Other (Alternative Minimum Tax, Estates, Trusts, Tax Shelters, State Tax Inquiries) (2004 IRS FAQ)

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IRS FAQ 16. Other (Alternative Minimum Tax, Estates, Trusts, Tax Shelters, State Tax Inquiries):

How do I deduct the administration expenses of my father's estate?

Expenses of administering an estate can be deducted either from the gross estate in figuring the federal estate tax on Form 706 (PDF), United States Estate (and Generation-Skipping Transfer) Tax Return, or from the estate's gross income in figuring the estate's income tax on Form 1041 (PDF), U.S. Income Tax Return for Estates and Trusts. However, these expenses cannot be claimed for both estate tax and income tax purposes. The expenses incurred In the sale of property are deductible from the gross estate only if the sale was necessary to pay decedent debts, or to preserve or distribute the property of the estate.

For more information, refer to Publication 559, Survivors, Executors, and Administrators, designed to help those in charge of the property (estate) of an individual who has died. Also, refer to Publication 950, Introduction to Estate and Gift Taxes.

In general, administration expenses deductible in figuring the estate tax include: fees paid to the fiduciary for administering the estate; attorney, accountant, and return preparer fees; expenses incurred for the management, conservation, or maintenance of property; expenses in connection with the determination, collection, or refund of the estate's tax liability.

For additional information on this subject see Estates.

  • Publication 559, Survivors, Executors, and Administrators
  • Publication 950, Introduction to Estate and Gift Taxes
  • Form 706 (PDF), United States Estate (and Generation-Skipping Transfer) Tax Return
  • Form 1041 (PDF), U.S. Income Tax Return for Estates and Trusts

I am considering a tax shelter investment. How can I recognize an abusive tax shelter?

Tax shelters reduce current tax liability by offsetting income from one source with losses from another source. The IRS allows some tax shelters, but will not allow a shelter which is "abusive." An abusive shelter generally offers inflated tax savings which are disproportionately greater than your actual investment placed at risk. Generally, you invest money to generate income. However, an abusive tax shelter generates little or no income, and exists solely to reduce taxes unreasonably for tax avoidance or evasion. In comparison, a legitimate tax shelter often produces income and involves a risk of loss proportionate to the expected tax benefit. Abusive tax shelters are often marketed in terms of how much you can write off in relation to how much you invest. This "write off" ratio is often much greater than two-to-one as of the close of any of the first five year ending after the date on which the investment is offered for sale. A series of tax laws have been designed to halt abusive tax shelters. An organizer of a potentially abusing tax shelter who doesn't maintain a list of investors is subject to penalty of $50 per failure, per person, unless due to a reasonable cause and not willful neglect.

Any person participating in the sale or organization of an abusive tax shelter may be penalized up to the lesser of $1,000 or 100% of the Gross Income derived or to be derived from the activity.

For additional information, refer to Tax Shelters, Tax Shelters .


The IRS corrected my return and sent me an additional refund. Does this mean I am also entitled to an additional refund on my state tax return?

Whether you are entitled to an additional state tax refund depends on the nature of the change which was made to your federal return. For example, if on your federal tax return, you used the wrong line on the tax tables to figure your tax, this may not have an impact on your state tax return. However, if the change was made to the amount of your taxable income on your federal return, it may have an impact on your state tax return. Contact your state tax office for additional information. It is helpful to have a copy of your tax returns (federal and state) and a copy of the IRS notice when you call.

To access the state you need to direct your question to, please go to our Alphabetical State Index.


Source: IRS.gov

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