Tax Court Reconsiders Old Case on Trust’s Liability

The Tax Court reconsidered a previous opinion holding a trust liable as tranferee of the stock of four corporations.  The parties agreed that the trust should be liable for interest only after the date of liability notices.  The court held that a credit should reduce the tax liability where an above fair market value sales price caused both an overpayment of estate tax and an underpayment of income tax because  the basis was stepped up by the inflated sales price.  Under the doctrine of equitable recoupment, the IRS should not benefit from a  windfall from inconsistent tax treatment of the same item.  Lastly, there was no trust liability as transferee for penalties assessed against the corporations since the transfers were not made with intent to defraud creditors.

See Frank Sawyer of May 1992 v. CommissionerT.C. Memo. 2014-128, No. 5526-07 (2014)

Posted by David Staggs, Associate Editor, Wealth Strategies Journal