Taxes equal Revenue
The Administration just released its proposed budget for Fiscal Year 2027.[i] The Budget proposes to streamline IRS operations by reducing the agency’s budget to $9.8 billion – a $1.4 billion cut from current spending levels,[ii] including a reduction of its enforcement workforce by 17 percent – while utilizing improvements in technology to ensure the tax laws are fairly and efficiently administered.
The foregoing budget cuts are not reflective of the IRS’s critical mission to enforce compliance with the tax laws, especially the collection of taxes owing. Indeed, until the federal government curbs its poor spending habits,[iii] it can ill afford to rely on raising revenue through the issuance of more debt instead of prioritizing the collection of unpaid tax liabilities.[iv]
Assuming the Service is able to continue doing its job – and we should all hope this will be the case – it behooves taxpayers and their advisers to understand the basic statutory parameters within which the federal government collects tax deficiencies.
A federal district court recently considered an estate tax matter – which in and of itself was hardly noteworthy from a substantive tax perspective – during which the court had the opportunity to helpfully describe aspects of the collection process.[v]
The Trust, the Taxes
The dispute concerned the recovery of unpaid federal estate taxes from the beneficiaries and trustees of the Decedent’s estate (the “Estate”).
During his life, Decedent created a revocable trust (the “Trust”) to which he transferred all of his then-owned property, including his interests in several closely held businesses. Decedent also intended for the Trust to own any property that he later acquired. Of course, any assets held in the Trust as of the Decedent’s date of death would be included in his gross estate for purposes of the federal estate tax.[vi]
On the same day he created the Trust, Decedent also executed a so-called “pour-over will” pursuant to which any of his assets not owned by the Trust at the time of his death (and not otherwise disposed of as a matter of law[vii]) would be conveyed to it upon his death.
The Trust Agreement appointed Decedent’s two sons (the “Boys”)[viii] to serve as the successor co-trustees of the Trust following Decedent’s demise.[ix]
The Boys were also the primary beneficiaries of both the Trust and of the Estate.
Following Decedent’s death, the Boys filed a Form 706 (United States Estate Tax Return), on which they included the assets of the Trust as part of Decedent’s gross estate, and reported an estate tax liability,[x] which the IRS then assessed.[xi]
The Boys subsequently elected to pay in annual installments that portion of the reported estate tax that was attributable to Decedent’s closely held business interests.[xii]
The Boys Go Off the Rails
After making the first several installments of the estate tax, the Boys not only stopped making payments but also distributed the Trust’s assets – including the Decedent’s above-referenced business interests – to themselves as beneficiaries notwithstanding the substantial outstanding federal estate tax liability.
As a result of the foregoing acts, the unpaid portion of the estate tax that was payable in installments became subject to acceleration in its entirety upon notice and demand from the IRS.[xiii]
The Government filed a lawsuit against the Boys in federal district court seeking a judgment to reduce the Estate’s tax liability to a money judgment and to hold the Boys personally liable[xiv] for the unpaid taxes both as trustees and beneficiaries because they held or received property from the Estate that was not used to satisfy the tax debt instead.
Shortly thereafter, the Government moved for summary judgment against the Boys, which they opposed.[xv]
The Court found that the Government met its burden of establishing not only all of the essential elements to obtain relief on its claims but also “that there [was] no genuine dispute as to any material fact.” With that, the Court determined that the Government was entitled to judgment as a matter of law,[xvi] and its summary judgment motion was granted.
The Collection Process Begins
The laying of taxes begins with an “assessment,” which, in the context of an unpaid tax liability, refers to the IRS’s determination that a taxpayer owes the Government a certain amount of tax. The IRS is authorized under the Code to make assessments.[xvii] Assessments must be made within three years after a tax return is filed – when this statutory period expires, the IRS can no longer assess or collect additional tax.[xviii] That being said, the IRS is generally authorized to extend the period for which an assessment of tax may be imposed, but only with taxpayer consent. The assessment period for the estate tax, however, cannot be extended by agreement.[xix]
Taxpayers must timely pay their assessed tax or they may incur additional penalties. Of course, until the tax is paid, interest will continue to accrue thereon.[xx] But there are a variety of methods by which taxpayers may seek relief regarding their tax liabilities, including collection due process hearings, the U.S. Tax Court, installment agreements, and offers-in-compromise.
