In Uncategorized on 11/24/2015 at 16:22

Words from a much more exalted personage even than Big Julie, His Honor Judge Julian I Jacobs, hereinafter HHBJJJIJ, are the keynote for Estate of Russell Badgett, Jr., Deceased, Bentley Badgett, Jr., Executor, 2015 T. C. Memo. 226, filed 11/24/15.

The late Russ died March 8. BB Jr., the fast-moving ex’r, filed an automatic extension and got the late Russ’ 1040 for the previous tax year filed in May. I have to say these dudes were organized.

The good news: the late Russ overpaid about $429K, of which $25K was to be applied to year of death and the balance refunded. Even better, the late Russ didn’t owe IRS anything from yesteryears.

The bad news: When the ex’r filed the 706 in December, he never mentioned the refund.

More good news: The late Russ’ short-year (year of death) 1040 showed a refund of $14K due the estate.

More bad news: the 706 didn’t show that either.

IRS wants a deficiency in estate tax, consisting entirely of the refunds.

The ex’r claims KY law (they’re all domiciliaries of The Bluegrass State) says that an expectancy isn’t property, and State law controls. After all, IRS could refuse the refund, even though it didn’t.

“The estate acknowledges that decedent overpaid his 2011 and 2012 income tax but posits that an ‘overpayment’ does not create a right to an income tax refund. The estate argues that there is no property interest until the refund has been declared by the Government. Continuing, the estate postulates that even if decedent had an expectancy to receive the income tax refunds, ‘under Kentucky state law, a mere expectancy is not the same as an interest in property.’” 2015 T. C. Memo. 226, at p. 5.

But in the cases the ex’r relies upon, there were unpaid tax liabilities. Here, there aren’t. Apparently the late Russ was up-to-date and upstanding, taxwise.

HHBJJJIJ cuts to the cliché: “Simply stated, if no offsetting liability exists, section 6402(a) is clear: The statute mandates that the IRS ‘shall’ refund any balance to the taxpayer. In the matter herein, there is no indication that decedent was subject to any liability or obligation against which the IRS could offset his overpayments. The status of the tax refund is more than a mere expectancy; the estate has the right to compel the IRS to issue a refund for the years for which decedent overpaid his tax. Thus, we hold that the overpayments in question attained the status of independent assets for estate tax purposes; they constitute decedent’s property for estate tax purposes.” 2015 T. C. Memo. 226, at pp. 8-9.

And it’s irrelevant whether the late Russ knew or didn’t know he was entitled to the refund, or when the ex’r (or the late Russ) could have sued for a refund.

The ultimate bad news: The estate owes the tax.


Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: