Jason wrote:

- quote -

If your client has filed timely, his open years would be
2000-2002. In 2000, the children turned 20, so unless he
could prove that they were full-time students, he can't
claim them as dependents, nor would he have a child support
obligation to them (being that they are over 18) that is
enforcable. As for the alimony, the wife died before those
years, and so must alimony (the fact that she had remarried
ignored for the moment). Therefore, he needs to amend to
REMOVE any alimony deduction he claimed and any dependency
deduction he claimed. Since the trust was not entitled to
that money (in lieu of the actual recipients), he should
also reverse those payments (1996- for alimony, and 1999-
for child support). Those reversals should not be income
since he wasn't entitled to a deduction in the first place
(note that I do NOT include the earnings as part of the
reversals), even if he took one in a closed year.

As for the trust itself for the amounts properly placed
therein, plus earnings, why would this be income to him for
amounts that existed upon the wife's death? I see only an
income tax on the earnings since 1996, plus a possible
estate tax issue (if she had other abandoned assets). There
is no need to wait until 2005 on account of the portion
attributable to the wife if the trust document says that it
reverts to you upon her death - but you may have to wait for
amounts attributable to the children since they aren't dead,
only missing (unless you are going to get them presumed dead
by a court).

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Jason <jason[at]nospam.com> wrote:

- quote -

I agree.

- quote -

I have real problems with this. Remember I is an auditor
and I'd want to read the documentation on this so-called
trust account. If it even looks like your client could
draw against that account, I disallow it. Also that letter
from his attorney had better be convincing. The letter may
avoid penalties, but if it isn't best on sound logic and tax
law (which has no requirment for being logical), I disallow
it and open up every year I could find.

- quote -

New problem: Nobody paid taxes on this money. I find it
incongruous that the ex-wife could have filed a tax return
during this period and not been hit on for under-payments.
I suspect she ceased filing and therefore all her years are
still open. My position is that the $400,000+ is her income
subject to interest and penalties AND there is no trust
agreement that can change that.

- quote -

Considering the amount of money involved here, it might be
appropriate to pay for a PLR.

Dick

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Jason wrote:

- quote -

Just when you think you've heard them all.........

Certainly he should amend (and lament) for the open years.
Actually he was put on notice back in 1986, the attorney's
advice to the contrary. Makes you wonder about lawyers.

Cheer$,
Harlan Lunsford, EA n LA

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Jason <jason[at]nospam.com> wrote:

- quote -

Axiom 3-1: Take the Money & Run!

Absolutely file for refund.

__
Art Kamlet ArtKamlet [at] AOL.com Columbus OH K2PZH

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Client has a 1983 divorce decree which provides him with
unallocated maintenance (alimony and child support) and
dependent deductions for three childen (tripets born in
1980). So from 1983 to 2001, he took the deductions for the
children and wrote off the unallocated maintenance as income
to his ex-wife. This appears to have been kosher.

Problem: In 1985, his ex-wife and the children disappeared.
Support checks were not cashed and by 1986 they were being
returned "address unknown". He has documentation that he
attempted to locate them and a letter from an attorney
advising him to put all of the payments into a trust account
and to continue taking the deductions.

In 2002, he learned that his ex-wife had remarried, moved to
England, and died in 1996. Once in England, his ex put his
daughters up for adoption and his attempts to find them have
been futile. The balance in the trust account is over
$400,000 and it names him as the remainderman if unclaimed
by June 30th, 2005.

I have told him to be prepared to pay taxes on a payout if
he receives it. My concern is whether or not he should file
amended returns for the open years.

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