Potential Tax Liability

Hi- I am a retired tax attorney in California. I am not currently authorized to practice law in California ,due to non-payment of state bar fees, and for no other reason. Therefore, you should NOT rely upon this advice. I have represented both taxpayers and the I.R.S.for many years, and have also worked as an attorney-advisor to judges of the U.S. Tax Court in Washington, D.C.
 I can make the following general observations. Any federal estate tax would be owed and paid for by the estate itself, not by your friend, There is a minimum estate value that the  estate has to exceed before any estate tax kicks in. I do not know what that amount currently is because I have not checked it in many years, and it does change frequently. $5.4 million sounds about right, however.
  As for  any possible federal income tax liability, your friend most probably does not have any from the audio equipment sales. Your friend's basis in the audio equipment would be the fair market value of the property as of the decedent's death (or the alternate valuation date as determined by the executor). Since, as we Audiogoners know, the value of audio equipment almost always goes DOWN over time, it is extremely unlikely that there would be any capital gains, and hence no federal income taxes due from those sales.
   Hope this helps.  ---Steve
  

"Double jeopardy", which comes from the Fifth Amendment, applies to CRIMINAL prosecutions and punishments only. It has absolutely no relevance to any civil law matter, such as civil tax matters.  All courts throughout U.S. history have always so found.
   Any attempt to apply this concept to a civil tax matter is 100% nonsense.
---Steve

This is getting very repetitive. In the unlikely event that you receive an inquiry from the I.R.S., or a Notice of Audit, you should hire a tax attorney or C.P.A. at that time. Period.

---Steve

cleeds-- If it makes the taxpayer feel better, then he should go ahead and consult someone. But, in my view, there is nothing that should be done in this situation unless and until the taxpayer receives a letter of inquiry or Notice of Audit.
 Less than 1% of all tax returns are actually audited, and the  I.R.S. must complete an audit (and send you a "statutory notice of deficiency") before they can legally make an assessment against you (in excess of the amount you showed as tax due on your return). Until there is an assessment,no collection efforts (such as levying on a bank account or garnishing your wages, for example) can be undertaken.
  If a taxpayer or representative  were to contact the I.R.S. about a filed return first, say to explain a Form 1099, their chances of being audited would only go up, thereby asking for "trouble".
   Also, once a statutory notice of deficiency is issued, the taxpayer has 90 days to file a petition in the Tax Court. Throughout the time the case is pending in court, no collection activities can be taken. Also, the taxpayer will be contacted via letter by a local Appeals Office early in the process, in an attempt to resolve the matter without going to trial.
    I would say to sit tight for now, and in the unlikely event of an audit, hire a tax attorney or C.P.A. at that time. I would also point out that the I.R.S. never contacts taxpayers by telephone, unless they are returning a call from the taxpayer. It just doesn't work that way. Thus, if someone calls you purporting to be from the I.R S., you can be sure that the caller is a fraud, probably trying to get personal information about you.

---Steve

Yes, of course he should timely file the return, and inform his preparer regarding this situation. Either he or his representative will  need to find out  what the fair market value of the electronics/audio equipment claimed on the Estate return  (due 6 months after the date of death ) was. That number will be his basis for purposes of  determining whether there was a capital gain, loss or "wash" from sales of the electronics (most probably a loss or a wash).



"It is much easier to be critical than to be correct."
                                                --Benjamin Disraeli

                                                                                         
                                                                                                            'Bye all
                                                                                                         ---Steve