IRS Waives Right to Challenge Probate Distribution

Want proof of the certainty of death and taxes? Even the IRS can’t escape the jurisdiction of probate court…

The federal insolvency statute, 31 USC § 3713(b), imposes personal liability on a fiduciary or representative of an insolvent estate if the fiduciary has knowledge of a federal tax debt and pays other debts before paying the priority tax claims.  Generally, the executor of an estate who violates the federal insolvency statute would be personally liable for the incorrect payment.  But, a recent IRS Chief Counsel Advice Memorandum explains how the IRS’s rights and obligations interact with probate proceedings.

In this case, the IRS participated in state probate proceedings by filing its claim in the probate court. Because it had made an appearance in the probate proceedings, the IRS subsequently received notice of the incorrect distribution to the junior creditor, and the IRS did not object to the distribution in front of the probate court.  The IRS Chief Counsel reasoned that because the IRS had notice and the opportunity to object, it likely waived its right to challenge the incorrect payment. The upshot of this determination is that IRS officials are advised either to participate fully in probate proceedings or not participate at all.

Post by:  Jillian Mastroianni
Jillian provides trust, estate, and tax-planning services. To subscribe to legal news updates from Jillian, click here.

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