UNITED STATES TAX COURT

T.C. Memo. 1999-284

UNITED STATES TAX COURT

ESTATE OF FLORENCE H. DEVIDA JOHNSON, DECEASED,

RICHARD B. PERLMAN, EXECUTOR, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 20477-96.

Filed August 27, 1999.

Richard B. Perlman, for petitioner.

Robert W. Dillard, for respondent.

MEMORANDUM OPINION

LARO, Judge:

without trial.

The parties submitted this case to the Court

See Rule 122.

Respondent determined that

Florence H. DeVida Johnson (Ms. Johnson) is personally liable as

a fiduciary for disbursements she made while acting as personal

representative of the estate of Samuel C. Johnson III (Mr.

Johnson).

Respondent issued a notice of liability to the Estate

- 2 of Florence H. DeVida Johnson (petitioner) on June 25, 1996.1

Petitioner petitioned the Court for a redetermination of the

notice of liability.

The sole issue for decision is whether Ms.

Johnson is personally liable under title 31 U.S.C. section 3713

(1994), for unpaid income taxes and additions to tax (and accrued

interest thereon) owed by Mr. Johnson's estate.

We hold Ms.

Johnson is personally liable to the extent set forth herein.

Unless otherwise noted, section references are to the Internal

Revenue Code.

Rule references are to the Tax Court Rules of

Practice and Procedure.

Background

All facts are stipulated and are so found.

The stipulated

facts and exhibits submitted therewith are incorporated herein.

Mr. Johnson died on April 8, 1987, and Ms. Johnson was appointed

personal representative of Mr. Johnson's estate.

died on January 19, 1996.

Ms. Johnson

Mr. Johnson and Ms. Johnson were

married on November 3, 1962, but they lived apart after November

1979 without ever divorcing.

Prior to his death, Mr. Johnson

filed a petition in bankruptcy, and his bankruptcy case spanned

1

Because Ms. Johnson was deceased on the date respondent

issued the notice of liability, the notice of liability was

mailed to petitioner. It is undisputed that petitioner would be

liable in respect of any personal liability imposed on Ms.

Johnson under tit. 31 U.S.C. sec. 3713 (1994). Consequently, the

issue is framed in terms of her personal liability under that

statute.

- 3 nearly 4 years without his ever receiving a discharge.

Mr.

Johnson's gross estate consisted of assets with a total fair

market value of $69,700.

At the time of his death, Mr. Johnson was liable for

outstanding assessed Federal income tax liabilities (excluding

interest) of the following amounts:

1979

1980

1981

1982

1983

1984

Total

$8,200

$4,604

$3,301

---

$6,849

$806

$23,760

§ 6651(a)(1)

432

---

---

---

---

---

432

§ 6651(a)(2)

216

92

43

63

205

24

643

§ 6654

360

294

330

310

420

145

1,859

Collection fees

52

44

18

10

24

---

148

9,260

5,034

3,692

383

7,498

975

26,842

Unpaid tax

liability

Penalties:

Total

Federal tax liens for Mr. Johnson's 1979, 1980, 1981, 1982,

1983, and 1984 income tax liabilities arose when the taxes were

assessed on August 11, 1980, July 20, 1981, May 17, 1982, October

10, 1983, October 1, 1984, and September 16, 1985, respectively.

- 4 Respondent filed notices of Federal tax lien as follows:

Date Notice

County Where

Filed

Notice Filed

Tax Year(s)

Unpaid

Assessment

6/17/81

Philadelphia

1979

$10,127.51

9/15/81

Philadelphia

1980

5,145.39

4/5/90

Philadelphia

1983/1984

8,848.26

10/21/82

Philadelphia

1981

3,749.42

11/5/82

Chester

1980/1981

8,894.81

4/2/90

Chester

1983/1984

8,848.26

Respondent refiled notices of Federal tax lien for the 1979 and

1980 taxes on November 21, 1986, but did not refile for any other

years.

