4 debts 2 payments.

The accountants created the two accounting entanglements called "debts" that Edward White asks me about in his letter of May 19, 1992, by reporting different amounts to different agencies when the amounts should be the same. I am asked if there are any more.

If it were not for some transparency, there would have been two more, and real debts; $34,046 and an estimated $148,484, when the IRS and the State find that no capital gains tax were paid on the Lynch note 1 payment of $125,188 to Jean O'Connell on April 21, 1991, or on the Lynch note 1 payment of $545,820 to her estate on April 21, 1992.

The accountants have made me appear responsible for the $659.97 and $348.89 "debts" that they created. Please judge for yourself; who would be made to appear responsible for the $34,046 debt and an estimated $148,484 debt if there had not been enough transparency to see that the capital gains taxes were not paid or intended to be paid, and that it was publicly pointed out that the capital gains taxes should be paid?

Accounting entanglements are used to cover and divert attention from the accounting trails. The fundamental issue is where did the money go, the rest is cover. Where did the $125,188 and $545,820 go?

Use this format? YES!

Please judge for yourself. If you read the correspondence and documents and connect the dots, does it look as if:

(1) ggggggg

(2) hhhhh

(3) ll

(4) hhhhhh

¹659.97
(1,475.97 - 816.00 = 659.97; accounting entanglement called "debt")

The 1,475.97 - 816.00 = 659.97 accounting entanglement called "debt" was created (as Edward White's describes it in his letter of May 19, 1992, but the accountants created it; not the family)

Joanne Barnes created this by reporting different amounts to different agencies when the amounts should be the same. Edward White reports the difference. Here $1,475.97 is reported for the Court ("Payable to the Estate of Jean M. O'Connell ... ... ... ... $1,475.97", Bk480p1769) and $816.00 is reported for the IRS on the K-1. Edward Whites reports the difference of $659.97 to the Court and the IRS.

1992.05.19   (Edward White to Anthony O'Connell, c/o E.A. Prichard, copy to Jean Nader)
"In your letter of May 6 to Jean you asked that I communicate with you with regard to the Harold O'Connell Trust.
I am trying to prepare the estate tax, and as usual in these cases, there are problems trying to understand the flow of debts and income.
I do have a few questions which are put forward simply so that the figures on the Trust's tax returns and accounting will agree with the estate's.
1. The K-1 filed by the Trust for 1991 showed income to your mother of $41,446.00. The Seventh Accounting appears to show a disbursement to her of $40,000.00 plus first half realty taxes paid by the trust for her and thus a disbursal to her of $1794.89. If these two disbursals are added the sum is $41,794.89. This leaves $348.89 which I cannot figure out. It could well be a disbursal of principal and not taxable.
2. The K-1 filed by the Trust showed a payment of $816.00 in interest to the estate. You sent a check in the amount of $1475.97 to the estate. What was the remaining $659.97? Do I have this confused with the tax debt/credit situation which ran from the Third Accounting?
3. On the Seventh Accounting "Income per 7th Account" is shown as $5181.71, but I cannot figure that one out either.
I am of the opinion that the estate owes the trust for the second half real estate taxes from September 15, 1991 through December 31, 1991 in the amount of $1052.35. This is shown on your accounting a disbursed to the heirs. Should this be paid back to the heirs or to the Trust?
I believe that the income received from the savings accounts from September 15 to the date the various banks made their next payment to the Trust (9/30 and 9/21) should be split on a per diem basis, since the Trust terminated on her death. This will be a small amount of course.
Are there any other debts which your Mother owed the Trust?
I realize that Jo Ann Barnes prepared this and if you authorize it I can ask her to help me out.
Please understand that I have no problem with the Accounting, I m just trying to match things up. In the long run, since the beneficiaries are the same, the matter is academic. Please send the bill for the appraisal whenever you receive it. Jean is filing the Fairfax form for re-assessment in her capacity as a co-owner in order to give us a better basis to get this assessment changed and to meet the county's deadline. It will state that the appraisal you have ordered will follow. I think this will be to all of your benefit in the long run.
Sincerely, Edward J. White"

1993.02.12 (CPA firm of Joanne Barnes and Forest Balderson to Anthony O’Connell, in part)
"The final point in your letter is in regards how to treat the $1,475.97 of cash which was paid to your mother's estate in 1992. This is just a cash transfer to cure a cash deficiency as of the date of death and NOTHING else. On page 4 of the Seventh Account, your mother owed the Trust at the end of the Sixth Account $3,705.74 but you had underdistributed $5,181.71 of cash through her date of death. The $1,475.97 just completes what was due her. The transfer to her estate has no tax effect for either 1991 or 1992."

