Professional Tax Research Solutions from the Founder of Kleinrock. tax and accounting research
Parker Tax Pro Library
Accounting News Tax Analysts professional tax research software Like us on Facebook Follow us on Twitter View our profile on LinkedIn Find us on Pinterest
federal tax research
Professional Tax Software
tax and accounting
Tax Research Articles Tax Research Parker's Tax Research Articles Accounting Research CPA Client Letters Tax Research Software Client Testimonials Tax Research Software Federal Tax Research tax research


Accounting Software for Accountants, CPA, Bookeepers, and Enrolled Agents

CPA Tax Software

        

 

Pending Federal Income Tax Refunds Are Includible in Gross Estate.

(Parker Tax Publishing December 15, 2015)

A decedent had property interests in the values of his 2011 and 2012 federal income tax refunds that remained unpaid at the time of his death. Consequently, the refunds are includible in the decedent's gross estate for federal estate tax purposes. Est. of Badgett, Jr. v. Comm'r, T.C. Memo. 2015-226.

Background

Russell Badgett, Jr. died on March 8, 2012. The decedent's 2011 Form 1040 was filed a couple months later and reflected total tax of $495,096, total payments of $924,411, and an overpayment of $429,315. The return further reflected that $25,000 of the overpayment was to be applied to the decedent's 2012 estimated tax and $404,315 was to be refunded. The IRS applied the $25,000 estimated tax payment to the decedent's 2012 federal income tax on April 15, 2012, and refunded the rest on May 28, 2012.

On December 13, 2012, the estate filed a Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. The decedent's 2011 federal income tax refund was not included in the value of the gross estate. The decedent's 2012 Form 1040 was filed on April 15, 2013. It reflected a total tax of $10,874, total payments of $25,000, and an overpayment of $14,126. A month later, the IRS issued a refund of $14,126 to the estate. The $14,126 refund for 2012 was not included in the value of decedent's gross estate as reflected on the Form 706.

Code Sec. 2031(a) provides that the value of a decedent's gross estate is generally determined by including the value of all of the decedent's property, real or personal, tangible or intangible, wherever situated, as of the date of death. Code Sec. 2033 provides that the value of the gross estate includes the value of all property to the extent of the interest therein of the decedent at the time of his death.

The IRS assessed a deficiency in the estate tax as a result of the estate not including the amounts of the 2011 and 2012 federal income tax refunds in the value of the decedent's gross estate. The estate argued that, under Kentucky law, property must be in existence on the tax assessment date to be subject to tax and cannot be a mere possibility or expectancy. While the estate acknowledged that the decedent overpaid his 2011 and 2012 income tax, it contended that an "overpayment" does not create a right to an income tax refund. According to the estate, there was no property interest until the refund was declared by the government and even if the decedent had an expectancy to receive the income tax refunds, Kentucky law provides that a mere expectancy is not the same as an interest in property.

Analysis

The Tax Court held that the decedent's federal tax refunds were includible in his gross estate. The court examined several cases involving tax refunds and their inclusion or exclusion in a decedent's gross estate. The court noted that in Est. of Bender v. Comm'r, 827 F.2d 884 (3d Cir. 1987), the decedent had unpaid federal tax liabilities for some years and tax overpayments in other years. The Third Circuit concluded that the decedent did not have a property interest in the tax overpayments for purposes of calculating his gross estate. According to the court, the IRS's discretionary power to offset the decedent's tax overpayments against his unpaid liabilities meant that the estate could not compel the IRS to issue a tax refund for the years for which the decedent overpaid his taxes; therefore, the tax overpayments never attained the status of independent assets for estate tax purposes.

However, the Tax Court noted, a different conclusion was reached in Est. of Chisolm v. Comm'r, 26 T.C. 253 (1956), a case where a deceased taxpayer had no tax liabilities to which a tax overpayment could be offset. In that case, the Tax Court concluded that the full value of the deceased taxpayer's viable but unasserted income tax refund claim was an asset of his estate. The Tax Court noted that, if no offsetting liability exists, Code Sec. 6402(a) is clear: The IRS must refund any balance to the taxpayer.

In the instant case, the court said, the decedent was not subject to any liability or obligation against which the IRS could offset his overpayments. Thus, the status of the decedent's tax refund was more than a mere expectancy; the estate had the right to compel the IRS to issue a refund for the years for which decedent overpaid his tax. As a result, the Tax Court concluded that the overpayments in question attained the status of independent assets for estate tax purposes and they constituted property of the decedent for estate tax purposes.

For a discussion of items includible in a decedent's gross estate, see Parker Tax ¶224,510. (Staff Editor Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com


Professional tax research

We hope you find our professional tax research articles comprehensive and informative. Parker Tax Pro Library gives you unlimited online access all of our past Biweekly Tax Bulletins, 22 volumes of expert analysis, 250 Client Letters, Bob Jennings Practice Aids, time saving election statements and our comprehensive, fully updated primary source library.

Parker Tax Research

Try Our Easy, Powerful Search Engine

A Professional Tax Research Solution that gives you instant access to 22 volumes of expert analysis and 185,000 authoritative source documents. But having access won’t help if you can’t quickly and easily find the materials that answer your questions. That’s where Parker’s search engine – and it’s uncanny knack for finding the right documents – comes into play

Things that take half a dozen steps in other products take two steps in ours. Search results come up instantly and browsing them is a cinch. So is linking from Parker’s analysis to practice aids and cited primary source documents. Parker’s powerful, user-friendly search engine ensures that you quickly find what you need every time you visit Our Tax Research Library.

Parker Tax Research Library

Dear Tax Professional,

My name is James Levey, and a few years back I founded a company named Kleinrock Publishing. I started Kleinrock out of frustration with the prohibitively high prices and difficult search engines of BNA, CCH, and RIA tax research products ... kind of reminiscent of the situation practitioners face today.

Now that Kleinrock has disappeared into CCH, prices are soaring again and ease-of-use has fallen by the wayside. The needs of smaller firms and sole practitioners are simply not being met.

To address the problem, I’ve partnered with a group of highly talented tax writers to create Parker Tax Publishing ... a company dedicated to the idea that comprehensive, authoritative tax information service can be both easy-to-use and highly affordable.

Our product, the Parker Tax Pro Library, is breathtaking in its scope. Check out the contents listing to the left to get a sense of all the valuable material you'll have access to when you subscribe.

Or better yet, take a minute to sign yourself up for a free trial, so you can experience first-hand just how easy it is to get results with the Pro Library!

Sincerely,

James Levey

Parker Tax Pro Library - An Affordable Professional Tax Research Solution. www.parkertaxpublishing.com

    ®2012-2017 Parker Tax Publishing. Use of content subject to Website Terms and Conditions.

IRS Codes and Regs
Tax Court Cases IRS guidance