The U.S. Tax Court has held that an IRS Settlement Officer’s decision to reject an estate’s offer-in-compromise and sustain a lien action was not an abuse of discretion; however, the executor, a licensed attorney and municipal judge, made distributions to estate beneficiaries. At the hearing, the settlement officer concluded that: (1) the IRS may collect the distributed amounts from the executor under a fiduciary liability theory; (2) the limitations period for collection remained open; and (3) the potentially collectible amounts must be included in the estate’s reasonable collection potential. The executor disagreed with this conclusion, arguing that the settlement officer erred in computing the estate’s RCP by (1) improperly including amounts distributed to estate beneficiaries in this calculation, and (2) failing to verify that all applicable laws and regulations were followed before issuing the notice of determination. Yet, the court concluded that the settlement officer’s actions were not arbitrary because all appropriate laws and procedures were followed in the officer’s case.
Posted by Marin Larkin, Associate Editor, Wealth Strategies Journal.