tomchand[at]gwi.net wrote:

- quote -

So the contract for sale was entered into shortly before the father
died?

- quote -

This can certainly be legally done. Was the property in probate? If
so did the court divide the property as the heirs indicated?

- quote -

If either a probate court approved the distribution to the sibling
from the original estate, or the donor brother executed a qualified
disclaimer within nine months of the father's death, it will be
considered a gift directly from the father to the sibling, not a gift
from the donor child.

In any case, if the amount recovered was based on what the property
was actually worth when the contract was signed, there was probably
very little capital gain at all. In addition, I believe that all
inheritances of capital assets are always considered long term
capital gain.

Stu

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Taxpayers father died about 5 years ago. Left estate in a bit of a
mess, but heirs (three siblings) were able to pretty much straighten
it out. Here is what I can gather so far from talking to the
taxpayer:

One situation involved a pending sale of a piece of land to a
developer. The heirs felt it was a bargain sale and thought the
developer had taken advantage of their elderly and sickly father by
getting him to agree to sell it for such a low price.

Although only one of the siblings was named by the father to inherit
this particular property, the siblings agreed that the father always
had the intent to divide his estate equally. So, in order to pursue
this matter the siblings formed a partnership, engaged legal council
and proceeded with a suit against the developer.

Heirs prevailed and received a cash payment in 2007.

Taxpayer received a K-1 from the partnership, prepared by a local
bookkeeper, for the amount of the settlement he received, close to
$50,000, as a "short-term capital gain."

He considers that if this was proceeds from inheritance, it should
only br taxable to the extent the value was more than the value of his
share at the time of his father's death. He then considers if his
brother voluntarily gave the share of the proceeds to him out of a
sense of fairness, rather than an obligation, then it is a gift, and
so would not be taxable to him.

This is a tricky question, and doesn't seem to lend itself to a snap
answer. What do you guys think?

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<< ------------------------------------------------------- > << The foregoing was not intended or written to be used, > << nor can it used, for the purpose of avoiding penalties > << that may be imposed upon the taxpayer. > << > << The Charter and the Guidelines for submitting posts > << to this newsgroup as well as our anti-spamming policy > << are at www.asktax.org. > << Copyright (2007) - All rights reserved. > << ------------------------------------------------------- >