IRS May Not Automatically Require Security When Estates Elect to Pay in Installments

In a small victory for decedents' estates, the U.S. Tax court rules that the IRS erred in adopting a bright-line rule requiring estates to provide a bond or special lien as a prerequisite to paying estate taxes in installments. Estate of Roski v. Comm'r of Int. Rev. (T.C., No. 5639-05, April 12, 2007).

Decedent Edward P. Roski's estate consisted of interests in a family business, which after his death was operated by his son and executor, Edward P. Roski, Jr. As executor, Mr. Roski filed a generation-skipping transfer tax return and a notice of election to pay the estate's taxes in installments, as allowed by the Internal Revenue Code. The Internal Revenue Service (IRS) notified the estate that it had to provide either a bond or a special lien if it intended to elect the installment option, and then denied the application because the estate failed to provide the required security.

The estate took the matter to the U.S. Tax Court, arguing that the IRS erred by refusing to exercise discretion in requiring a bond or lien and that if the agency had exercised its discretion, no bond or lien would have been required.

The U.S. Tax Court rules that the IRS's adoption of a bright-line rule eliminating the agency's ability to exercise discretion is itself an abuse of discretion. The court points out that with the enactment of the Tax Payer Relief Act in 1997, Congress gave the Tax Court jurisdiction to hear challenges to the election requirement and that the agency's action impermissibly contravened the purpose of the law to protect small businesses from liquidation in order to pay estate taxes. The court remands the case for the agency to exercise its discretion and determine whether the estate must furnish security.

To download the full text of this decision in PDF format, go to: https://www.ustaxcourt.gov/InOpHistoric/EstofRoski.TC.WPD.pdf .
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