WWW. NYLJ.COM Trusts Estates VOLUME 259—NO. 10 TUESDAY, JANUARY 16, 2018 The Inevitable: By And Death and Taxes Terence E. Christina Smolev Jonathan in a 2016 episode of CBS’ “Undercover BY CHRISTINA JONATHAN Boss.” With such great achievement, it AND TERENCE E. SMOLEV was a shock that the 57-year-old Jamaican here is an old English saying, usu- born entrepreneur was found dead from a ally attributed to Benjamin Franklin, self-inflicted gunshot wound. Lowell was Tthat “nothing in our lives is certain allegedly driven by “fears that the Feds except death and taxes.” As is seen fre- were investigating him for evading mil- quently in mass media, many wealthy lions of dollars in taxes.” individuals, politicians and corporations Tax evasion is a serious crime that can attempt to dodge one of these life certain- ultimately lead to substantial penalties and ties. However, if in attempting to avoid one incarceration up to five years. In general, of these certainties, violations are com- the Internal Revenue Code §7201 creates mitted, the consequences are severe and two kinds of tax evasion: the willful attempt will not be pardoned, not even in death. to evade or defeat the assessment of a tax A recent illustration involves the loss and the willful attempt to evade or defeat by the Caribbean community of Lowell the payment of a tax. While death may SHHUTTERSTOCK Hawthorne, founder and CEO of the fran- end a criminal case against an individual chise Golden Krust Caribbean Bakery & to a certain extent, death in and of itself who is under a duty to perform the act Grill (Golden Krust), known for its staple does not defeat the payment of the taxes, in respect of which the violation occurs. Jamaican style beef patties. Golden Krust penalties and interest that the individual Therefore, if a responsible shareholder is a popular chain that Hawthorne started may owe, or prevent further prosecution fails to file a required corporate return, in 1989, which developed into a national of the individual’s business. or files with false information, or fails franchise with over 120 restaurants in nine As a basic rule, a corporation is treat- to collect and turn over taxes that were states. In addition, Golden Krust patties ed as a separate entity, taxed unto itself, assessed against his business, then there are sold by most supermarkets, includ- wherein shareholders and officers are may be personal liability against that indi- ing Costco, in over 30 states and also shielded from corporate liabilities. How- vidual. served to students in New York City pub- ever, there are a number of exceptions to Once an assessment has been made lic schools. Lowell documented his com- both the IRS and NYS tax laws that will against an individual, his or her estate will pany’s success in his 2012 publication, allow the government to assess taxes and still be responsible for addressing and paying “The Baker’s Son,” and he also appeared commence an action against an individual this liability. Or even worse, if an assessment shareholder, or officer. Specifically, I.R.C. is made against an individual who filed a joint §7343 defines the term “person” to include return with his or her spouse, the spouse will CHRISTINA JONATHAN is a partner at the firm Berk- man, Henoch, Peterson, Peddy & Fenchel. TERENCE an officer or employee of a corporation, or be jointly and severally liable for any taxes, E. SMOLEV is of counsel to the firm. a member or employee of a partnership, penalties and interest owed during the years TUESDAY, JANUARY 16, 2018 that they filed jointly, including additional will not be liable for the other’s allocation. beneficiary may be required to personally assessments from ongoing investigations Equitable relief exists when a taxpayer pay decedent’s tax liability to the extent or audits. does not qualify for innocent spouse or that he received assets from the dece- When a taxpayer passes away, his execu- separation of liability relief. The intrica- dent’s estate. This may be accomplished tor or an administrator of his estate will cies of the statute, regulations and rules by the R.O. commencing a transferee now be responsible for negotiating and pay- are beyond the provisions of this article. action against beneficiaries who received ing from estate assets any tax liabilities However, any matrimonial attorney, tax assets. It is important for the Executor or due. Sometimes assets transferred to third attorney, or general practitioner should Administrator to determine when a notice parties may be seized by the collection be aware of the existence of these provi- of Federal Tax Lien (Lien) has been filed by officer. The IRS has a