3 Strikes Against the IRS in Attempting to Impose Fiduciary and Beneficiary Liability for Estate Taxes

During her lifetime, Anna Smith established the Anna Smith Family Trust, a revocable trust administered for her benefit. Initially, Anna was initially a co-trustee with two of her children, but eventually became sole trustee. A significant asset of the trust was stock of a closely held company that owned a gaming license.

Anna later died, and her estate filed an estate tax return showing $15.958 million in gross estate assets, showing $6.631 million in estate tax, and the estate paid $4 million in taxes with the return. The estate made a Section 6166 election to pay the remaining taxes in installments. The trust provided for distributions of trust assets to limited partnerships owned by the heirs, and for direct distributions to heirs, after Anna’s death.

An additional $1 million was paid in estate taxes. Eventually, the closely-held stock was distributed to the beneficiaries due to issues with state law restrictions on a gaming license being owned by a trust – at that time . .

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