In her capacity as personal representative of Mr. Johnson's

estate, Ms. Johnson made several distributions from the estate,

including the following distributions on the following dates:

Check Number

Date

Payee

Amount

25

4/8/88

Florence Johnson

$500.00

30

7/22/88

Florence Johnson

10,807.25

31

9/18/88

Benton Dental

2,040.38

33

9/19/88

Freedom Valley Bank

35,000.00

15071

11/10/88

Florence Johnson

Total

952.64

49,300.27

- 5 Check number 30 represents payment on a judgment obtained by

Ms. Johnson against Mr. Johnson on June 8, 1987, for delinquent

child support.2

Check number 31 represents payment on a judgment

obtained by Benton Dental against Mr. Johnson on July 7, 1988.3

The nature of the remaining payments is unknown.

Prior to making

these distributions, Ms. Johnson filed an inheritance tax return

with the Commonwealth of Pennsylvania regarding Mr. Johnson's

estate.

Therein, she stated Mr. Johnson owed the Internal

Revenue Service $30,000.

Ms. Johnson made no payments to the

Internal Revenue Service for these taxes.

Mr. Johnson's estate

was insolvent at all times.

Respondent determined Ms. Johnson is personally liable as a

fiduciary pursuant to title 31 U.S.C. section 3713(b) for unpaid

tax, additions to tax, and interest owed by Mr. Johnson to the

extent of the five payments made by Ms. Johnson of $49,300.27.

Discussion

The Federal government's claim to priority over creditors of

an insolvent estate rests on a statute that has been in effect

for more than 200 years.

See United States v. Estate of Romani,

523 U.S. 517 (1998); United States v. Moore, 423 U.S. 77, 80

2

This judgment was entered in the Court of Common Pleas of

Philadelphia County, Philadelphia, Pennsylvania., Family Court

Division.

3

The judgment was entered in the Court of Common Pleas of

Philadelphia County, Pennsylvania.

- 6 (1975).

We are called upon in this case to apply this centuries-

old law to the facts herein.

Section 6901 provides for the assessment, payment, and

collection of the liability of a fiduciary under title 31 U.S.C.

section 3713(b).

See sec. 6901(a)(1)(B).

A fiduciary includes a

personal representative, administrator, or any other person

acting in a fiduciary capacity.

See sec. 7701(a)(6).

The

Federal priority statute, 31 U.S.C. sec. 3713, requires that a

claim of the United States Government be paid first when a

decedent's estate is insolvent.

3713(a)(1)(B).

See 31 U.S.C. sec.

Federal income taxes qualify as a claim of the

United States Government for purposes of the priority statute.

See Viles v. Commissioner, 233 F. 2d 376 (6th Cir. 1956), affg.

T.C. Memo. 1955-142.

When a personal representative of an

estate distributes assets of the estate in derogation of the

priority of debts owed to the United States, the personal

representative is personally liable for the unpaid claims of the

United States to the extent of the distributions.

See 31 U.S.C.

sec. 3713(b); United States v. Coppola, 85 F.3d 1015, 1019-1020

(2d Cir. 1996).

For this liability to ripen, a fiduciary must

have had actual or constructive knowledge of the debt owed the

United States.

See New v. Commissioner, 48 T.C. 671, 676-677

(1967); Beckwith v. Commissioner, T.C. Memo. 1995-20.

The

fiduciary must have notice of the claim which has been defined to

- 7 include "actual knowledge of such facts as would put a prudent

person on inquiry as to the existence of the claim."

United

States v. Vibradamp Corp., 257 F. Supp. 931, 935 (S.D. Cal.

1966).

This knowing disregard of the debt owed the United States

serves to impose liability on a fiduciary.

See Leigh v.

Commissioner, 72 T.C. 1105, 1109-1110 (1979); Forehand v.

Commissioner, T.C. Memo. 1993-618.

Petitioner has the burden of proving that Ms. Johnson lacked

knowledge of the taxes.

(1950).

See McCourt v. Commissioner, 15 T.C. 734

On this record, we hold petitioner is personally liable

as a fiduciary to the extent of $30,000.

