$125,188


I don't understand why the accountants did not report the April 21, 1991, payment of $125,188 on Jean O'Connell's 1991 IRS Form 1040 until I wrote them that it should be reported.

Edward White wrote the Deed of Trust and the Notes that describe the time for the payments. He was Trustee for the Deed of Trustee. Joanne Barnes reported the April 21, 1991, payment to the Trust u/w of H. A. O'Connell on the Trust's 1991 IRS Form 1041 (Note 1 was in the estate and Note 2 was in the trust). I sent Edward White and Joanne Barnes a copy of the Lynch Notes payment schedule on April 24, 1989. The accountants appear concerned about their accounting in their instructions to the family.

If I had not written the accountants what would the consequences be when the IRS asks for the capital gains taxes? How would the IRS assign the percentage of taxes with penalties and interest among the beneficiaries when the accounting is impenetrable? Would the IRS take the accountant's word or mine?

As far fetched as it may sound to those who have a basic understanding of accounting, would the accountants make it appear that I was responsible for the accountant's not reporting the $125,188? Edward White's letter of May 19, 1992, says or implies that there were some debts our mother owned the Trust that I should know about. ("Are there any more debts your mother owed the Trust?'). The 1991 payment of $125,188 to Jean O'Connell would create a debt of about $34,056 (IRS and Virginia) if it had not been reported. See "Four debts and two payments".

The 1992 payment of $545,820 to Jean O'Connell's estate would create a debt of about $148,484 if it had not been reported.

Summary

(Invisible wall using innocent)
1992.04.04   (Edward White to Anthony O'Connell, in part)
"I do not know what your problem is, but in the future, please address all correspondence to Mrs. Nader. 
I am trying to be patient with you, but I find that this estate is time consuming enough without having to deal with letters such as the last two that I have received."

1992.05.29   (Anthony O'Connell to Edward White) (Copies to E. A. Prichard, Forrest Balderson, Jean Nader and Sheila O'Connell, in part)
"2. My copy [Jean O'Connell's 1991 IRS Form 1040] also does not show the principal of $125,188.17 paid to my mother by the Lynch Note in April of 1991. It does show the interest. With a gross profit percentage of .79 on the installment sale, about S 98,898.65 of the $125,188.17 should have been reported on line 13 of the 1040 as a capital gain. It appears that this omission is up and above the penalties and interest already acknowledged. Why was it not reported? Will you amend the return?"

1992.06.11   (Edward White to Anthony O'Connell, copies to Jean Nader and E.A. Prichard, in part)
"With regard to the income tax matter and the capital gain from the receipt of principal on the Lynch note in April 1991, I was following the 1990 return and simply did not pick up the fact that there was a principal payment in 1991. I will most certainly pay any interest and penalty which might accrue in this regard, and sincerely appreciate your calling it to my attention."

(Invisible wall using innocent)
1993.02.02   (Edward White to Jean Nader, in part) (No copy to another)
"As far as an income prediction for the Estate is concerned, I can make no intelligent prediction since I do not know how long it will remain open. I have been continuously burned in making gratuitous comments about the tax liability of the heirs, and counsel and other attorney friends have stated to me, that given the performance of Mr. O'Connell, that I should make no comment at all. I tried to be helpful, but that did not work. I can only say that had I not been adamant about re-valuing the Accotink property, Mr. O'Connell's initial approach would have cost this estate dearly. From the comments in his recent demands for "information", I can see that he is jumping to conclusions based on no knowledge at all. I will not reply directly to him on any future aspect of this estate. As a matter of fact I am precluded as an attorney from dealing with an adverse party who is represented by counsel. I have no intentions of having him dictate the duties of the fiduciaries. If his counsel wishes to discuss anything, I am certainly available.
The present assets of the estate are: 
(See this in the pdf reference for this part with numbers)
This totals $315,695.03, but is out of date since there have been additions since 12/31/92. These figures are taken from data at hand and do not represent any formal accounting by me. They are not furnished for any individual's use for personal tax purposes, and I disclaim any personal tax liability which might arise.

