Thursday, June 5, 2014
In Estate of Adell, T.C. Memo 2014-89, Franklin Adell died in August 2006, a resident of Michigan. Earlier that year, Franklin paid a legal judgment that had been entered against his son. In November 2007, Franklin’s estate filed a Form 706 and reported the amount of the judgment as a loan receivable and an asset of the gross estate. The estate reported $15 million of total estate tax due on the form 706.
After a series of amendments reclassifying the estate and gift taxes, the IRS issued two notices of deficiency, one for the estate tax liability and the other for the gift tax liability. The estate subsequently filed a petition in response to the estate tax notice of deficiency, alleging that the judgment should not have been included as an asset of the taxable estate and that one of the closely held business interests was overvalued. In regards to the gift tax notice of deficiency, the estate filed a protest letter, assigning to an Appeals officer for consideration.
In August 2012, the Appeals officer sent a letter to the estate disallowing the claim for abatement of gift tax, penalties and interest. The estate then filed a petition with the Tax Court. The Tax Court held that although the estate had overpaid the nondeferrable portion of the estate tax, it did not pay more than the full amount of estate tax due. Thus, there was no overpayment of estate tax available to credit against the estate’s gift tax liability.
See Jillian Merns, Liability for Unpaid Gift Tax, Wealth Management, June 2, 2014.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.