- 6 -
seeking Coburn’s views on the tax consequences for the facts
stated in the letter to Leavitt. Petitioner and Mr. Walker had
been clients of Coburn’s firm for many years, and Coburn
continued to prepare their individual tax returns after their
divorce. On May 1, 1997, Coburn wrote a response to Young. The
pertinent parts of Coburn’s response are as follows:
I received your fax of a letter you sent to Gary
Leavitt regarding a possible transfer of properties
from Bert to Claudia prior to their sale. If the
transfers occur within one year of the divorce, it is
clear that Internal Revenue Code Section 1041 would
apply. No gain or loss would be reported by Bert
Walker, and Claudia Walker would take his basis in the
property as her own. Therefore, she would be
responsible for any income taxes due on a subsequent
sale. [Emphasis added.]
There are a couple of alternatives that could be
considered. First, since Claudia will probably have
little other income in 1997, she may be in a lower tax
bracket than Bert and thus would pay less income tax on
the gains than Bert would. If Claudia were to accept
an assignment of the properties, Bert could perhaps
agree to reimburse her for the income tax due on the
gains.
Or, since Claudia holds trust deeds on these
properties, it should be possible for the escrow
instructions to provide for a payment of some or all of
the proceeds from the sales, even though Bert would be
the seller. In that case, Bert would remain
responsible for the income taxes on any gain. If this
were done, Bert may wish to retain a portion of the
proceeds, in order to pay the income taxes on the
gains.
Coburn sent copies of his response to Young’s letter to both
petitioner and Mr. Walker, and petitioner reviewed her copy of
his response.
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011