(Invisible wall using innocent)
1995.02.28   (Edward White to Judge Kenny)
"Normally I just let these things lie still, but Mr. Anthony O'Connell's latest in his letter to you needs some clarification.
I not only furnished Mr. O'Connell's attorney, Edgar A. Prichard, a copy of the entire financial history of the estate, noting that it would be from that document that the final accounting would be prepared (my ltr of 11/9/93), but a copy of the accounting itself (my ltr of 1/19/94). In addition, he received copies correspondence concerning every other event in the administration of this estate including all of my letters to the co-executor, his sister.
I have never received his "Exceptions" and have only heard from the Commissioner's office that they are 109 pages long.
Sincerely, Edward J. White"

 

Summary with complete letters

1992.04.04   (Edward White to Anthony O'Connell)
"I have received your letter of March 30, 1992. The answers are:  Question 1. As soon as the money is received, the tax liabilities evaluated and upon consultation with the Co-Executor.  Question 2. Paid. It is not my decision as to what it will cost you, though I have been informed that you know full well.  Question 3.  2 Y % of the receipts into the probate estate if approved by the Commissioner of Accounts. I would call to your attention that on two separate occasions I drove to Sovran and spent a lengthy period of time on the question of the car loan. I did this in person since: I knew that you had the vehicle, that your sisters wanted you to have it, that the insurance and tags were due to expire soon and I did not want you to be inconvenienced. I could have done all of this by mail and it probably would have taken about three months, knowing the nature of the loan problem. I assumed I was doing you a favor. Now I receive you letter asking that I "simply pay them the interest" I paid the interest and principal in one check on March 12, received the title on March 22 and mailed it to Mrs. Nader to sign over to you on March 23. Have you any suggestions as to how it could have gone faster? The information of the commission was given to you previously by Mrs. Nader. I do not know what your problem is, but in the future, please address all correspondence to Mrs. Nader I am trying to be patient with you, but I find that this estate is time consuming enough without having to deal with letters such as the last two that I have received.
Sincerely, Edward J. White"

 

1992.05.29   (Anthony O'Connell to Edward White) (Copies to E. A. Prichard, Forrest Balderson, Jean Nader and Sheila O'Connell)
"Thank you for your letter concerning the Seventh Trust accounting. In the future would you please send letters concerning me or the trust directly to me? It will save the beneficiaries attorney expense. I would appreciate you sending a copy to Mr. Prichard. I talked with Mr. Forrest Balderson today. Mr. Balderson prepared the account and states that the numbers are correct. He reminded me that court accounting and taxable accounting are different animals and often do not match. I believe this applies to your questions in paragraphs 1 and 2. Please feel free to call Mr. Balderson at (703) 549-7800.
I will try to address your paragraph 3. Rather than wait until the end of each year and calculate the exact net income of the trust to be distributed to my mother, I estimated the net income in April so I could make the distribution to her immediately after the trust received the annual April payment. The consequent year end adjustments were:
Third Account                $ -5,906.72 (Mother owed to trust)
Fourth Account               $  - 687.03 {Mother owed to trust)
Fifth Account                $ +5.796.98 {Trust owed to mother)
Sixth Account               $  -2.908.97 {Mother owed to trust)
Net carryover                 $ -3.705.74 {Mother owed to trust)
Seventh Account,1991  $ +5.181.71 {Trust owed to mother}
The net carryover of $-3.705.74 up to the seventh account combined with the $ +5.181.71 of the seventh account netted $1.475.97 the trust owed my mother. This is the $ 1,475.97 check I mailed to you. Mr. Balderson tells me he called you concerning the real estate taxes before he did the account and discussed it with you. Is it necessary to change it now? My trust accounting is on a cash basis. I think a per diem split of the September interest would be accrual accounting. I don't think I can mix the two methods. If the Commissioner of Accounts says it's appropriate, it's fine with me. At this point in time, I believe Mr. Balderson and I are of one mind that the estate does not owe the trust and the trust does not owe the estate.
I have a few questions concerning my mother's 1991 tax return.
1. My copy shows she should be penalized by IRS and Virginia because adequate estimated tax payments were not made after her death. I believe my sister is convinced I am responsible for this. If it is my fault, I will pay for it out of my pocket. I feel the other beneficiaries should not be charged for the negligence of another. Would you please lay out the specifics on what happened?
Please be very specific.
2. My copy also does not show the principal of $125,188.17 paid to my mother by the Lynch Note in April of 1991. It does show the interest. With a gross profit percentage of .79 on the installment sale, about S 98,898.65 of the $125,188.17 should have been reported on line 13 of the 1040 as a capital gain. It appears that this omission is up and above the penalties and interest already acknowledged. Why was it not reported? Will you amend the return?
3. On Schedule B under dividend income, what is the significance of "**BAL ON 1040 OF JEAN NADER, SSN 225 50 9052"?  I look forward to your response."
Your truly , Anthony O'Connell "