Still, the IRS’s assessments are presumptively correct, so the Government may rely on its assessments to prove its entitlement to judgment. This presumption of correctness also applies to the IRS’s Certificates of Assessments and Payments, also known as Form 4340s, which identify the taxpayer and detail “the character of the liability assessed, the taxable period, . . . the amount of the assessment . . . [and] the date of assessment.”
Once a tax has been assessed, the IRS generally has ten years to begin collection by levy or court proceeding.[xxi] The ten-year period is tolled[xxii] while the IRS is prohibited from making a levy. For example, the IRS may not make a levy while an offer-in-compromise is pending or within 30 days after any rejection or appeal of a rejection,[xxiii] or while a collection due process hearing and associated appeals are pending.[xxiv] In other words, the IRS’s ten-year collection period is extended by the number of days that these tolling events are pending. The Government has the burden of showing that its collection period was tolled.
In the case of Decedent’s Estate, the Government proved it was entitled to summary judgment to collect the assessed taxes. It satisfied its burdens regarding the assessment and timeliness of its collection action against the Estate, and established that the Boys were responsible for the Estate’s liabilities.
To obtain a judgment against the Estate, the Government was required to satisfy two key burdens. First, it had to show the amount owed by the Estate and support its calculation of that amount with proper evidence.[xxv] Second, the Government had to show it timely filed the collection action.[xxvi]
According to the Court, the Government satisfied both burdens.
Concerning the amount owed, the Government established the Estate had an outstanding estate tax liability. The parties stipulated to the admissibility of the IRS Form 4340 (“Certificate of Assessments, Payments, and Other Specified Matters”),[xxvii] and the balance due computation from the IRS Revenue Officer, to which the parties stipulated. That Court stated that it was well established in the tax law that an assessment was entitled to a legal presumption of correctness.
The Government also satisfied its timeliness burden. The Boys argued that the statute of limitations had run on the Government’s right to collect the estate tax from the Estate. The Court rejected their position.
While the Government generally has ten years to collect estate taxes from a decedent’s estate, the Court explained that when a decedent’s estate elects to pay in installments the estate tax attributable to the closely held business interests included in the decedent’s gross estate, the limitations period for collection of any unpaid portion of the tax is suspended until the IRS terminates the election.[xxviii]
This resulted in an extended deadline, the Court explained, which meant that the statute of limitations did not preclude the Government’s filing of the present lawsuit for collection of the unpaid estate tax.
Next, the Court considered the Government’s claim that the Boys were personally liable for the Estate’s tax debt. Indeed, the Code makes the recipients of estate property – including spouses, transferees, trustees, and beneficiaries – personally liable for unpaid estate taxes.[xxix] This personal liability, the Court stated, extended “to the extent of the value, at the time of the decedent’s death, of such property.”
Moreover, the Code makes this personal liability joint and several among all the recipients of estate property. Thus, the IRS asserted, each of the Boys was liable to the extent of the value, at the time of Decedent’s death, of the property received. Because the total value of the property they received as trustees and beneficiaries of the Trust exceeded the Estate’s outstanding estate tax liability, each of the Boys was personally liable for the full amount.
The Court noted that the parties’ stipulations established each element required for the personal liability asserted by the IRS. The estate tax was assessed and remained unpaid. On the date of Decedent’s death, the Boys were co-trustees of the Trust. As trustees, they held legal title to all Estate property. They were “the primary beneficiaries of the Trust and the Estate.” They received substantial assets from the Estate, including Decedent’s valuable business interests.[xxx] The property they received was included in Decedent’s gross estate for purposes of the estate tax. The Boys distributed the property to themselves without fully paying the acknowledged tax debt owed to the Government.[xxxi]
Satisfying these elements made the Boys jointly and severally liable for Decedent’s estate tax.
Because the Government satisfied its burdens, the burden shifted to the Boys to overcome the presumed validity of the IRS’s assessments.[xxxii]
Unfortunately for the Boys, they failed to carry their burden. In fact, they did not contest their personal liability at all. They did not argue that they were not personally liable; they did not dispute that they were trustees and beneficiaries; they did not dispute that they received Estate property; and they did not dispute that all the Estate’s assets were in the Trust and that they distributed those assets to themselves.[xxxiii]
Put simply, there was no factual basis for the Court to believe anything but what the above-described stipulations established. The Boys failed to establish the presence of a genuine dispute of material fact. As a result, the Court concluded no triable issue remained and the Government was entitled to judgment as a matter of law.
