Lee v. Commissioner is a collections due process case wherein the United States Tax Court granted summary judgment for the Commissioner in upholding the IRS’s filing of a notice of Federal tax lien.


Kwang Lee died testate in 2001. Anthony Frese, a licensed attorney and judge, was the named executor of the estate. He filed a United States Estate Tax Return two years after the decedent’s death. Over the next three years, Mr. Frese made distributions to estate beneficiaries totaling $1,045,000, of which $640,000 was distributed in February 2007. The IRS examined the return and determined a $1,020,129 deficiency in estate tax, plus a $255,032 Section 6651(a)(1) addition for untimely filing, and a $204,026 Section 6662(a) accuracy-related penalty. The IRS mailed a notice of deficiency to Mr. Frese on April 26, 2006, prior to the February 2007 distribution.

Mr. Frese filed a petition for redetermination of the deficiency, to which the United States Tax Court found a $536,151 deficiency in estate tax due with no addition to tax or penalty. In 2013, the Commissioner issued a Notice of Federal Tax Lien Filing, and the estate submitted a Request for a Collection Due Process or Equivalent Hearing in which it checked the collection alternative boxes “Installment Agreement” and “Offer in Compromise.” Three years later the estate submitted verification showing that its only asset was a checking account with a balance of less than $200,000. The Appeals Office settlement officer rejected the estate’s Offer in Compromise and sustained the notice of the Federal tax lien. The estate challenged the decision. Specifically, whether the estate tax liability is collectible and whether the settlement officer properly verified all applicable laws before issuing the notice of determination.


The IRS may compromise an outstanding tax liability based upon the following: (1) doubt as to liability; (2) doubt as to collectability; or (3) promotion of effective tax administration. While the parties agree that the estate holds approximately $183,000 that must be included in its Reasonable Collection Potential (RCP) calculation, they dispute whether this formula should also include amounts to be collected from Mr. Frese and the beneficiaries. The Tax Court found that the settlement officer did not abuse his discretion by including the distributed amounts in the RCP formula.

The executor of an estate may be held personally liable under 31 U.S.C. section 3713, otherwise known as the Federal Priority Statute. An executor is personally liable for the unpaid claims of the United States if the executor makes a distribution of assets from the estate when the estate was insolvent at the time of distribution or the distribution rendered the estate insolvent and the executor had knowledge or notice of the United States’ claim. A notice of deficiency given to an executor before the executor’s distribution of estate assets is sufficient to satisfy the notice requirement. Mr. Frese may be personally liable under the Federal Priority Statute for the estate’s unpaid estate tax because he made the February 2007 distribution with direct knowledge of the estate tax deficiency issued against the estate and the pending action concerning the deficiency claim.

Section 6901(a) provides that a fiduciary’s liability for payment of an estate tax under the Federal Priority Statute is to be “assessed, paid, and collected in the same manner and subject to the same provisions and limitations as in the case of the taxes with respect to which the liabilities were incurred.” The period of limitations for assessment against a fiduciary under the FPS is “not later than one year after the liability arises or not later than the expiration of the period for collection of the tax in respect of which liability arises, whoever is later.” Furthermore, Section 6502(a)(1) provides a ten-year period of limitations for the collection of estate taxes. Here, the IRS assessed the estate tax deficiency in July 2010, thereby starting a ten-year window to also pursue collection against Mr. Frese for his FPS liability.


The Tax Court found in favor of the settlement officer’s rejection of the estate’s Offer in Compromise and sustained the IRS’s lien because it was not undertaken in an arbitrary manner nor made without a sound basis in fact and law.

Frank Baldino is an estates and trusts attorney who helps people throughout the greater Washington, DC area protect assets for their families and future generations through careful estate tax planning. For more information, contact Frank at (301) 657-0175 or [email protected].