Court Opinion

ID: 4472208
Source: CourtListenerOpinion
Date Created: 2020-01-13 23:19:55.408223+00
Date Added: 2024-06-11T14:53:49.216951
License: Public Domain

Halpern, J., concurring: The issue is whether, notwithstanding the limitation on transferee liability found in section 6324(a)(2), a transferee under that section may be liable for interest under section 6601(a) such that his total liability exceeds the value, at the date of decedent’s death, of the property received from the estate. The majority answers that question in the affirmative and I agree. I write separately, however, because I do not believe the majority’s rationale supports the conclusion reached today. I offer the following as an alternative. Section 6324(a)(2) imposes liability for unpaid estate taxes on a transferee of property from the estate.1 Moreover, because section 6601(e)(1) provides that the Code’s references to “tax” generally also refer to interest imposed on tax under that section, a transferee also is liable, under section 6324(a)(2), for interest imposed on the unpaid estate taxes.2 Consequently, absent some limitation, a transferee would be liable, under section 6324(a)(2), not only for all unpaid estate taxes, but also for all section 6601 interest imposed thereon, no matter how great the unpaid estate tax, how great the section 6601 interest imposed thereon, or how minimal the value of the property received from the estate. There is, however, a limitation precluding such a patently unfair and irrational result. Section 6324(a)(2), which creates the transferee’s liability in the first instance, further provides that a transferee’s liability is limited to “the extent of the value, at the time of decedent’s death” of the property transferred. Thus, petitioners argue, their liability as transferees under section 6324(a)(2) is limited to $50,000, the value, at the time of decedent’s death, of the property received — not the (approximately) $62,000 respondent seeks to collect. The majority agrees with petitioners on that seemingly determinative point. The majority states, and I agree, that “The limitation imposed by section 6324(a)(2) applies to a transferee’s liability for unpaid estate tax and for interest accrued thereon owed by a transferor”. Majority op. p. 255 (emphasis added). The majority finds that conclusion insufficient, however, to require a holding in favor of petitioner-transferees. In the view of the majority, a transferee not only is liable, under section 6324(a)(2), for the unpaid estate tax and interest of the transferor, but also has an independent liability for interest, to which the limitation of section 6324(a)(2) does not apply. The majority states: The limitation imposed by section 6324(a)(2) * * * does not apply to a transferee’s liability for interest accrued on unpaid estate tax owed by the transferee. Section 6324(a)(2) imposes a direct, personal, and primary obligation on a transferee. Thus, interest accrues on a transferee’s personal liability for unpaid estate tax notwithstanding the limitation imposed by section 6324(a)(2) on a transferee’s liability for amounts owed by a trans-feror. [Majority op. p. 255; citations omitted; emphasis added.] Thus, the majority explicitly relies upon the existence of two types of interest: Interest owed by the transferor and interest separately owed by the transferee, the latter not being subject to the liability limitation of section 6324(a)(2). I too reach that conclusion, but I arrive at it by a path different than does the majority. The majority reasons that a transferee liable under section 6324(a)(2) for certain deficiencies in tax (including interest) of the estate also is liable for interest (under section 6601) simply because that liability is “direct, personal, and primary”. Majority op. p. 255. I cannot agree. Certainly, as a general proposition, it must be conceded that not every (Federal) personal liability gives rise to a liability for interest under the Internal Revenue Code. An individual willfully destroying Federal property, for example, would in all likelihood be personally liable (to the United States) for the damage caused by that act. Nonetheless, no one would seriously argue that section 6601 of the Internal Revenue Code applies in that circumstance, because such liability is not tax liability, which, in general, describes the province of the Internal Revenue Code. The first inquiry, therefore, is whether a transferee’s personal liability, imposed by section 6324(a)(2), is tax liability or, instead, some other personal liability imposed (as it happens) by Federal law. I contend that it is the latter. First, section 6324(a)(2) provides merely that a transferee