In fact, the Boys’ primary argument was that the gross estate value and balance of tax due were insufficiently supported. They did not argue that the amounts identified by the Government were inaccurate. Rather, their objection was based on a belief that the Government provided only “minimal information,” and failed to properly “state the debt with a distinct breakdown of interest and penalties which would be required for summary judgment.”
The Court stated that the Boys’ argument failed for multiple reasons. For one, they stipulated to the amount of the tax deficiency, and to the admissibility of the underlying exhibits supporting the amounts and values they now sought to contest. Those stipulations, the Court stated, were judicial admissions that bound the parties and precluded the argument being made by the Boys.[xxxiv]
For another, they failed to controvert the Government’s facts. Take the Government’s assertion of the gross estate’s specific value, where it identified the specific value of the Estate and cited, as support, the federal estate tax return reflecting that amount, the parties’ stipulation in the Pretrial Order concerning the same, and the Boys’ response to a request for production admitting to the same.[xxxv]
For the foregoing reasons, the Government’s Motion for Summary Judgment was granted.
Takeaway
It’s difficult to imagine why the Boys acted as they did. Were the businesses in which Decedent held an interest at the time of his death, and which were included in his gross estate, struggling with unexpected cashflow problems such that they could not make current distributions to the Trust, redeem any of the Trust’s equity in the businesses, or make a loan to the Trust? In deciding to make the election, did the Boys even consider how the installment payments would be funded? Did they have personal assets against which they could have borrowed the necessary funds? Did it make economic sense for them to do so? Did the Boys realize that their actions would accelerate payment of the tax? Did they think to request an extension of time for the payment of any installment of estate tax?[xxxvi]
Lots of questions to which we have no answers, but they do direct one’s attention to the importance of understanding the options available for satisfying a tax liability, including those afforded under the Code.
The opinions expressed herein are solely those of the author(s) and do not necessarily represent the views of the firm.
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[i] https://www.whitehouse.gov/wp-content/uploads/2026/04/budget_fy2027.pdf
[ii] The FY 2026 approved budget of $11.2 billion reflected a reduction from $12.3 billion in FY 2025. Then there are the billions in so-called “unobligated” Inflation Reduction Act funds that have already been rescinded, with more to come.
[iii] Want to see how the funds are spent? https://www.federalbudgetinpictures.com/federal-revenue-vs-spending/#:~:text=In%20fiscal%20year%202024%2C%20the,a%20non%2Drecession%20peacetime%20year.
[iv] For the FYE Sept. 30, 2024, the federal government collected revenue primarily from the following sources: (1) 49% from individual income taxes, (2) 35% from payroll taxes, (3) 11% from corporate income taxes, and (4) 5% from excise tax, estate tax, other taxes, and custom duties. https://bipartisanpolicy.org/explainer/what-kinds-of-revenue-does-the-government-collect/#:~:text=In%20fiscal%20year%20(FY)%202024,of%20total%20income%20taxes%20paid.
It should be noted that, when the federal budget has a budget deficit, the government borrows from “the public” to fill the gap between spending and revenue.
[v] US. v. Karst (D. Kan. 2026).
[vi] IRC Sec. 2038. Until his demise, the Decedent could have withdrawn or otherwise used the assets as he desired and without the consent of another. (We won’t consider the effects of the Decedent’s incapacity prior to his death.)
[vii] Generally, outside of probate. For example, jointly-owned properties that passed automatically to the surviving owner, life insurance proceeds payable to the named beneficiary of the policy, retirement benefits payable to a named successor beneficiary, etc.
[viii] Have you noticed that regardless of how much we age, men still refer to our age contemporaries as the boys or the guys?
[ix] One of Decedent’s two sons was nominated to serve as the executor of the Estate.
[x] They self-assessed the tax.
[xi] The IRS is directed to assess all taxes determined by the taxpayer and disclosed on a return. IRC Sec. 6201. Assessment is the statutorily required recording of the tax liability. Assessment is made by recording the taxpayer’s name, address, and tax liability. IRC Sec. 6203.
