[WSBAPT] IRS and creditor claim

[Marcus Fry]

Thanks Tara!

Marcus J. Fry
Lyon, Weigand & Gustafson, P.S.


From: wsbapt-bounces at lists.wsbarppt.com [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Tara
Sent: Monday, December 15, 2014 1:20 PM
To: 'WSBA Probate & Trust Listserv'
Subject: Re: [WSBAPT] IRS and creditor claim

The Internal Revenue Manual (IRM), Part 5 Collecting Process is a great resource, especially section 5.5 on Decedent Estates and Estate Taxes
http://www.irs.gov/irm/part5/

Section 5.5.2.4 of the IRM states that "A state statute may not subordinate a federal tax lien to interests that Congress has not specifically permitted to prime the lien.  State law is nullified to the extent that it conflicts with federal law."
Section 5.5.2.6 states that the IRS considers the family allowance an administrative expense of probate that the Service may *in its discretion* permit.

The federal tax lien is created by operation of law, 26 USC 6321, and the collection period and assets subject to collection are usually determined according to the date that the tax is assessed.  The Notice of Federal Tax Lien (NFTL) and the date of its recording deal more with priority against other secured-type creditors.  "The filing of a NFTL is not a step required to give rise to or to perfect the lien against the taxpayer. The act of filing protects the Government's right of priority as against certain third parties, typically a purchaser, holder of a security interest, mechanic's lienor, or judgment lien creditor. IRC § 6323(a)."  IMR 5.17.2.3.1.

Also, IRM 5.5.3.6 is helpful describing the priority of the tax with regard to estate property, based on the date of the tax assessment:
If assessment is made:            - Then the assessment lien attaches to:
before death   - property owned by the taxpayer and follows property into probate or to the transferee.
after death      - any probate property in the taxpayer's estate at the time of assessment.

Litigation on the decedent's Federal tax liability against the IRS will probably lead you off into Federal District Court to get an order binding against the Service.  On the other hand, I've talked to revenue agents that are just as confused by the probate process and collection priority as the rest of us are confused by the tax laws.  Negotiating with a local revenue agent or collection officer for an allowance for the surviving family will probably get you further and get more reassurance for the heirs, especially since collection efforts can follow to property in the hands of the transferee.

Good luck!
Tara M. Roberts
Puget Sound Law
roberts at pugetsoundlaw.com<mailto:roberts at pugetsoundlaw.com>

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From: wsbapt-bounces at lists.wsbarppt.com<mailto:wsbapt-bounces at lists.wsbarppt.com> [mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Marcus Fry
Sent: Monday, December 15, 2014 11:47 AM
To: 'wsbapt at lists.wsbarppt.com'
Subject: [WSBAPT] IRS and creditor claim

IRS has filed a late creditor claim in probate proceeding (no real property to lien).  Is the IRS subject to our 4-month creditor filing bar?  If not, anyone successfully litigate a family allowance claim to trump the debt owed to the IRS?

Marcus J. Fry
Lyon, Weigand & Gustafson, P.S.
P.O. Box 1689
Yakima, Washington  98907
Telephone:  (509) 248-7220
Facsimile:  (509) 575-1883

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