shall, to a limited extent, be personally liable for certain unpaid estate tax. Nothing in section 6324(a)(2) explicitly provides that such personal liability is tax liability (as opposed to a personal liability of the usual sort), nor has any argument been advanced in support of that inference. Second, the statutory scheme not only fails to prove that section 6324(a)(2) transferee liability is tax liability but is unambiguously at odds with that proposition. If such were tax liability, then the Commissioner, without more, could issue a deficiency notice and assess a deficiency against a transferee in the same way as against a taxpayer. That, however, clearly is not the case. Section 6901(a) provides a procedure through which the Commissioner may collect certain liabilities, including liabilities of transferees, in much the same way as she collects liabilities for tax. SEC. 6901(a). Method of Collection. — The amounts of the following liabilities shall * * * [generally] be assessed, paid, and collected in the same manner and subject to the same provisions and limitations as in the case of the taxes with respect to which the liabilities were incurred: (1) Income, estate, and gift taxes. (A) Transferees. — The liability, at law or in equity, of a transferee of property— [Emphasis supplied.] The reason that section 6901 is needed is that the liabilities to which it applies are not tax liabilities and otherwise could not be collected in the manner, and subject to the same provisions and limitations, applicable to tax liability.3 Accordingly, any liability to which section 6901 applies is not tax liability. Section 6901(h) provides that “the term ‘transferee’ * * * includes any person who, under section 6324(a)(2), is personally liable” for unpaid estate tax. Thus, the liability of a transferee under section 6324(a)(2) is a nontax liability that, solely by virtue of section 6901, may be collected in a similar manner as the tax liability from which it derives. In his concurring opinion, Judge Ruwe suggests that the liability created by section 6324(a)(2), which he seemingly would concede is not an actual tax liability, nonetheless should be treated as if it were. whatever the date on which liability arises under section 6324(a)(2), the liability, at that point, cannot exceed the date-of-death value of the property received. On the other hand, at the time that personal liability comes into being, and the transferee becomes personally liable to pay a limited amount of the estate tax liability, that limited amount of liability becomes a direct obligation of the transferee, which itself is treated as a tax under title 26. If it is not paid when due, section 6601 provides for interest on the unpaid amount. In this sense, it is interest on the transferee’s personal liability, rather than interest on the estate’s tax liability. [Ruwe op. p. 258 emphasis added; fn. ref. omitted.] It seems fair, however, to ask: Why is the transferee liability created by section 6324(a)(2) treated as a tax? Neither the majority nor Judge Ruwe supplies an answer to that critical question. I believe that the transferee liability created by section 6324(a)(2) is, at least in some respects, treated as a tax liability and the answer to why can be found in section 6901. Section 6901, as described above, permits respondent to treat transferee liability as tax liability in certain respects. In particular, it provides not only that transferee liability shall be assessed, paid, and collected in the same manner as the underlying tax but that such liability shall be subject to the same provisions (and limitations) as the underlying tax. Thus, I believe that section 6901 authorizes the Commissioner to treat transferee liability as tax liability for the purpose of imposing interest under section 6601 for payment not timely made. A two-step analysis of the history of section 6901 confirms my view. First, section 311 of the 1939 Code (the immediate predecessor of section 6901) explicitly provided that transferee liability would be treated like tax liability to which the applicable interest provision would apply.4 Second, there is no indication that this scheme was intended to be abandoned in the 1954 Code. Section 311 of the 1939 Code provided in pertinent part as follows: SEC. 311. TRANSFERRED ASSETS. (a) Method of Collection.' — -The amounts of the following liabilities shall, except as hereinafter in this section provided, be assessed, collected, and paid in the same manner and subject to the same provisions and limitations as in the case of a deficiency in a tax imposed by this chapter 0including the provisions in case of delinquency in payment after notice and demand, the