Bob Adler Quoted on $3.2 Million Tax Win for Client

Bob Adler was quoted in Law360 Tax Authority (subscription required) on his victory for his client—the estate of Joseph A. Wilson—in a $3.2 million tax dispute with the Internal Revenue Service (IRS). In the matter, a New York Federal Court ruled that the IRS must return the entire $3.2 million penalty that was assessed for untimely reporting distributions from a foreign trust because the IRS imposed the wrong penalty under the tax code. The IRS had imposed a 35% penalty on the $9,203,381 transferred to Wilson’s accounts in the U.S. at the time the trust was terminated.

The Court ruled that the IRS should have imposed a 5% penalty on the estate under IRS revenue code section 6048(b), which applies to owners who fail to report a foreign grantor trust distribution in a timely manner, rather than the 35% penalty under Section 6048(c), which applies to beneficiaries. The Court proceeded to hold that, pursuant to the tax statute, the 5% penalty must be applied to the year-end bank account balances of the trust. However, since all of the trust’s funds were transferred back to the U.S. prior to year- end, there was no penalty—thus entitling Wilson to a full refund.

Commenting on the matter, Bob said “he was thrilled with the opinion” and added that it was a “huge victory…No court until today had ever ruled as to which penalty applies—35% or 5%—when the owner is the same person as the beneficiary.” For years, the IRS had doggedly asserted that since Wilson was the beneficiary, the penalty had to be 35% and no less. The case was also featured in the Bloomberg Tax Daily Tax Report.