2000.08.08   (Jesse Wilson's Report to the Judges, in part)
"5. The said trustee has also filed a Twelfth Account in which he reports as an asset $659.97 "due from the Estate of Jean M. OConnell".  A copy of that "account" is enclosed herewith as Exhibit 3.
6. The Estate of Jean M. OConnell, deceased, Fiduciary No. 49160, was closed in the Commissioner of Accounts office after approval of a Final Account on May 31, 1994.
7. The said $659.97 was the subject of correspondence between the said trustee and Edward J. White, attorney and co-executor of the estate of Jean M. OConnell, copies of which are attached hereto as Exhibits 4 and 5. In his letter,
Exhibit 5, the trustee explains that the $659.97 is part of a net income payment of $1,475.97 which the trust owed the estate of Jean M. OConnell. In that same letter, the trustee states that "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".
Mr. Balderson was a CPA for the estate. Both of these letters were provided to the Commissioner of Accounts by the trustee in support of his "Twelfth Account".
8. The trustee also provided the Commissioner with a copy of a page from a "Jean M. OConnell estate tax analysis" which shows $659.97 under "Assets" of that estate as "Debt from Harold OConnell Trust".  A copy of that page is attached as Exhibits 6.
From a review of this information the Commissioner finds that there is no evidence to support an assertion by the trustee that the $659.97 is an asset of the trust. To the contrary, it appears that either it is not a debt at all, or, from the estate's point of view, it was money owed by the trust to the estate, i.e. an asset of the estate of Jean M. OConnell. That estate has been closed for more that six years.
Accordingly, the foregoing Eleventh Account of Anthony M. OConnell, Trustee has been marked a "Final Account" by the undersigned and is hereby approved as a Final Account in the trust under the will of Harold A. OConnell and is filed herewith.
In the event that the trustee is successful in recovering $659.97 or any other funds which are proper trust assets to be accounted for, such may be reported to the Commissioner of Accounts by an Amended Inventory and, thereafter, accounted for by proper accounts.

²348.89
(Accounting entanglement called "debt")

The 40,000.00 + 1,794.89 - 41,446.00 + more entanglement = 348.89 + more entanglement called "debt" would be extremely difficult to untangle if it could be untangled at all.

1992.05.19   (Edward White to Anthony O'Connell, c/o E.A. Prichard, copy to Jean Nader)
"In your letter of May 6 to Jean you asked that I communicate with you with regard to the Harold O'Connell Trust.
I am trying to prepare the estate tax, and as usual in these cases, there are problems trying to understand the flow of debts and income.
I do have a few questions which are put forward simply so that the figures on the Trust's tax returns and accounting will agree with the estate's.
1. The K-1 filed by the Trust for 1991 showed income to your mother of $41,446.00. The Seventh Accounting appears to show a disbursement to her of $40,000.00 plus first half realty taxes paid by the trust for her and thus a disbursal to her of $1794.89. If these two disbursals are added the sum is $41,794.89. This leaves $348.89 which I cannot figure out. It could well be a disbursal of principal and not taxable.
2. The K-1 filed by the Trust showed a payment of $816.00 in interest to the estate. You sent a check in the amount of $1475.97 to the estate. What was the remaining $659.97? Do I have this confused with the tax debt/credit situation which ran from the Third Accounting?
3. On the Seventh Accounting "Income per 7th Account" is shown as $5181.71, but I cannot figure that one out either.
I am of the opinion that the estate owes the trust for the second half real estate taxes from September 15, 1991 through December 31, 1991 in the amount of $1052.35. This is shown on your accounting a disbursed to the heirs. Should this be paid back to the heirs or to the Trust?
I believe that the income received from the savings accounts from September 15 to the date the various banks made their next payment to the Trust (9/30 and 9/21) should be split on a per diem basis, since the Trust terminated on her death. This will be a small amount of course.
Are there any other debts which your Mother owed the Trust?
I realize that Jo Ann Barnes prepared this and if you authorize it I can ask her to help me out.
Please understand that I have no problem with the Accounting, I m just trying to match things up. In the long run, since the beneficiaries are the same, the matter is academic. Please send the bill for the appraisal whenever you receive it. Jean is filing the Fairfax form for re-assessment in her capacity as a co-owner in order to give us a better basis to get this assessment changed and to meet the county's deadline. It will state that the appraisal you have ordered will follow. I think this will be to all of your benefit in the long run.
Sincerely, Edward J. White"

