The Court of Federal Claims ruled against her. They cited several US cases including U.S. v. Darusamont. Therefore, the estate tax was due and payable. Congress has been given apparently ample authority to levy taxes retroactively. This was first decided in 1916 in Brushaber v. Union Pacific Railway Co. 240 US 1 (1916). In that case Congress passed the first income tax statute in October, 1913 (after the 16th Amendment was ratified). The tax was for the period March 1, 1913 through December 31, 1913. Union Pacific challenged the law including under the 5th Amendment and Due Process clauses of the Constitution. The Court rather summarily said that Congress had the power to retroactively tax. They have been pretty consistent about that ever since. See, U.S. v. Darusamont 449 US 292 (1981). Taxpayer had large capital gain and was retroactively hit with alternative minimum tax for 1976. The Income Tax case was a bit more dicey. The Court reviewed the file and determined that she should have received a deduction for estate taxes paid on the Fiduciary income tax return, but that again was permissible as the law was in effect before the end of the year and she knew what the rules were.
Tag Archives: 2010
The Ex Posts
Edward ExPost was dying, his family revoked his advance medical directive in late 2009. On January 1, 2010, he died at 12:42 a.m. He left his entire $1 Billion estate to his two loving children. Due to fights on Capitol Hill over a health care bill and President Obama’s Hawaiian vacation plans, no law was passed until February 1, 2010 extending the estate tax which expired on December 31, 2009. In their haste to go celebrate President’s Day, Congress forgot about reauthorizing a step-up in basis for people inheriting from decedent’s estates.
On October 1, 2010, Edward’s Executrix, Eugenia Ex Post, filed his Federal Estate tax return. She paid the tax that would have been due under the new law. She took Dad’s company public to pay for the taxes. She sold some stock in Dad’s Company. The it was worth $490,000,000 more than what he paid for it. She then immediately filed an amended return seeking a refund of $500,000,000 on the estate tax and citing the fact that at the moment of his death there was an exclusion equal to 100% of the tax.. The Service received the amended return and after auditing it, denied the refund claim. She then filed suit in the U.S. Court of Federal Claims claiming that the law was ex post facto and thus violated the U.S. Constitution.
On April 15, 2011, Eugenia filed a Fiduciary Income Tax return showing a capital gain of $498,000,000 and estate tax deduction of $299,000,000. She paid income taxes to IRS of $45,000. She again filed for a refund and the refund claim was denied at which point she filed another lawsuit in the U.S. Claims Court, claiming that in effect she should have been allowed to step-up her basis.
Apologies
I must confess that last week flew completely out of control as far as writing was concerned. Also it was one of waiting to see if what might come out of Congress. So far no tax bills are forthcoming with the Senate totally tied up in knots over passing a health care bill. This means of course that time is running out on a bunch of extenders that need to be passed by the Senate and the ever present 2010 one year repeal of the Estate Tax which I worked over last year. If your billionaire uncle is about to die, you might hold off pulling the plug for a couple of weeks at this stage. I do recall some late bills passing Congress, but with only 10 days left in the year, I would put the odds a 50/50 whether any tax bills are signed into law before the end of the year. I heard that once President Obama signs a health care law in whatever form, he’s heading for a vacation in Hawaii. So, now we get to the knotty question of ex post facto laws. What happens if a person dies on January 1, 2010 worth over $3.5 Million Dollars and then there is a retroactive passage of a bill setting that limit at $3.5 Million. Is that legal? We’ll talk about that in the coming days.
A return accepted and end note
September 17, 2011.
“Mr. Brimfeld are you sure you want us to file this estate tax return. After all you’re alive, but the law is now pretty clear that you were dead for tax purposes”, the accountant asked. “Go ahead and file the return, and see what the IRS says about it.” “Okay, but we’ll have to disclose that you are alive now and our basis for our position.” the accountant responded. “That’s fine” said Brimfeld. “If we lose, the IRS could impose a gift tax of $900,000 Million”, the accountant said. “Nothing ventured, nothing gained”, replied Brimfeld.
November 21, 2011
Brian Peterson looked at the return in front of him and then he looked at the death certificate. It was signed by a doctor in HERGOTIA, and it said that Mr. Brimfeld died of a heart attack brought on by a chemical overdose. He also noted that the man had apparently resurrected from the dead as noted on the return. He picked up the phone and called the Chief of the Estate and Gift Tax Section of the IRS. “I’ve got a really weird estate tax return in front of me. It says the guy is dead but he’s not dead. Its disclosed right here on the return”.
