The IRS may recover a 100% IRC § 6672 trust fund penalty from any responsible person who acts willfully in failing to pay over to the government taxes withheld from employees. If the responsible person dies after the assessment but before the penalty is paid, the Tax Court held, a notice of federal tax lien filed shortly after the taxpayer’s death is valid.
In August 2004, the IRS issued the taxpayer, Mark Brandon, a proposed assessment regarding section 6672 penalties for unpaid trust fund taxes withheld in 2003. On Oct. 6, 2004, Brandon filed a protest in response to the proposed assessment, but since no agreement was reached between the two parties, the case was closed as an unagreed case on Jan. 31, 2006. On Feb. 27, 2006, the Service assessed the trust fund penalty against Brandon.
Two months later, on April 27, 2006, Brandon died in a motorcycle accident. In his will, Brandon named his wife the executrix, and in October 2006 the estate informed the IRS of Brandon’s death. Then, on Nov. 2, 2006, the Service issued a notice of federal tax lien (NFTL). The estate timely submitted a request for a collection due process hearing, in which the validity of the NFTL was disputed.
The estate contended that as of Brandon’s date of death, the title to all his property passed to his estate, which was not named in the lien. Therefore, the estate claimed, the NFTL was invalid because it named only Brandon individually. The protest further contended that Brandon had no property interests when the NFTL was issued in November 2006. The Service, on the other hand, contended that the lien attached to Brandon’s property on Feb. 27, 2006, when the assessment was initiated, and it remained attached even after his death. The Tax Court agreed with the IRS.
According to the court, and pursuant to the procedural rules of section 6320(a) and Treas. Reg. § 301.6323(f)-1(d), a tax lien arises when an assessment is made and remains in effect until the liability is either satisfied or becomes unenforceable by reason of time. Thus, when the IRS on Feb. 27, 2006, issued the trust penalty assessment, a U.S. lien attached to all Brandon’s property. Furthermore, once a tax lien attaches to property, it remains attached and is not invalidated by a transfer of the property to someone other than the taxpayer. Therefore, Brandon’s death, which occurred two months after the lien attached to his property, did not adversely affect the validity of the NFTL, the court held. Furthermore, the validity of an NFTL is not conditioned on the taxpayer’s receipt of a lien notice, the court said.
Estate of Mark Brandon v. Commissioner, 133 TC no. 4
By Steven C. Thompson, CPA, Ph.D., McCoy Professor of Business, Texas State University, San Marcos, Texas.