Recent Developments

Bad Bad Sinbad! Comedian Sinbad Liable for Unpaid Taxes: The IRS can seize assets held by a third party to satisfy a taxpayer's tax debt if the third party is an alter ego or nominee of the taxpayer. For example, a California District Court recently found that comedian Sinbad Adkins (aka David Adkins) had unpaid income tax liabilities exceeding $8 million (including interest, penalties, fees, and collection costs) for tax years 1998–2006. It also found that Michael Adkins held bare legal title to real property in Hidden Hills, California as nominee for Sinbad. The court held that a lien for Sinbad Adkins' unpaid tax liabilities attached to the property as of the dates of assessment. It then allocated proceeds of a future sale of the property to various parties (which may explain why the IRS filed suit instead of exercising its administrative lien and levy collection powers), including the mortgage holder, the IRS and California Franchise Board, and the local homeowner's association. U.S. v. Adkins , 106 AFTR 2d 2010-XXXX (D.C. Cent. Cal.).

Estate Tax—Executor's Reliance on Adviser: Sometimes taxpayers can blame a bad adviser (but wouldn’t it just be easier to start with a capable professional in the first place?). Decedent's estate conceded it owed a $380,514 estate tax deficiency, but argued that it was not liable for a $76,103 Section 6662 accuracy-related penalty for negligence or disregard of rules or regulations. In waiving the penalty because the estate's executor acted with reasonable cause and good faith in relying on the Form 706 preparer, the Tax Court found that the executor (1) was unsophisticated in tax matters; (2) believed that the preparer was competent in estate planning because his business card included the words "Estate Planning," and he was an enrolled agent who knew how to file "every return the IRS has;" and (3) provided the preparer with "all relevant financial data in his possession needed to determine the correct amount of estate tax." Estate of Ralph Robinson , TC Memo 2010-168 (Tax Ct.).

Estate Tax—Beneficiaries Liable as Transferees: Don’t think estate taxes are only the executor’s headache.  The IRS determined that Carl and Bruce Upchurch were liable under Code Section 6901(a) for a $46,758 estate tax deficiency plus interest as transferees of the assets of the Estate of Judith Upchurch. After holding that the two were liable as transferees of estate property under state (Illinois) equity principles, the Tax Court found that they were individually liable up to the value of the property transferred to each of them. This equaled the full amount of their settlement payments ($53,500 each) without reduction for the $17,833 each paid to his attorney. Carl Upchurch , TC Memo 2010-169 (Tax Ct.).

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