June 11, 1992
There are two versions of the estate tax return extension request (IRS Form 4768) and two versions of the estate tax return (IRS Form 760). There should only be one of each. One version says $175,000 was paid to the IRS on June 11, 1992, and one version says $119,000 was paid to the IRS on June 11, 1992. The lines near the $119,000 figure are broken as if something such as a correction fluid was used.
The $175,000 version of the extension request (IRS Form 4768) says: "The enclosed payment is based on the maximum value for the property and will be changed" and the $175,000 version of the estate tax return (IRS Form 760) says: "OVERPAYMENT $70,050.51":
1992.06.11 (Accountants to IRS) Request extension for filing estate tax return (IRS Form 4768)
"Part II Extension of time to file
1. The decedent was a part owner of a tract of ground the value of which is to be determined by an appraisal in progress. The enclosed payment is based on the maximum value for the property and will be changed.
2. The estate does not at this date possess full data for certain gifts and debts of the estate and other needed information."Part IV, in part:
"(Pay with this application) 175,000"
1992.09.08 (Accountants to IRS) Estate Tax Return (IRS Form760)
Line 25: "Prior payments. Explain in an attached statement 175,000"
Line 27 "Total (add lines 25 and 26) 175,000"
Line 29 "Balance due (or overpayment) (subtract line 27 from line 24) OVERPAYMENT (70.050.51)"
But Edward White's letter of November 13, 1992, seems to be based on the $119,000 version:
1992.11.13 (Edward White to Anthony O'Connell, Jean Nader, and Sheila O'Connell)
"When I agreed yesterday to the disbursement of the A. G. Edwards accounts by the end of the year, I had not looked at the bank balance of the estate for some time. There is $64,216.83 in the estate account which includes the sum of $14,408.53 received today from the IRS for the estate tax overpayment.
To date the sum of $324,000.00 has been disbursed to the heirs, which has been done on the assumption that we have on hand enough money to pay the rest of the debts. Normally an estate is not disbursed until an Estate Tax Closing Letter has been received from the IRS and Virginia.
I cannot agree to a disbursement from the Edwards accounts until a closing letter is received. As you recall the Accotink property is assessed at $600,000.00 by the county. Based on the appraisal, we used one half of that figure (times the percentage interest owned by your mother). In the event the IRS does not agree and insists on the full valuation, the estate tax liability could increase by about $67,000.
Out of the bank account must come the executors' commission which will be about $45,000.00, a fee for the Fiduciary Income Tax return preparation and various filing fees of a small nature. There simply is not enough money left to cover the contingencies. A disbursal in these conditions would be a violation of the duty of the fiduciaries.
Since the IRS has issued the refund (with interest), I would assume a closing letter is not far behind.
Some questions have arisen as to your tax liabilities. The Estate paid an estate tax on the value of the property owned by your mother at her death. Since the tax is paid, what is distributed to you is tax free.
In addition there is a fiduciary income tax on the earnings of the estate while it is open. The First Accounting shows income of $56,928.52 from 9/15/91 through 9/15/92. Basically this is what will be taxed as estate income. Of this $659.97 can be ignored as it was repayment of a debt from the O'Connell Trust and not income, and at least $13,388.25 was tax free income. The fiduciary income tax is paid by the estate if it was not disbursed during the tax period. In your case it was disbursed, and you will receive a form K-1 showing how much should be added to your regular income. This is why it is called "pass through" income. This might be about $14,000.00 each not counting deductions which are due to the estate. Jo Ann Barnes is preparing this return for the estate at present.
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.
The remaining items left to do in the estate are the filing of a request for the publication of Debts and Demands against the estate, filing a second and final accounting, obtaining a court order for the distribution of the estate and filing a second fiduciary income tax return from the period 9/15/92 through the date of disbursement.
Sincerely, Edward J. White"
One of the dynamics covering and diverting attention from the actual money trails is the confusion and conflict created by making it appear that I am responsible for delaying the estate tax return (IRS Form 706) and for the need of an extension request. See "Delay".