The assessment of a tax, including a tax deficiency arising from the government’s examination of the taxpayer’s return, triggers the government’s collection authority. If the taxpayer files a petition with the Tax Court, the entire amount redetermined as the deficiency by the decision of the U.S. Tax Court which has become final shall be assessed and shall be paid upon notice and demand. IRC Sec. 6215.
[xii] IRC Sec. 6166. In order to qualify for the installment arrangement, the closely held business in which a decedent owns an interest must satisfy certain criteria, and the value of the decedent’s interest in the business which is included in determining the decedent’s gross estate must exceed 35 percent of the adjusted gross estate. An eligible estate may choose to defer the payment of that portion of the estate tax attributable to the closely held business for up to 5 years before satisfying the tax over ten equal annual installments.
[xiii] IRC Sec. 6166(g); IRC Sec. 6155. (See also IRC Sec. 6303.) See IRM 5.5.6.4.
[xiv] Under IRC Sec. 6324(a)(2).
[xv] Summary judgment is proper under the Federal Rules of Civil Procedure when the moving party demonstrates “that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). A fact is “material” when it is necessary to resolve a claim. And disputes over material facts are “genuine” if the competing evidence would permit a reasonable jury to decide the issue in either party’s favor.
At the summary judgment stage, material facts “must be identified by reference to affidavits, deposition transcripts, or specific exhibits incorporated therein.” To determine whether a genuine dispute exists, the court views all evidence, and draws all reasonable inferences, in the light most favorable to the nonmoving party.
The moving party bears the initial burden of showing the absence of any genuine issue of material fact and entitlement to judgment as a matter of law. Once the moving party meets its burden, the burden shifts to the nonmoving party to demonstrate that genuine issues as to those dispositive matters remain for trial.
But in a case such as this one where the moving party — the Government — will bear the burden of proof at trial on a particular issue, the moving party must meet “a more stringent summary judgment standard.” That standard requires the movant to “establish, as a matter of law, all essential elements of the issue.” Only then must the nonmovant “bring forward any specific facts alleged to rebut the movant’s case.”
[xvi] Fed. R. Civ. P. 56(a).
[xvii] IRC Sec. 6201(a).
[xviii] IRC Sec. 6501(a).
[xix] IRC Sec. 6501(c)(4). Subparagraph (A) carves out the estate tax: “…except the estate tax provided in chapter 11…”
[xx] IRC Sec. 6601.
[xxi] IRC Sec. 6502(a)(1).
[xxii] The running of the period is suspended.
[xxiii] IRC Sec. 6331(i)(5), (k)(1).
[xxiv] IRC Sec. 6330(e)(1).
[xxv] Which it could do by filing certificates of assessment and other documents providing its assessment.
[xxvi] IRC Sec. 6502(a)(1).
[xxvii] A computer-generated document prepared exclusively for litigation purposes. It only includes assessments actually made by the IRS.
[xxviii] Pursuant to IRC Sec. 6503(d), the running of the period of limitation for collection of any estate tax is suspended for the period of any extension of time for payment granted under IRC Sec. 6166.
[xxix] IRC Sec. 6324(a)(2).
[xxx] On which the IRC Sec. 6166 election was based.
[xxxi] Indeed, they made partial payments but eventually stopped paying while a substantial balance remained.
[xxxii] According to the Court, “[i]f a taxpayer does not present evidence indicating to the contrary, a district court may properly rely on the [IRS’s assessments] to conclude that valid assessments were made.”
[xxxiii] Truth be told, how could they have contested the established facts?
[xxxiv] “A defendant’s stipulation waives any challenge contrary to the stipulation..”
[xxxv] The Boys attempted to controvert that assertion by offering a statement that the calculation might be inaccurate, but failed to confront the substance of the Government’s specific and supported assertion with any evidence such as affidavit, exhibit, stipulation, deposition testimony, or contrary evidence in the record to create a factual dispute.
The Court also noted that although the Boys preserved certain affirmative defenses in the Pretrial Order, they did not raise these in response to the Government’s motion for summary judgment, so these arguments were deemed abandoned and disregarded for purposes of summary judgment.
[xxxvi] Under IRC Sec. 6161(a)(2).