Recent Developments

■ Bad Bad Sinbad! Comedian Sinbad Liable
for Unpaid Taxes: The IRS
can seize assets held by a third party to satisfy a taxpayer’s tax debt if the
third party is an alter ego or nominee of the taxpayer. For example, a
California District Court recently found that comedian Sinbad Adkins (aka David
Adkins) had unpaid income tax liabilities exceeding $8 million (including
interest, penalties, fees, and collection costs) for tax years 1998–2006. It
also found that Michael Adkins held bare legal title to real property in Hidden Hills, California
as nominee for Sinbad. The court held that a lien for Sinbad Adkins’ unpaid tax
liabilities attached to the property as of the dates of assessment. It then
allocated proceeds of a future sale of the property to various parties (which
may explain why the IRS filed suit instead of exercising its administrative
lien and levy collection powers), including the mortgage holder, the IRS and California Franchise
Board, and the local homeowner’s association. U.S. v. Adkins , 106 AFTR 2d
2010-XXXX (D.C. Cent. Cal.).

■ Estate Tax—Executor’s Reliance on
Adviser: Sometimes
taxpayers can blame a bad adviser (but wouldn’t it just be easier to start with
a capable professional in the first place?). Decedent’s estate conceded it owed
a $380,514 estate tax deficiency, but argued that it was not liable for a
$76,103 Section 6662 accuracy-related penalty for negligence or disregard of
rules or regulations. In waiving the penalty because the estate’s executor
acted with reasonable cause and good faith in relying on the Form 706 preparer,
the Tax Court found that the executor (1) was unsophisticated in tax matters;
(2) believed that the preparer was competent in estate planning because his
business card included the words “Estate Planning,” and he was an
enrolled agent who knew how to file “every return the IRS has;” and
(3) provided the preparer with “all relevant financial data in his
possession needed to determine the correct amount of estate tax.” Estate
of Ralph Robinson , TC Memo 2010-168 (Tax
Ct.).

■ Estate
Tax—Beneficiaries Liable as Transferees: Don’t think estate taxes are only the
executor’s headache.  The IRS determined
that Carl and Bruce Upchurch were liable under Code Section 6901(a) for a
$46,758 estate tax deficiency plus interest as transferees of the assets of the
Estate of Judith Upchurch. After holding that the two were liable as
transferees of estate property under state (Illinois) equity principles, the Tax Court
found that they were individually liable up to the value of the property transferred
to each of them. This equaled the full amount of their settlement payments
($53,500 each) without reduction for the $17,833 each paid to his attorney.
Carl Upchurch , TC Memo 2010-169 (Tax
Ct.).