Mr. Johnson's

outstanding taxes were "a claim of the United States Government”

See Viles v. Commissioner, supra.

under 31 U.S.C. section 3713.

Mr. Johnson's estate was insolvent at all times.

Ms. Johnson

knew about the taxes owed by Mr. Johnson to the extent of

$30,000.

Ms. Johnson should have paid this amount to the

Internal Revenue Service before making each of the five

disbursements.

Most of petitioner's energy on brief is spent trying to

convince us Ms. Johnson did not know about any of the taxes when

she made the disbursements.

Petitioner argues that Ms. Johnson

was "estranged" from Mr. Johnson, that they were involved in

contentious and litigious divorce proceedings, that she was a

single parent, and that she generally knew nothing about Mr.

- 8 Johnson's finances.

We have carefully reviewed the entire

stipulated record in this case and disagree with petitioner's

summation of the evidence.

Statements in petitioner's brief are

not evidence, and we disregard them in making our decision.

See

Rule 143(b); Bialo v. Commissioner, 88 T.C. 1132, 1140 (1987).

The facts in evidence probative on the issue of knowledge reveal

that Ms. Johnson knew Mr. Johnson owed the Internal Revenue

Service $30,000 as of January 8, 1988.

On that date, which

preceded each of the five disbursements at issue, Ms. Johnson

signed and filed Mr. Johnson’s inheritance tax return for the

Commonwealth of Pennsylvania.

The return specifically stated

that Mr. Johnson owed $30,000 to the Internal Revenue Service.4

Ms. Johnson should have faithfully discharged her duties as

personal representative and paid the Internal Revenue Service the

$30,000 debt of which she was aware.

Petitioner also advances on brief several peripheral

arguments, none of which are meritorious.

We reject petitioner's

suggestion that no personal liability can attach to Ms. Johnson

or her estate because the United States did not file a claim for

the taxes in the Probate Court.

at 677.

4

See New v. Commissioner, supra

We also reject petitioner's suggestion that the amounts

While that return did not specify the year(s) and type of

taxes owed by Mr. Johnson, there is no evidence in this record

that Mr. Johnson owed any other taxes to the Internal Revenue

Service except for the ones at issue herein.

- 9 paid out by Ms. Johnson were for administrative expenses or a

family allowance entitled to priority over the tax debt.

Because

the record contains no stipulated facts to this effect, we are

unable to make such a finding.

We are also unable to conclude on this record that the

analysis set forth by the Supreme Court in United States v.

Estate of Romani, supra, impacts the outcome in this case.5

In

Estate of Romani, the Government argued it was entitled to

priority over a judgment lien creditor under 31 U.S.C. section

3713, notwithstanding that it lacked priority under the Federal

Tax Lien Act of 1966 Pub. L. 89-719, 80 Stat. 1125 (as codified

in sections 6321-6327).

The Supreme Court held that the Federal

Tax Lien Act of 1966 controlled the priority of the competing

liens, not the Federal priority statute.

Coincidentally, the

judgment creditor in Estate of Romani obtained its judgment from

a division of the same court in which the two judgments herein

were entered, the Pennsylvania Court of Common Pleas.

The

judgment creditor in Estate of Romani acquired a valid lien on

the judgment debtor's property by recording the judgment in

accordance with Pennsylvania law.

5

See United States v. Estate of

Respondent argues United States v. Estate of Romani, 523

U.S. 517 (1998), supports his position, and he provides a lengthy

analysis of why the Federal tax liens have priority over the

judgments of Benton Dental and Ms. Johnson for child support.

Petitioner argues the Estate of Romani case supports its position

that the judgments should be paid first.

- 10 Romani, 523 U.S. 517 (1998); 42 Pa. Cons. Stat. sec.

4303(a)(1995).

Here, the stipulated facts reveal only that two

judgments were entered against Mr. Johnson.6

On this record, we

are unable to find that either Benton Dental or Ms. Johnson was a

"judgment lien creditor" within the meaning of section 6323.

