“Because your mom died in 2010, she has no increase in basis to date of death value. We have established that the amount is $150,000. Section 1022 of the Internal Revenue Code permits us to allocate $1.3 Million to the value of assets. We will have to file a form 706 (which will be late, its due within 9 months of the date of death). This could present a problem because the Internal Revenue Service could elect to disallow the basis increase”, the Accountant droned to Suzie. “Your mom’s estate was $900,000, so we can apply the entire amount to the the estate and there should be no taxes due.” Suzie breathed a sigh of relief until she heard the accountant say, “of course if the IRS refuses to allow the step up in basis, your taxes will be $90,000 Federal and $30,000 state.” Suzie left in tears and cursed the family attorney for not filing the Federal Estate Tax return on time silently praying that the IRS would allow the retroactive election.
Author Archives: John
April. 2011
Jonas Romule called Suzie. The accountant asked Suzie. “Suzie, can you tell me what your parents paid for this stock that you sold and what did they pay for the house?” “Why are you asking?” Suzie asked. I have to compute the capital gains taxes. Its a rather complicated formula. You get to elect a partial step-up, but I have to determine what is the basis first. “How do you do that?” Suzie asked. “Well first, we have to determine what the property was worth when your father died. You see because of a old court ruling, the basis of the property for your mother was the value on the date that your father died. Once we get that, then we need to determine what other assets your mother had when she died in order to allocate the increase in basis permitted by the statute”, the accountant replied. “Wow, does that mean we might owe taxes on what we inherited?” Suzie inquired, nervously. “Its possible, we just have to run the numbers”, the accountant replied.
Sell off begins
The kids took their duties seriously and started liquidating assets mostly because Left had lots of ways to spend the money and his sister just wanted to be rid of him. They sold all the stocks for $150,000. The sold the house of $750,000 and netted about $730,000 after closing costs. They each took out $440,000 and shut down the estate. They were really proud of themselves for their care in carrying out their duties. Left couldn’t wait to spend his money. His new girlfriend, Hot Potato, had him wrapped around her little finger. He bought a fancy car for $75,000, some jewelry for her to the tune of $50,000, and some clothes for both of them to the tune of $100,000. They went to expensive restaurants. He was on a spending spree.
Capital Gains Quandry
Beulah Gladhand died on January 2, 2010. She was survived by two children, Suzie Marachino and her son, Left Gladhand. Suzie and Left qualified as Executors of her estate. She was not a rich woman when she died. Her estate included a house that she and late her husband Clem had purchased together in 1973 for a whopping $75,000. Now the house was worth $750,000. The rest of her estate was about $150,000 in stocks and bonds which she also had bought together with her husband over their marriage.
Case Closed
Brian Peterson went to his Supervisor. “Sir, while this is probably a suicide, there is no note and no evidence of intent to defraud the government. My view is that we’d get our heads handed to us on this.” “Thanks, Brian, let’s call the General Counsel and see what he has to say.” The called the Chief Counsel, “If we can’t prove fraud and have no probable cause to search for a note, there is no sense in wasting our time on this, prepare a closing letter.”
Three weeks later.
Becky saw the envelope from the IRS. It was thin. She tore it open and saw that it was a closing letter. She closed her eyes and let fly a deep sigh and put it in a file. Her next call was to the Mercedes dealer. “Might as well stimulate the economy”.
Next Tax Tale will deal with some crazy questions involving deaths in 2010 and basis issues on capital gains. With that, one precautionary word. If we have another foot of snow here in DC and the power or phone lines get damages, I might be off line for 24 hours. So, don’t give up on me.
J