Yet another, "What do you do?" in terms of practitioner ethics.
Facts: Client was the executor of his mother's estate. Mother died two years ago and owned 50 acres of land which sold in 2006 for $1.0 million. Mother and her husband bought the land in 1955 for $25,000 and made no improvements. Stepped-up basis at her time of death was appraised at $0.9 million. Money has already been distributed to beneficiaries and estate is closed.
Client understands that capital gains of $100,000 will have to be split among four beneficiaries, and engages you to prepare the final estate tax return with K-1s to the four children for the capital gains and a small amount of interest income.
An estate tax return was not filed since the estate in 2004 did not exceed the deduction threshold. However, your state has threshold of only $500,000 and it is incumbent upon the attorney (or someone) to file a state estate tax valuation regardless of whether the threshold is met or not. Your client's attorney filed this with the state.
In an effort to avoid your state's estate tax, the attorney filed a valuation stating that the land was worth $450,000. This of course was countersigned by your client as executor.
Nothing further has been done. Had the land been valued at $900,000, there would have been a state tax on $400,000 at 5% ($20,000).
Nothing further has been done. The client wants the 1041 to reflect a basis of $900,000 even though he signed off on a value of $450,000 for your state.
HERE ARE YOUR CHOICES, and thanks for reading this far. It is a long post, but most of you will be confronted with this if you haven't already.
a) Since you were not engaged to file the death tax return for your state, go ahead and claim $900,000 as basis for the land on the 1041. You were not engaged so this is the attorney's problem and not yours.
b) Tell the customer you cannot claim $900,000 since he has already sworn off on a value of $450,000. There will be $550,000 in capital gains to be split among the K-1s.
c) Claim the $900,000 as basis, but notify the state that there was a gross understatement on the attorney's return.
d) Preparer an amended state death tax return showing $900,000 as the real value, and a tax liability of $20,000 (before penalty and interest). Then claim $900,000 on the 1041. Prepare the amended state return for the customer to mail, and tell him it is his responsibility to file it.
e) Claim the $900,000 as basis, but issue a letter to the client disclaiming the errant $450,000 valuation made by the attorney, along with a recommendation that the client have to attorney make the correction.
I don't know how to set up a "poll." Maybe someone will do this. Please concentrate on answering the question and don't get hung up on whether the facts are correct, or why the client didn't do better tax planning, or why the attorney did what he did, etc.
Facts: Client was the executor of his mother's estate. Mother died two years ago and owned 50 acres of land which sold in 2006 for $1.0 million. Mother and her husband bought the land in 1955 for $25,000 and made no improvements. Stepped-up basis at her time of death was appraised at $0.9 million. Money has already been distributed to beneficiaries and estate is closed.
Client understands that capital gains of $100,000 will have to be split among four beneficiaries, and engages you to prepare the final estate tax return with K-1s to the four children for the capital gains and a small amount of interest income.
An estate tax return was not filed since the estate in 2004 did not exceed the deduction threshold. However, your state has threshold of only $500,000 and it is incumbent upon the attorney (or someone) to file a state estate tax valuation regardless of whether the threshold is met or not. Your client's attorney filed this with the state.
In an effort to avoid your state's estate tax, the attorney filed a valuation stating that the land was worth $450,000. This of course was countersigned by your client as executor.
Nothing further has been done. Had the land been valued at $900,000, there would have been a state tax on $400,000 at 5% ($20,000).
Nothing further has been done. The client wants the 1041 to reflect a basis of $900,000 even though he signed off on a value of $450,000 for your state.
HERE ARE YOUR CHOICES, and thanks for reading this far. It is a long post, but most of you will be confronted with this if you haven't already.
a) Since you were not engaged to file the death tax return for your state, go ahead and claim $900,000 as basis for the land on the 1041. You were not engaged so this is the attorney's problem and not yours.
b) Tell the customer you cannot claim $900,000 since he has already sworn off on a value of $450,000. There will be $550,000 in capital gains to be split among the K-1s.
c) Claim the $900,000 as basis, but notify the state that there was a gross understatement on the attorney's return.
d) Preparer an amended state death tax return showing $900,000 as the real value, and a tax liability of $20,000 (before penalty and interest). Then claim $900,000 on the 1041. Prepare the amended state return for the customer to mail, and tell him it is his responsibility to file it.
e) Claim the $900,000 as basis, but issue a letter to the client disclaiming the errant $450,000 valuation made by the attorney, along with a recommendation that the client have to attorney make the correction.
I don't know how to set up a "poll." Maybe someone will do this. Please concentrate on answering the question and don't get hung up on whether the facts are correct, or why the client didn't do better tax planning, or why the attorney did what he did, etc.
Comment