[an error occurred while processing this directive] [an error occurred while processing this directive] March 2001   [an error occurred while processing this directive] [an error occurred while processing this directive]   Divorce and property settlement
  Payment from insurance co. demutualization
  Placing a home in an irrevocable trust
  Estate taxes re: joint tenancy brokerage account
  Choices for paying delinquent taxes.
[an error occurred while processing this directive] [an error occurred while processing this directive] [an error occurred while processing this directive] I have two questions related to my divorce last October, 2000.  I kept our house and paid my ex-wife approximately 1/2 of the equity to split the marital assets in half.  In addition to splitting the assets, I agreed to pay her a lump sum of $X,000.    1)  Can the $X,000 be considered as an alimony payment, or can I receive any tax benefit from this payment?  2)  To pay my X-wife 1/2 of the equity, I obtained a new mortgage in my name alone (instead of both our names) to get the required cash.  Are the points I paid fully deductible this tax year (tax year 2000)? [an error occurred while processing this directive] A property settlement is not considered alimony so it is non-deductible.  Usually, points are deductible with the purchase of a residence.  In your case, you refinanced your home as part of a property settlement, so the points would not be deductible.  In Fox v. Cm., 223 a taxpayer borrowed against his residence to buy his ex-spouse’s interest. The Tax Court held such a refinancing could not be deductible as points under §461(g)(2).  However, the 8th Circuit Court of Appeals allowed points to be deduction in connection with refinancing, but IRS will not follow that decision in the other circuits. [an error occurred while processing this directive] [an error occurred while processing this directive] I received a 1099-B for a MetLife Membership/Reorganization.  It was a reported sale and payment made in exchange for all of the Policyholders' Membership Interests of such policyholder(s).  I received a check that represented payment to the policyholder(s) for compensation in connection with the demutualization of MetLife and is made pursuant to a Plan of Reorganization.  I understand this income is taxable, however, I am unsure as to how to figure my cost basis? [an error occurred while processing this directive] In effect, you sold your ownership interest and received cash.  You should be entitled to capital gains treatment, but you will need to establish your adjusted basis, if any, in your equity interest.  In Fort Howard Corp. v. U.S., 286, the court stated that the demutualization transaction is a capital transaction involving cash or the value of stock distributed by an insurance company to its policyholders in redemption of their equity interests in the company. [an error occurred while processing this directive] [an error occurred while processing this directive] My mother who is 76 years has been advised to put her home in an irrevocable trust. Her house has a value of 150,000 and her only other asset is around 40,000. Do you think this is a good idea? [an error occurred while processing this directive] Probably not. It depends on the gift tax consequences of the transfer and whether the home has appreciated in value.  If the purpose is to place assets beyond the reach of Medicare, then you must be extremely careful, since defrauding Medicare by transferring assets outside the control of a Medicare recipient can be a crime. The downside to transferring appreciated property by gift to an irrevocable trust during your mother’s life is that the appreciation will be taxed when the property is sold.   If the property was part of your mother’s estate, the appreciation disappears at death and a later sale of the property will be taxed only to the extent the property appreciated after the date of your mother’s death.  Also, your mother has a $675,000 exemption against federal estate tax, so there may not be will be estate taxes owing on her death. [an error occurred while processing this directive] The Tax Prophet's Section on Estate Planning [an error occurred while processing this directive] [an error occurred while processing this directive] [an error occurred while processing this directive] [an error occurred while processing this directive] If I open a money market account at a brokerage firm and have my daughter added to the account as joint tenant with rights of survivorship will she have to pay estate taxes on the whole amount? Will this account be tied up in probate? [an error occurred while processing this directive] Yes it will be taxed, except to the extent your daughter contributed to the account.  For instance, if you put $900 in the account and your daughter put in $100 (and has the evidence to prove her contribution), then 90% of the account will be part of your estate for estate tax purposes.  Jointly-held property, whether a bank account, real estate or an interest in a security, avoids probate.  Note:  Placing your daughter on your account as a joint tenant is not considered a gift until she actually draws out money.  However, in many states, changing title to real property to joint tenancy constitutes an immediate gift of 50% of the property. [an error occurred while processing this directive] The Tax Prophet's Tax-Class Section on Estate Planning [an error occurred while processing this directive] [an error occurred while processing this directive] [an error occurred while processing this directive] [an error occurred while processing this directive] I owe about $29K in federal and $14K in state taxes for the year 2000 as a result of capital gains incurred during the early months of 2000. I have about $30 K in a Roth IRA account which I do not want to touch.  I can monthly $1,000 payments to IRS and $500 to the State Tax Agency including interest. Would it be preferable to use my Roth IRA account to pay the taxes?   [an error occurred while processing this directive] First, make sure you really owe the taxes and then enter into an installment arrangement for the tax payments.  The state tax amount sounds too high (generally there is a 4-to-1 ratio between federal and state taxes).  By all means, avoid the liquidation of your Roth IRA.  In addition to the Roth’s superior investment features, an early termination will cost you ordinary income plus a 10% penalty. Most tax authorities will permit you to enter into an installment arrangement, provided the full amount of taxes, penalties and interest are paid within 2-3 years. [an error occurred while processing this directive] The Tax Prophet's Tax-Class Section on Tax Audit and Collection Issues [an error occurred while processing this directive] [an error occurred while processing this directive] [an error occurred while processing this directive]