CCA 1129037: Estate tax liens and transferee liability for probate and non-probate assets

Plain-English summary

Chief Counsel Advice collected authorities on two estate-tax questions. It addressed whether personal liability under section 6324(a)(2) is limited to transferees of non-probate property and whether the special estate-tax lien remains on probate property after a sale to a good-faith purchaser. The authorities discussed when liens attach, how transferee liability may be assessed, and when a purchaser receives protection. The memorandum states that a probate-property purchaser generally is not protected from the lien unless the Code specifically provides protection, while non-probate property is treated differently under section 6324(a)(2).

Ruling snapshot

• Question: How sections 6324(a)(2) and 6324(a)(1) apply to non-probate transferees and purchasers of estate property.
• Outcome: Advice given.
• Key authorities: IRC §§ 2033-2042, 2204, 6321-6324, 6432(a)(2), and 6901; Rev. Rul. 69-23.

Full text (IRS public release)

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ID: CCA_2011061615265746 Number: 201129037
Release Date: 7/22/2011
Office: --------------
UILC: 6324.01-00

From: --------------------
Sent: Thursday, June 16, 2011 15:26:58
To: -------------------------------------------
Cc: -------------------
Subject: Authorities

Dear ----------------------

Following up on my telephone conversations with --------- and in advance of our
teleconference tomorrow morning, here is authority to support two of the positions I
explained: (1) that IRC § 6432(a)(2) imposes personal liability only on transferees who
receive non-probate property (i.e., property that's included in the decedent's estate by
operation of IRC §§ 2034-2042, inclusive); and (2) that the special estate tax lien
imposed by IRC § 6324(a) is unaffected by a sale to even a good-faith purchaser. Note
that since personal liability only attaches to non probate property, and only that property
results in a like lien on transfer, where there's no non-probate property, there can't be
any like lien.

I've attached copies of these authorities, but to whet your appetite, I'll include the
pertinent quotes here. I'm looking forward to our conversation tomorrow, and I hope this
information is helpful.

Best,

Issue 1: IRC § 6324(a)(2) is limited to non-probate assets only:

1.

              The special lien for estate and gift taxes created by section 6324(a) does
              not have to be recorded in order to be effective. United States v. Vohland,
              675 F.2d 1071 (9th Cir. 1982).

  *****

              The personal liability of a transferee under section 6324(a)(2), however,
              extends only to those who have received assets of a decedent's estate
              which are includable for Federal estate tax purposes under the provisions

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         of sections 2034 to 2042, inclusive (broadly speaking, assets which pass
         outside the decedent's probate estate).

Eggleston v. Commissioner, T.C. Memo 1985-327 (1985), citing Street v. United States,
310 F. Supp. 657 (S.D. Tex. 1969).

2.

         Section 6324(a)(2) states that where property is included in the gross
         estate pursuant to sections 2034 through 2042, the transferee of the
         property (such as a surviving joint tenant or remainderman beneficiary)
         automatically becomes personally liable for the estate tax to the extent of
         the date of death value of the property received. Such a person is also
         considered a transferee under section 6901(h), thereby permitting the
         liability created by section 6324(a)(2) to be assessed and collected
         according to the rules specified in section 6901. Thus, substantive
         transferee liability with respect to nonprobate assets is ordinarily supplied
         by section 6324(a)(2), making an examination of state law unnecessary.
         See Schuster v. Commissioner, 312 F.2d 311, 314-316 (9th Cir. 1962),
         affg. 32 T.C. 998 (1959) and revg. on another issue 32 T.C. 1017 (1959);
         Groetzinger v. Commissioner, 69 T.C. 309, 316-317 (1977); Bergman v.
         Commissioner, 66 T.C. 887, 892 (1976).

Magill v. Commissioner, T.C. Memo. 1982-148, affd. sub nom Magill v. Commissioner,
729 F.2d 496 (7th Cir. 1984)

3.

         Section 6324(a)(2) gives the government a lien for unpaid estate taxes
         over property held by transferees of property "included in the gross estate
         under sections 2034 to 2042, inclusive . . . ." Those sections govern
         various forms of nonprobate property that is subject to estate tax despite
         the fact that it need not pass through probate. See 26 U.S.C. § 2034
         (dower or curtesy interests); 26 U.S.C. § 2035 (gifts made within three
         years of death); 26 U.S.C. § 2036 (transfers with a retained life estate); 26
         U.S.C. § 2037 (transfers that take effect at death); 26 U.S.C. § 2038
         (revocable transfers); 26 U.S.C. § 2039 (annuities); 26 U.S.C. § 2040
         (joint interests); 26 U.S.C. § 2041 (powers of appointment); 26 U.S.C. §
         2042 (proceeds from life insurance). In this case, the partnership interest
         to which the lien was attached does not even arguably fall within any of
         the types of property governed by §§ 2034-42, but is, rather, governed by
         26 U.S.C. § 2033, which applies to probate property. Accordingly, the
         provisions of 26 U.S.C. § 6324(a)(2) simply do not apply.

Beaty v. United States, 937 F.2d 288, 291 (6th Cir. 1991)

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4.

