Another Ethics Question

[Snaggletooth]

Thanks

Lots of good response to this thread, and interesting to note that there was no universal agreement on much of anything. As I said when I started, this is an ethics question and lots of discourse on the subject. Thanks to all of you for taking your time and sharing your opinions with me.

Regards, Ron Jordan

[OldJack]

>>Would your position still be the same if... <<

You may recall that in the original post Snag's question (if indeed there was any question) was specifically phrased to exclude the actual facts. It does not matter if it's a hundred thousand or a hundred million. The taxpayer has already determined the basis. Unless some specific action is taken to change that determination, it isn't changed.

Yes, my position would be the same. The client can't adopt a new basis simply because it saves money or he likes it better or his lawyer is a scumbag.

What you say is the reason wise folks long ago came up with the old quote "two wrongs don't make a right".

The fact that a basis was used on one tax return does not make it the correct basis, which is one reason why all governments have a form and procedure for amending tax returns. Of course the facts should be established before any federal tax return is prepared, but to blindly accept the attorneys number just because he used/established a "basis" on another tax return is foolish.

[jainen]

you done hurt my feelings

>>foolish<<

Now you done hurt my feelings. And I'm not even all that sensitive. I appeal to the board--maybe my opinion was wrong, but was it not well-presented, consistent and supported with reasonable examples?

[Black Bart]

Well said, jainen; well said.

>>foolish<<

Now you done hurt my feelings. And I'm not even all that sensitive. I appeal to the board--maybe my opinion was wrong, but was it not well-presented, consistent and supported with reasonable examples?

At first I saw ignorant and did not like it, but then...I discerned a vague trope in your missive that called up both time and space meanings of past probates. Therefore I, both literally and metaphorically, concur with your synopsis of your summation.

He had no failings which were not owing to a noble cause. -- Edmund Burke

[Bees Knees]

Of course the facts should be established before any federal tax return is prepared, but to blindly accept the attorneys number just because he used/established a "basis" on another tax return is foolish.

And to blindly ignore the fact your client signed a tax return using that basis is foolish. Who is to say the appraisal at $900,000 was even correct? Are you now an appraisal expert? Appraisals are not necessarily held as sacred by IRS either.

My guess is the IRS would rather accept the $450,000 amount on the 1041 as correct and not the $900,000, for obvious reasons, especially if they find out the taxpayer signed a state return claiming $450,000 was the correct number.

[OldJack]

>>foolish<<

Now you done hurt my feelings. And I'm not even all that sensitive.

Oh please Jainen. You know I was not calling you foolish. I was stating a principle that blindly accepting a number you know is incorrect is foolish. You are getting sensitive in your old age.

[OldJack]

And to blindly ignore the fact your client signed a tax return using that basis is foolish. Who is to say the appraisal at $900,000 was even correct? Are you now an appraisal expert? Appraisals are not necessarily held as sacred by IRS either.

No, I certainly do not do appraisals but I can recognize a value that is so far off a realistic amount when the property in question has been sold in such a short time. What is it about selling price that you don't like as fair-market-value when a qualified appraisal at date of death came close to that selling price?

Also, Bees, Your previous post clearly says you agree that the attorneys tax return number is wrong. Why would you want to file a new tax return "to the best of your knowledge" with a wrong number?

Of course the attorney's appraisal to avoid state tax was wrong. But so is reporting $900,000 on the 1041 knowing it contracts the state return.

[OldJack]

At first I saw ignorant and did not like it

I guess I missed that... I scanned this thread and did not find the word.

[Bees Knees]

Also, Bees, Your previous post clearly says you agree that the attorneys tax return number is wrong. Why would you want to file a new tax return "to the best of your knowledge" with a wrong number?

I would not file any return unless the client agreed to use $450,000 on the 1041, or amend the state and use the $900,000 on the state return. If the client won't go for the $900,000 on the state return, then $450,000 would be the only option for the 1041, or refuse to do the engagement all together. Since refusing to withdraw from the engagement was not one of Snags options, then using the $450,000 amount is the next best option.

[jainen]

I don't know what

>>a qualified appraisal at date of death<<

I don't know what a "qualified" appraisal is in terms of the tax code, but at least Snag never described it that way. He said the appraisal was for the "basis," which is not something a licensed real estate appraiser evaluates.

An appraisal for the purpose of administering an estate could quite possibly give a very different value from an appraisal used to buy or sell the property. For example, it might give much more weight to replacement construction costs so it can be properly insured, even though the house as standing might be functionally obsolescent in today's market because of the floorplan, site utilization, or other preferences that have changed over time. We don't have any information about any of that, so it is unreasonable to second-guess the attorney who did. You might even call it foolish, since it basically ignores everything that goes into an appraisal.

Also, as I already said in a post that no one has commented on, an increase in value of 50% per year has been entirely possible in many places recently. In fact, it was prudent for the estate to take advantage of that potential by holding it off the market for a while, until the probate was settled and the house could be fixed up to show well.

[ChEAr$]

Copy Of Appraisal

OOPS, sorry for the caps.

Snaggletooth,

Do you by chance have a copy of the 900,000 appraisal? And can you verify that the
appraiser was certified by whomever and competent?

If both both yes, I see no problem with the figure for the 1041. I would do it.

ChEAr$,
Harlan Lunsford, EA n LA

[jainen]

verify the client's records

>>Do you by chance have a copy of the 900,000 appraisal? And can you verify that the
appraiser was certified by whomever and competent? If both both yes, I see no problem with the figure for the 1041<<

Harlan, would you have a problem with the $900K if he DOESN'T have a copy of the appraisal? Are you saying that your position rests, not on principles applied to a set of facts, but on the preparer's need to audit and verify the client's records?

[Snaggletooth]

Appraisal

I don't personally have a copy of the appraisal for $900,000. I believe it came from a realtor anxious to list the property. The sale within 12 months for $1,000,000 is obvious enough that the $900,000 appraisal was reasonable.

What IS very questionable is the valuation of $450,000. Clearly, this is a lawyer's attempt to crawl underneath the state's $500,000 threshhold, and his only possible defense was a possible use of farmland value instead of real estate value. Those of you who feel like the $450,000 is the gospel measuring-stick clearly base your thinking on the filing of the attorney and signature of executor. You are NOT basing your thinking on the real value.

[jainen]

Oh, please!

>>this is a lawyer's attempt to crawl underneath the state's $500,000 threshhold.... You are NOT basing your thinking on the real value<

Oh, please! YOU are the one who set up this discussion, and you specifically enjoined us to not "get hung up on whether the facts are correct... or why the attorney did what he did." I agree that those matters are irrelevant to the ethics issue.

Now you have helped my position by revealing that it was NOT any kind of "qualified" appraisal, simply a Realtor's estimate of how the property could be marketed. That certainly does not tie down the value as of date of death--it was never intended to. No wonder the attorney and the client rejected it.

Now years later the client is singing a different tune. What's the ethical thing to do? I say it's the same thing I would have done two years ago. Suppose the client had come to you then and said, "I'm filing the estate return certifying under penalty of perjury that the value is 450, but I'm using a higher number which will save capital gains tax on my personal return. Are you cool with that?" That is the ethics question. It doesn't change over time, and neither does the basis.

[sea-tax]

Ok here is my opinion.
I think you have two choices. First choice is to file 1041 with the same value as state return 450k.

Second choice if you can verify that the appraisal was correct and true as evidenced by the sale resulting in a million versus 900k. I would use the 900k and give the cleint an ammended state return. If the client doesn't choose to file it then that is his choice.

Personally I think the whole situation stinks , but this is the real world they don't always come in a pretty little box.