C.
§ 2203 brought it within the group of persons liable under the Insolvency Statute, then codified as 31 U.S.C. §§ 191 and 192. 4

3
31 U.S.C. §§ 191 and 192 were prior statutory designations of the Federal Insolvency Statute.
4
At that time, 31 U.S.C. § 192 provided:

Every executor, administrator, or assignee, or other person, who pays, in whole or in part, any debt due by the … estate … for which he acts before he satisfies and pays the debts due to the United States from such … estate, shall become answerable in his own person and estate to the extent of such payments for the debts so due … and unpaid … . (Emphasis added.)

In 1982, the Insolvency Statute was redesignated and revised. Specifically, the phrase “executor, administrator, or assignee, or other person” was replaced with the phrase “representative of a person or an estate.” The historical and statutory notes to this code section indicate that the change was made for clarity and to eliminate unnecessary words. No authority indicates Congress intended this change to

GL-139529-07
5

In a full Tax Court opinion, the court held that the plaintiff’s status of statutory executor under I.R.C. § 2203 did not make it an executor for purposes of 31 U.S.C. § 192. The court reasoned that the definition of executor in I.R.C. § 2203 is specifically limited to Title 26, and therefore is immaterial for purposes of the Insolvency Statute. The court cited the principles set forth in King v. United States, 379 U.S. 329 (1964) for determining who should be included in the class of persons subject to liability under the Insolvency Statute. In King, the Supreme Court held that the Insolvency Statute applies to persons who are not only in possession and control of property of an estate (or of an insolvent person) but who are also charged with the duty of applying that property to pay the estate’s debts consistent with the creditor’s rights and priorities. The Tax Court concluded that Occidental’s role and actions did not fit that description. The court further noted that Occidental’s actions did not meet another requirement for liability under that provision. Specifically, in turning over the decedent’s commissions to the Canadian executor, Occidental merely paid its own debt to the decedent’s estate. It did not pay an estate debt to a third party in derogation of the United States’ claim, which is the conduct the Insolvency Statute targets. 5 ---------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------

---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------

broaden or restrict the group of persons liable under the statute. Therefore, cases interpreting the pre- 1982 codification are relevant to the current discussion. 5 Further, the Tax Court found that Occidental had no notice of the estate’s tax debt to the United States. While knowledge of the debt is not an explicit requirement in the Insolvency Statute, courts have uniformly held that liability under that statute can only apply to persons who knew or should have known about the debt owed to the Government. Want v. Commissioner, 280 F.2d 777 (2d Cir. 1960).

GL-139529-07
6

---------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------
---------------------------------------------------------

CASE DEVELOPMENT, HAZARDS AND OTHER CONSIDERATIONS

This writing may contain privileged information. Any unauthorized disclosure of this writing may undermine our ability to protect the privileged information. If disclosure is determined to be necessary, please contact this office for our views.

GL-139529-07
7

Please call (202) 622-3630 if you have any further questions.

--------------------------------------------------------------------------

What does the Code say today, for your facts?

This advice was written for IRS staff and cannot be cited. Ezel checks the current Internal Revenue Code and IRS guidance against your situation, with citations.

Opens in Ezel Pro.

Checks the law as it stands today, not only this page
Cites every source it relies on, so you can verify it
Chat, drafting and research in one workspace