1993.02.12 (CPA firm of Joanne Barnes and Forest Balderson to Anthony O’Connell)
"Re: Trust u/w of H. A. O'Connell
Dear Mr. O’Connell:
Joanne Barnes has asked me to respond to your letter of January 21, 1993 concerning the differences in the "Total distributions" from the court accounting and the fiduciary return. I will also try to answer the other questions in your letter.
The amount on Page 2, Line 12 of Form 1041 in the amount of $146,795 is the figure on a work paper which I previously gave to you (copy attached). Listed below, again in another format, is how that $146,795 was arrived at:

The $146,794.89 or $146,795 was the total amount of cash distributed to the beneficiaries or heirs of this trust during the calendar year 1991.
The $1,794.89 of real estate taxes which you as Trustee paid on behalf of the three heirs (Shelia O'Connell, Jean Nader and Anthony O'Connell) was an obligation owed directly by the three heirs as your mother's interest in this real estate passed directly to each of you at her death. When you received the K-1's for 1991, attached was a schedule for each of you to report 1/3rd of these real estate taxes on your individual income tax returns.*
The final point in your letter is in regards how to treat the $1,475.97 of cash which was paid to your mother's estate in 1992. This is just a cash transfer to cure a cash deficiency as of the date of death and NOTHING else. On page 4 of the Seventh Account, your mother owed the Trust at the end of the Sixth Account $3,705.74 but you had underdistributed $5,181.71 of cash through her date of death. The $1,475.97 just completes what was due her. The transfer to her estate has no tax effect for either 1991 or 1992.
I hope that the foregoing has answered your various questions. I am also returning to you, the letter which you sent with your letter of January 21, 1993. I have made a copy of it for our files.
Very truly yours,
Keller Bruner & Company, P.C.
Forest N. Balderson”

*My best guess of what this means is that the accountants did the Trust accounting in a way that had the Trust pay the real estate taxes for the beneficiares of the Estate, but as individuals. This entangles, I believe, tax returns and accountings for the Trust, the Estate, the IRS, the State, and the Court. To disentangle this would, I believe, require amending the Trust's fiduciary tax returns to the IRS and the State and the Trust's court account to the Court, the Estate's fiduciary tax returns (assuming it was not put on the Estate Tax Return IRS Form 760) to the IRS and the State and the Estate's court account to the Court, and the individual tax returns of the three beneficiaries of the Estate to the IRS and the State.

This feels similar to the instructions innocent Jean Nader is carrying out:
1992.07.27 (Estimated)   (Jean Nader to Anthony O Connell, in part)
"5. Since the trust was supposed to terminate on Mother's death, the $2000.00 for the appraisal should be paid to the beneficiaries, not to the trust. The checks from Sheila and me can then be paid back to you.
6. Please send a copy of the appraiser's bill and his notation that it has been paid so that the estate may claim the payment for the appraisal as a deduction."

This is why I am using 1,475.97 - 816.00 = 659.97 as the example of an accounting entanglement. I know I am on solid ground when I start a reality test with "Does 1,475.97 minus 816.00 equal 659.97?

Summary so far
Two accounting entanglements called debts; $348.89 and $659.97

34,046³

If the 1991 Lynch payment of $125,188 to Jean O'Connell had continued to have gone unreported, the IRS and the State, at some point, would be asking the beneficiares to pay approximately $34,046 in capital gains tax plus penalties and interest.

Who would advise the IRS and the State about who owed what percent? Would the family [Anthony O'Connell], rather than the accountants, be made to appear responsible as was done with the $659.97 and $348.89 accounting entanglements called "debts"?

