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Wednesday, January 18, 2006


Assume that you are the personal representative/executor of the estate of a deceased friend or relative. Assume further that the estate does not have enough assets to pay off all of its creditors, including both the IRS for federal taxes and the state and local government for other taxes. On behalf of the estate, you pay the state and local government taxes, and then the IRS gets paid what is left.

Is there a problem here? You betcha. Generally speaking, the federal taxes take precedence over the local taxes. Under the federal claims statute, you have exposed yourself to personal liability for paying the local taxes, and thus reducing the amount that the IRS can get paid. This is personal exposure to you, even though you didn't personally profit from the payment, since the payment went to the state and local governments.

In recognition of the unfairness of (a) a personal representative/executor being held liable for taxes that are not taxes of the personal representative/executor, (b) especially when the personal representative/executor did not personally profit from the payment of the taxes to the state and local governments, and (c) the personal representative/executor not even knowing they had such a liability before making the state and local tax payments, the IRS would not really hold the personal representative/executor liable for the unpaid federal taxes, would it? You bet it would.

See U.S. v. IRBY, 97 AFTR 2d 2006-XXXX, (DC AL), 12/21/2005, for a recent case where the IRS imposed this liability on the unfortunate personal representatives/executors.

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