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IRS Reverses Position: Will Raise Jurisdictional Defense in Estate Tax Installment Cases

MAR. 19, 1991

GCM 39839

DATED MAR. 19, 1991
DOCUMENT ATTRIBUTES
  • Institutional Authors
    Internal Revenue Service
  • Code Sections
  • Index Terms
    estate tax, closely held business
  • Jurisdictions
  • Language
    English
  • Tax Analysts Electronic Citation
    91 TNT 62-24
Citations: GCM 39839

 

TR-45-17-91

 

CC:IT&A:Br4/G.Consalvi date numbered: March 5, 1991

 

 

John G. Rocovich, Jr. v. United States

 

18 Cl. Ct. 418 (1989)

 

 

Kenneth E. Kempson

 

Acting Associate Chief Counsel (Technical)

 

 

This is in response to a request dated December 28, 1990, that we reconsider the Service's position described in Estate of * * *, GCM 35696, I-22-74 (February 27, 1974). GCM 35696 concluded that a defense based on Flora v. United States, 357 U.S. 63 (1958), aff'd on reh'g, 362 U.S. 145 (1960), should not be raised when a section 6166 election has been made and the taxpayer has brought suit to challenge the correctness of the amount of its liability before paying all of its section 6166 estate tax installments.

 

ISSUE

 

 

Whether, once an election under section 6166 of the Internal Revenue Code has been made to pay estate tax liability in installments, the total tax liability assessed must be paid before a suit can be brought in district court or the Claims Court to challenge the correctness of the amount of liability.

 

CONCLUSION

 

 

GCM 35696 should be revoked; a jurisdictional defense based on Flora should be raised by the Government when a Code section 6166 election has been made and the taxpayer has brought suit to challenge the correctness of the amount of its assessed tax liability before payment of all its Code section 6166 installments.

 

FACTS

 

 

Substantial deficiencies in estate tax had been asserted against the estate described in GCM 35696. The estate qualified for and elected to pay estate tax and any deficiencies in estate tax in installments under Code section 6166. The executor disagreed with the proposed deficiencies and indicated that a refund suit would be instituted in district court. The estate's assets were nonliquid and thus the estate could not pay the deficiencies immediately.

 

ANALYSIS

 

 

In Flora the Supreme Court held that 28 U.S.C. section 1346(a)(1) requires a taxpayer to pay fully the taxes assessed for a given year before a federal district court or the Claims Court may hear a refund suit.

Recently, the Claims Court held that the section 6166 installment benefits elected by an estate do not warrant an exception to the full payment rule described in Flora. Rocovich v. United States, 18 Cl. Ct. 418 (1989). There, the estate paid deficiencies in full but not the installments of estate tax not yet due. In addition, the Service's position in GCM 35696 was criticized in Manning v. United States, 53 AFTR2d 84-1584 (S.D.N.Y. 1983), where the district court stated that it does not view a section 6166 election as an exception to the full payment rule. There, the executor apparently sought to challenge an estate tax determination by the Service to which the executor had previously agreed.

Currently, you have explained that the Department of Justice will not assert as a jurisdictional defense the full payment rule described in Flora (unless the section 6166 election is defective) as long as GCM 35696 represents the Service's position and remains outstanding.

The Service's position in GCM 35696 was based primarily on two reasons. First, it was perceived that raising a Flora defense would negate the relief afforded a taxpayer who elects the section 6166 benefits by (1) barring the taxpayer from instituting suit to recover a part of the taxes paid without paying the estate taxes owed in full or (2) penalizing the taxpayer by forcing it to wait 10 years before suit may be instituted. Second, it was also thought that the district courts would not sustain a Flora defense because such a defense would compromise the relief granted by Congress in enacting section 6166.

In view of the court decisions cited above that have cited Flora in finding a jurisdictional defect in a case involving Code section 6166, where the assessed estate tax has not been paid in full by the taxpayer prior to bringing suit, the Service's reasons for not following Flora no longer have any basis. Accordingly, the Government should raise the Flora jurisdictional defense in all appropriate cases, including those involving the section 6166 election.

GCM 35696 is hereby revoked.

Assistant Chief Counsel

 

(Income Tax and Accounting)

 

 

by: George Bake

 

Assistant to the Chief, Branch 4
DOCUMENT ATTRIBUTES
  • Institutional Authors
    Internal Revenue Service
  • Code Sections
  • Index Terms
    estate tax, closely held business
  • Jurisdictions
  • Language
    English
  • Tax Analysts Electronic Citation
    91 TNT 62-24
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