provisions authorizing distraint and proceedings in court for collection, and the provisions prohibiting claims and suits for refunds): (1) Transferees. — The liability, at law or in equity, of a transferee of property of a taxpayer, in respect of the tax (including interest, additional amounts, and additions to the tax provided by law) imposed upon the taxpayer by this chapter. [Emphasis supplied.] Thus, the scheme proposed by Judge Ruwe clearly appears to have been the case under 1939 Code section 311. Under that provision, a transferee would assume (to a limited extent) certain tax liabilities of the transferor, including additions to tax and interest. That transferee liability would be assessed, collected, paid, and subject to the same provisions and limitations — including the then-applicable interest provision on a delinquency in payment after notice and demand — as if it were a tax. Thus, in Estate of Stein v. Commissioner, 37 T.C. 945, 960 (1962), we concluded that in cases of transferee liability “respondent is entitled to interest thereon just as he is so entitled on any deficiency.” Accord Patterson v. Sims, 281 F.2d 577 (5th Cir. 1960). See also H. Rept. 356, 69th Cong., 1st Sess. (1926), 1939-1 C.B. (Part 2) 361, 372.5  The next issue, therefore, is whether the 1954 Code departed radically from that scheme, providing instead that respondent no longer would be entitled to interest in such cases “just as he is so entitled on any deficiency.” Like the 1939 Code the 1954 Code provides that transferee liability not only is assessed, paid, and collected as if it were tax liabilities, but also is “subject to the same provisions and limitations”. It must be admitted, however, that 1939 Code section 311’s explicit statement that such provisions and limitations include “provisions in case of delinquency in payment after notice and demand” (interest) appears nowhere in section 6901 of the 1954 Code. Accordingly, it can be argued that, in deleting the reference to notice and demand, Congress’ intention was to rescind respondent’s right to otherwise-applicable interest on transferee’s taxlike liability. Were that Congress’ intent, however, I believe the legislative history would contain some indication to that effect. I have found none and conclude that Congress merely deleted an unnecessary specific reference, intending section 6901 to be similar to 1939 Code section 311. It is impossible, however, to reach the exact same result under the 1954 Code as was reached under the 1939 Code. Section 311 of the 1939 Code, as observed above, permitted respondent to apply the notice and demand provision to a transferee liability as if it were tax liability. The notice and demand provision, 1939 Code section 294(b), was as follows: SEC. 294. ADDITIONS TO THE TAX IN CASE OF NONPAYMENT. # * tfc % # # * (b) Deficiency. — Where a deficiency * * * is not paid in full within ten days from the date of notice and demand from the collector, there shall be collected as part of the tax, interest * * * from, the date of such notice and demand until it is paid. [Emphasis added.] No notice and demand provision exists, however, under the 1954 Code. The present interest provision (where applicable) entitles respondent to interest commencing not at the time of notice and demand but as early as the time of the transfer: SEC. 6601. INTEREST ON UNDERPAYMENT, NONPAYMENT, OR EXTENSIONS OF TIME FOR PAYMENT OF TAX. (a) General Rule. — If any amount of tax imposed by this title * * * is not paid on or before the last date prescribed for payment, interest on such amount * * * shall be paid for the period from such last date to the date paid. [Emphasis added.] Where transferee liability is concerned, the last date prescribed for payment would be the date the liability arises, sec. 6601(b)(5), which would be no earlier than the date of the transfer. Thus, it seems evident that the exact same result does not obtain under the 1954 Code as under the 1939 Code. As for the precise nature of the changes wrought in 1954, two interpretations stand out as reasonable alternatives. First, Congress may have intended to continue the general rule that respondent would be entitled to appropriate interest on transferee liability (as if it were tax liability), but determined that interest more appropriately should be payable from (generally) the time of the transfer rather than the time of notice and demand. Second, Congress may have intended to abandon the general rule that respondent was entitled to interest on transferee liability as on tax liability. Congress made no announcement of a drastic change, in this regard, from the 1939 scheme, and I therefore conclude that whichever