IRC Section 7122
The United States Court of Appeals for the Third Circuit in Estate of Kwang Lee, Deceased, Anthony J. Frese, Executor v. Comm’r of Internal Revenue, Case No. 21-2921 handed down an opinion on August 23, 2022 in which the Court ruled that the denial of an Offer in Compromise for estate taxes by the IRS was appropriate and that the Executor could be held personally liable for non-payment of the Estate taxes. The decedent in this matter passed away many years ago – in 2001. The Executor, Anthony J. Frese miscalculated the estate tax on the estate and ultimately received a notice of deficiency in 2006 and a formal deficiency from the IRS in 2010. However, between 2004 and 2010, the Executor distributed over $1 million in assets to the beneficiaries, including $640,000 after receiving the notice of deficiency. The Estate filed an Offer in Compromise and tried to settle for the remaining assets of the estate. The IRS rejected the Offer, arguing that their reasonable collection potential was higher than what was offered, in part because IRC section 3713(b) allows the government to hold the executor personally liable when the executor transfers property before satisfying a known estate tax. As such, the argument by the estate that the IRS Office of Appeals had abused its discretion in denying the Offer based on payment of the remaining assets of the estate, fails.