1992.06.11   (Edward White to Anthony O'Connell, copies to Jean Nader and E.A. Prichard)
'Thank you very much for your letter of June 9 and the appraisal.
I am helping Jean with the county matter and would appreciate your assistance since you certainly have much more expertise in the Accotink affair than anyone else. I agree that we must amplify the material previously sent to the county, and that the letter you enclosed is most pertinent. I had copies you sent me several years ago of the 1987 letters you wrote and received, but did not have the October letter.
Enclosed is a proposed addendum for the county which I wish you would look over, edit and add any comments that you think we should make. I am sure there are many factors that I have missed that you can add and welcome your input.
With regard to the income tax matter and the capital gain from the receipt of principal on the Lynch note in April 1991, I was following the 1990 return and simply did not pick up the fact that there was a principal payment in 1991. I will most certainly pay any interest and penalty which might accrue in this regard, and sincerely appreciate your calling it to my attention.
Again, I appreciate your help.
Sincerely, Edward J. White"

 

1993.02.02   (Edward White to Jean Nader) (No copy to another)
"At present the status of the estate is as follows:
Debts and Demands: A hearing following publication, for any creditors of the estate to come forward and press their claims was held on December 30, 1992 by the Commissioner of Accounts. No one appeared.
 First Accounting: is still awaiting approval. I spoke to the Commissioner's office on January 29, and they said they are just beginning to review accounts filed in October. The account must be reviewed and any questions answered. (I have never known of a Commissioner who did not have some questions.) The account is then approved or disapproved, and the Commissioner files his report with the court. No time prediction can be made here as this is soley in the hands of the Commissioner.
Estate Tax Closinq Letter or communication in lieu of a closing letter. No time prediction can be made here as this is soley in the hands of the IRS. In estate's of this size an audit of some or all of the return is not at all unusual.
Motion for an Order to Show Cause why the estate should not be distributed. Filed by the estate after the report of the accounting has been filed with the Court by the Commissioner.
Order to Show Cause why the estate should not be distributed. This is entered by the Court upon the request (and appearance) of the estate, following two weeks publication. Order of Distribution. Presented to the Court following the
Show Cause proceeding. The Show Cause - Order of Distribution statutory scheme is the protection for the executors.
Distribution in accordance with the Order.
Second (and Final) Accountinq. Filed after distribution
showing all transactions since the First Accounting.
Second Fiduciary Income Tax Return Filed after distribution for the period following the first return (9/1/92 - ?)
The unknown factors as far as time is concerned are: 1) the federal and state tax closing letters, 2) When the Commissioner approves the accounting, 3) When the Commissioner makes his report to the Court, 4) Delays in the Clerk's office. The fiduciary has no control whatsoever over any of these items
Enclosed are checks to be signed to the Commissioner and to Keller-Bruner for the tax preparation. The accountant's bill is reasonable considering the complexity of the return involving tax free income, preliminary distributions and capital gains.
As far as an income prediction for the Estate is concerned, I can make no intelligent prediction since I do not know how long it will remain open. I have been continuously burned in making gratuitous comments about the tax liability of the heirs, and counsel and other attorney friends have stated to me, that given the performance of Mr. O'Connell, that I should make no comment at all. I tried to be helpful, but that did not work. I can only say that had I not been adamant about re-valuing the Accotink property, Mr. O'Connell's initial approach would have cost this estate dearly. From the comments in his recent demands for "information", I can see that he is jumping to conclusions based on no knowledge at all. I will not reply directly to him on any future aspect of this estate. As a matter of fact I am precluded as an attorney from dealing with an adverse party who is represented by counsel. I have no intentions of having him dictate the duties of the fiduciaries. If his counsel wishes to discuss anything, I am certainly available.
The present assets of the estate are: 
(See this in the pdf reference for this part with numbers)
This totals $315,695.03, but is out of date since there have been additions since 12/31/92. These figures are taken from data at hand and do not represent any formal accounting by me. They are not furnished for any individual's use for personal tax purposes, and I disclaim any personal tax liability which might arise.
I am enclosing Edwards 12/31/92 statement which contains an entry for each asset's estimated annual yield. The amounts received from all of these funds will vary with market conditions. All of these Edwards assets are being reinvested, either in the specific funds or in Edwards Centennial Money Market Account. The estimates on Franklin, Kemper and ICA are much harder to figure. A complicating factor is that Nuveen, Kemper, Franklin and the Fairfax bond are tax free, though not all of them are Virginia tax free.
The following are the earnings from 9/1/92, the beginning date for the next fiduciary income tax return.
  (See this in the pdf reference for this part with numbers)
It should be noted that some of these items are tax free.
Since the tax laws now require payment of estimated taxes after the first estate tax year, I will have to compute these later. They will be due in April, if the estate is still open then. Finally, I would like, for the record some memorandum from you and Sheila concerning my earlier comments as to attempting a further reduction in the Accotink valuation.
Sincerely, Edward J. White"
(Enclosure to above. See this enclosure in the pdf reference)

*This is the first known mention of the payoff. It is after being confronted with the taxes and the $545,820 payment amount is still not mentioned. The state and federal taxes were approximately $148,484. Approximately 45% of the federal portion was passed on to the beneficiaries on the K-1's.

