A recent federal district court decision[1] highlights the significant risk that beneficiaries and fiduciaries may face when estate assets are distributed before federal estate tax liabilities have been fully satisfied.[2] In United States v. Karst, the court granted summary judgment in favor of the government and held that the decedent’s sons, who were named as trustees, beneficiaries, and executor, were personally liable for more than $1.1 million in unpaid federal estate taxes after distributing estate assets to themselves while the tax liability remained outstanding.
The decision illustrates the broad reach of Internal Revenue Code Section 6324(a)(2), which allows the federal government to impose personal liability on individuals who receive property included in a decedent’s gross estate when estate taxes remain unpaid. Although estate planners often focus on minimizing transfer taxes through lifetime planning and the use of trusts, this case serves as a reminder that post-death administration decisions can create significant tax exposure for fiduciaries and beneficiaries. The ruling also highlights how several provisions of the Internal Revenue Code can interact in ways that extend the government’s ability to collect unpaid estate taxes and impose liability on individuals who receive estate property.
Overview of Federal Estate Tax Liability
The federal estate tax applies to the transfer of a decedent’s taxable estate and is generally due nine months after death unless an extension or deferral provision applies. The estate’s executor or personal representative is responsible for filing Form 706 (Estate Tax Return) and ensuring that the tax is properly paid. Although the estate itself is primarily liable for the tax[3], the Internal Revenue Code includes several provisions designed to ensure that the government can collect the tax even when estate assets have already been distributed[4]. These provisions are particularly important in situations where estate assets are transferred to beneficiaries before the estate tax has been fully satisfied.
One such provision is Section 6324(a), which creates a special estate tax lien that arises automatically at death and attaches to all property included in the decedent’s gross estate. That lien remains in place for up to ten years after the decedent’s death, unless the estate tax is paid earlier. Section 6324 also includes a related enforcement mechanism, Section 6324(a)(2), which allows the government to pursue individuals who receive estate property when the estate tax remains unpaid.[5]
Estate Tax Liability and the Government’s Collection Action
In Karst, following the decedent’s death in 2007, the estate filed a Form 706 reporting a gross estate value of approximately $3.97 million and a federal estate tax liability of roughly $792,790. The estate’s assets included interests in several closely held oil and gas businesses. Because a substantial portion of the estate consisted of closely held business interests, the estate elected to defer payment of the estate tax under Section 6166.
Section 6166 permits estates with qualifying closely held business interests to pay estate taxes in installments over time rather than in a single payment. In many cases, this election allows estates to avoid liquidating business assets in order to satisfy estate tax liabilities immediately after death. Although installment payment elections can provide valuable liquidity relief for estates holding operating businesses or illiquid assets, the election does not eliminate the underlying tax liability. Instead, it simply allows the tax to be paid over time, typically over a period that may extend more than a decade.
In the case at issue, the estate initially made installment payments but eventually stopped making payments while a substantial balance remained outstanding. Over time, interest and penalties accrued, and the unpaid liability continued to grow. By mid-2025, the remaining estate tax liability, including interest and penalties, exceeded $1.1 million. The government subsequently filed suit seeking to reduce the tax liability to judgment and to impose personal liability on the beneficiaries and fiduciaries who had received estate property.
Summary Judgment and the Presumption of Correctness in Tax Cases
The government moved for summary judgment on its claims. Under Federal Rule of Civil Procedure 56, summary judgment is appropriate when no genuine dispute of material fact exists and the moving party is entitled to judgment as a matter of law.[6] Federal tax cases are frequently disposed of in the summary judgment stage because the government can establish the validity of a tax liability through IRS assessments, which are generally presumed to be correct.
Once the government introduces evidence of a valid assessment, the burden shifts to the taxpayer to produce evidence demonstrating that the assessment is incorrect. This presumption of correctness is a powerful procedural tool for the government. In many tax collection cases, taxpayers are unable to produce sufficient evidence to rebut the presumption, particularly where the tax liability was previously reported on the taxpayer’s own return.
