Will this be taxable income?

Practical and Practice issues for Professionals who practice in the area of taxation. Moral, social and economic issues relating to taxes, including international issues, the U.S. Internal Revenue Code, state tax issues, etc. Not for "tax protestor" issues, which should be posted in the "tax protestor" forum above. The advice or opinion given herein should not be relied on for any purpose whatsoever. Also examines cookie-cutter deals that have no economic substance but exist only to generate losses, as marketed by everybody from solo practitioner tax lawyers to the major accounting firms.
Colonel_Buck
Gunners Mate
Gunners Mate
Posts: 49
Joined: Sun Jan 22, 2006 4:13 pm
Location: West Hills, CA

Will this be taxable income?

Postby Colonel_Buck » Thu Jul 19, 2012 5:04 am

http://today.msnbc.msn.com/id/48224784/ ... bc|cover=1^12=Landing%20Content=Mixed=1^13=Landing%20Hostname=www.nbcnews.com=1^30=Visit%20Type%20to%20Content=Earned%20to%20Mixed=1&__utmk=178303652#.UAeG5PVdC1c
What kind of bomb was it? The exploding kind.
How can a blind man be a lookout? How can an idiot be a policeman?
But that's a priceless Steinway. Not any more.

User avatar
The Observer
Further Moderator
Posts: 6575
Joined: Fri Feb 07, 2003 12:48 am
Location: Virgin Islands Gunsmith

Re: Will this be taxable income?

Postby The Observer » Thu Jul 19, 2012 5:32 am

It is certainly taxable since the article states they are going to sell the cards. But whether it will be subject to income tax or estate tax or both, I will leave up to our estate experts to muse on.
"I could be dead wrong on this" - Irwin Schiff

"Do you realize I may even be delusional with respect to my income tax beliefs? " - Irwin Schiff

User avatar
Cpt Banjo
Fretful leader of the Quat Quartet
Posts: 707
Joined: Mon Nov 08, 2004 8:56 pm
Location: Usually between the first and twelfth frets

Re: Will this be taxable income?

Postby Cpt Banjo » Thu Jul 19, 2012 4:42 pm

Regarding the estate tax, and assuming the aunt was the owner of the cards, the value of the cards (as of the date of death or possibly six months thereafter) would be includable in her gross estate for estate tax purposes. However, her estate would be entitled to a $5 million exemption equivalent, so unless she had over $2 million in other assets and assuming she had made no taxable gifts during her lifetime, her estate would owe no federal estate tax.

Regarding the income tax, the gain on the sale of the cards will be the difference between the amount realized and the fair market value of the cards as of the date of death. Assuming the sale occurs fairly soon after the date of death, it's unlikely that the value would change significantly between the date of death and the date of sale. Accordingly, the gross amount realized would be a good indicator of the date-of-death value, so that there would be no taxable gain.
"Run get the pitcher, get the baby some beer." Rev. Gary Davis

Arthur Rubin
Tupa-O-Quatloosia
Posts: 1434
Joined: Fri May 30, 2003 12:02 am
Location: Brea, CA

Re: Will this be taxable income?

Postby Arthur Rubin » Fri Jul 20, 2012 4:29 pm

I'm not sure how the "treasure trove" rules apply; significant income tax may fall on someone; whether it's the deceased, her estate, or the beneficiaries is unclear.
Arthur Rubin, unemployed tax preparer and aerospace engineer
ImageJoin the Blue Ribbon Online Free Speech Campaign!

Butterflies are free. T-shirts are $19.95 $24.95 $29.95

LaVidaRoja
Basileus Quatlooseus
Posts: 756
Joined: Mon Sep 01, 2008 1:19 am
Location: The Land of Enchantment

Re: Will this be taxable income?

Postby LaVidaRoja » Fri Jul 20, 2012 10:16 pm

This was not "found" in the treasure trove sense. They can clearly trace ownership from the original holder. Even if he received the cards for free (as a promotional item to go with something he was selling), the FMV at the time he received him is measureable. They passed as a part of his estate to his children, and now to his grandchildren or great-grandchildren. It is unlikely that, at the time of his (the original owner's) death, the value was in excess of the gross estate exemption. A treasire trove is when you are digging in your garden and unearth a hoard of 16th centurary coins that no one has any idea as to when it was placed there or by whom.
Little boys who tell lies grow up to be weathermen.

jg
Fed Chairman of the Quatloosian Reserve
Posts: 614
Joined: Wed Feb 25, 2004 2:25 am

Re: Will this be taxable income?

Postby jg » Sat Jul 21, 2012 2:21 am

In the unlikely alternative that this is actually the most clever counterfeiting operation ever, the entire amount received would be taxable income (since illegal activities generally are not allowed the usual deductions for cost of goods sold).
I have no idea, but my guess is that there are not any watermarks or other security devices on baseball cards produced in 1910. It was stated that the cards are in pristine condition.

Just the musings of an overly imaginative devious mind (that is thankful for being honest), perhaps.

User avatar
jcolvin2
Grand Master Consul of Quatloosia
Posts: 564
Joined: Tue Jul 01, 2003 4:19 am
Location: Seattle
Contact:

Re: Will this be taxable income?

Postby jcolvin2 » Sat Jul 21, 2012 6:12 pm

jg wrote:In the unlikely alternative that this is actually the most clever counterfeiting operation ever, the entire amount received would be taxable income (since illegal activities generally are not allowed the usual deductions for cost of goods sold).
I have no idea, but my guess is that there are not any watermarks or other security devices on baseball cards produced in 1910. It was stated that the cards are in pristine condition.

Just the musings of an overly imaginative devious mind (that is thankful for being honest), perhaps.


While there were some "public policy" cases in the 1950s and 1960s, modern cases do not disallow the COGS with respect to an illegal business, even under section 280E (which explicitly disallows most deductions relating to an illegal drug business).

For an example of an IRS concession on this issue in a 280E case see:
http://www.ustaxcourt.gov/InOpHistoric/champ.TC.WPD.pdf

jg
Fed Chairman of the Quatloosian Reserve
Posts: 614
Joined: Wed Feb 25, 2004 2:25 am

Re: Will this be taxable income?

Postby jg » Sat Jul 21, 2012 6:48 pm

Thank you for the update.

Footnote 4 of the case cited:
In other words, respondent concedes that the disallowance
of sec. 280E does not apply to costs of goods sold, a concession
that is consistent with the caselaw on that subject and the
legislative history underlying sec. 280E. See Peyton v.
Commissioner, T.C. Memo. 2003-146; Franklin v. Commissioner, T.C.
Memo. 1993-184; Vasta v. Commissioner, T.C. Memo. 1989-531; see
also S. Rept. 97-494 (Vol. 1), at 309 (1982).


Return to “Tax Practice & Policy and Tax Shelters”

Who is online

Users browsing this forum: Brandwatch [Bot] and 1 guest