Rev. date: 12/21/2012
Taxpayers can minimize their tax liability through legitimate investment, but they cannot invest in abusive tax avoidance transactions to minimize or eliminate their tax liability. Abusive tax avoidance transactions reduce current tax liability by offsetting income from one source with losses or deductions from another source. An abusive tax avoidance
transaction:
- Offers inflated tax savings which are disproportionately greater than your actual investment placed at risk. Generally, an abusive tax avoidance transaction generates little or no income or capital
appreciation.
- Is a transaction in which a significant purpose is the avoidance or evasion of federal income taxes. In comparison, a legitimate investment produces income or capital appreciation and involves a risk of loss proportionate to the investment. Additionally, a legitimate investment has a business purpose other than the reduction of
taxes.
- Is often marketed in terms of how much you can reduce your tax liability.
- The American Jobs Creation Act of 2004, which contains many provisions that will affect abusive tax avoidance
transactions.
-
Notice 2009-59
which contains a list of 34 transactions which have been identified as listed
transactions. Listed transactions are abusive tax avoidance transactions.
-
Notice 2009-55
which contains a list of 4 transactions which have been identified as
transactions of interest. A transaction of interest is a transaction that
the IRS and Treasury Department believe has a potential for tax avoidance or
evasion, but for which the IRS and Treasury Department lack enough information
to determine whether the transaction should be identified specifically as a tax
avoidance transaction.
Rev. date: 12/21/2012
Whether you are entitled to an additional state tax refund depends on the change that was made to your federal return. For example, if you used the wrong line on the tax tables to figure your tax on your federal tax return, this may not have an impact on your state tax return. If, however, the change was made to the amount of your taxable income, 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 contact the tax office for your state, please go to
State Links on IRS.gov.
Rev. date: 12/21/2012
The expenses incurred by an estate for its administration can either be deducted as an expense against the estate and generation-skipping transfer (GST) tax or the annual income tax against the
estate.
- You may deduct the expense from the gross estate in figuring the federal estate tax on
Form 706 (PDF),
United States Estate (and Generation-Skipping Transfer) Tax
Return, or
- You may deduct the expense 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.
- In most cases this rule also applies to expenses incurred in the sales of property by 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.
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