Unpublished Disposition, 855 F.2d 864 (9th Cir. 1988)

MEMORANDUM^* 

The fundamental question posed in this case is whether a representative of an estate, who delegated responsibility to others for the administration of the estate's affairs and the operation of a continuing business, will be held personally liable under the Federal Insolvency Statute for taxes incurred during the operation of the business.

Rhondea Volta, the personal representative of her father's estate, argues that she should be held personally liable only if she were aware of facts which would lead her to inquire whether the taxes had actually been paid. Volta, as personal representative of an estate operating a business, is presumed to know that taxes will accrue in the operation of a business and that she is responsible for seeing that they are paid. We affirm.

The Federal Insolvency Statute, 31 U.S.C. § 3713 (1982),¹  requires that the United States Government be paid first when the estate of a deceased debtor does not have enough funds to pay all of the debts of the decedent. If the representative of the estate pays any part of the debt before paying the Government, then she is personally liable to the Government for the amount of the payment. United States v. Cole, 733 F.2d 651, 654 (9th Cir. 1984).

Volta essentially argues that even though a person perhaps should know that taxes will be due when a business is operating, she did not know that the taxes had not been paid. Volta argues that she was unsophisticated in the business world and relied on her attorney and her mother to attend to the estate and to the business. Therefore, Volta says, she was not on notice to inquire about a problem. The Government counters, arguing that Volta, as a fiduciary of an estate with an ongoing business, was responsible for seeing that taxes accruing in the course of the business were paid. We agree with the Government.

The crux of this case is that Volta, as the representative of the estate, acted in the position of the owner of the business. The fact that she delegated the responsibility for running the business to her mother and for the legal affairs to her attorney is irrelevant to her fiduciary responsibility as a representative of an estate. That fact does not absolve her of liability for taxes accrued to an ongoing business.

Additionally, she cannot avoid liability on the theory that the Government gave her no notice of the claim. The taxes involved here were incurred by the estate itself through operation of the decedent's business. It is a fiduciary's responsibility to report the taxes due and pay them to the Government. Otte v. United States, 419 U.S. 43, 52 (1974). Volta's liability is not dependant on the Government's giving her notice of the taxes due; rather, she is presumed to know that an ongoing business gives rise to federal tax obligations. The Internal Revenue Code requires that she report and pay those taxes to the Government as they are incurred by the estate. See, e.g., 26 U.S.C. § 3402(a) (1982) (requiring every employer paying wages to deduct and withhold income tax); see also Sec. 6012(b) (4) (1982) (fiduciaries of an estate shall be responsible for the tax returns of that estate).

Volta states that the record reveals she had no actual knowledge of any debt due to the Government, primarily because she delegated the affairs of the estate to her attorney and the running of the business to her mother. This does not excuse her.

Volta had knowledge of two facts: (1) she was the personal representative of an estate and (2) the estate was operating a business. Notwithstanding that she had a lack of business expertise or that she chose to delegate responsibility, she accepted the role of personal representative of the decedent's estate and, as such, was made liable by statute to report and pay the estate's federal tax obligations.

The cases cited by the appellant all relate to debts that were incurred prior to the death of the decedent. In those cases where the administrator of the estate had no personal knowledge of the existence of the debt and the Government did not file a claim, the personal administrator was not held responsible. That differs substantially from the circumstances here, in which the personal representative of the estate running a business must recognize that the estate will be responsible for all of the liabilities incurred in running that business. The taxes the Government seeks to recover here accrued entirely in continuing to run the decedent's business after the death of the decedent.

AFFIRMED.