MISC estate & abusive tax avoidance transactions

Taxpayers can minimize their tax liability through legitimate investments, but they cannot invest in abusive tax avoidance transactions to minimize or eliminate their tax liability. An abusive tax avoidance transaction:

• Offers inflated tax savings that are disproportionately greater than the 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.  

Investigate your investment to discover if it is an abusive tax avoidance transaction. Current information on our website covering abusive tax avoidance transactions includes:

• The American Jobs Creation Act of 2004, which contains many provisions that will affect abusive tax avoidance transactions.
• Notice 2009-59PDF, which contains a list of transactions that the IRS had identified as listed transactions as of 2009. Listed transactions are abusive tax avoidance transactions. The most up-to-date list of all listed transactions can be found at Recognized Abusive and Listed Transactions.
• Notice 2009-55PDF, which contains a list of 4 transactions that the IRS had identified as transactions of interest as of 2009. A transaction of interest is a transaction that the IRS and Treasury Department believe has a potential for tax avoidance or evasion, but about which the IRS and Treasury Department lack enough information to determine that the transaction is inherently a tax avoidance transaction. The most up-to-date list of all transactions of interest can be found at Transactions of Interest.

You can deduct the expenses incurred by an estate for its administration either as an expense against the estate tax or against the annual income tax of the estate.

• You may deduct the expense from the gross estate in figuring the federal estate tax on Form 706, 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, U.S. Income Tax Return for Estates and Trusts.
• However, you cannot claim these expenses for both estate tax and income tax purposes.
• In most cases, these rules also apply to expenses incurred in the sale of property by the estate. For more information, refer to Publication 559, Survivors, Executors, and Administrators. It is designed to help those in charge (e.g., an executor or administrator) of the property (estate) of an individual who has died.

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.

• Instructions for Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return
• Instructions for Form 1041 and Schedules A, B, G, J, and K-1