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Beneficiaries may not realize that their inheritance comes with strings attached by the IRS. For example, if an estate does not pay the tax it owes, the federal government automatically has a personal lien against any beneficiary who receives property from the estate. IRC § 6324(a). This is true whether or not the beneficiary is aware of the deficiency. The lien is enforceable for at least ten years from the date of decedent’s death and the IRS may collect an amount up to the full value of the inheritance (regardless of whether a beneficiary actually received less money, which could be the case, for example, if the beneficiary owed income tax incident to the inheritance).
Ten years may seem like a long time to be on the hook, but the period may be even longer. If the estate is granted time extensions for payment, then the beneficiary’s potential liability period is similarly increased. For example, in United States v. Mangiardi (US District Court Southern District of Florida (July 22, 2013)), the IRS was permitted to collect from Ms. Mangiardi, a beneficiary of her father’s Estate, more than thirteen years after her father’s passing. The Estate had over $3 million in unpaid taxes, which it could not pay. The period for collection was increased above ten years because Mangiardi’s Estate had received six time extensions from the government. Those extensions were based on the contention that the assets needed to pay the tax were marketable securities whose value was depressed due to market conditions. Selling the securities to pay the tax, the Estate explained, would create significant losses.
While Ms. Mangiardi may not have been aware that her inheritance was subject to the government’s lien, she should have been aware that her father’s Estate owed a substantial sum to the IRS because she was a Trustee both of his will and of a trust included in the Estate. It probably did not help Ms. Mangiardi’s case that she engaged in trading those marketable securities mentioned earlier (instead of waiting for their value to increase) and received significant fees from the Estate during that time.
The details of the Mangiardi case are less important than the message – with inheritance comes responsibility! To protect oneself, a beneficiary should inquire with the executor of an estate as to whether any estate tax was owed and whether it was paid in full. The beneficiary should also ask for proof and hold on to the associated documents. If a beneficiary receives a significant inheritance, it may be wise for him or her to consult a tax attorney to ensure that he or she is not subject to tax years later. For estate tax questions or questions about your inheritance, contact Altman & Associates at (301) 468-3220 or firstname.lastname@example.org.
- Gary Altman, Esq. and Coryn Rosenstock