The Chief Counsel asked “did you see what was inserted in the budget bill of 2010?” “Yeah, but what does it mean”, replied Brian. “Death is to be determined by a local physician and cannot be questioned thereafter, even if the person recovers”. Its very clear. We have to accept the death certificate”, said the Chief Counsel.
December 15, 2011
Sam Brimfeld’s executor received an estate tax closing letter. “They gave up without even a fight”, said Sam.
January 1, 2012. Sam was driving home from a New Year’s Eve party when a drunk driver careened across the road and hit Sam head on. Sam did not survive.
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Editor’s Note. In reality, Section 7701 has not been changed to add a definition of “death”. “Death” is still a matter of some debate. With three notable historical exceptions (Lazurus, Jesus, and the child Peter raised from the dead), the dead do not come back to life. There have been cases of near death that have been misdiagnosed, such as a soldier who was returned home from the war and the undertaker as he was about to embalm the body detected a very slight pulse. The man recovered. Would in that case the soldier have been dead for estate tax purposes? Its an interesting question which is why we went through this crazy story.
Really Bad Press
December 19, 2010.
“AN UNTIMELY DEATH IN HERGOTIA” read the NEWSY NEWS headline. The story went on to describe the untimely death of Mr. Shadewell.
The tourism minister came running into the Prime Minister’s office with a print out of the Newsy News article about Sam Shadewell. “Look at this and to make matters worse, we have been receiving cancellations all day”. The Prime Minister thought for a second and replied, “leak a story to this reporter that our autopsy results show that Mr. Shadewell actually died of alcohol poisoning from ingesting wine before the procedure.”
December 20, 2010.
‘BOOZE BLAMED FOR DEATH IN HERGOTIA” was the headline in NEWSY NEWS
and the story went on to describe Mr. Shadewell’s autopsy findings from an anonymous source.
December 20, 2010.
The United States State Department issued a travel warning to HERGOTIA relating to people seeking to avoid U.S. estate taxes. It said that deaths from HERGOTIA might not be honored if the person turned up alive thereafter and that the procedure involved extreme risk of death or bodily harm.
December 20, 2010.
Boris Blakovic was a seasoned investigator for Grand Caymans Life Insurance Company. He knew a scam when he saw one and this situation stunk to high heavens. He intereviewed Ms. Shadewell about her husband’s death and questioned her about why he had taken out the insurance policy and why wasn’t this procedure mentioned in the application. She noted that there was no such question on the application and that they had been completely true about what they were doing there in HERGOTIA, and that the policy had been procured through an agent of the Government of HERGOTIA. The Minister of Finance of HERGOTIA sat in on the meeting and noted that if the life insurance company stiffed Mrs. Shadewell, that they might as well fold up their tents in HERGOTIA. Blackovic emailed the company offices. This was a huge hit and not one that they wanted to pay willingly. After much reflection, they denied the claim and told their agents in HERGOTIA that they were no longer accepting policies from there.
December 21, 2010.
Mrs. Shadewell was fit to be tied. “Now they won’t pay the cotton picking insurance” she screamed. “You said this procedure was safe, you leaked private information about my husband that was untrue, and you procured an insurance policy that didn’t pay!”, she yelled. “I see your anger, but suing won’t do you any good because we have sovereign immunity”. “We’re sorry, but we will pay you $10 Million to be silent, and your husband did avoid estate taxes which is what he wanted.” She thought for a moment, $10 Million was a lot of money, but in the grand scheme of things was chicken feed. “You can take your money and stuff it”.
Mrs. Shadewell called the reporter from NEWSY NEWS, “Have I got a story for you!” she told him. She met with him and related everything on the condition of anonymity. He reported that Mr. Shadewell had not consumed alcohol for 24 hours prior to the procedure and was in perfect health. He noted that the insurance company had denied coverage and that the family was considering its legal options.
December 22, 2010.
NOT DRUNK! read the headline of NEWSY NEWS.
The tourism minster ran in to the Prime Minister’s office again. This is terrible, more cancellations. This is a big disaster I think. The Prime Minister smiled. “We knew it wouldn’t last. Let’s shut this thing down.”