Tax Court does about-face on debt discharge income
Article Abstract:
The Tax Court rejected a taxpayer's claim for a basis increase from cancellation of debt income earned by an insolvent S corporation. In making the ruling, the court withdrew a memorandum decision holding the opposite opinion. The taxpayer, the sole shareholder in Metro Auto Inc, was claiming an increase in long-term capital loss which he incurred when he sold his stock in the company. He argued that Metro Auto's cancellation of debt income passed through him as an income item even though it was not taxable. The IRS denied the claim on the ground that the taxpayer had no sufficient basis in the stock. The agency also filed a motion for summary judgment to compute the tax without the basis increase. The Tax court upheld the IRS's decision and granted the motion for summary judgment.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1998
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Private annuity passes wealth to family members - other than Uncle Sam
Article Abstract:
A private annuity arrangement allows individuals to transfer property without incurring significant tax. A private annuity occurs when an annuitant who is not engaged in the business of annuity issuance transfers property to an obligor, who pledges to regularly pay fixed amounts for the remaining years of the annuitant's life or other set. Tax savings are largest in cases where the annuity is bestowed in return of appreciating property, such that the appreciation is taken away from the estate of the annuitant, and the annuitant does not achieve life expectancy, which minimizes total annuity payments. Taxation of private annuities is discussed in Revenue Ruling 69-74. Recommendations on how to avoid an IRS challenge of a private annuity are discussed.
Publication Name: Taxation for Accountants
Subject: Business
ISSN: 0040-0165
Year: 1998
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