Articles Posted in Trusts & Estates

by
Liftin died in 2003, survived by his wife, then a citizen of Bolivia, and his son, John, who became the executor of the estate. Although John is an attorney, he retained his former law partner, who practiced tax planning. The executor had to file a federal estate-tax return, Form 706, 26 U.S.C. 6018(a), within nine months after the date of death. The statute authorizes an extension for no more than 6 months, 26 U.S.C. 6081(a). The executor obtained an extension so that the new deadline to file and to pay the tax was June 2, 2004. There were uncertainties regarding the marital deduction, 26 U.S.C. 2056(a), which is available if a surviving spouse is a citizen or becomes a citizen before the day on which the return is made. Mrs. Liftin began the process of applying for citizenship in February 2004. The estate was also engaged in litigation with Mrs. Liftin relating to her rights under a prenuptial agreement. Neither uncertainty had been resolved as of June 2, 2004. In January 2004 John made an estimated payment of $877,300, sufficient to cover the taxes due even if the estate could not claim the marital deduction. John relied on his attorney’s advice that “a late Form 706 could be filed after the extended due date” without identifying any basis for delaying filing. In 2005, Mrs. Liftin became a citizen. John, did not file the estate-tax return until 2006, when Mrs. Liftin and the estate settled their litigation. The return stated a tax liability of $678,572.25, entitling the estate to a refund of $198,727.75. The IRS assessed a $135,714.45 late-filing penalty under 26 U.S.C. 6651(a)(1). The Claims Court and Federal Circuit affirmed.View "Liftin v. United States" on Justia Law

by
Theresa was married to Myron when he retired from the federal government in 1989. Myron elected to receive a reduced annuity and named Theresa to receive a survivor annuity. In 1998, they divorced. Myron married Roksoliana. Myron received annual notices from the Office of Personnel Management explaining that if he wanted to provide survivor benefits to a spouse that he married after retirement, he had to send a signed request within two years after the date of marriage. In 2002 Myron sent a letter requesting survivor annuity benefits for Roksoliana. OPM denied Myron’s request as not submitted within two years of his marriage and instructed Myron to send his divorce decree to change or eliminate the survivor election previously made. In 2006 Myron sent the divorce decree and the certificate documenting his marriage to Roksoliana. OPM sent notification that his election to transfer full survivor benefits to his new spouse was effective immediately. Myron died in 2009. OPM granted Roksoliana benefits and denied Theresa’s application. An ALJ reversed; the Merit Systems Protection Board affirmed. The Federal Circuit reversed, finding OPM’s annual notice insufficient to inform Myron of his rights and obligations and that the Board’s award to Theresa was not supported by substantial evidence. View "Dachniwskyj v.Office of Pers. Mgmt." on Justia Law

by
Normally, if a partner contributes property, his basis in the partnership increases, and, when the partnership assumes a partner’s liability, his basis decreases. A Son-of-BOSS transaction recognizes acquisition (here, short-sale proceeds) and disregards acquisition of offsetting liability (obligation to close out the short-sale), to generate tax loss or reduce gain from sale of an asset. In their first such transaction, plaintiffs used partnerships to convert $66 million in taxable gain anticipated from stock sales into capital losses. Their partnership interests were held by tax-exempt charitable remainder unitrusts at the time of sale so that gain would escape taxation. The CRUTs terminated thereafter and assets were distributed to plaintiffs, purportedly tax free. The IRS determined that transfers to the CRUTs were shams to be disregarded; imposed basis and capital gain/loss adjustments, and alternative penalties; and asserted that the transactions did not increase amounts at risk under I.R.C. 465. Plaintiffs conceded capital gain and loss adjustments, but otherwise challenged the determinations. The Claims Court dismissed the determination that trust transfers were shams, believing it lacked jurisdiction; entered summary judgment in favor of plaintiffs on the ground that their concession to adjustments rendered valuation misstatement penalties moot; granted the government summary judgment on penalties for negligence, substantial under-statement, and failure to act in good faith; and imposed a penalty. The Federal Circuit reversed the dismissal, vacated summary judgment for plaintiff, and held that plaintiffs’ appeal was premature. View "Alpha I, L.P. v. United States" on Justia Law