Federal Taxation Case Facts: Wilma Research Paper

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Even if no actual money changed hands, anything inherited and then sold may have taxable value (Prendergast, 1982; Yin, 2002). Cases such as Crane v. Commissioner (1947) and Commissioner v. Tufts (1983) reaffirm the concept that there are many different kinds of taxable gains and a large number of individuals fail to realize that anything they acquire must be accounted for (Bittker, 1978; Pino-Anderson, 1982). By addressing the different between recourse and nonrecourse debt, those who find themselves in inheritance situations attempt to avoid taxation on the property they acquire because there was debt owed on that property at the time it was bequeathed to them (Cunningham, 1984; Isaac & O'Leary, 2012). The belief is that the object that was inherited is worth only as much as (or appreciably less) than the debt that was owed on it, so there should not be any taxation of that object (Isaac & O'Leary, 2012; Yin, 2002). However, the debt was not acquired by the person who inherited the object, so there is taxable value in the object itself (Yin, 2002).

Conclusion: Since Wilma has already taken title to Bob's house, she is trapped in the sense that she cannot simply walk away with no repercussions. However, if she allows the bank to foreclose on the house the debt will be gone and the house will no longer be hers to deal with. Since she did not make any money off the sale of the house, she will not have any gain realized. If she does not allow the bank to foreclose, but works with the bank to take a settlement on the mortgage instead, she will gain the house but she will also gain the value of the house and have to pay taxes on that value.

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Since the best option (never taking title to the house) is no longer a realistic option, Wilma must do the next best thing and let the bank foreclose on the house so she does not negotiate with the bank to pay off something and then take ownership of the house with a lower mortgage (or no mortgage) owed. That would be a gain realized, and would require taxes to be paid.

Sources Used in Documents:

References

Barris, J. (2008) an expert system for appraisal by the method of comparison. PhD Thesis, UPC, Barcelona

Baum, a., Nunnigton, N., & Mackmin, D. (2011) the Income Approach to Property Valuation (6th Edition). Estates Gazette, London

Bittker, Boris I. (1978). "Tax Shelters, Nonrecourse Debt, and the Crane Case." Tax Law Review 33: 277.

Commissioner v. Tufts, 461 U.S. 300 (1983)


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