Academic journal article Journal of Accountancy

Interest Paid as an Administrative Expense

Academic journal article Journal of Accountancy

Interest Paid as an Administrative Expense

Article excerpt

A court held that interest an estate pays on a charitable bequest is deductible as an administrative expense for estate tax purposes. Betsy Carolyn Turner was executor of the estate of Sally C. Jackson, who died in 1997. Jackson's will made a bequest of $10 million to Fowler Homes on the condition it be recognized as an IRC section 2055(a) charitable organization. Fowler claimed tax-exempt status by virtue of its affiliation with the Disciples of Christ church. Turner waited until the estate received a closing letter for the IRS before funding the bequest.

Under Texas law interest began accruing at a 6% annual rate one year from the date the state issued testamentary letters to Turner. She funded the bequest on October 19, 1999, in the amount of $11,052,055, including interest. On September 13, 2000, Turner filed a refund claim seeking $450,108 based on an estate tax deduction of $1,052,055 in statutory interest. The IRS rejected the claim, arguing the estate should deduct the interest on its income tax return.

Note: The deduction was worth more on the estate tax return than on the income tax return since, in 2000, the top estate tax rate was 55% while the top individual tax rate was only 39.6%.

Result. For the taxpayer. For an administrative expense to be deductible under IRC section 2053, it must be (a) incurred in the administration of the decedent's estate, (b) actually and necessarily incurred and (c) allowable by the laws of the jurisdiction under which the estate is being administered. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.