United States v. Shriner (113 AFTR2d 2014-616 (March 12, 2014))
The District Court for the District of Maryland granted the government's motion for summary judgment and ruled that the administrators of an estate were personally liable for the decedent's unpaid income taxes because the administrators distributed the assets of the estate and rendered it insolvent while there was a debt outstanding.
The decedent failed to file income tax returns for 1997 and the period of 2000 through 2003. When decedent died, the administrators filed income tax returns on behalf of the decedent, and the Service assessed tax liabilities of $27,908 against the Estate. The administrators also filed a Form 2848 (power of attorney) authorizing the Service to send all notices to the law firm handling the estate administration. The Service sent numerous notices regarding the outstanding liabilities to the law firm.
The administrators (who were also beneficiaries) distributed the Estate and left the Estate without sufficient assets to pay the income tax liabilities. The administrators denied that they had actual or constructive knowledge of the debts, but the Court ruled that this denial was insufficient to establish a genuine issue of material fact to defeat the motion for summary judgment. The court discussed Section 3713 of Title 31 of the United States Code, which provides that a representative of a person or an estate will be liable for unpaid claims to the government if (i) they distributed assets out of the estate, (ii) the distribution rendered the estate insolvent, and (iii) the distribution took place after they knew, or should have known, about the government's claim.
In summary, the administrators of an estate can be personally liable for a decedent's debts to the government if they distribute assets out of an estate, rendering the estate insolvent, when they know or should know that there is an outstanding claim against the estate.