Tax Court In Brief | Richard J. O'Neill Trust v. Comm'r | Application For Tentative Refund, Claim Of Right, Mitigation, And Equitable Recoupment

Published date01 November 2022
Subject MatterTax, Income Tax, Capital Gains Tax
Law FirmFreeman Law
AuthorFreeman Law

The Tax Court in Brief - October 24th - October 28th, 2022

Freeman Law's "The Tax Court in Brief" covers every substantive Tax Court opinion, providing a weekly brief of its decisions in clear, concise prose.

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Tax Litigation: The Week of October 24th, 2022, through October 28th, 2022

  • Manzolillo v. Comm'r, T.C. Memo 2022-107 | October 24, 2022 | Kerrigan, J. | Dkt. No 25481-16

Richard J. O'Neill Trust v. Comm'r, T.C. Memo. 2022-108 | October 27, 2022 | Kerrigan, J. | Dkt. No. 20840-17

Summary: The Richard J. O'Neill Trust ("trust") was established as a revocable trust, but it became an irrevocable trust upon the death of decedent, its creator. At the time of his death, the trust held an 86.12% ownership interest in RMV Total Diversification, LLC (RMV). RMV is a limited liability company and is a partnership pursuant to the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA). (TEFRA was repealed for returns filed for partnership tax years beginning after December 31, 2017.) RMV sold capital gain assets during 2009 and 2010, which resulted in flowthrough income to the trust. The trust reported this income on its Forms 1041, U.S. Income Tax Return for Estates and Trusts, for 2009 and 2010. Following decedent's death, his estate borrowed money from RMV and was charged a 9% interest rate. The interest paid to RMV by the estate resulted in flowthrough income for the trust, which the trust reported as income.

The estate timely filed Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. The IRS proposed adjustments, the estate objected and filed a petition with the U.S. Tax Court, a settlement was reached, and a decision was entered in Estate of Richard J. O'Neill, Deceased, Anthony R. Moiso, Executor v. Commissioner, Docket No. 19822-13 (related case). This decision resulted in two adjustments relevant to this case: (1) the value of the estate's interest in RMV was adjusted from $30,725,000 to $40,614,822 under 26 U.S.C. ' 2036 and (2) the estate was limited to a deduction of 6% on the note. The note was rewritten, resulting in a $500,538 reduction of accrued interest to the trust for 2010. In 2015 the trust filed a timely tentative claim for refund on Form 1045, Application for Tentative Refund for the 2014 tax year under a claim of right theory. The tentative claim for refund was to recover an...

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