Gain from uncompleted contract at decedent's death may escape income tax

Article Abstract:

Income that a deceased taxpayer earned or became entitled to prior to death, but which is received by the taxpayer's estate after death is called income in respect of a decedent (IRD). IRD must usually be included in gross income in the year received. Income tax liability of the estate can be avoided if it can be proved that gains on property sales completed after the death of the taxpayer are not attributable to the deceased taxpayer's efforts. The two tests used to determine when IRD is present are the economic activities and efforts test, and the right to income test. The right to income test is more appropriate for situations involving non-compensatory income such as asset sales, whereas the activities and efforts test is more commonly used for compensatory income.

Analysis, Accounting and auditing, Transfer taxes, Property taxes, Property tax

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Bankruptcy filing discharges only some taxes

Article Abstract:

The Bankruptcy Code is supposed to provide the bankrupt debtor with a 'fresh start.' However, this is not always followed in practice. The IRS usually enjoys preferential treatment in Chapter 7 bankruptcy filings for taxes due within the past three years and when fraud was present. It is therefore important for taxpayers who decide to file for bankruptcy to identify and recognize the debts that are not discharged. This should also compel tax consultants to examine the interplay of bankruptcy and tax law provisions when advising clients. Tax professionals need to be aware of different variables when ascertaining if a bankruptcy filing can act as effective protection for an income tax debtor. A six-point guideline is provided.

Taxation, Bankruptcy discharge

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Relief may be available when previously included amount must be repaid

Article Abstract:

Individuals who include income while in a high bracket but repay that income while in a lower bracket may obtain tax relief. The rules governing such relief, stipulated in Section 1341 of the Internal Revenue Code, are discussed. In general, tax relief is available only when the following three requirements are met: (1) the item included in the prior year appeared at that time to be within the unrestricted use of the taxpayer, (2) the item is actually not within the taxpayer's unrestricted use, and (3) the deduction relative to such income exceeds $3,000.

Tax planning

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