A fiduciary\u2019s liabilities can sometimes arise in unexpected contexts.\u00a0 A recent decision involving an estate tax liability held that a fiduciary was personally liable for unpaid estate taxes.<\/p>\n
In Carroll v. United States<\/em>, 2009-2 USTC \u00b6 60,577 (N.D. Ala. 2009), the taxpayer was denied a bankruptcy discharge for unpaid estate taxes arising from the estate of his deceased father.<\/p>\n George Carroll, Sr. died on March 17, 1998.\u00a0 The two executors of his estate were the appellant, George Carroll, and his two siblings (Stephen Carroll and Judy Bullington).\u00a0 At the time of death, the total estate tax owed was $2,554,547.\u00a0 That\u2019s a big liability.<\/p>\n Federal tax law permits an estate tax to be paid in installments pursuant to 26 U.S.C. section 6166.\u00a0 The administrators of the estate contracted to pay the estate tax in installments.\u00a0 The final installment would have been due on December 17, 2012.\u00a0 However, the estate stopped making payments in 2004.\u00a0 Through 2004, Mr. Carroll and his sister paid approximately $1.2 million of the tax debt.<\/p>\n Between 1998 in 2006, the executors distributed various assets of the estate to themselves.\u00a0 Judy Bullington received real property (including her father\u2019s primary residence) and cash.\u00a0 Stephen Carroll and George Carroll received stock held by the estate in two close corporations: United Gunite, Inc. and Pressure Concrete, Inc.\u00a0 The brothers \u201cplanned to use the profits from these two entities to make the necessary installment payments to the United States.\u201d<\/p>\n Now, I don\u2019t know about the construction industry in Alabama.\u00a0 However, gunite is used in the pool contracting business.\u00a0 And pool contracting in Fresno has tanked in the last 18 months.\u00a0 Tanked to a level that is almost unbelievable.<\/p>\n So the economy didn\u2019t help the Carroll brothers.\u00a0 Even worse, in 2001 Stephen Carroll pled guilty to a count of \u201cfelony bribery of a public official.\u201d\u00a0 Thus, things went from bad to worse for the Carroll brothers.<\/p>\n Apparently seeing the end, \u201con February 28, 2004, George Carroll, in his capacity as an executor of his father\u2019s estate, transferred the last of the estate\u2019s liquid assets \u2013 $733,613 in cash \u2013 to a bank account owned by Pressure Concrete.\u201d\u00a0 The cash infusion was not sufficient to revive the business, and in 2006, George Carroll bought out his brother\u2019s interest in the company for $29,500.\u00a0 Shortly thereafter, the company failed.<\/p>\n In 2007, George Carroll filed a bankruptcy petition, along with approximately 1.2 million other Americans.\u00a0 The government disputed his request for discharge with respect to the unpaid estate taxes.\u00a0 The court agreed, in a decision affirmed on appeal.<\/p>\n Explained the court, \u201cexecutors of an estate become personally liable for the estate tax owed to the United States if they distribute property to beneficiaries before fully satisfying the estate\u2019s tax debt.\u201d\u00a0 The tax regulations add that, \u201cif the executor distributes any portion of the estate before all the estate tax is paid, he is personally liable, to the extent of the payment or distribution, for so much of the estate tax as remains due and unpaid.\u201d<\/p>\n George Carroll attempted to escape liability, arguing that the value of the estate was artificially inflated for tax assessment purposes, and that the corporation failed because he \u201cwas not prepared to handle the business that he inherited from his father.\u201d\u00a0 The court rejected these arguments, instead of focusing on the transfer of $733,613 in cash to the struggling corporation.\u00a0 The court deemed the transfer to be a \u201cwillful\u201d act within the meaning of the bankruptcy laws, such as to deny a bankruptcy discharge to George Carroll.<\/p>\n Thus, the case is a word of caution to all persons who administer an estate, whether by way of probate or pursuant to a trust.\u00a0 If an estate tax is owed, and if the administrator transfers assets to the beneficiaries before the tax is paid in full, the administrator can be held personally liable, and the estate tax liability will not be discharged in bankruptcy.\u00a0 Think twice before you distribute assets when an estate tax is unpaid.<\/p>\n (The court adds a humorous aside.\u00a0 In 2006, the failing corporation, Pressure Concrete, \u201cacting at George Carroll\u2019s direction, issued two separate checks, totaling $25,000, drawn and payable to the University of Alabama athletic department for the purchase of football tickets \u2013 a fact proving only (if proof were needed) that, in this State, Alabama football is a secular religion promoting misplaced and false values.\u201d)<\/p>\n Carroll v. United States<\/em>, 2009-2 USTC \u00b6 60,577 (N.D. Ala. 2009)<\/p>\n","protected":false},"excerpt":{"rendered":" A fiduciary\u2019s liabilities can sometimes arise in unexpected contexts.\u00a0 A recent decision involving an estate tax liability held that a fiduciary was personally liable for unpaid estate taxes. In Carroll v. United States, 2009-2 USTC \u00b6 60,577 (N.D. Ala. 2009), the taxpayer was denied a bankruptcy discharge for unpaid estate taxes arising from the estate […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-45","post","type-post","status-publish","format-standard","hentry","category-case-law"],"_links":{"self":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts\/45"}],"collection":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=45"}],"version-history":[{"count":0,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=\/wp\/v2\/posts\/45\/revisions"}],"wp:attachment":[{"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=45"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=45"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/fresnolawyerblog.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=45"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}