The

Estate of Romani case is inapposite,7 and we hold Ms. Johnson is

personally liable as a fiduciary to the extent of $30,000.

Finally, petitioner contends that, if Ms. Johnson is liable,

that liability is capped at the value of the assets transferred

and may not extend to interest beyond that cap.

Respondent

contends Ms. Johnson is liable for interest on the obligation

6

The regulations specifically provide the judgment creditor

must comply with local law for creating and perfecting

(recording) the judgment in order to be a "judgment lien

creditor" entitled to priority over a recorded tax lien. See

sec. 301.6323(h)-1(g), Proced. and Admin. Regs.

7

Even if each judgment creditor had recorded the judgment

when it was obtained, respondent would still prevail under the

holding in United States v. Estate of Romani, supra, as to taxes

for 1979, 1980 and 1981. Prior to all disbursements at issue,

respondent properly filed notices of Federal tax lien for those

years. The liens for 1979 and 1980, were properly refiled under

sec. 6323(g)(3) and were still valid when the two judgments were

issued. As to 1981 taxes, respondent did not refile the lien,

but the original lien remained unexpired and in effect as of when

the judgments were obtained. The collection statute was stayed

for more than 4 years while Mr. Johnson was in bankruptcy. See

sec. 6503(h). Further, Congress extended the collection statute

of limitations from 6 years to 10 years in 1990. See Ominibus

Budget Reconciliation Act of 1990, Pub. L. 101-508, sec. 11317(b)

and (c), 104 Stat. 1388, 1388-458 (1990)(with retroactive effect

for taxes assessed on or before Nov. 5, 1990, if the collection

statute was otherwise still open).

- 11 imposed by section 3713(b), which interest began to accrue as of

the date the liability arose (when payments in derogation of the

statute were made), and continues to accrue until paid.

We agree with petitioner.

When a personal representative

incurs personal liability under 31 U.S.C. section 3713(b), his or

her liability for unpaid tax, additions to tax, and interest of a

decedent is limited to "the extent of the [payments]" made in

derogation of the statute.

See 31 U.S.C. sec. 3713(b).

Thus,

the amount of tax and interest owed by the estate, or the value

of the property disbursed in violation of the statute, whichever

is less, is the principal obligation for which the fiduciary is

liable.8

The next inquiry is whether interest accrues on the

personal liability of the fiduciary from the date the liability

arose until paid, even if this amount exceeds the value of the

property paid in derogation of the statute.

In the case of

Baptiste v. Commissioner, 100 T.C. 252 (1993), affd. 29 F.3d 1533

(11th Cir. 1994), affd. in part and revd. in part 29 F.3d 433

(8th Cir. 1994), we explored this question in depth relating to a

transferee's liability.

We concluded that interest accrues on a

transferee's liability from the date it arose until paid, even if

8

The stipulated record contains no evidence as to what

amount of interest had accrued on Mr. Johnson's liability as of

the date of disbursements. Thus, we cannot determine whether

that amount is greater than $30,000, although we presume the

$30,000 figure would be less that the total tax due plus interest

as of that date.

- 12 that amount exceeds the value of the assets transferred.

Respondent urges us to extend the holding in Baptiste to this

case of fiduciary liability and hold that Ms. Johnson's fiduciary

liability extends to interest accrued on the obligation until

paid.

We have previously declined to do so, see Singleton v.

Commissioner, T.C. Memo. 1996-249, and we decline to do so again

in this case.

We sustain respondent's determination of fiduciary

liability relating to Mr. Johnson's 1979, 1980, 1981, and 1983

taxes and additions to tax, and hold that Ms. Johnson is

personally liable for Mr. Johnson's outstanding tax obligations

for those years, plus interest on those obligations as provided

by law, not to exceed $30,000.

In reaching all our holdings herein, we have considered each

argument made by the parties, and, to the extent not discussed

above, find those arguments to be irrelevant or without merit.

To reflect the foregoing,

Decision will be entered

under Rule 155.