1995.02.28   (Edward White to Judge Kenny)
"Normally I just let these things lie still, but Mr. Anthony O'Connell's latest in his letter to you needs some clarification.
I not only furnished Mr. O'Connell's attorney, Edgar A. Prichard, a copy of the entire financial history of the estate, noting that it would be from that document that the final accounting would be prepared (my ltr of 11/9/93), but a copy of the accounting itself (my ltr of 1/19/94). In addition, he received copies correspondence concerning every other event in the administration of this estate including all of my letters to the co-executor, his sister.
I have never received his "Exceptions" and have only heard from the Commissioner's office that they are 109 pages long.
Sincerely, Edward J. White"

 

1991 IRS Form 1040

1992.04.04 (Edward White and innocent Jean Nader to IRS, on Jean O'Connell's 1040, IRS Form 2210) (estimated date based on same date as State return)
"Jean M. O'Connell 23050 6044
Form 2210
Waiver of penalty request
Mrs. O'Connell died on September 15, 1991`. Prior to that date she had made all of her estimated tax payments in a timely manner.
The nature of her income was not clear to the estate until Spring 1992.
It is requested that the penalty be waived due to unusual circumstances in which it would be inequitable to impose the penalty."

1992.06.30?) (Edward White and innocent Jean Nader to IRS, on Jean O'Connell's 1991 1040x, page 2, part 3)
"Co-executors were following the 1990 return and were unaware decedent received a principal payment on note in 1991.
Copies of schedule D and Form 6252 which should have been filed are attached.
It is requested that the penalty and interest be waived in this case."

1992.06.30 (Edward White and innocent Jean Nader to IRS)
"Enclosed is an amended return in this case. The amendment reflects the receipt of $99,337.00 of taxable income which was-due to a principal payment on a note.
This payment was received in the Spring of 1991. Mrs. O'Connell died in September 1991. The original returns were based upon her previous year's return when there was no such payment; At the time of filing the receipt of this capital gain had not been called to the attention of the Co-Executors.
It is requested that the interest and penalty in this case be waived.
Sincerely, Edward J. White    Jean M. Nader  Co-executors"

 

$284.74 accounting entanglement

1992.06.30   (Edward White to Jean Nader)
"Enclosed are: Virginia and IRS amended 1991 tax returns to be signed and mailed, letters to the IRS and Virginia, checks for each, and gift tax returns for 1989 and 1991 to be to be signed and mailed.
I will pay any interest and penalty which accrues on the amended tax return. The amount reflects the tax on the $125,188.17 principal payment made on the Lynch note in the Spring of 1991.
I never heard from Tony after my letter asking his input on the real estate tax matter. I gather from his letter to Fairfax County that he is taking it over which is fine with me.
Sincerely, Edward J. White"

1992.09.14   (Edward White to Jean Nader)
"Enclosed is the IRS reply to the amended income tax return which was filed to reflect the Lynch principal payment in 1991 which resulted in an additional $28,334.00 in federal tax.
They did not assess a penalty, but did assess interest in the amount of $526.55 for what I gather is the period from April 15 through July 7, 1992.
Since the estate would have had to pay the $28,334.00 in taxes in April, and as a result of the non payment, earned interest on the money, I have split the payment of the IRS assessment between me and the estate.
During the period of 83 days that the money was in the estate account it earned an average of 3.753% which equates to $241.81. My share is $284.74.
The checks are enclosed. Please sign the estate check if you agree and mail the package to the IRS. I am sure we will hear from Virginia to a lesser degree.
Please send a copy of this letter to Tony.
Sincerely, Edward J. White"

Bk467p194, note 6
"6.  When the 1991 income tax was prepared by Edward J. White, Co- Executor, a large capital gain was omitted necessitating the filing of an amended return. $526.55 was assessed in interest by the IRS. The figure is the amount of interest earned by the estate while the amount due the IRS was in the estate bank account. The balance of the interest assessment was paid by Edward J. White.)

Note: The $284.74 percentage of interest payment is unusual and is a flag. History suggest that it is an accounting entanglement. It entangles Jean O'Connell's individual taxes with her estate, the beneficiaries, and Edward White. If you try to expose the accounting trail(s) of the payment of $125,188 to the estate from April 21, 1991, and find out where the money went, I believe you will never get past the $241.81.