Internal Revenue Service
Revenue Ruling
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smRev. Rul. 66-43
1966-1 C.B. 291
Sec. 6501
Sec. 6901
IRS Headnote
Where an executor or administrator has neither personal knowledge of an unpaid income tax liability of decedent nor has such knowledge as would put a reasonably prudent man on inquiry, he cannot be held personally liable for the tax payment under section 3467 of the Revised Statutes.
Full Text
Rev. Rul. 66-43
Advice has been requested whether an executor or administrator of an estate can be held personally liable for additional Federal income taxes of a decedent by reason of the application of section 6501(c) or section 6501(e) of the Internal Revenue Code of 1954 where the executor or administrator has requested prompt assessment of the decedent's tax under section 6501(d) of the Code and has not been advised by the Internal Revenue Service of any action with respect thereto within the 18-month period prescribed by section 6501(d) of the Code, and thereafter has proceeded to distribute the assets of the estate.
Section 6501(d) of the Code provides that, except as otherwise provided in subsection (c), (e), or (f), income tax of a decedent or his estate during the period of administration shall be assessed, and any proceeding in court without assessment for the collection of such tax shall be begun, within 18 months after proper written request therefor by the executor, administrator, or other fiduciary representing the estate of the decedent, but not after 3 years from the filing of the return. Thus, even though prompt assessment under section 6501(d) of the Code has been properly requested, the tax may be assessed at any time in the case of false or fraudulent returns, willful attempt to evade tax, or no returns filed, as provided under section 6501(c) of the Code, and within 6 years after filing of the return in the case of an omission from gross income as provided under section 6501(e) of the Code. In view of the provisions of section 6901(a)(1)(B) of the Code, the question arises whether personal liability can be imposed on an executor or administrator where such an assessment of tax has been made after the 18-month period has expired and after distribution of an estate's assets.
Section 301.6901-1(a) of the Regulations on Procedure and Administration provides that the amount of the personal liability of a fiduciary under section 3467 of the Revised Statutes (31 U.S.C. 192) in respect of the payment of income tax, whether shown on the return of the taxpayer or determined as a deficiency in the tax, shall be assessed against the fiduciary and paid and collected in the same manner and subject to the same provisions and limitations as in the case of a deficiency in the tax with respect to which such liability is incurred. Section 3467 of the Revised Statutes provides that every executor, administrator, assignee, or other person who pays, in whole or in part, any debt due by the person or estate for whom or for which he acts before he satisfies and pays the debts due to the United States from such person or estate, shall become answerable in his own person and estate to the extent of such payments for the debts so due to the United States, or for so much thereof as may remain due and unpaid.
In Irving Trust Company , 36 B.T.A. 146, acquiescence C.B. 1937-2, 15, the personal liability of a trustee under section 3467 of the Revised Statutes was considered and there it was stated:
* * * Section 3467 imposes personal liability upon a trustee who distributes the debtor's property to other creditors before satisfying the debts due the United States. The trustee may become personally liable even though the United States has not proved its claim in the bankruptcy proceedings. But the courts have held, in interpreting section 3467, that in order to render a trustee personally liable, it must appear that the trustee is chargeable with knowledge of the debt due to the United States. `It is only when the assignee has notice of the claim of the Government that he incurs personal liability for making distribution of the estate without providing for the claim.' United States v. Barnes , 31 Fed. 705. The claim may be listed in the schedules of the bankrupt, notice may be given to the trustee, or the trustee may learn of the debt in some other way. If the trustee has knowledge of the debt, it matters not how that knowledge was obtained The trustee can not disregard or ignore the debt, and if he does, his breach of duty renders him liable personally. United States v. Kaplan , 74 Fed.(2d) 664. `It is enough if the trustee be in possession of such facts as that a faithful and fair discharge of his duty would put him on inquiry.' United States v. Clark , 25 Fed. Cases 447, 451. But he is not personally liable for a tax without notice which should pur a reasonably prudent man upon inquiry. Livingston v. Becker , 40 Fed.(2d) 673; United States v. Eyges , 286 Fed. 683. No case is cited which holds a fiduciary personally liable where he was not chargeable with knowledge of the debt due the United States.
The personal liability of a fiduciary was considered in Giovaninni Terranova , 2 T.C.M. 616 (1943), and it was held the administrators were not personally liable for income tax deficiencies of their decedent which were not assessed by the Commissioner until after the administrators had secured their discharge and there was nothing in the facts to put them on notice that the decedent owed income taxes. In this case the Tax Court referred to the above language in the Irving Trust Company decision as a complete answer to the question.
Accordingly, an executor or administrator of an estate cannot be held personally liable under section 3467 of the Revised Statutes for any unpaid income tax liability of a decedent unless he has either personal knowledge of the debt, or has such knowledge as would put a reasonably prudent man on inquiry.