Unpaid Tax At Death – How Long Does IRS Have To Collect?

Overview

Upon death, the typical process is for someone to be appointed to handle the administration of the decedent’s estate.  Once the administrator is appointed, a court-governed process is set in motion that includes providing notice to known and unknown creditors of the estate by means of publishing notice and providing actual notice to known creditors or those that could reasonable be determined to be creditors.  Once notice is provided, the creditors have only a few months (usually less than six) to present their claims against the estate for payment.

Does that same timeline on presenting claims apply to the IRS?  The ability of the IRS to collect on an unpaid tax claim against a decedent’s estate – that’s the topic of today ‘s post.

Claim Procedure

As an example, Kansas law specifies that “[E]very petitioner who files a petition for administration or probate of a will shall give notice thereof to creditors, pursuant to an order of the court, and within 10 days after such filing.  K.S.A. 59-709(a).  The notice is to be “to all persons concerned” and shall state the filing date of the petition for administration or probate of a will.  The notice must be published three consecutive weeks and is to be actually be given to “known or reasonably ascertainable creditors” (those discovered by searching reasonably available public records) before expiration of the four-month period for filing claims.  K.S.A. 59-709(b). Mere conjectural claims are not entitled to actual notice. Impracticable and extended searches for creditors are not required. If proper notice is not given, the personal representative and the heirs may be liable.

Timeframe For Filing Claims

As noted above, under Kansas law, the creditors have a four-month period to file their claims.  That four-month timeframe runs from the time that notice is first published to creditors.    However, with respect to the IRS, it has a 10-year collection period that runs from the date it assesses tax.  I.R.C. §6502(a)(1).  This provision says that the IRS can collect the unpaid tax by either levy or by a court proceeding begun within 10 years after the tax is assessed. 

Recent Case

The ability of the IRS to collect unpaid tax from a decedent’s estate and the application of the 10-year statute was at issue in a recent case.  In United States v. Estate of Chicorel, No. 17-2321, 2018 U.S. App. LEXIS 30069 (6th Cir. Oct. 25, 2018), the IRS was seeking to collect on an income tax assessment that it had made more than 10 years earlier. Under the facts of the case, the IRS assessed tax of $140,903.52 on September 12, 2005 for the 2002 tax year.  The tax didn’t get paid before the decedent died in the fall of 2006.  In early 2007, the decedent’s nephew was appointed the estate's personal representative, and he published a notice to creditors (in accordance with Michigan law) of the four-month deadline for presenting claims.  However, he did not mail the notice to the IRS even though he knew of the unpaid tax liability.  In early 2009, the IRS filed a proof of claim in the ongoing probate proceeding.  The nephew didn’t respond, and the IRS filed a collections proceeding in early 2016 attempting to reduce the 2005 tax assessment to judgment.  The estate claimed that the claim was filed too late, but the trial court held that the filing in 2009 of the proof of claim was a “court proceeding” as required by I.R.C. §6502(a)(1).  Thus, because it was filed within 10 years from the date the tax was assessed, the IRS could collect the tax outside the 10-year window. 

On appeal, the appellate court affirmed.  The appellate court noted that whether a proof of claim is a "proceeding in court" is a question of federal law that turns on the nature, function, and effect of the proof of claim under state law. See United States v. Silverman, 621 F.2d 961 (9th Cir. 1980); United States v. Saxe, 261 F.2d 316 (1st Cir. 1958).  That meant that the appellate court had to look at how Michigan treated the filing of a proof of claim  in a probate proceeding and whether it qualified as a “court proceeding” under I.R.C. §6502(a).   The appellate court noted that the nature, function, and effect of a proof of claim in Michigan had significant legal consequences for the creditor, the estate, and for Michigan law generally.  Because of this, the appellate court held that the filing of the proof of claim qualified as a proceeding in court under I.R.C. §6502(a).  The appellate court noted that the Michigan probate code specifies that "[f]or purposes of a statute of limitations, the proper presentation of a claim . . . is equivalent to commencement of a proceeding on the claim."  Mich. Comp. Laws. §700.3802(3).  Thus, the filing of the proof of claim not only tolled the statute of limitations, it constituted a “proceeding” that required the decedent’s estate to take action – either providing notice that the claim is disallowed or allowed.  The filing of the proof of claim started a process whereby the claim would eventually be dealt with one way or the other.   The appellate court also noted that the executor failed to give actual notice to the IRS to present its claim because it was a known creditor of the estate.  That failure excused the IRS from filing the claim within the four-month window after notice was first published and extended that deadline to three years from the date of the decedent’s death.  Thus, the IRS had timely filed its proof of claim. 

The appellate court also determined that the filing of the proof of claim was timely under I.R.C. §6502(a).   That statute, the court held, is satisfied once the government started any timely proceeding in court.   Because that requirement was satisfied, the IRS has an unlimited amount of time to enforce the assessed tax.  The appellate court noted that I.R.C. §6502(a) focuses on the ability of the IRS to collect assessments.  While it does not permit the IRS to let an assessed tax lie dormant and then attempt to collect the tax way at some far off future date, once a timely collection action has been filed, the IRS can collect the tax beyond the 10-year timeframe.  See United States v. Weintraub, 613 F.2d 612 (6th Cir. 1979).  The appellate court noted that the IRS filed its proof of claim in 2009 which was well within the 10-year limitations period for the 2005 assessment.  That filing constituted a “proceeding in court” under I.R.C. §6502(a) in satisfaction of that provision’s 10-year requirement.  There was no further time bar on the ability of the IRS to collect.  The is not requirement that a “judgment” be reached in the proceeding within that 10-year time frame, and the ability of the IRS to collect did not expire until the tax liability is satisfied or becomes unenforceable. 

Conclusion

While in just about every situation a creditor must present its claim against a decedent’s estate within a short time-frame post-death, the rules governing the ability of the IRS to collect on an unpaid tax liability from a decedent’s estate are different.  Once the IRS timely files its claim in the probate proceeding, it remains a creditor until the tax is paid.  It also may not be barred by state law statute of limitations if it doesn’t timely file a claim against an estate.  See, Board of Comm'rs of Jackson County v. United States, 308 US 343 (1939); United States v. Summerlin, 310 US 414 (1940) .   

Is the executor personally liable for the tax?  Perhaps. But, I.R.C. §6905(a) does provide a procedure for the executor to escape personal liability if doing so would not impact the liability of the decedent’s estate.

Just another one of the quirks about tax law and the IRS.  It’s helpful to know.  As Benjamin Franklin stated in 1789, “In this world nothing can be said to be certain, except death and taxes.”