The devil’s in the details
I have a 75 year-old client* who is the trustee of his aunt’s trust. He had a stroke before the final tax return on his aunt’s estate was due and ended up filing the return nine months late. Approximately $20,000 was due in taxes, and nearly $10,000 was assessed in penalties.
Mercifully, because of the circumstances of his illness, it’s likely that the IRS will simply drop the penalties. Currently the law gives the IRS broad discretion to waive penalties where the taxpayer can show he or she made a good faith effort to obey the tax law.
However, under a new tax provision included in a health care bill before Congress, that discretion may be wiped away.
James M. Peaslee of the Wall Street Journal writes that the provision has escaped public notice because it is buried so deeply in the bill under a section dealing with abusive tax shelters. The language is unforgiving for those who deliberately fail to file their tax returns, but it is downright merciless for the “honest but errant” taxpayer, slapping Aunt Jane and her heirs with fees they don’t deserve.
Peaslee points out that similar changes to the penalty system in the past caused too many headaches for the IRS and taxpayers alike, prompting Congress to backpedal on discretion limitations. But not before tax professionals and taxpayers struggled for years trying to comply.
If this bill passes with that provision in tact, family members, estate administrators, and trustees aren’t going to get any sympathy from the IRS when their loved ones die.
James D. Perry
(*)Details have been changed to protect confidentiality.
Tags: Estate Planning, Estate Tax, trusts