In this case, the court determined that the government had met its burden by producing the relevant IRS records establishing the amount of the outstanding estate tax liability. The defendants did not produce evidence sufficient to challenge the validity or amount of the assessment. As a result, the Court concluded that the government was entitled to judgment as a matter of law with respect to the estate’s liability.
Statute of Limitations and the Effect of a Section 6166 Election
The defendants also argued that the government’s claims were barred by the statute of limitations. Under Section 6502(a), the government generally has ten years from the date of assessment to collect a federal tax liability through administrative or judicial means.[7] However, the Internal Revenue Code contains several provisions that can extend or suspend this collection period. One such provision applies when an estate elects to pay estate taxes in installments under Section 6166.
Section 6503(d) provides that the statute of limitations for collection is tolled while a Section 6166 election remains in effect. As a result, the government’s collection period may extend well beyond the typical ten-year window when installment payment treatment applies. In the subject case, the estate’s installment election had the effect of suspending the statute of limitations for several years. The Court therefore concluded that the government’s lawsuit, filed in 2024, was timely despite the fact that the original tax liability arose many years earlier.
Personal Liability Under Section 6324(a)(2)
The central issue in the case involved transferee liability under Section 6324(a)(2), which imposes personal liability on certain recipients of property included in a decedent’s gross estate, including beneficiaries, trustees, and other transferees, if estate taxes remain unpaid. The liability applies to the extent of the value of the property received.[8] The purpose of this provision is to ensure that the government can collect estate taxes even when estate assets have already been distributed to beneficiaries or transferred to trusts.
In practical terms, Section 6324(a)(2) functions as a collection mechanism that allows the government to follow estate assets after distribution. To satisfy any tax liability of an estate, the government may pursue individuals who received estate property. In Karst, the fiduciaries and beneficiaries had distributed substantial estate assets, including valuable oil and gas interests, to themselves while the estate tax remained unpaid. Because those assets were included in the decedent’s gross estate, the Court concluded that the individuals who received the property were personally liable for the unpaid tax under Section 6324(a)(2).
The Court also emphasized that liability under Section 6324(a)(2) is joint and several, meaning that the government may collect the entire unpaid tax from all or any one of the transferees.[9] This feature of the statute significantly increases the risks faced by beneficiaries and fiduciaries, as a single individual may ultimately bear the burden of the entire tax liability if other recipients of estate property are unable or unwilling to contribute. Notwithstanding joint and several liability, the government can only collect from a recipient of estate property to the extent such individual received estate property.[10]
Conclusion
The decision provides a clear reminder that estate tax liabilities can follow estate property even after that property has been distributed to beneficiaries. Federal law allows the government to pursue beneficiaries, trustees, and other recipients of estate property when estate taxes remain unpaid. Installment payment elections under Section 6166 may extend the government’s collection window for many years due to statutory tolling provisions. Taken together, these rules mean that distributing estate assets before estate taxes have been fully satisfied may expose fiduciaries and beneficiaries to substantial personal liability for the unpaid tax. Further, and outside the scope of this article, there are other avenues the government can take to pursue recovery of any estate tax liability, such as Section 3713(b), which allows recovery against a fiduciary for paying any other debt before paying the government’s claim, as well as transferee liability under Section 6901.
[1] United States v. Karst, Case No. 24-cv-04090-TC.
[2] See Gray Edmondson’s prior article on a case involving similar issues here: https://www.esapllc.com/successor-trustee-liability-for-unpaid-estate-tax-lee-case-2024/
[3] In Mississippi estate tax apportionment is codified under Miss. Code Ann. § 91-25-1 et seq.
[4] For example, I.R.C. Section 2207A requires a QTIP trust to pay tax it generates on the beneficiary-spouse’s estate.
[5] A lien imposed under Section 6324(a)(1) expires after 10 years, but the ability to collect under (a)(2) continues after that time if tolled under Section 6503.
[6] Fed. R. Civ. P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
[7] I.R.C. § 6502(a)(1).
[8] I.R.C. § 6324(a)(2).
[9] United States v. Johnson, 920 F.3d 639, 645 (10th Cir. 2019).
[10] I.R.C. § 6324(a)(2).