strict collection pro- sions of the tax law, regulations and rules the IRS against the decedent to properly cess for decedent’s and estate taxes owed. to appropriately advise clients, when joint defend such actions. If a Lien was recorded Once an assessment has been made and tax liabilities are involved. on a tax assessment made before death, the case is assigned to collection, the first As for tax liabilities that are solely dece- then it attaches to all assets owned by the thing that a collection agent determines dent’s, the collection case may be assigned deceased taxpayer, including any assets that is if there is a joint liability. As mentioned, to an IRS Revenue Officer (R.O.) to enforce were transferred after the Lien. Therefore, if there is a joint liability, then the taxing against the estate. Generally, an R.O. can- any assets that would automatically pass authorities will take collection against the not commence any collection action to an heir will be subject to that Lien, pos- surviving spouse. If the collection case is against an estate until he has completed sibly making the beneficiary liable to the not dealt with immediately, the surviving all of the required fact finding actions. government for the value of that asset. spouse may be subject to adverse action These regulations impose a duty that the In contrast, if the Lien was recorded on a such as levies, wage garnishments, driver’s R.O. must research the surrogate’s court post-death assessment, it does not attach to license suspension, etc. records, as well as internal and third-party non-probate property and can only attach An infamous case dealing with this exact resources. Note, an R.O. has the ability to to probate assets in the estate. issue was that of Carol Ross Joynt, former secure all pertinent probate or adminis- The death of a loved one is always dif- producer of Larry King on CNN’s “Larry ficult to deal with, especially if a federal King Live” and author of the 2011 memoir Tax evasion is a serious crime that or state investigation targets a surviving “Innocent Spouse.” Carol’s husband died spouse, or beneficiary of the estate. It is of pneumonia, leaving behind Nathan’s, can ultimately lead to substantial critical that an executor or administrator of a popular Georgetown bar. He also left penalties and incarceration up an estate that is facing issues of tax investi- behind $3 million in back taxes, penalties to five years. gations, lawsuits, or the like are fully aware and interest. Although the taxing authori- of his or her obligations and exposure of ties take a hard position on joint liability, in tration documents, such as copies of the all individuals involved. certain circumstances, a surviving spouse death certificate, will, letters testamentary, A final note: the newly enacted federal can plead innocence for her husband’s tax list of assets, any proceedings that outline tax law need be considered when dealing liability, as was successfully done by Carol distribution or litigation of the deceased’s with tax matters. Collection issues should through her tax attorneys. assets, list of heirs and their contact infor- continue as before the enactment. Both the IRS and NYS offer relief of tax, mation, bonds posted by the fiduciary, interest and penalties on joint tax returns accountings, documents related to the if the injured spouse can prove that such businesses owned by the decedent. See relief is warranted. The IRS statute offers IRM/Part5/workingdecedentcases/5.5.3.4. three types of relief: Innocent Spouse, Sepa- The R.O. also has tools to assist with iden- ration of Liability and Equitable Relief. Inno- tifying assets owned by the decedent prior cent spouse relief completely eliminates to death and can determine if decedent the tax liability of a spouse pursuant to made any transfers prior to death. 100 Garden City Plaza, 3rd Floor provisions of the tax law, its regulations The goal of an R.O. is to ultimately collect Garden City, New York 11530 and rules. Separation of liability relief all monies owed to the government, by any Phone (516) 222-6200 Ext. 236 provides for the separation of income means available to him. There are certain and deductions for each of the spouses. federal and state remedies available that Reprinted with permission from the January 16, 2018 edition of the NEW YORK Thus, each spouse has his/her own sepa- will allow an R.O. to force a fiduciary to LAW JOURNAL © 2018 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited. For information, contact 877-257-3382 or rate tax liability, interest and penalties, and pay amounts due from the estate assets. A [email protected]. # 070-01-18-22.