Transferee's liability can't exceed value of transfer.

After the death of Gabriel Baptiste, Sr., his son Gabriel, Jr., received $50,000 in life insurance benefits. Five years later, the Tax Court determined Gabriel, Sr.'s estate owed an additional $62,378. The estate never paid the deficiency.

The IRS asserted transferee liability for estate tax of $50,000, plus interest, against Gabriel, Jr. Under IRC section 6324(a)(2), liability for unpaid estate taxes is imposed on recipients of property included in a decedent's gross estate (such as the insurance proceeds in this case).

The Tax Court held that Gabriel, Jr., was liable for $50,000 in estate tax plus interest. He appealed the ruling.

Result: For Gabriel, Jr., in part. The amount of transferee liability is limited to the actual value of the property transferred to him--$50,000. Although a transferee's liability can include interest, section 6324(a)(2) clearly limits the transferee's total liability for tax and interest to the value of the property transferred. The Tax Court should have limited liability to $50,000.

Baptiste (8th Cir., 1994).

Note: The Third Circuit, in a decision involving gift taxes, reached a similar conclusion as to the limits on transferee liability (see Poinier [3rd Cir., 1988]).