Academic journal article Journal of Accountancy

Line Items

Academic journal article Journal of Accountancy

Line Items

Article excerpt

Too Late to Transfer

* A married couple owned assets in excess of twice the unified credit "exemption equivalent." The husband had a terminal illness. Through his will he wanted to establish a unified credit shelter trust, but he owned insufficient assets to fund the trust. However, he jointly owned with his wife a brokerage account, which they intended to transfer into his name only to fund the trust. Before the transfer was complete, the husband died. The husband's estate, without the brokerage account, was incapable of funding the unified credit shelter trust.

The wife blamed the brokerage firm for failing to convert the joint account into the husband's name only. She and the firm agreed that she should make a post-death transfer to the firm in an amount needed to take full advantage of the unified credit. The firm would then transfer the funds to the trust established under the husband's will.

The wife asked the service to rule on her plan to save the husband's otherwise wasted unified credit.

Because the plan had not been put into effect in time, the IRS said the plan would fail and could possibly trigger a transfer tax on the wife (PLR 200025032).

Debt Income Split Between Separate Returns

* The cancellation of indebtedness generally results in income to the debtor. But what happens when a married couple's joint debt is forgiven in a year in which they file separate returns?

According to Chief Counsel Advice 200023001, the service concluded that the income should be allocated between the spouses based on each party's portion of the debt.

The IRS will look at who received the proceeds, who received basis in property bought with the debt and who deducted the related interest expense.

If a proper allocation cannot be made, the government will issue a notice of deficiency to each spouse for the full amount of the debt that was discharged.

Can't Sue an IRS Employee

* The IRS audited a taxpayer and his wife. During the audit, the taxpayer alleged that an IRS agent had called and left a voice message full of ethnic slurs and vulgarities. …

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