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Individual Income Tax Chapter 4 Research

In: Business and Management

Submitted By jde1
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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 interesting situation. I have done a little research on this matter and have studied carefully Tax Court Summary 2007-69 which has relevance to your situation. While this “opinion” may not be treated as precedent for any other case it does help us understand the thinking of the IRS in cases similar to yours. In this case, a taxpayer’s stepmother died leaving both herself and a relative as beneficiaries of an annuity that had a taxable portion assigned to it. The proceeds from the annuity were deposited in a bank account that she had signature authority on. After the money was deposited the taxpayer then turned around and made a payment to her father of the majority of the annuity proceeds. In her case the IRS did claim and maintain that the taxpayer was the one that owed the IRS for the taxable portion of the annuity.

This summary states clearly the IRS rules that ‘gross income means all income from whatever source derived.” And the Supreme Court goes further to state that gross income includes ‘all accessions to wealth, clearly realized, and over which the taxpayers have complete dominion.” Since the taxpayer, in this...

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