Worse Than Paying Taxes? Paying Someone Else's---And IRS Can Make You Do It

Can the IRS collect someone else’s taxes from you? In some cases, yes, where you end up with assets or money from that person. You may have a right to the assets or money, but the IRS trumps you. The IRS calls it transferee liability and says ‘show me the money.’

Take Joseph L. Mangiardi, who died in 2000. Lots of money was spent on lawyers in this mess. I noted earlier court cases in this same tax kerfuffle here: Paying Taxes Pennies On The Dollar. Mangiardi’s daughter Maureen was co-executor of her dad’s estate. When she filed the estate tax return in 2001, the tax due totaled about $2.5M.

The estate was mostly stock and a retirement account, but there was plenty of value so there should have been no problem. Stock prices were low, so it made sense to let them rebound before selling. The estate asked for time and the IRS said sure. The IRS and heirs would both do fine.

You can guess what happened. Instead of waiting for stock prices to rebound, the executors must have thought they were Gordon Gekko. They engaged in active trading of securities, buying and selling. Unfortunately, they weren’t Gordon Gekko and lost money. That was bad enough.

But like Gordon Gekko, the executors were paying themselves hundreds of thousands of dollars in fees. The IRS got pretty annoyed. The IRS first went after the estate but found it was insolvent. Meanwhile, the tax debt had ballooned to over $3 million. See U.S. v. Mangiardi.

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Worse Than Paying Taxes? Paying Someone Else's---And IRS Can Make You Do It