         26 U.S.C. § 6324(a)(1) provides for a federal tax lien upon the gross
         estate of a decedent for ten years after the date of death. Id. In this case,
         the federal estate tax lien expired on October 25, 2003. However, 26
         U.S.C. § 6324(a)(2) also imposes personal liability for any unpaid federal
         estate tax on a trustee or a transferee who receives, or has on the date of
         the decedent's death, property included in the gross estate under 26
         U.S.C. §§ 2034 to 2042, to the extent of the value, at the time of the
         decedent's death, of such property. See 26 U.S.C. § 6324(a)(2); 26 C.F.R.
         § 301.6324-1. The personal liability provided for in 26 U.S.C. § 6324(a)(2)
         applies only to the beneficiaries of non-probate assets. See 26 U.S.C. §
         6324(a)(2); see also Roe v. Farrell's Estate, 69 Ill. 2d 525, 372 N.E.2d
         662, 14 Ill. Dec. 466 (Ill. 1978) (federal estate tax is imposed on transfer of
         taxable estate as a whole; if a decedent's probate assets are insufficient to
         satisfy federal estate tax, persons holding non-probate assets, included by
         law in federal gross estate, are liable to the extent of the value of those
         assets, and the tax becomes a lien against those assets if the tax is not
         satisfied in full).

         Personal liability, assessed pursuant to 26 U.S.C. § 6324(a)(2), may be
         asserted without a transferee assessment under 26 U.S.C. § 6901, and
         after the expiration of the ten year estate tax lien provided for in 26 U.S.C.
         6324(a)(1), since the period of limitations in which to assert this liability in
         federal district court is measured by the collection limitations period
         applicable to the transferor estate. See United States v. DeGroft, 539
         F.Supp. 42 (S. Md. 1981); see also United States v. Geniviva, 16 F.3d 522
         (3rd Cir. 1994) and United States v. Russell, 532 F.2d 175 (10th Cir. 1976)
         (both holding that transferee assessment limitations provision contained in
         26 U.S.C. § 6901(c) is not applicable to, nor a bar to pursuing, the 26
         U.S.C. § 6324(a)(2) personal liability of a non-probate property holder or
         transferee in federal district court and that a transferee assessment
         pursuant to 26 U.S.C. § 6901 is not a prerequisite to such an action);
         United States v. Botefuhr, 309 F.3d 1263 (10th Cir. 2002) (the ten years
         lien in the parallel 26 U.S.C. 6324(b) gift tax provision does not create a
         statute of limitations for collecting gift taxes from the personally liable
         donee-transferees).

United States v. Bevan, 2008 U.S. Dist. LEXIS 102939, 15-17 (E.D. Cal. 2008)

Issue 2: Absent a discharge, the IRC § 6324(a)(1) lien remains on estate property,
even after it's sold to BFP/V; caveat emptor:

1.

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         The question is whether a purchaser, holder of a security interest,
         mechanic's lienor, or judgment lien creditor who acquires an interest in
         property includible in the gross estate of a decedent under section 2033 of
         the Internal Revenue Code of 1954 (often referred to as "probate
         property") is protected against the Federal estate tax lien imposed by
         section 6324 (a) (1) of the Code in a case where the Government has not
         filed the notice of lien referred to in section 6323 (a) of the Code.

         *****

         Therefore, a purchaser, holder of a security interest, mechanic's lienor, or
         a judgment lien creditor who acquires an interest in property includible in
         the gross estate of a decedent under section 2033 of the Code is not
         protected against the Federal estate tax lien imposed by section 6324 (a)
         (1), except as such protection may be specifically provided in section 6324
         of the Code.

Rev. Rul. 69-23; 1969-1 C.B. 302

2.

         Section 6324(a)(2) provides that upon the transfer of non-probate property
         to a purchaser, the property is divested of the Federal estate tax lien. See
         Rev. Rul. 69-23, 1961-1 C.B. 302 (1969). See also United States v.
         Vohland, 675 F.2d at 1075. The property at issue, however, was part of
         Esther Sousa's probate estate. Property which is part of the probate estate
         is divested of the Federal lien upon transfer to a subsequent purchaser
         only if the estate's fiduciary is discharged from personal liability pursuant
         to I.R.C. § 2204 (1970). See I.R.C. § 6324(a)(3) (1976), Rev. Rul. 69-23,
         1969-1 C.B. 302 (1969). See also United States v. Vohland, supra at
         1075.

Fall River Sav. Bank v. Callahan, 18 Mass. App. Ct. 76, 80 (Mass. App. Ct. 1984)

3.

         26 U.S.C. § 6324(a)(1) provides that, if the estate tax is not paid (or
         otherwise discharged by the passage of time) "it shall be a lien upon the
         gross estate of the decedent for 10 years from the date of death . . . ." The
         special estate tax lien differs from the § 6321 general tax lien in two
         important respects. In one respect, the estate tax lien is stronger than the
         general tax lien. Under 26 U.S.C. § 6323(a), the general tax lien is not
         good against bona fide purchasers or other interest-holders unless the
         government perfects its interest by filing in the manner prescribed by 26
         U.S.C. § 6323(f). The estate tax lien, by contrast, attaches to the property
         by operation of law and does not require filing to be good against innocent

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         third parties. The estate tax lien is, however, weaker in that it lasts for ten
         years, while the general tax lien has no set duration--it lasts until the
         underlying tax is either paid or becomes unenforceable by lapse of time.
         26 U.S.C. § 6322.

Beaty v. United States, 937 F.2d 288, 290 (6th Cir. 1991)