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Elian Legal Defense Fund May Owe IRS

Article excerpt

MIAMI -- The Elian Gonzalez Legal Defense Trust Fund, formed to help a Miami family's attorneys battle the federal government, may make its single biggest payment to Uncle Sam.

After more than a month of wrangling, the trustees decided last week that they could not donate as much as $140,000 left over from the fund to the nonprofit La Liga Contra el Cancer (the League Against Cancer).

The trust fund could owe as much as $92,000 in income tax, its legal adviser, Stanton Levin, confirmed earlier this week. The trust fund collected about $210,000.

The tax predicament surprised the three trustees, who have held several meetings in recent weeks trying to come up with a solution. They hope to persuade the Internal Revenue Service not to tax the trust.

"Can you imagine if, after all this, the U.S. government is the one that gets to keep this money?" lead trustee Eloy Gonzalez asked.

The fund was created in March to help pay the expenses of the team of attorneys involved in the custody battle over the 6-year-old boy.

The last-minute tax quandary stems from the interpretation of the "true intent" of those who made the donations, ranging from $1 to $10,000.

Among the donors were Florida sugar magnates Alfy and Pepe Fanjul, who chipped in $10,000, and Miami-Dade Mayor Alex Penelas, who gave $1,000 from campaign funds.

"It's an unusual situation," said Levin, a Coral Gables tax attorney who oversees the trust. "The issue is whether or not the money donated by people should be viewed as a gift or income for a cause they could get something in return for. There is no precedent on this. The closest factual situation we can compare it to is the Clinton Legal Defense Fund. …