interpretation of section 6901 is most consistent with the preceding scheme is the better. As suggested above, I believe Congress would have considered the fundamental characteristic of the 1939 scheme to be that transferee liability is treated like tax liability for the purpose of respondent’s entitlement to appropriate interest thereon. How much interest is appropriate would have been a subordinate consideration. Accordingly, I would conclude that section 6901 entitles respondent to interest on the transferee liability, as if it were tax liability, under section 6601. The only role section 6324(a)(2) plays in that scheme is in providing the predicate for a person’s status as a transferee under section 6901. See sec. 6901(h). Thus, the same result would attach to any transferee liability subject to section 6901, notwithstanding that the source of such liability may be State law (as in the case of an income tax debtor) instead of section 6324. As observed above, section 6601(a) provides that interest shall be payable from the “last date prescribed for payment” which is the date the liability for tax arises, section 6601(b)(5) — no earlier than the date of the transfer.6  In light of the foregoing, I concur in the result reached by the majority. Chiechi, J., agrees with this concurring opinion.  For convenience, I sometimes refer to transferees to which sec. 6324(a)(2) applies merely as “transferees”.    In essence, liability for interest is incorporated by reference into sec. 6324(a)(2), by virtue of sec. 6601(e)(1).    The alternative is that sec. 6901 is redundant and serves only to emphasize that certain tax liabilities may be assessed and collected as tax liabilities. Such a reading, to say the least, is highly implausible.    To be more precise, we might refer to the 1939 Code sec. 900, which deals specifically with a transferee’s liability for unpaid estate tax, whereas sec. 311 is the more general provision, which deals with a transferee’s liability for unpaid income tax of a transferor. The effect of 1939 Code sec. 900 mirrors that of 1939 Code sec. 311, however, and for convenience we refer to the latter. See H. Rept. 356, 69th Cong., 1st Sess. (1926), 1939-1 C.B. (Part 2) 361, 376 (incorporating by reference the legislative history of 1926 Code sec. 280 (the predecessor of 1939 Code sec. 311) to 1926 Code sec. 316 (the predecessor of 1939 Code sec. 900).    H. Rept. 356, 69th Cong., 1st Sess. (1926), 1939-1 C.B. (Part 2) 361, is the conference report accompanying H.R. 1, which became the Revenue Act of 1926, 44 Stat. 9. The Revenue Act of 1926 is the origin of those provisions applying deficiency procedures against transferees. H. Rept. 356, supra, 1939-1 C.B. (Part 2) at 372 provides as follows: Under the amendment the liability of the taxpayer for the tax, including all interest and penalties, is fixed as of the time of the transfer of the assets. No further interest subsequently accrues upon such liability as assumed by the transferee, except the interest under section 276 (b) and (c) for failure to pay upon notice and demand after the outlined procedure has been completed and interest at 6 per cent a year for reimbursing the Government at the usual rate for loss of the use of money due it. Sec. 276(b) of the 1926 Act, 44 Stat. 57, applies interest to a deficiency that is not paid in full within 10 days from notice and demand. Sec. 276(c), 44 Stat. 58, of that act applies in lieu of sec. 276(b) (and (a)) in certain cases concerning fiduciaries and provides interest at the rate of 6 percent. Accordingly, under the 1926 Act, a transferee was responsible neither for interest accruing against the transferor after the date of the transfer nor for Federal interest on the transferee’s obligation except as provided by sec. 276(b) or (c) of the 1926 Act.    In Estate of Stein v. Commissioner, 37 T.C. 945, 960 (1962), we stated that only upon sending notice to the transferee is respondent entitled to interest under sec. 6601 (State law being required to supply the right to interest prior to such notice and demand). That case, however, in large part, referred to the 1939 Code rather than that of 1954, and the lion’s share of attention seemingly was given to the former rather than the latter. Further, we relied heavily upon Patterson v. Sims, 281 F.2d 577 (5th Cir. 1960), a case decided exclusively under the 1939 Code. In any event, it was unnecessary in Stein to carefully consider whether sec. 6601 created a Federal right to interest from the date of the transfer, because we determined that State law supplied that right. Accordingly, I do not think Stein precludes us from reading sec. 6601 in accordance with its clear meaning.