Nina H. Pettyjohn - Page 3




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          her petition was filed with this Court.                                     
               At the outset, we note that the record in this case leaves             
          much to be desired.  Nevertheless, we have carefully reviewed the           
          evidence and done our best to make an appropriate disposition of            
          the case.                                                                   
          A.  Petitioner’s Practice of Deducting Gifts to Family Members              
               On her income tax returns for 1988 through 1995, petitioner            
          deducted gifts that she made to various individuals, most if not            
          all of whom were family members.  These deductions served to                
          reduce petitioner’s taxable income and generate tax refunds for             
          those years.                                                                
               Petitioner admits that her practice of deducting gifts to              
          family members on her income tax returns was contrary to law.               
          See sec. 170(c).  Petitioner professes that she was motivated to            
          do so by the desire to reduce the estate tax upon her death, see            
          sec. 2001(a), and through a misunderstanding of the $10,000                 
          annual exclusion for gift tax purposes, see sec. 2503(b).4                  
               Petitioner reckons that her practice of deducting gifts to             
          family members on her income tax returns generated erroneous                
          income tax refunds for 1988 through 1992 in the following                   
          amounts:                                                                    
                                                                                     


               4  For gift tax purposes, sec. 2503(b) allows a donor to               
          exclude from taxable gifts the first $10,000 of gifts of present            
          interests made to each donee during the taxable year.                       




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