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 also does not show the principal of $125,188.17³ 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.³ 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."

1992.06.30   (Edward White and innocent Jean Nader to the 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"

The only protection the family has is sunshine.

148,484⁴ (estimated)

If the 1992 Lynch payment of $545,820 to the estate had gone unreported as planned, the IRS and the State, at some point, would be asking the beneficiares to pay approximately $148,484 in capital gains tax plus penalties and interest.

Who would advise the IRS and the State about who owed what percent? Would the family [Anthony O'Connell], rather than the accountants, be made to appear responsible as was done with the $659.97 and $348.89 accounting entanglements called "debts"?

1992.03.30   (Anthony O'Connell to Edward White, in part)
"1. As you know, the Lynch Limited Partnership plans to pay my Mother's estate $545,820.43 on April 21, 1992. What is your best guess as to when and in what amount(s) you will make distribution(s) to the beneficiaries?"

1992.04.04   (Edward White to Anthony O'Connell, in part)
"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.
... 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."

1992.11.13   (Edward White to Anthony O'Connell, Jean Nader, and Sheila O'Connell, in part)
"The question of capital gains comes up often in estate situations. Any asset owned by a decedent at the time of death is given a "stepped up" basis to its value at the date of death. If the heirs then sell the asset the only taxable capital gain (or loss) is the change in value between the date of death and the date of sale. The Accotink property falls in that category, though the basis on the share formerly held in trust has a basis as of the date of your father's death. The Lynch note will not produce any capital gain since it was taxed in the estate as part of your mother's assets. It will produce an income tax effect on the fiduciary income tax return since $26,917.17 in interest was received by the estate. This is included in the $56,928.52 referred to above."

1992.11.16   (Anthony O'Connell to Edward White)
"Thank you for your letter. You mention that distributions from my mother's estate to the beneficiaries are tax free (except from after death income), and that the Lynch Note will not produce any capital gains. Perhaps I am misinterpreting your letter or perhaps I'm just plain wrong. I hope I am wrong.
The Lynch Note to the estate, a result of the installment sale of my mother's residence on 4/21/88, carries with it a taxable capital gain. The IRS requires that this capital gains tax be paid by the estate or the beneficiaries if the taxable capital gain is passed through the estate to the beneficiaries before the end of the tax year.
The gross profit percentage on the sale was seventy-nine percent (79%). The payoff of the Lynch note to the estate on 4/21/92 was $545,820.42⁴of which $45,067.74 was income and $500,752.68 was capital. Of that $500,752.68 in capital, 79% or $395,594.62 is taxable capital gain."

1992.11.16   (Edward White to Anthony O'Connell, Jean Nader, and Sheila O'Connell) (No copy to another) "Regretfully I have to amend my letter of Friday. There is no "stepped up basis" on the Lynch note according to the accountants who are preparing the fiduciary income tax return. This is subject to a credit for tax paid on part of it in the estate tax return, but it will result in an estimated $35,000 to $40,000.00 in tax to the estate due to the note payoff."

1992.11.17   (Edward White to Anthony O'Connell, copy to Jean Nader, in part.)
"My letter of yesterday answers some of your questions. As I noted in that letter, unfortunately, you are correct on the capital gain situation."

The only protection the family has is sunshine.

Summary so far
Two accounting entanglements called debts; $348.89 and $659.97;
and two debts that would have been without sunshine; $34,046 and $148,484

⁵125,188

Can we expose the accounting trails of the Lynch payment of $125,188 to Jean O'Connell on April 21, 1991, and find out where the money went?

⁶545,820

 Can we expose the accounting trails of the Lynch payment of $545,820 to Jean O'Connell's Estate on April 21, 1992, and find out where the money went? This payment is not reported in the estate's fiduciary returns, the estate tax return, or in the estate's court accountings The Lynch note disappears between the first and second court accounts.

If I am made to appear responsible for the accounting entanglements $659.97 and the $348.89 that the accountants are apparently calling debts, would I be made to appear responsible for the $34,046 and $148,484 debts that would be created if the accountants had paid the tax on the 1991 Lynch payment of $125,188 and the 1992 Lynch payment of $545,820?

Summary