Essay on Individual Income Tax Chapter 4 Research

589 Words Oct 7th, 2012 3 Pages
Chapter 4 Research

I enjoyed meeting with you earlier this week to discuss your taxes. As I understand our conversation you have a question regarding the taxable portion ($50,000) of the annuity you received upon the death of your step-mother. Your father convinced you that he was actually the intended beneficiary and so you paid your father the full $400,000 that you received from the insurance company. Because you gave the full amount to your father you did not report the $50,000 taxable portion on your income tax return last year in Gross Income. It sounds like you are in the processing of suing your father to return the $400,000 to you. In the meantime, the IRS is claiming that you owe them taxes on the $50,000.

This is an
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She had freedom to use it at will even though her father fraudulently convinced her out of it. The taxpayer argues that she was not liable for the tax because of the alleged wrongdoing of her father but the Tax Court responded that even if the father lied to her the taxpayer still had freedom to the annuity proceeds at will thus being defined as gross income and has to pay the tax associated with it.

The bad news is that I am sorry to say to you that even though your own father did not act honestly and lied to you well enough to get you to give him the $400,000 this amount is still considered ‘gross income’ to you since you had the freedom to use the annuity proceeds at will. Now, the good news is that you may be able to claim a theft loss on your tax return. Section 165(a) allows a deduction for ‘any loss sustained during the taxable year and not compensated for by insurance.” A loss due to theft is able to be claimed in the year that the taxpayer discovers the loss. So you are able to claim this loss in the year that you discovered that your father had been dishonest with you, not when you actually made the payment to your father. Filing a lawsuit against your father gives credibility that you have indeed suffered a theft

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