The Eighth Circuit recently ruled that an estate that has elected to defer taxes under §6166 must be current on its installment payments before filing suit for redetermination of estate taxes.

The decedent in this case left an estate of mostly farmland. The estate elected under §6166 to pay the estate taxes in installments, and the 15-year payment period expired in April 1996. The IRS sent notices to the estate requesting and then demanding payment and also rejected a compromise offer from the estate. In 1998, the IRS accelerated the estate's tax liabilities.

In September 1998, the estate's executor finally decided to sue the IRS to demand a redetermination of the estate taxes. The estate claimed that it had paid all taxes due by its calculations. The government moved to dismiss on the grounds that the estate had not paid all taxes due before filing suit and had failed to remain current in its payments and had not filed an administrative claim for refund.

A district court granted the government's motion to dismiss, explaining that the estate was jurisdictionally barred from bringing suit because it had not paid all installments that had become due before the suit was filed. Generally, an estate that elects to pay estate taxes in installments under §6166 may file an action under §7422(j) even if the entire tax liability has not been fully paid. However, as the court reasoned, the estate must have paid the full amount of tax liability before brining action if the IRS has accelerated any part of that liability.

The Court of Appeals for the Eighth Circuit affirmed the district court's ruling.

In this case, the fault lies with the estate's executor. Had the estate simply kept current on the installment payments and filed an action for redetermination immediately, this likely would not have happened. Then the estate could have presented its case to the court. It is doubtful that the executor acted under the advice of an experienced estate planning attorney.