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Posted by Ira Smilovitz on July 24, 2007, 11:52 pm
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Unusual situation here. Decedent died in 1993. Estate Tax
return filed and relevant taxes paid (taxable estate was
over $600K) and estate closed in mid-1990s. In 1999,
evidence was uncovered that a third party could have been
responsible for the decedent's death (and others) (a la Erin
Brockovich) and lawsuits are filed. In 2007, settlement is
reached.
The question is: how (and by whom) is the settlement
reported for tax purposes. Does the executor reopen the
estate and report the settlement as an asset of the estate?
Or, do the beneficiaries report their shares of the
settlement as some form of income? Or, is there some other
way this is handled? Does the fact that the evidence that
led to the lawsuit wasn't discovered until well after the
estate was closed have any impact on the answer?
Any advice or suggestions how to further research this would
be appreciated.
Ira Smilovitz
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Posted by Paul Thomas, CPA on July 25, 2007, 6:23 pm
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> Unusual situation here. Decedent died in 1993. Estate Tax
> return filed and relevant taxes paid (taxable estate was
> over $600K) and estate closed in mid-1990s. In 1999,
> evidence was uncovered that a third party could have been
> responsible for the decedent's death (and others) (a la Erin
> Brockovich) and lawsuits are filed. In 2007, settlement is
> reached.
>
> The question is: how (and by whom) is the settlement
> reported for tax purposes. Does the executor reopen the
> estate and report the settlement as an asset of the estate?
> Or, do the beneficiaries report their shares of the
> settlement as some form of income? Or, is there some other
> way this is handled? Does the fact that the evidence that
> led to the lawsuit wasn't discovered until well after the
> estate was closed have any impact on the answer?
>
> Any advice or suggestions how to further research this would
> be appreciated.
A similar event happened with a now former client of mine.
About three years after she passed, and her personal as well
as a decedents estate was settled and we thought closed, her
son called to inform me that they "found" some assets and
income that mom had.
Short story is we filed another decedents estate return
showing the additional income, and each beneficiary ended up
with another K-1 with the resulting income. The basis in
the asset though was not income, nor did this push the
decedent's estate over the cap.
When I asked the IRS how to proceed, they just said to "file
another return" with explanations attached, which we did and
haven't heard a peep.
--
Paul A. Thomas, CPA
Athens, Georgia
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
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Posted by nospam on July 28, 2007, 12:24 am
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> Decedent died in 1993. Estate Tax return filed . . .
> (taxable estate was over $600K) . . . and . . . taxes
> paid and estate closed in mid-1990s. In 1999,
> evidence was uncovered that a third party could
> have been responsible for the decedent's death
> . . . and lawsuits are filed. In 2007, settlement is
> reached.
>
> how (and by whom) is the settlement reported for
> tax purposes. Does the executor reopen the
> estate and report the settlement as an asset of
> the estate? Or, do the beneficiaries report their
> shares of the settlement as some form of income?
> Or, is there some other way this is handled? Does
> the fact that the evidence that led to the lawsuit
> wasn't discovered until well after the estate was
> closed have any impact on the answer?
>
> Any advice or suggestions how to further research
> this would be appreciated.
The "Subject" you assign this query aggravated by how you
state the underlying facts (e.g., your apparent presumption
that someone, whoever it may be, is obliged to report the
proceeds of the settlement to which you refer "as some form
of income [sic]") raises but also begs the question:
Why do you presume but without citing any provision of
federal or state law that the proceeds of a wrongful death
lawsuit the underlying claim of which was not made until
after the deceased's death (so that not even a pre-suit
claim much less the wrongful death lawsuit itself was
pending while the decased was alive)* is an "asset of
[whether or not a] closed estate" for estate tax or anyone's
income tax purposes?
(You also do not say in your posting whether the settlement was
negotiated/worded to make clear that no portion of the settlement
payment is recompense for punitive damages or anyone elses's other
than the deceased's emotional stress; although, depending on the facts
in these respects, these issues might raise other taxation questions.)
-------------------
* Distinguish the requirement that the value of a
cause of action for the benefit of an estate, if
pending when decedent died, must be estimated
and included in the federal gross estate to be=20
reported on the federal estate tax return (see
Fed. Est. Tax Regs. =A7 20.2033-1).
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
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<< Copyright (2006) - All rights reserved. >>
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Posted by Stuart Bronstein on July 28, 2007, 12:24 am
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> Unusual situation here. Decedent died in 1993. Estate Tax
> return filed and relevant taxes paid (taxable estate was
> over $600K) and estate closed in mid-1990s. In 1999,
> evidence was uncovered that a third party could have been
> responsible for the decedent's death (and others) (a la Erin
> Brockovich) and lawsuits are filed. In 2007, settlement is
> reached.
>
> The question is: how (and by whom) is the settlement
> reported for tax purposes. Does the executor reopen the
> estate and report the settlement as an asset of the estate?
> Or, do the beneficiaries report their shares of the
> settlement as some form of income? Or, is there some other
> way this is handled?
It seems to me that it will depend on state law, who were
the owners of which causes of action, and which payments
were made on which causes of action.
For damages paid on account of personal injuries (but not
including punitive damages) there is no tax. For damages
paid on account of other things like loss of earnings, tax
would be payable.
If state law says the estate is the owner of a cause of
action for which taxable income is paid, the estate is the
one that would claim the income and pay taxes. Generally,
though, it's the survivors who are the owners of the cause
of action, so they would be the ones who are taxed.
Stu
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Benjamin Yazersky CPA on July 28, 2007, 12:24 am
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> Unusual situation here. Decedent died in 1993. Estate Tax
> return filed and relevant taxes paid (taxable estate was
> over $600K) and estate closed in mid-1990s. In 1999,
> evidence was uncovered that a third party could have been
> responsible for the decedent's death (and others) (a la Erin
> Brockovich) and lawsuits are filed. In 2007, settlement is
> reached.
>
> The question is: how (and by whom) is the settlement
> reported for tax purposes. Does the executor reopen the
> estate and report the settlement as an asset of the estate?
> Or, do the beneficiaries report their shares of the
> settlement as some form of income? Or, is there some other
> way this is handled? Does the fact that the evidence that
> led to the lawsuit wasn't discovered until well after the
> estate was closed have any impact on the answer?
>
> Any advice or suggestions how to further research this would
> be appreciated.
knee jerk answer
file a new 706, as the statute is long expired & there may
be a state estate filing required
its not entirely clear by your message if the settlement is
taxable income or not, so you should check into the nature
of the settlement for income tax matters
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2006) - All rights reserved. >>
<< ------------------------------------------------------- >>
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