The Great Chieftain of The Jersey Boys gets the tough ones. Today he has a replay of my blogpost “Execute the Executor?” 3/14/16

Once again Section 3713, the Federal Priority Statute, comes in to hook the executor. Judge Travis A. (“Tag”) Greaves administers same to Estate of Kwang Lee, Deceased, Anthony J. Frese, Executor, 2021 T. C. Memo. 92, filed 7/20/21.

There was a lot of litigation over Kwang Lee’s estate. IRS started with a $1 million SNOD, plus $450K in add-ons and chops. Frantic Frankie got it cut in half, but then there was an appeal…; you get the idea.

While all this was going on, AJ, “a licensed attorney and municipal court judge,” 2021 T. C. Memo. 92, at p. 2, was distributing assets. The last distribution, $640K, causes the problem. Only $183K remains in the pot to pay the tax and interest. And that’s way low.

When IRS unloads a NFTL, AJ tries an OIC, but Appeals says the RCP should include the executor who handed out the boodle. AJ says he didn’t know.

“An executor must have had actual or constructive knowledge of the Government’s claim when the estate had sufficient assets to pay it, or notice of such facts as would put a reasonably prudent person on inquiry as to the existence of the Government’s unpaid claim. A notice of deficiency with respect to estate tax liabilities given to an executor before the executor’s distribution of estate assets is sufficient to satisfy this notice requirement.” 2021 T. C. Memo. 92, at p. 11.

AJ got the SNOD before he handed over the $640K. He was party to the litigation. He claims that the estate’s tax adviser told him it was OK, but he put in no evidence as to who said what. Anyway, he’s a lawyer and a judge, which apparently makes him ipso facto unable to rely on anybody’s advice, and must act “at his own peril.” 2021 T. C. Memo. 92, at p. 13.

There’s some argy-bargy about SOL, but Section 2415 is off the point, and Section 6901(c)(3) (fiduciary liability) and Section 6502(a)(1) ten-year SOL for estate tax put paid to that.

“The estate argues that the SO was required to independently investigate the amounts, if any, actually collectible from third parties, including an ‘evaluation of the hazards of litigation’ and an analysis of the current financial status of such persons. The estate cites no rule mandating or suggesting that the SO should have taken such exhaustive action as it related to Mr. Frese’s potential collection amount. Although the estate may disagree with this policy, we do not find it or the SO’s actions in this case arbitrary or capricious under the circumstances, especially where the record shows that the SO acted diligently in considering the estate’s concerns by consulting with respondent’s Collection Division and Office of Chief Counsel in reaching his conclusion.” 2021 T. C. Memo. 92, at pp. 16-17. (Footnote omitted).

Another tough loss.