Attorney-at-Law

TWO PLUS TWO

In Uncategorized on 05/08/2018 at 22:32

The old Philo 101 legend went like this. Bertrand Russell and Alfred North Whitehead were writing their three-volume mathematics text, and the story was logic. Everything was logical. Russell told Whitehead, “It’s all about logic, Alfie. Grant me that two plus two equals five, and I’ll prove to you I’m the King of England.”

Well, today we see that if you stipulate to what isn’t, Bertie may have gotten it right.

Here’s Vincent C. Hamilton and Stephanie Hamilton, 2018 T. C. Memo. 62, filed 5/8/18. They stipulate that, if they were insolvent because son Andy’s bank account shouldn’t be counted as theirs, the $158K forgiveness of the student loan they took out for son Andy was not taxable per Section 108(a)(1)(B). IRS agrees.

Vince and Steph were off the cliché on the loan because Vince hurt his back and was therefore disabled. Vince couldn’t work. But during the year at issue, “…Mr. Hamilton received a $308,105 nontaxable cash distribution relating to his 14.4% interest in a limited liability company.” 2018 T. C. Memo. 62, at p. 2.

Of course, we don’t know what other debts Vince and Steph may have had, and whether any thereof was discharged, on the magic date, the date immediately prior to the date of the forgiveness of the student loan debt.

But Steph, concerned that Vince was spending a wee bit too freely, transferred $323K to Andy’s savings account. Andy gave Steph the magic info so she could tap in periodically for household expenses on-line. What part of the $323K Andy kept is nowhere set forth.

Vince’s and Steph’s CPA said they were insolvent, and prepared their return for the year at issue, which they filed almost two years late.

My hip readers already shouted “Section 6651(a) chop!”

Here’s Ch J-elect Maurice B (“Mighty Mo”) Foley.

“The parties’ stipulations reflect that although the transferred funds were placed in Andrew’s savings account, Mrs. Hamilton was able to freely transfer funds to petitioners’ joint account to pay household bills (i.e., she exercised dominion and control). There is no evidence that Andrew paid any consideration for the funds transferred to his savings account, or that the funds were transferred in anticipation of a lawsuit or a liability. There is, however, sufficient evidence to establish that a close relationship existed between petitioners and their son Andrew, and that petitioners continued to enjoy the benefits of the funds they transferred to Andrew’s savings account. In short, petitioners have failed to establish that Andrew was not their nominee. See Rule 142(a).” 2018 T. C. Memo. 62, at pp. 5-6.

Vince and Steph were therefore in the black to the tune of $60K, so the forgiveness is taxable, and they get the Section 6651(a) late-filing chop at no extra charge. Vince and Steph had no reasonable cause for the delay.

My hip readers aforesaid have doubtless wondered if the CPA aforesaid got Vince and Steph out from under the Section 6662 negligence-accuracy chops.

Nope. IRS dug its own Graev (sorry, guys) when they failed to come up with the Section 6751(b) Boss Hoss sign-off.

Be careful of those major premises.

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