Monday, February 22, 2016

Trustee Liable for Trust's Taxes After Rendering it Insolvent

In United States v. Read, 2016 WL 310721 (D. Conn. Jan. 26, 2016) (slip copy), a U.S. district court held that a trustee was personally liable for unpaid income taxes owed by the trust, under 31 USC 3713.

The statute provides as follows:

  1. A claim of the United States Government shall be paid first when…
    (B) the estate of a deceased debtor, in the custody of the executor or administrator, is not enough to pay all debts of the debtor.
    (b) A representative of a person or an estate (except a trustee acting under title 11) paying any part of a debt of the person or estate before paying a claim of the Government is liable to the extent of the payment for unpaid claims of the Government.
    Here, the trustee distributed assets of the trust while the trust was insolvent and he knew or had "notice of facts that would lead a reasonably prudent person to inquire as to the existence of the debt" owed to the United States, and so is liable to the IRS for the unpaid taxes.

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