High salary is reasonable despite lack of formal credentials
Article Abstract:
The Tax Court has ruled in a 1997 case involving Max Burton Enterprises Inc that a business heiress who was paid $525,000 while serving as its general manager was reasonably compensated despite being inexperienced and short on formal credentials. She was paid $11,000 in 1987, $24,000 in 1988, $59,225 in 1989 and $751,750 in 1990, of which $700,000 was in the form of a bonus. After 20% of the $700,000 was withheld as federal income tax, the heiress promptly gave back the remaining amount to the firm in return for a promissory note. The IRS took the position that her compensation for 1990 was not reasonable and cut the deduction of the firm for the compensation to just $310,630. However, the court sided with the manager. It explained that she intended to receive the bonus check as payment in 1990 and that the bonus was a reward for lower pay in prior years. Furthermore, no evidence was shown to establish the manager's experience or credentials.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1997
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Sale of remainder eliminated property from estate
Article Abstract:
The Third Circuit ruled in 'Estate of D'Ambrosio' that the sale of a remainder interest for its fair market value (FMV) removed the entire property from the decedent's estate. The case involved a taxpayer who owned stock in a family-owned corporation worth $2.35 million at FMV. She sold the remainder interest in the shares, or ownership of the shares after her death, to the firm in exchange for a private annuity with the same FMV as the remainder interest. She died three years later, receiving only $590,000 in annuity payments. The Tax Court allowed the stock's FMV less the annuity's original FMV to be included in decedent's estate. This decision was reversed by the Third Circuit, which contended that the sale of a remainder interest does not reduce the seller's wealth and estate.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1997
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Special-use valuation of estate allowed despite interest of a nonqualified heir
Article Abstract:
Recent court cases have refined the interpretation of the nonqualified heir rules and recapture as they apply to special-use valuation of an estate. In Estate of Thompson, the estate was eligible for special-use valuation despite the fact that 2% of the property was held by a nonqualified heir. Another ruling found that sale of farmland to avoid foreclosure did not trigger the recapture tax.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1989
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