Tax law replace: April 2021

Dispute over whether the transaction is a gift or a contract. In Pratte v. Bardwell (D. Ariz. No. CV-19-00239-PHX-GMS, Aug. 4, 2021), plaintiff Ronald Pratte sued his former friend and co-worker Jeffrey Bardwell for alleged breach of contract, debentures and unjust enrichment. The dispute arose out of a transaction at a Las Vegas airport. Five years after they met and became friends, Ronald met Jeffrey and four others at the Las Vegas airport and gave them a check for $ 2 million each and told them that he would also transfer and propose real estate to them to start a home construction business. Ronald claims, however, that in exchange for the check, Jeffrey agreed to work for him until Ronald’s death. Jeffrey disagreed, claiming that the transaction was a gift and no such promise was made.

Ronald paid gift taxes in connection with the transaction. The court found that with regard to the action for breach of contract and cancellation of guilt, there were clearly factual issues to be clarified, since both parties characterize the same event differently. The court also stated that the claim to unjust enrichment is dependent on the determination of the subject matter of the contract, so that no decision can be made. Ultimately, the court ruled that Ronald could not claim any taxes paid on Jeffrey’s behalf because the gift tax liability rests solely with him as the giver. Also, he claimed, he would not have had to pay any gift tax at all if a contract had been made.

Because of the contentious nature of the transaction, the court denied both parties’ motions for injunctions.

• Estate is seeking reimbursement for penalties imposed on late returns– In Leighton v United States (unpublished, Court of Federal Claims (August 9, 2021)), the administrator sought a refund of the Internal Revenue Service’s penalties for late filing of penalties and interest. The testator’s son was an administrator and worked with a lawyer, a family office and an accounting firm. The attorney informed the executor that an estate tax return only needs to be filed if the estate’s value has exceeded the filing threshold of $ 5.49 million. The family office had the accounting firm fill out a questionnaire, and after some review, the entire team concluded that the estate was worth between $ 1 million and $ 2 million and there was no need to file a statement. The team worked together throughout the management of the property and had a good working relationship.

Two years after the death of the deceased, the deceased’s son mentioned the existence of certain irrevocable trusts to the attorney. The lawyer checked with the auditor and learned that a gift tax return had been filed in 2012. Taking into account the value of the gifts for life, the value of the estate now exceeded the deposit threshold and a federal estate tax return should have been submitted (and the tax was due). The estate filed the declaration and paid the taxes, penalties, and interest.

The estate then filed a request for reimbursement of the sentence. The IRS denied the refund claim and the estate appealed. The estate claimed that the failure to request a filing was due to a reasonable cause and not willful negligence. The United States moved the lawsuits to be dismissed because the counsel’s advice was inadequate, the executor remained responsible for filing the return on time, and the unavailability of the 2012 gift tax return was inadequate.

Treasury Regulations Section 301.6651-1 (c) (1) provides: “If the taxpayer exercised normal business care and caution and was still unable to file the tax return” [or pay the tax] within the prescribed period, the delay is due to a reasonable cause. ”

The court found:

In general, a taxpayer can provide a reasonable reason for not filing a timely declaration to avoid a penalty by relying on the advice of an accountant or attorney, even if that advice is later found to be wrong or wrong. Thomas v. Comm’r, 82 TCM (CCH) 449 (TC 2001), 2001 WL 919858 (citing 26 USC § 6651 (a) (1)).


In general, a taxpayer is not required to provide a tax advisor with details that a reasonable taxpayer would not be aware of; The taxpayer is also not obliged to provide details of which he himself should neither know nor reasonably should know that they are relevant. Pankratz v. Comm’r of Internal Revenue, 121 TCM (CCH) 1178 (TC 2021) (citing 26 CFR
§1.6664-4 (c) (1) (i)).

The court found that the taxpayer’s request for reimbursement could not be dismissed because further evidence was required as the lawsuit alleged sufficient facts to enable it to succeed. The question of how and why the gift tax return was not discovered needed to be investigated.