Texas Probate Law And So Have Priority Under Texas Law Against Tax Claims

irs.gov, Feb 18, 2005

United States v. McLendon, Jr., 1999 U.S. Dist. LEXIS 12796 (N.D. Tex. July 28,1999) - Insolvent estate orrowed money from related partnerships to pay creditors, including United States. The court found the Service lacked priority to the remaining  funds on a number of grounds.

First, the statute of limitations had expired on the estate tax claim under I.R.C. § 6324, leaving only a lien under section 6321, which was subordinate to the partnership’s previously filed security interests. Next, the court found the partnership loans were subrogated to the dministrator’s right to reimbursement under Texas probate law, and so have priority under Texas law against tax claims.

The court found the Government’s fraudulent conveyance claim not properly pled and beyond the state statute of limitations, holding the Uniform Fraudulent Transfer Act a statute of repose (not of limitations) and so not governed by United States v. Summerlin, 310 U.S. 414 (1940) (United States not bound by state statutes of limitation).

Finally, the judge rebuffed the Government’s attempt to hold the estate’s personal representative liable for paying claims ahead of the federal taxes. The court found the representative did not know the estate would become insolvent, and since the Government had no priority to rely on, it would not have been entitled to any additional assets in any case.