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agent. At a meeting held shortly after Ms. Braden’s father died,
the estate’s probate counsel told petitioners there would be no
tax on the distributions because inheritances under $650,000 were
exempt from tax. The retired IRS special agent, whom petitioner
had met at a class on financial crimes investigations, also told
petitioner, in response to petitioner’s question regarding the
taxability of an inheritance, that inheritances under $650,000
were exempt from tax.
Ms. Braden also received interest earned on certain accounts
owned by her father at his death, but the interest income was not
reported on petitioners’ 1995 return. Petitioner did not know
that part of the distributions received by Ms. Braden consisted
of interest income.6 Petitioner believed that all of the funds
distributed to Ms. Braden as a result of her father’s death were
simply an inheritance from Ms. Braden’s father.7
Ms. Braden used approximately $10,000 of the distributions
she received as a result of her father’s death to pay her
father’s hospital bills and gave half of the remaining money to
6We infer from the record as a whole that the accounts
generating the omitted interest belonged to Ms. Braden’s father
before his death and that the omitted interest was part of the
distributions made to Ms. Braden as a result of his death.
7Although respondent claims that petitioner did not assert
that he is entitled to relief from joint and several liability
with respect to the omitted interest income, petitioner
consistently took the position throughout the case that he
believed the distributions Ms. Braden received as a result of her
father’s death were a part of her nontaxable inheritance.
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Last modified: May 25, 2011